<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998.
REGISTRATION NO. 333-61527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1.
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
G.I. JOE'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OREGON 5940 93-0500948
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
NORMAN P. DANIELS
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF THE BOARD
G.I. JOE'S, INC.
9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
PATRICK J. SIMPSON TODD A. BAUMAN
DAVID S. MATHESON STOEL RIVES LLP
PERKINS COIE LLP 900 SW FIFTH AVENUE, SUITE 2300
1211 SW FIFTH AVENUE, 15TH FLOOR PORTLAND, OREGON 97204
PORTLAND, OREGON 97204 (503) 224-3380
(503) 727-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 12, 1998
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
The 2,500,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") are being sold by G.I. Joe's, Inc. ("G.I. Joe's" or the
"Company"). Prior to the Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
per share will be between $9.00 and $11.00. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "GIJO."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------
Per Share...................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------
Total(4)....................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In connection with the Offering, the Underwriters may reserve up to 125,000
shares of Common Stock for sale at the initial public offering price to
persons associated with the Company.
(2) In addition, the Company has agreed to sell to each of Black & Company, Inc.
and Cruttenden Roth Incorporated, as representatives for the Underwriters,
for nominal consideration, warrants to purchase an aggregate of 250,000
shares of Common Stock at an exercise price equal to 120% of the Price to
Public. The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $700,000. The
Company intends to use approximately $8.5 million of the net proceeds from
the Offering to redeem all of the Company's outstanding Series A 9%
Non-Voting Redeemable Preferred Stock. Peregrine Capital, Inc.
("Peregrine"), an affiliate of the Company will be paid an aggregate of
$ upon such redemption of shares they hold. If the Offering is not
completed prior to May 8, 1999, holders of the Company's preferred stock may
require Peregrine to purchase their shares. See "Use of Proceeds" and "The
Reorganization."
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to certain other conditions. The Underwriters reserve the right to
reject any order in whole or in part and to withdraw, cancel or modify the
Offering without notice. It is expected that delivery of the certificates
representing the shares will be made in New York, New York on or about
, 1998.
------------------------
BLACK & COMPANY, INC.CCRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1998.
<PAGE> 3
[PICTURE]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITY,
AND THE IMPOSITION OF PENALTY BIDS. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information found elsewhere in this Prospectus. It
is not complete and may not contain all of the information prospective
purchasers should consider before investing in the Common Stock. Prospective
purchasers should read the entire Prospectus carefully, including the "Risk
Factors" section and the financial statements and the notes to those statements.
Except as otherwise noted, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) assumes no exercise of
the Orkney Warrant (as defined below), (iii) gives effect to the redemption of
the Company's Series A 9% Non-Voting Redeemable Preferred Stock to be effected
with a portion of the proceeds from the Offering and (iv) gives retroactive
effect to a 2.5567-for-1 split of the Common Stock effected in July 1998. See
"Underwriting" and "Use of Proceeds."
"G.I. Joe's" is among the Company's trademarks. This Prospectus includes
other trademarks and trade names of the Company and of other companies.
RISK FACTORS
Prospective purchasers of the Common Stock should consider all of the
information contained in this Prospectus before making an investment in the
Common Stock. The Company's business, financial condition and results of
operations are subject to various risks, including risks related to the
Company's ability to implement its business and growth and expansion strategies
and manage growth, including the integration of any acquired businesses,
competition in the markets in which the Company operates, seasonality and
fluctuations in the Company's periodic operating results, the effects of weather
on the Company's sales, fluctuations in comparable store sales, and changing
economic conditions and consumer preferences. Prospective purchasers should
consider these and other factors set forth in the "Risk Factors" section of this
Prospectus.
THE COMPANY
OVERVIEW
G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently opened and remodeled stores. For the fiscal year ended
January 31, 1998, the Company's new and remodeled stores generated average
annual sales of approximately $9.9 million, compared to approximately $8.6
million for the Company's other stores. In fiscal 1998, new and remodeled stores
achieved average sales per selling square foot of $213, compared to $193 for
other stores. Average annual per store contribution (i.e., average per store
gross margin less average per store expenses) in fiscal 1998 was approximately
$1.6 million for new and remodeled stores and $1.3 million for other stores. The
Company has opened two new stores and remodeled four existing stores over the
past four fiscal years using its updated store concept.
Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and footwear and
(iii) automotive aftermarket parts and accessories. The Company's net sales of
$128.2 million in fiscal 1998 were derived 39% from the sale of sporting goods,
27% from the sale of outdoor apparel and footwear, 21% from the sale of
automotive parts and accessories and 13% from the sale of other assorted
products.
3
<PAGE> 5
G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining its internal systems,
distribution system and training programs and undertaking selective management
additions, all of which created a solid foundation to support future expansion.
In May 1998, Mr. Daniels acquired majority ownership of the Company and the
Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."
BUSINESS AND GROWTH AND EXPANSION STRATEGIES
The Company's business strategy is based on the following key competitive
strengths:
- Unique merchandise mix consisting of full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and
accessories, which has led to substantial cross-shopping by
customers.
- Proven store design concept and remodeling strategy, which has
significantly increased same-store sales and sales per square foot.
- Leading position in and focus on the Pacific Northwest, which has
increased the Company's buying power and economies of scale.
- Competitively priced quality merchandise as a result of favorable
pricing from vendors and internal efficiencies.
- Superior customer service, which the Company believes differentiates
it from mass merchandisers and other large format sporting goods and
automotive parts and accessories retailers.
- Enhanced margins as a result of increased sales of higher margin
merchandise, vendor concept stores and increased direct imports and
buying power.
- Significant management ownership of and experience with the Company.
G.I. Joe's intends to expand its business by implementing a growth and
expansion strategy that includes the following key features:
- Remodeling 10 existing stores over the next four years to increase
same-store sales and sales per square foot.
- Opening eight new stores in the Pacific Northwest, primarily in
Washington, over the next four years.
- Pursuing strategic acquisitions in portions of Montana, Idaho, Utah,
Nevada and Northern California that have consumer demographics and
seasonal outdoor activity patterns similar to those of the Pacific
Northwest.
- Further developing alternative channels of distribution, primarily
mail order catalog and Internet-based retail channels.
- Examining opportunities for national expansion and vertical
integration.
------------------------
The Company was founded in 1952 and incorporated under Oregon law in 1961.
The Company's executive offices are located at 9805 SW Boeckman Road,
Wilsonville, OR 97070, and its telephone number is (503) 682-2242.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby.................. 2,500,000 shares
Common Stock to be outstanding after the 8,500,000 shares(1)
Offering...................................
Use of proceeds.............................. To redeem all of the Company's outstanding
Series A 9% Non-Voting Redeemable Preferred
Stock, to complete the remodeling of the
Company's stores, to open new stores,
potentially to acquire other complementary
businesses and for working capital and
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... GIJO
</TABLE>
- ---------------
(1) Based on shares outstanding as of July 31, 1998. Excludes (i) 69,033 shares
issuable upon exercise of outstanding stock options, with a weighted average
exercise price of $1.90 per share, (ii) 730,967 shares reserved for future
grants under the Company's 1998 Stock Incentive Compensation Plan, (iii)
shares issuable in connection with the Company's acquisition of Timberline
Direct and (iv) 451,002 shares issuable upon the closing of the Offering
pursuant to the exercise of a warrant granted to David Orkney, a Director
and the former majority shareholder of the Company (the "Orkney Warrant"),
which is exercisable for a number of shares equal to 5% of the Company's
Common Stock outstanding, on a fully-diluted basis, on the date of exercise
at an exercise price equal to 70% of the fair market value of the Common
Stock on the exercise date. If the Orkney Warrant is exercised prior to the
closing of the Offering, it will be exercisable for approximately 319,423
shares of Common Stock. See "Management -- Retirement and Certain Other
Benefit Plans," "Management -- Timberline Direct Acquisition; Employment
Agreements" and "Description of Capital Stock -- Warrants and Stock
Options."
5
<PAGE> 7
SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
PREDECESSOR(1) PRO FORMA(2) PREDECESSOR(1)
---------------------------------------------------- ------------ -------------------------
FISCAL YEAR THREE MONTHS
FISCAL YEARS ENDED JANUARY 31, ENDED ENDED APRIL 30,
---------------------------------------------------- JAN. 31, -------------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- -------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $136,629 $127,008 $124,052 $128,112 $128,238 $128,238 $24,013 $25,908
Gross margin......... 41,631 41,742 41,706 43,928 43,686 43,686 7,588 8,238
Selling, general and
administrative
expense............. 39,574 36,598 37,154 37,976 39,528 42,671 8,717 9,755
Income (loss) from
operations.......... 2,057 5,144 4,552 5,952 4,158 1,015 (1,129) (1,517)
Extraordinary item:
loss on early
extinguishment of
debt................ -- -- -- -- -- -- -- (2,220)
Net income (loss).... $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176) $(1,951) $(4,059)
Income (loss) per
share before
extraordinary
item(3):
-- Basic............ $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32) $(0.48) $(0.45)
-- Diluted.......... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32) $(0.48) $(0.45)
Net income (loss) per
share(3):
- -- Basic............. $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32) $(0.48) $(1.00)
- -- Diluted........... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32) $(0.48) $(1.00)
Weighted average
shares outstanding,
as adjusted(3):
- -- Basic............. 4,107 4,097 4,076 4,065 4,053 6,000 4,053 4,053
- -- Diluted........... 4,107 4,171 4,311 4,508 4,625 6,000 4,053 4,053
SELECTED OPERATING
DATA:
Number of stores open
for full period..... 14 14 14 14 14 14 14 15
Number of remodeled
stores open for full
period.............. -- -- 2 3 3 3 3 4
Gross margin as a
percentage of
sales............... 30.5% 32.9% 33.6% 34.3% 34.1% 34.1% 31.6% 31.8%
Store
contribution(4)..... $1,436 $1,373 $1,321 $1,351 $1,417 $1,192 $154 $195
Total comparable
store net sales
increase
(decrease)(5)....... (1.7)% (7.0)% (2.3)% 3.3% (1.8)% (1.8)% (5.6)% 3.0%
Remodeled same store
net sales
increase(6)......... -- -- 1.6% 14.6% -- -- -- 24.0%
<CAPTION>
G.I. JOE'S, INC. PRO FORMA(2)
---------------- ------------
TWO MONTHS FIVE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1998
---------------- ------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $23,461 $49,369
Gross margin......... 7,950 16,188
Selling, general and
administrative
expense............. 7,264 17,804
Income (loss) from
operations.......... 686 (1,616)
Extraordinary item:
loss on early
extinguishment of
debt................ -- --
Net income (loss).... $ 50 $(1,449)
Income (loss) per
share before
extraordinary
item(3):
-- Basic............ $(0.01) $(0.29)
-- Diluted.......... $(0.01) $(0.29)
Net income (loss) per
share(3):
- -- Basic............. $(0.01) $(0.29)
- -- Diluted........... $(0.01) $(0.29)
Weighted average
shares outstanding,
as adjusted(3):
- -- Basic............. 6,000 6,000
- -- Diluted........... 6,000 6,000
SELECTED OPERATING
DATA:
Number of stores open
for full period..... 15 15
Number of remodeled
stores open for full
period.............. 4 4
Gross margin as a
percentage of
sales............... 33.9% 32.8%
Store
contribution(4)..... $237 $380
Total comparable
store net sales
increase
(decrease)(5)....... (2.3)% 0.7%
Remodeled same store
net sales
increase(6)......... 27.2% 25.5%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------
ACTUAL(3) AS ADJUSTED(7)
--------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $18,243 $32,293
Inventories................................................. 41,687 41,687
Total assets................................................ 72,116 86,166
Total liabilities........................................... 59,977 59,977
Total shareholders' equity.................................. 12,139 26,189
</TABLE>
(Footnotes on following page)
6
<PAGE> 8
(1) Effective May 1, 1998, the Company underwent a reorganization pursuant to
which Norman Daniels, the Company's current Chairman of the Board, President
and Chief Executive Officer, acquired a majority interest in ND Holdings,
Inc., an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").
(2) The pro forma statement of operations data for the fiscal year ended January
31, 1998 and the five-month period ended June 30, 1998 give effect to the
Reorganization as if it had occurred as of February 1, 1997 and February 1,
1998, respectively. Prior to the Reorganization, the Company was an S
corporation and, accordingly, was not subject to federal and state income
taxes during the periods indicated, other than during the two-month period
ended June 30, 1998. As of May 1, 1998, the Company was converted to a C
corporation and is now subject to federal and applicable state income
taxation. See "Dividend Policy and Prior S Corporation Status" and Note 1 to
Financial Statements.
(3) The per share statement of operations data for the two-month period ending
June 30, 1998 and the pro forma per share statement of operations data for
the fiscal year ended January 31, 1998 and the five-month period ended June
30, 1998 give effect to the issuance of 5,948,302 shares of the Company's
Common Stock in the Merger as if it had occurred at the beginning of such
periods. See "The Reorganization."
(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.
(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.
(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.
(7) Adjusted to reflect (i) the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $10.00 per share (the
mid-point of the range set forth on the cover page of this Prospectus) and
(ii) the application of the net proceeds from such transaction.
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Certain statements under the captions "Prospectus Summary," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as statements made in the
following "Risk Factors" and elsewhere in this Prospectus, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, such as the risk factors set
forth below and elsewhere in this Prospectus, that may cause actual results to
be materially different from those projected in the forward-looking statements.
In addition to the other information contained in this Prospectus, the following
factors should be considered carefully by potential purchasers in evaluating an
investment in the Company's Common Stock offered hereby.
ABILITY TO IMPLEMENT BUSINESS AND GROWTH AND EXPANSION STRATEGIES AND MANAGE
GROWTH
Principal components of the Company's business and growth and expansion
strategies are to increase sales and income from operations in the Company's
existing markets, to complete the remodeling of the Company's stores, to open
new stores, primarily in Washington, to enter new geographic markets through the
acquisition of complementary businesses or internal growth, to further develop
the Company's channels of distribution by means of internal growth or
acquisitions and to examine opportunities for national expansion and vertical
integration. The Company's future growth will depend upon a number of factors,
both within and outside of the Company's control, including: the identification
of new geographic markets in which the Company can successfully compete; the
identification and lease or acquisition on favorable terms of suitable new store
sites; the identification and acquisition on favorable terms of complementary
businesses; the receipt of any required governmental authorizations for proposed
development or expansion; the construction cost of and build-out time required
for new stores; the remodeling of certain existing stores without undue delay,
expense or disruption of operations; results of operations for new and remodeled
stores; the acceptance by potential customers of the Company's expansion into
new markets; and the Company's ability to obtain required financing on favorable
terms. Management estimates that the capital cost of new and remodeled stores
will be approximately $1.3 million per store, and that each new store will
require approximately $2.1 million for inventory and approximately $150,000 in
pre-opening and promotional expenses. Actual costs to remodel or to construct
and open stores may substantially exceed such amounts. The Company has opened
only two stores since 1991. The Company has remodeled only four stores using its
updated store concept, and only two stores since 1994. Consequently, the Company
has a limited history of opening, remodeling and operating new and remodeled
stores. The results achieved to date by the Company's remodeled stores,
particularly the two stores remodeled since 1994, may not be indicative of
results that will be achieved from stores remodeled as part of the Company's
growth and expansion strategy. In addition, the results achieved by the Company
to date in Oregon, particularly in the Portland metropolitan area, may not be
indicative of its prospects in or its ability to penetrate new geographic
markets, many of which may have different competitive conditions and demographic
characteristics than the Company's current markets. See "Business -- Business
Strategy" and "Business -- Growth and Expansion Strategy." The Company may not
be able to successfully expand its operations or to operate remodeled or new
stores or acquired businesses on a profitable basis.
As the Company expands its operations, it will experience growth in the
number of its employees, the scope of its distribution, operating and financial
systems and the geographic area of its operations. This growth will increase the
operating complexity of the Company and the level of responsibility of existing
and new management personnel. As the Company grows, it may not be able to hire,
train and retain qualified management and employees. In addition, the Company's
current distribution, operating, and financial systems and controls may become
inadequate, and failure by the Company to expand, supplement or improve such
systems and controls adequately and in a timely and cost effective manner could
have an adverse impact on the Company's business, financial condition and
results of operations. Management estimates that the Company's existing
distribution center can accommodate at least five additional stores in the
Pacific Northwest without material modification or increased expense. The
Company may not be able to successfully
8
<PAGE> 10
integrate new stores into its existing operating and financial systems. Any
failure to manage growth effectively could have a material adverse effect on the
Company's business, financial condition and results of operations.
LIMITED EXPERIENCE WITH ACQUISITIONS
As part of its growth and expansion strategy, the Company expects to
acquire complementary businesses. To date, the Company has grown primarily by
means of internal growth and has limited experience with completing and
integrating acquisitions. The Company has no current understandings or
agreements regarding potential acquisitions. Any acquisitions would involve
risks commonly encountered in acquisitions of companies, such as the difficulty
of assimilating the operations and personnel of the acquired companies into the
Company's existing structure, the potential disruption of the Company's ongoing
business, diversion of management time and resources, increases in
administrative costs, potential loss of key employees of acquired companies and
additional costs associated with debt or equity financing of any such
acquisitions. The failure to integrate any acquired businesses effectively could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, future acquisitions may require
additional financing. Such financing may involve public or private offerings of
debt or equity securities, and may include bank debt. Debt financing may
increase the Company's leveraged position, require the Company to devote
significant cash to service debt and limit funds available for working capital,
capital expenditures, acquisitions and general corporate purposes, all of which
could increase the Company's vulnerability to adverse economic and industry
conditions and competitive pressures. Equity financing may cause additional
dilution to purchasers of the Common Stock in the Offering. The Company has no
commitments for, and may not be able to obtain, any such financing. In addition,
restrictions contained in the Company's existing revolving line of credit
facility limit the Company's ability to obtain additional bank or similar
financing. Any inability to obtain required financing when needed on terms
favorable to the Company could have a material adverse effect on the Company's
ability to implement its growth and expansion strategy and on the Company's
business, financial condition and results of operations. The Company may not be
successful in overcoming these risks or any other problems encountered in
connection with potential acquisitions. See "Business -- Growth and Expansion
Strategy."
COMPETITION
The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets, the Company
faces significant competition from national, regional and local retailers,
including mass merchandisers, as well as from manufacturers' own retail stores
(such as stores owned and operated by Nike, Inc.). Within the automotive parts
and accessories markets, the Company faces significant competition from
national, regional and local retailers. These and other competitors pose
significant challenges to the Company's market share in its existing markets and
will make it more difficult for the Company to succeed in new markets. Many of
the Company's competitors have substantially greater financial, distribution,
marketing and other resources and have achieved greater name recognition than
the Company. Increased competition by existing and future competitors could
result in reductions in the Company's sales or margins. The Company may not be
able to compete successfully against present or future competitors and
competitive pressures faced by the Company may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."
SEASONALITY AND FLUCTUATIONS IN PERIODIC OPERATING RESULTS
The Company's results of operations have fluctuated and likely will
continue to fluctuate significantly from period to period. The Company's
seasonal sporting goods merchandise mix is weighted substantially toward the
summer and winter seasons. Consequently, the Company's results of operations for
the quarters ending July 31 and January 31 have in the past been much stronger
than results for the other two quarters. The Company has historically incurred
net losses in the quarters ending April 30 and achieved limited net income or
incurred net losses in the quarters ending October 31. In addition, the
Company's sporting goods and outdoor apparel and footwear operations are subject
to traditional retail seasonality patterns related to the holiday season. This
seasonality, along with other factors, including weather conditions, general and
regional
9
<PAGE> 11
economic conditions, changes in consumer preferences and changes in the
Company's merchandise mix, could adversely affect the Company's business and
cause its periodic results of operations to fluctuate. The timing and expenses
associated with the Company's store remodeling program and the opening of new
stores or the acquisition of other businesses as part of the Company's growth
and expansion strategy will also contribute to fluctuations in periodic
operating results. Accordingly, results of operations in any period may not be
indicative of the results to be expected for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results and Seasonality." Because a high
percentage of the Company's operating expenses are relatively fixed, if sales in
any quarter do not occur as expected, the Company's operating results may be
adversely affected and fall short of expectations.
FLUCTUATIONS IN COMPARABLE STORE SALES
A variety of factors affect the Company's comparable store sales,
including, among others, the general retail sales environment, the Company's
ability to source and distribute products efficiently, changes in the Company's
merchandise mix, the impact of competition and the Company's ability to execute
its business strategy effectively. The Company's comparable store sales results
have fluctuated significantly in the past and the Company believes that such
fluctuations will continue. The Company's comparable store net sales increases
and decreases for the fiscal years ended January 31, 1996, 1997 and 1998 were
(2.3)%, 3.3% and (1.8)%, respectively. Past comparable store sales results may
not be indicative of future results.
EFFECTS OF WEATHER
Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. Customers
delay or forego purchases of skiing and snowboarding equipment and winter
outdoor apparel and footwear in periods of unseasonably warm fall or winter
weather. Unseasonably cool or wet spring or summer weather adversely affects
sales of sporting goods for warmer weather activities, such as camping, fishing,
water sports, golf and tennis, and of spring and summer apparel and footwear.
Delays in seasonal weather changes also shorten the selling period for the
Company's seasonal merchandise and the Company may have to reduce prices in
order to sell seasonal merchandise before the season expires or carry over
merchandise. Any such delays in or reductions of sales of seasonal merchandise
could have a material adverse effect on the Company's business, financial
condition and results of operations.
CHANGING ECONOMIC CONDITIONS; DEPENDENCE ON REGIONAL ECONOMIES
The Company's business is sensitive to changes in discretionary consumer
spending. Such changes are significantly related to prevailing economic
conditions and particularly affect the Company's sales of sporting goods and
outdoor apparel and footwear. A recession in the national or regional economies,
particularly in the Pacific Northwest or Oregon, where a majority of Company's
business is conducted, or uncertainties regarding future economic prospects,
could affect consumer spending habits and have a material adverse effect on the
Company's business, financial condition and results of operations.
CHANGING CONSUMER PREFERENCES
Any change in consumer preferences or consumer interest in sports or
outdoor activities, outdoor apparel and footwear, or automotive aftermarket
parts and accessories could have a material adverse effect on the Company's
business, financial condition and results of operations. Failure to anticipate
and appropriately respond to changes in consumer preferences could lead to,
among other things, lower sales, excess inventories and lower margins, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company often works with vendors to
plan future orders as much as 12 months in advance to ensure timely delivery.
This, together with the seasonal nature of much of the Company's merchandise
mix, can result in unbalanced inventories, increased inventory levels, and
related carrying costs if consumer preferences change prior to delivery.
10
<PAGE> 12
SMALL STORE BASE
The Company operated 16 stores as of July 31, 1998. Five of the Company's
stores were opened before 1980, an additional nine stores were opened between
1980 and 1991 and only two stores have been opened since 1991. Consequently, the
Company has a limited recent history of opening and operating new stores. The
results achieved to date by the Company's relatively small store base may not be
indicative of the results that may be achieved from a larger number of stores.
In addition, should any store (including any new or remodeled store) be
unprofitable, experience a decline in profitability or be significantly damaged
or destroyed, the effect on the Company's results of operations would be more
significant than would be the case if the Company had a larger store base.
DEPENDENCE ON VENDORS
The Company offers an extensive and changing mix of merchandise,
substantially all of which is supplied by independent vendors. The Company must
develop and maintain relationships with these vendors in order to maintain an
adequate supply of merchandise for the Company's stores. The Company does not
have long-term supply contracts with its vendors. In addition, the Company
competes with other companies for the merchandise supplied by these vendors and
many of these other companies have substantially greater leverage and financial
and other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. The Company's failure to obtain any such
merchandise or to obtain favorable or competitive prices and terms could result
in reduced sales or margins and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Vendors, Purchasing and Distribution."
The Company's ten largest vendors for the fiscal year ended January 31,
1998, which accounted for approximately 24% of the Company's purchases for such
year, were Nike, Inc., Columbia Sportswear Co., All Sports Supply, Inc., Coleman
& Company, Coast Auto Supply, World Wide Distributors, Remington Arms Co., Inc.,
Adidas U.S.A. Incorporated, Levi Strauss & Company, and Valvoline Incorporated.
The Company is not dependent on any vendor.
Vendors provide the Company with substantial incentives in the form of
volume discounts, longer payment terms and cooperative advertising. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42%, respectively, of such costs in the fiscal years ended January 31, 1996,
1997 and 1998, respectively. A reduction in or discontinuation of these
incentives could have a material adverse effect on the Company's business,
financial condition and results of operations.
INTERNATIONAL RISKS AND CONSTRAINTS
A majority of the Company's merchandise (other than automotive parts and
accessories) is manufactured outside the United States. As a result, the
Company's operations are subject to risks generally associated with
international business, such as foreign governmental regulation, political
unrest, disruptions or delays in shipments, changes in economic conditions and
fluctuations of currency exchange rates. These factors, among others, including
the recent economic turmoil in Asia, could adversely affect the Company's
ability to obtain certain merchandise, which, in turn, could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, a significant portion of the merchandise supplied to
the Company is subject to existing or potential duties, tariffs or quotas that
may limit the quantity of certain types of goods that may be imported into the
United States. The imposition of additional duties, tariffs or quotas or the
adverse adjustment of existing duties, tariffs or quotas could have a material
adverse effect on the Company's business, financial condition and results of
operations. To date the Company has not experienced any material adverse effects
on its operations due to uncertainties involving international risks and
constraints.
DEPENDENCE ON KEY PERSONNEL; STAFFING AND LABOR COSTS
The Company's future success will depend in part on the continued service
of certain key management and other personnel, including Norman Daniels, the
Company's Chairman of the Board, President and Chief
11
<PAGE> 13
Executive Officer, Philip M. Pepin, the Company's Vice President of Finance and
Chief Financial Officer, Edward A. Ariniello, the Company's Vice President of
Operations, B.G. Eilertson, Patrick E. Hortsch and Ron J. Menconi, the Company's
three Merchandise Managers, Mark H. Mieher, Vice President and Chief Information
Officer, and Douglas B. Spink, General Manager of Direct Marketing. Another
important factor in the Company's future success will be its ability to attract
and retain qualified managerial, purchasing, sales and marketing personnel.
Competition for these employees is intense. A shortage of qualified personnel
may require the Company to increase compensation and benefit levels in order to
compete successfully. The Company is also dependent upon the available labor
pool of lower-wage employees. The Company may be unable to retain its existing
key personnel, may not be able to attract and retain sufficient numbers of
qualified employees in the future and may experience increased labor costs which
may not be matched by corresponding increases in revenues. Any of these factors
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management." The Company maintains
life insurance on Mr. Daniels in the amount of $3.0 million, but does not
maintain life insurance on any other employee. The Company has no employment
agreements with any of its employees other than Mr. Spink and Gregory Biggs,
Operations Manager of Direct Marketing. See "Management -- Timberline Direct
Acquisition; Employment Agreements."
DEPENDENCE ON DISTRIBUTION CENTER AND LEASED PREMISES
The Company maintains a single warehouse and distribution center adjacent
to its corporate headquarters in Wilsonville, Oregon. If this facility were to
be destroyed or significantly damaged by fire or other disaster, the Company
would need to obtain alternative facilities and replenish its inventory, either
of which would result in significant costs and delays in distributing
merchandise to its stores. The costs and delays associated with any such
disruption could have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company maintains
business interruption insurance in the amount of $19.3 million, the level of
coverage may not be adequate. In addition, all of the Company's current stores
are located on leased premises. If leases were prematurely terminated for any
reason or if the Company were unable to renew leases, the Company would be
required to relocate subject stores to other locations. Relocations would result
in substantial additional costs and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Properties."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon the closing of the Offering, Norman Daniels, the Company's Chairman of
the Board, President and Chief Executive Officer, and Peregrine Capital, Inc.
(together, the "Controlling Shareholders") will beneficially own approximately
57.4% of the Company's issued and outstanding Common Stock (approximately 55.0%
if the Underwriters' over-allotment option is exercised in full). As a result,
the Controlling Shareholders will be able to elect all the Company's directors
and to control the vote on substantially all other matters, including
significant corporate actions, without the approval of other shareholders. Such
ownership and control may have the effect of delaying or preventing a takeover
of the Company by third parties, which could deprive the Company's shareholders
of a control premium that might otherwise be realized by them in connection with
an acquisition of the Company. See "Principal Shareholders."
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
The Company is subject to federal, state and local laws and regulations
which affect its business, relating to, among other things, advertising, worker
safety and the use, storage, discharge and disposal of environmentally sensitive
materials. Although management of the Company is not aware of any significant
environmental contamination at any of the Company's properties from its own or
prior activities at such locations or from neighboring properties, such
contamination may exist at such properties or at additional store sites or
facilities acquired or leased by the Company, and any such contamination could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company is subject to various local
zoning requirements with regard to the location and design of its stores.
12
<PAGE> 14
The Company's ability to obtain zoning permits in a timely manner, if at all,
will have an impact on the Company's planned expansion. The failure to comply
with such laws, regulations and requirements or material changes to them could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Sales of hunting equipment, including firearms, ammunition and shooting
accessories accounted for approximately 4.0% of the Company's sales in the
fiscal year ended January 31, 1998. Government regulation of firearms or hunting
can affect sales of these and other goods offered by the Company, and an
increase or material changes in such regulation could have a material adverse
effect on the Company's business, financial condition and results of operations.
POTENTIAL PRODUCT LIABILITY EXPOSURE
The Company's merchandise includes firearms, ammunition, air guns,
paintball guns, bows, knives, automobile and marine parts, kayaks, canoes and
water and snow skiing and snowboarding equipment and other products that create
product liability risks. Although the Company is not a manufacturer of any of
these products, the sale of these and other products carried by the Company
involves a risk of being named as a defendant in product liability litigation.
The Company's insurance may not cover all potential claims arising from the sale
of such products, the amount of coverage may not be adequate, and adequate
insurance coverage may not be available in the future at acceptable rates, if at
all. Any uninsured or inadequately insured claim or liability could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON TRADEMARKS
The Company uses a number of trademarks in connection with the operation of
its business. The Company's "G.I. Joe's" trademark is registered with the United
States Patent and Trademark Office. The Company's other trademarks are not
registered. The Company believes its trademarks are important to its ability to
create and sustain demand for its business and private label products. Although
the Company's operations have not been materially restricted as a result of
trademark disputes, significant obstacles may arise as the Company expands its
business into new market segments and geographic markets. In addition, it may be
determined that the Company's trademarks violate the proprietary rights of
others, they may not be upheld if challenged and the Company may be prevented
from using these trademarks, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
The Company relies on computer systems and software to operate its
business, including applications used in sales, purchasing, inventory
management, finance and various administrative functions. The Company has
determined that certain of its software applications will be unable to interpret
appropriately the calendar year 2000 and subsequent years. Management believes
that only minor modifications will be required to make its systems "Year 2000"
compliant. However, failure by the Company to achieve full Year 2000 compliance
in a timely manner or consistent with its current cost estimates could have an
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company could be adversely affected by the failure
of one or more of its vendors, lenders or other organizations with which it
conducts business to become fully Year 2000 compliant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the Offering there has been no public market for the Common Stock.
An active trading market for the Common Stock may not develop or be sustained as
a result of the Offering and the price of the Common Stock may drop below the
initial public offering price. The initial public offering price of the Common
Stock will be determined through negotiations between the Company and
representatives of the Underwriters and may not be indicative of the price at
which the Common Stock will actually trade after the
13
<PAGE> 15
Offering. See "Underwriting" for a discussion of the factors that will be
considered in determining the initial public offering price of the Common Stock.
Following the Offering, the market price of the Common Stock could be
subject to significant variation due to fluctuations in the Company's operating
results, changes in or actual results varying from earnings or other estimates
made by securities analysts, the degree of success the Company achieves in
implementing its growth and expansion strategy, changes in business or economic
conditions affecting the Company, its customers or its competitors and other
factors both within and outside the Company's control. In addition, the stock
market may experience volatility that affects the market prices of companies in
ways unrelated to the operating performance of such companies, and such
volatility may adversely affect the market price of the Common Stock.
SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price will be substantially higher than the net
tangible book value per share of the Common Stock immediately prior to the
Offering. Investors purchasing Common Stock in the Offering will be subject to
immediate dilution of $7.03 per share in net tangible book value, assuming an
initial public offering price of $10.00 (the mid-point of the range set forth on
the cover page of this Prospectus). Further dilution would result from the
exercise of outstanding warrants or options. See "Dilution" and "Description of
Capital Stock -- Warrants and Stock Options."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock in the public
market following the Offering, or the prospect of such sales, could adversely
affect the market price of the Common Stock and the Company's ability to raise
capital in the equity markets. Upon the closing of the Offering, there will be
approximately 8,500,000 shares of Common Stock outstanding (approximately
8,875,000 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, all the shares to be sold in the Offering will be
eligible for immediate resale without restriction under the Securities Act of
1933, as amended (the "Securities Act"), unless such shares were purchased by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining outstanding shares of Common Stock, which
constitute "restricted securities" as defined in Rule 144, are not yet eligible
for resale under Rule 144, but will become eligible in July 1999 subject to Rule
144 restrictions. The holders of 2,379,320 of these restricted shares have
certain registration rights with respect to such shares. See "Description of
Capital Stock -- Registration Rights." The Company, its directors, executive
officers and other shareholders holding an aggregate of 5,289,618 shares have
agreed that, without the prior written consent of Black & Company, Inc., they
will not directly or indirectly offer to sell, sell, or otherwise dispose of
shares of Common Stock or any securities convertible or exchangeable therefor,
for a period of 180 days after the date of this Prospectus, subject to certain
limited exceptions. See "Underwriting" and "Shares Eligible for Future Sale."
The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to 800,000 shares of Common Stock under the Company's 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). Shares issued under the 1998 Plan after the
effective date of such registration statement will be freely tradable in the
open market, subject to the lock-up agreements with the Underwriters described
above and, in the case of sales by affiliates, to certain requirements of Rule
144. As of July 31, 1998, options to purchase approximately 69,033 shares of
Common Stock were outstanding under the 1998 Plan, all of which options were
vested. In addition, the Orkney Warrant is exercisable for a number of shares
equal to 5% of the Company's Common Stock outstanding, on a fully-diluted basis,
on the date of exercise at an exercise price equal to 70% of the fair market
value of the Common Stock on the exercise date. If the Orkney Warrant is not
previously exercised, it will be exercisable for 451,002 shares of Common Stock
upon the closing of the Offering. The holder of the Orkney Warrant has certain
registration rights with expect to the shares of Common Stock issuable upon
exercise thereof. See "Description of Capital Stock -- Warrants and Stock
Options," "Management -- Retirement and Certain Other Benefit Plans,"
"Description of Capital Stock -- Registration Rights" and "Shares Eligible For
Future Sale."
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<PAGE> 16
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF OREGON LAW
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock and the Company's Board of Directors has the authority to fix the rights,
preferences, privileges and restrictions of such shares without any further vote
or action by the Company's shareholders. The potential issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price and the voting and other rights of the holders of Common Stock. Moreover,
certain "business combination" provisions of Oregon law could make it more
difficult to consummate a merger or tender offer involving the Company, even if
such event could be beneficial to the interests of the shareholders. See
"Description of Capital Stock."
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<PAGE> 17
THE REORGANIZATION
During the fiscal quarter ended July 31, 1998, the Company was reorganized
in connection with a management buy-out by Norman Daniels, the Company's current
Chairman of the Board, President and Chief Executive Officer. Prior to the
reorganization, Mr. Daniels owned approximately 6% of the Company's outstanding
capital stock and David Orkney, a Director of the Company and the son of the
Company's founder, owned approximately 78% of the outstanding capital stock.
Peregrine Capital, Inc., an affiliate of the Company ("Peregrine"), acted as an
advisor to Mr. Daniels in connection with the transaction and assisted in
arranging financing for, and invested in the Company as part of, the
reorganization. The primary components of the reorganization -- the Redemption,
the Exchange and the Merger (as defined below) -- as well as its primary
benefits to certain key participants, are described below. The Redemption, the
Exchange and the Merger are referred to in this Prospectus as the
"Reorganization."
REDEMPTION
In May 1998, in order to effect the Reorganization, the Company, then an S
corporation, redeemed all the Company's outstanding capital stock, other than
shares held by Mr. Daniels and two individuals who elected not to have their
shares redeemed (the "Redemption"), and repurchased outstanding options held by
nine individuals, including Wayne Jackson, the Company's former Chief Operating
Officer. The redeemed shares and repurchased options represented approximately
83% of the Company's outstanding capital stock on a fully-diluted basis prior to
the Redemption. The Company financed the Redemption and stock option repurchases
primarily with proceeds from the sale and lease-back of substantially all the
Company's owned real estate and proceeds from the sale to 61 individuals and
entities, including Peregrine (the "Investors"), of 9% subordinated notes of the
Company (the "Subordinated Notes"). See "Certain Related Transactions." In
connection with the Redemption, the Company also issued to Mr. Orkney the Orkney
Warrant, which entitles him to purchase a number of shares equal to 5% of the
Company's Common Stock outstanding, on a fully-diluted basis, on the date of
exercise at a purchase price equal to 70% of the fair market value of the Common
Stock on the exercise date. Prior to the Redemption, the Company made S
corporation distributions to its shareholders which are intended to cover all
state and federal income tax liabilities arising from the Company's income prior
to the Redemption and from the sale of the Company's real estate. The Redemption
resulted in no gain for state and federal income tax purposes for the redeemed
shareholders.
Set forth below are the sources and uses of funds related to the
Redemption:
<TABLE>
<CAPTION>
SOURCES
-------
<S> <C>
Sale of real estate............. $31.2 million
Sale of Subordinated Notes...... 9.5 million
Notes payable to former option
holders....................... 0.5 million
Repayment of officers' notes.... 0.1 million
-------------
Total................. $41.3 million
=============
</TABLE>
<TABLE>
<CAPTION>
USES
----
<S> <C>
Redemption of stock............. $16.6 million
Repurchase of options........... 3.9 million
S-corporation distributions to
redeemed shareholders......... 5.5 million
S-corporation distributions to
continuing shareholders....... 1.7 million
Mortgage payoffs................ 8.9 million
Mortgage and loan prepayment
fees........................ 1.9 million
Real estate fee to Peregrine
affiliate................... 1.0 million
Miscellaneous fees and
expenses...................... 0.5 million
Working capital................. 1.3 million
-------------
Total................. $41.3 million
=============
</TABLE>
EXCHANGE
Following the Redemption, Holdings was organized and Mr. Daniels exchanged
his Common Stock in the Company for all the outstanding common stock of
Holdings, which resulted in the Company becoming a subsidiary of Holdings.
Peregrine, which had purchased $1.45 million principal amount of the
Subordinated
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<PAGE> 18
Notes from the Company, exchanged $1.0 million principal amount of the
Subordinated Notes for common stock of Holdings. See "Certain Related
Transactions." In addition, Peregrine and the other Investors exchanged the
remaining $8.5 million principal amount of Subordinated Notes for preferred
stock of Holdings and warrants to purchase common stock of Holdings (the
"Exchange"). Following the Redemption and the Exchange, (i) Mr. Daniels and the
Investors owned 54% and 46%, respectively, of the common stock of Holdings, on a
fully-diluted basis, (ii) the Investors owned all the outstanding preferred
stock of Holdings and (iii) Holdings owned 82% of the Company's outstanding
Common Stock and held all of the Subordinated Notes.
MERGER
In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, (i) the
outstanding preferred stock of Holdings was exchanged for an aggregate of 85,000
shares of the Company's Series A 9% Non-Voting Redeemable Preferred Stock
("Redeemable Preferred Stock"), (ii) the outstanding common stock of Holdings
was exchanged for an aggregate of 3,568,982 shares of the Company's Common
Stock, (iii) warrants to purchase common stock of Holdings were exchanged for an
aggregate of 2,379,320 shares of the Company's Common Stock and (iv) the
Subordinated Notes were canceled. The Redeemable Preferred Stock will be
redeemed with $8.5 million of the proceeds from the Offering. See "Use of
Proceeds." Following the Merger, there were 6,000,000 shares of the Company's
Common Stock outstanding, which includes 47,863 shares held by an individual who
has indicated an intention to dissent from the Merger. If that shareholder
perfects his dissenter's rights under Oregon law, he will be entitled to receive
from the Company the fair value of his shares of the Company immediately prior
to the Merger, estimated to be $147,000.
BENEFITS OF THE REORGANIZATION TO CERTAIN KEY PARTICIPANTS
Certain key participants received material benefits in connection with the
Reorganization, as described below:
Norman P. Daniels. Prior to the Reorganization, Mr. Daniels owned
approximately 6% of the Company's outstanding Common Stock. He also held options
which after the Merger would have been exercisable for 745,278 shares of Common
Stock at a weighted average exercise price of $1.68 per share. If exercised,
these options would have increased Mr. Daniels' ownership of the Company's
outstanding Common Stock prior to the Reorganization to approximately 16%. As a
result of the Reorganization, Mr. Daniels owned approximately 54% of the
Company's outstanding Common Stock as of July 31, 1998. In connection with the
Reorganization, Mr. Daniels' options to purchase shares of the Company's Common
Stock were canceled. See "Certain Related Transactions."
Peregrine Capital, Inc. In connection with the Reorganization, Peregrine
purchased $1.45 million principal amount of Subordinated Notes from the Company.
Peregrine exchanged $1.0 million principal amount of the Subordinated Notes for
common stock of Holdings, which was converted into 356,898 shares of the
Company's Common Stock in the Merger. Peregrine exchanged the remaining $450,000
principal amount of the Subordinated Notes for preferred stock and a warrant to
purchase common stock of Holdings. In the Merger, the shares of preferred stock
of Holdings were converted into 4,500 shares of the Company's Redeemable
Preferred Stock and the warrant was converted into 40,909 shares of the
Company's Common Stock. For services rendered in connection with the
Reorganization, Peregrine received an additional warrant exercisable for shares
of Holdings common stock (the "Master Warrant"), which in the Merger was
converted into 1,606,599 shares of the Company's Common Stock. Prior to the
Merger, Peregrine assigned to various unaffiliated third parties a portion of
the Master Warrant which otherwise would have entitled Peregrine to 315,053 of
the shares of the Company's Common Stock issuable upon conversion of the Master
Warrant. Peregrine has certain registration rights with respect to the shares of
the Company's Common Stock it received in exchange for the Holdings warrants.
See "Description of Capital Stock -- Registration Rights." Subsequent to the
Merger, Peregrine transferred 45,454 shares of the Company's Common Stock to an
unaffiliated third party in connection with a loan. Peregrine has the right to
repurchase up to 22,727 of such shares if it repays the loan prior to the
maturity date. An affiliate of Peregrine received a $1.0 million fee for
17
<PAGE> 19
assisting with the sale of certain of the Company's real estate in connection
with the Reorganization, which fee was credited against the purchase price for
two parcels of the Company's real estate purchased by that affiliate. See
"Certain Transactions."
As part of the Reorganization, Peregrine has agreed to pay certain
accounting, legal and other expenses incurred in connection with the
Reorganization, paid a fee of $100,000 to David Orkney to induce him to extend
the terms of his agreement regarding the sale of his interest in the Company and
agreed to reimburse the Company for all dividends paid on the Company's
Redeemable Preferred Stock. In addition, Peregrine has agreed to purchase from
the Investors all outstanding shares of the Company's Redeemable Preferred Stock
for $8.5 million, plus accumulated dividends, if the Company does not complete,
prior to May 8, 1999, an initial public offering of its Common Stock with net
proceeds to the Company of at least $12.0 million. In connection with the
Reorganization, four individuals associated with Peregrine, including Roy Rose,
a director of the Company and a director and the president and chief executive
officer of Peregrine, and his wife, agreed to guarantee the Company's
obligations under six leases arising from the sale and lease-back of the
Company's owned real estate to unaffiliated third parties. Aggregate annual base
rent under these leases is approximately $3.0 million. This guarantee will
expire upon the closing of an initial public offering of the Company's Common
Stock. See "Certain Related Transactions."
As of July 31, 1998, Peregrine beneficially owned 1,666,626 shares of the
Company's Common Stock and 7,000 shares of the Company's Redeemable Preferred
Stock. Peregrine's shares of Redeemable Preferred Stock include 2,500 shares
issued upon conversion in the Merger of 250,000 shares of Holdings preferred
stock purchased by Peregrine from another Investor.
Other Investors. The Investors, other than Peregrine, purchased $8.05
million in principal amount of the Company's Subordinated Notes. None of these
Investors are affiliates of the Company. In the Exchange, these Investors
exchanged the Subordinated Notes for preferred stock of Holdings and warrants to
purchase common stock of Holdings. In the Merger, these Investors exchanged the
shares of Holdings preferred stock for an aggregate of 80,500 shares of the
Company's Redeemable Preferred Stock, which will be redeemed with $8.05 million
of the Offering proceeds, and exchanged the warrants to purchase common stock of
Holdings for an aggregate of 731,812 shares of the Company's Common Stock. These
Investors have certain registration rights with respect to these shares of
Common Stock. See "Description of Capital Stock -- Registration Rights." In
addition, these Investors will receive accrued dividends payable with respect to
the Redeemable Preferred Stock (which will be paid by Peregrine upon redemption
of such shares). The Investors have the right to require Peregrine to repurchase
these shares of Redeemable Preferred Stock for an aggregate of $8.05 million
plus accrued dividends if the Company does not complete, prior to May 8, 1999,
an initial public offering of its Common Stock with net proceeds to the Company
of at least $12.0 million. See "Certain Related Transactions."
18
<PAGE> 20
USE OF PROCEEDS
The Company will receive approximately $22.6 million (approximately $26.0
million if the Underwriter's over-allotment option is exercised in full) in net
proceeds from the sale of the shares of Common Stock offered hereby, assuming an
initial public offering price of $10.00 per share (the mid-point of the range
set forth on the cover page of this Prospectus), and after deducting
underwriting discounts and estimated offering expenses.
The Company intends to use approximately $8.5 million of the net proceeds
from the Offering to redeem all of the Company's outstanding Series A 9%
Non-Voting Redeemable Preferred Stock and approximately $13.0 million of the net
proceeds to complete the remodeling of the Company's stores over the next four
calendar years. The Company intends to use the remaining net proceeds to open
new stores and, when the opportunity arises, to acquire other businesses that
complement the Company's business, as well as for working capital and general
corporate purposes. The Company has no current understandings or agreements
regarding potential acquisitions.
The foregoing represents the Company's best estimate of its use of the net
proceeds from the Offering based on current planning and business conditions.
The Company reserves the right to change its use of proceeds when and if market
conditions or unexpected changes in operating conditions or results occur.
Pending any specific application, the net proceedings from the Offering will be
invested in short-term, interest bearing securities.
DIVIDEND POLICY AND PRIOR S CORPORATION STATUS
The Company intends to retain all earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors. The Company's existing revolving line
of credit facility prohibits the payment of dividends.
Prior to May 1, 1998, the Company was treated for federal and state income
tax purposes as an S corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company were included in the taxable income of the Company's
shareholders, at their individual federal and state income tax rates, rather
than those otherwise applicable to the Company. As of May 1, 1998, the Company's
S corporation status was terminated in connection with the Reorganization. See
"The Reorganization." Since that date the Company has been fully subject to
federal and applicable state income taxes on its earnings. See Note 1 to
Financial Statements.
In the fiscal years ended January 31, 1997 and 1998 and the three-month
period ended April 30, 1998, the Company paid cash dividends to its shareholders
in the aggregate amounts of approximately $618,000, $410,000 and $6.9 million,
respectively, principally for the payment of the shareholders' income tax
liabilities in connection with the Company's status as an S corporation.
19
<PAGE> 21
DILUTION
As of June 30, 1998, the Company's net tangible book value per share of
Common Stock (giving effect to the Merger) was approximately $1.87. Net tangible
book value per share represents the amount of the Company's tangible assets less
the amount of its liabilities, divided by the number of shares of Common Stock
outstanding.
Giving effect to the issuance of the shares of Common Stock offered hereby
at an assumed initial public offering price of $10.00 per share (the mid-point
of the range set forth on the cover page of this Prospectus) and the deduction
of underwriting discounts and estimated offering expenses, and assuming no
exercise of outstanding options or the Orkney Warrant, the net tangible book
value of the Company as of June 30, 1998, would have been approximately $2.97
per share. This represents an immediate increase in net tangible book value of
$1.10 per share to existing shareholders of shares of Common Stock in the
Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Net tangible book value per share as of June 30,
1998(1)................................................ $1.87
Increase in net tangible book value per share attributable
to new investors....................................... 1.10
-----
Pro forma net tangible book value per share after the
Offering(1)............................................... 2.97
------
Dilution of net tangible book value per share to new
investors................................................. $ 7.03
======
</TABLE>
The following table summarizes as of June 30, 1998, after giving effect to
the Merger and the Offering, the differences between existing shareholders and
purchasers of shares of Common Stock in the Offering with respect to the number
of shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 6,000,000 70.6% $ 2.9 10.4% $ 0.48
New investors.................... 2,500,000 29.4 25.0 89.6 10.00
--------- ----- ----- -----
Total.................. 8,500,000 100.0% $27.9 100.0%
========= ===== ===== =====
</TABLE>
- ---------------
(1) Includes 5,948,302 shares of the Company's Common Stock issued in the
Merger. Excludes (i) 69,033 shares issuable upon exercise of outstanding
stock options, with a weighted average exercise price of $1.90 per share,
(ii) 730,967 shares reserved for future grants under the Company's 1998
Plan, (iii) shares issuable in connection with the Company's acquisition of
Timberline Direct and (iv) 451,002 shares issuable upon the closing of the
Offering pursuant to the exercise of the Orkney Warrant, which is
exercisable for a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at an
exercise price equal to 70% of the fair market value of the Common Stock on
the exercise date. If the Orkney Warrant is exercised prior to the closing
of the Offering, it will be exercisable for approximately 319,423 shares of
Common Stock. See "The Reorganization," "Management -- Retirement and
Certain Other Benefit Plans," "Management -- Timberline Direct Acquisition;
Employment Agreements" and "Description of Capital Stock -- Warrants and
Stock Options."
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the Company's capitalization as of June 30,
1998 (giving effect to the Merger), and as adjusted to give effect to the sale
of the shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share (the mid-point of the range set forth on the
cover page of this Prospectus) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and related
notes thereto and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations............................................... $ 1,006 $ 1,006
Long-term debt and capital lease obligations, less current
portion................................................... 31,546 31,546
------- -------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares authorized;
85,000 shares of Series A 9% Non-Voting Redeemable
Preferred Stock issued and outstanding, actual; no shares
issued and outstanding, as adjusted(1).................... 7,887 --
Common Stock, no par value; 50,000,000 shares authorized;
6,000,000 shares issued and outstanding, actual; 8,500,000
shares issued and outstanding, as adjusted(2)............. 2,888 25,438
Issued warrant(3)........................................... 1,100 1,100
Additional paid-in capital.................................. 342 342
Accumulated deficit......................................... (78) (691)
------- -------
Total shareholders' equity............................. 12,139 26,189
------- -------
Total capitalization.............................. $44,691 $58,741
======= =======
</TABLE>
- ---------------
(1) The outstanding shares of Series A 9% Non-Voting Redeemable Preferred Stock
will be redeemed with $8.5 million of the proceeds from the Offering.
Approximately $613,000 of such amount will be treated as an addition to the
Company's accumulated deficit.
(2) Excludes (i) 69,033 shares issuable upon exercise of outstanding stock
options, with a weighted average exercise price of $1.90 per share, (ii)
730,967 shares reserved for future grants under the Company's 1998 Plan,
(iii) shares issuable in connection with the Company's acquisition of
Timberline Direct and (iv) 451,002 shares issuable upon the closing of the
Offering pursuant to the exercise of the Orkney Warrant, which is
exercisable for a number of shares equal to 5% of the Company's Common Stock
outstanding on the date of exercise at an exercise price equal to 70% of the
fair market value of the Common Stock on the exercise date. If the Orkney
Warrant is exercised prior to the closing of the Offering, it will be
exercisable for approximately 319,423 shares of Common Stock upon the
closing of the Offering. See "Management -- Retirement and Certain Other
Benefit Plans," "Management -- Timberline Direct Acquisition; Employment
Agreements" and "Description of Capital Stock -- Warrants and Stock
Options."
(3) Consists of the Orkney Warrant, the terms of which are described in footnote
2 above.
21
<PAGE> 23
SELECTED FINANCIAL AND OTHER DATA
The following selected financial and other data relating to the Predecessor
(as defined in footnote 1 to the following table) and the Company has been taken
or derived from the financial statements and other records of the Company and
should be read in conjunction with the financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included elsewhere in
this Prospectus. The selected financial data for the Predecessor for each of the
years in the five-year period ended January 31, 1998 and for the three-month
period ended April 30, 1998 have been derived from financial statements which
have been audited by Arthur Andersen LLP, independent public accountants. The
selected financial data for the Predecessor for the three-month period ended
April 30, 1997 has been derived from unaudited financial statements for that
periods prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such financial data.
As of May 1, 1998, a new entity for purposes of financial accounting treatment
("G.I. Joe's, Inc.") was created through a management buy-out that was accounted
for as a purchase transaction. The selected financial and other data for G.I.
Joe's, Inc. for the two-month period ended June 30, 1998 has been derived from
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants. The selected financial and other data for the two-month
period ended June 30, 1998 are not necessarily indicative of the results to be
expected for any other period. Pro forma data for the fiscal year ended January
31, 1998 and the five-month period ended June 30, 1998 has been provided to show
the effect upon the Company's statement of operations of the Reorganization, as
if it had occurred as of February 1, 1997 and 1998, respectively. Pro forma net
income data has been provided to show the effect upon the Company's statement of
operations of corporate income tax expense for the Company as though the
Reorganization had been consummated prior to the periods presented. See "The
Reorganization." The pro forma financial data, which is based upon available
information and certain assumptions that management believes are reasonable, is
provided for informational purposes only and should not be construed to be
indicative of the Company's results of operations had the Reorganization been
consummated prior to the periods presented and does not project the Company's
results of operations for any future period.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
PRO
PREDECESSOR(1) FORMA(2)
------------------------------------------------------- -----------
FISCAL YEAR
FISCAL YEARS ENDED JANUARY 31, ENDED
------------------------------------------------------- JAN. 31,
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $136,629 $127,008 $124,052 $128,112 $128,238 $128,238
Cost of sales....................... 94,998 85,266 82,346 84,184 84,552 84,552
-------- -------- -------- -------- -------- --------
Gross margin........................ 41,631 41,742 41,706 43,928 43,686 43,686
Selling, general and administrative
expense............................ 39,574 36,598 37,154 37,976 39,528 42,671
-------- -------- -------- -------- -------- --------
Income (loss) from operations....... 2,057 5,144 4,552 5,952 4,158 1,015
Interest expense, net............... (3,421) (3,746) (3,726) (3,612) (3,477) (2,975)
Gain on sale of real estate......... -- -- 25 -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item............. (1,364) 1,398 851 2,340 681 (1,960)
(Provision for) benefit from income
taxes.............................. -- -- -- -- -- 784
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................... (1,364) 1,398 851 2,340 681 (1,176)
Extraordinary item: loss on early
extinguishment of debt............. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................... $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176)
======== ======== ======== ======== ======== ========
Income (loss) per share before
extraordinary item(3):
- -- Basic............................ $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32)
- -- Diluted.......................... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32)
Net income (loss) per share(3):
- -- Basic............................ $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32)
- -- Diluted.......................... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32)
Weighted average shares outstanding,
as adjusted(3):
- -- Basic............................ 4,107 4,097 4,076 4,065 4,053 6,000
- -- Diluted.......................... 4,107 4,171 4,311 4,508 4,625 6,000
<CAPTION>
G.I. JOE'S, PRO
INC. FORMA(2)
PREDECESSOR(1) ----------- -----------
------------------------- TWO FIVE
THREE MONTHS ENDED MONTHS MONTHS
APRIL 30, ENDED ENDED
------------------------- JUNE 30, JUNE 30,
1997 1998 1998 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $24,013 $25,908 $23,461 $49,369
Cost of sales....................... 16,425 17,670 15,511 33,181
------- ------- ------- -------
Gross margin........................ 7,588 8,238 7,950 16,188
Selling, general and administrative
expense............................ 8,717 9,755 7,264 17,804
------- ------- ------- -------
Income (loss) from operations....... (1,129) (1,517) 686 (1,616)
Interest expense, net............... (822) (962) (602) (1,439)
Gain on sale of real estate......... -- 640 -- 640
------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item............. (1,951) (1,839) 84 (2,415)
(Provision for) benefit from income
taxes.............................. -- -- (34) 966
------- ------- ------- -------
Income (loss) before extraordinary
item............................... (1,951) (1,839) 50 (1,449)
Extraordinary item: loss on early
extinguishment of debt............. -- (2,220) -- --
------- ------- ------- -------
Net income (loss)................... $(1,951) $(4,059) $ 50 $(1,449)
======= ======= ======= =======
Income (loss) per share before
extraordinary item(3):
- -- Basic............................ $(0.48) $(0.45) $(0.01) $(0.29)
- -- Diluted.......................... $(0.48) $(0.45) $(0.01) $(0.29)
Net income (loss) per share(3):
- -- Basic............................ $(0.48) $(1.00) $(0.01) $(0.29)
- -- Diluted.......................... $(0.48) $(1.00) $(0.01) $(0.29)
Weighted average shares outstanding,
as adjusted(3):
- -- Basic............................ 4,053 4,053 6,000 6,000
- -- Diluted.......................... 4,053 4,053 6,000 6,000
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
PRO
PREDECESSOR(1) FORMA(2)
------------------------------------------------------- -----------
FISCAL YEAR
FISCAL YEARS ENDED JANUARY 31, ENDED
------------------------------------------------------- JAN. 31,
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of stores open for full
period............................. 14 14 14 14 14 14
Number of remodeled stores open for
full period........................ -- -- 2 3 3 3
Gross margin as a percentage of
sales.............................. 30.5% 32.9% 33.6% 34.3% 34.1% 34.1%
Store contribution(4)............... $1,436 $1,373 $1,321 $1,351 $1,417 $1,192
Total comparable store net sales
increase (decrease)(5)............. (1.7)% (7.0)% (2.3)% 3.3% (1.8)% (1.8)%
Remodeled same store net sales
increase (6)....................... -- -- 1.6% 14.6% -- --
<CAPTION>
G.I. JOE'S, PRO
INC. FORMA(2)
PREDECESSOR(1) ----------- -----------
------------------------- TWO FIVE
THREE MONTHS ENDED MONTHS MONTHS
APRIL 30, ENDED ENDED
------------------------- JUNE 30, JUNE 30,
1997 1998 1998 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of stores open for full
period............................. 14 15 15 15
Number of remodeled stores open for
full period........................ 3 4 4 4
Gross margin as a percentage of
sales.............................. 31.6% 31.8% 33.9% 32.8%
Store contribution(4)............... $154 $195 $237 $380
Total comparable store net sales
increase (decrease)(5)............. (5.6)% 3.0% (2.3)% 0.7%
Remodeled same store net sales
increase (6)....................... -- 24.0% 27.2% 25.5%
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------------------
AS OF JANUARY 31, JUNE 30, 1998
------------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 ACTUAL(3) AS ADJUSTED(7)
------- -------- -------- -------- -------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $11,637 $ 9,762 $ 12,041 $ 14,923 $ 15,527 $18,243 $32,293
Inventories............................. 26,916 27,042 28,961 29,442 33,368 41,687 41,687
Total assets............................ 61,792 62,212 58,365 58,527 66,539 72,116 86,166
Total liabilities....................... 55,538 54,758 50,552 48,734 57,119 59,977 59,977
Total shareholders' equity.............. 6,254 7,454 7,813 9,793 9,420 12,139 26,189
</TABLE>
- ---------------
(1) Effective May 1, 1998, the Company underwent a reorganization pursuant to
which Norman Daniels, the Company's current Chairman of the Board, President
and Chief Executive Officer, acquired a majority interest in ND Holdings,
Inc., an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").
(2) The pro forma statement of operations data for the fiscal year ended January
31, 1998 and the five-month period ended June 30, 1998 give effect to the
Reorganization as if it had occurred as of February 1, 1997 and February 1,
1998, respectively. Prior to the Reorganization, the Company was an S
corporation and, accordingly, was not subject to federal and state income
taxes during the periods indicated, other than during the two-month period
ended June 30, 1998. As of May 1, 1998, the Company was converted to a C
corporation and is now subject to federal and applicable state income
taxation. See "Dividend Policy and Prior S Corporation Status" and Note 1 to
Financial Statements.
(3) The per share statement of operations data for the two-month period ending
June 30, 1998 and the pro forma per share statement of operations data for
the fiscal year ended January 31, 1998 and the five-month period ended June
30, 1998 give effect to the issuance of 5,948,302 shares of the Company's
Common Stock in the Merger as if it had occurred at the beginning of such
periods. See "The Reorganization."
(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.
(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.
(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.
(7) Adjusted to reflect (i) the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $10.00 per share (the
mid-point of the range set forth on the cover page of this Prospectus) and
(ii) the application of the net proceeds from such transaction.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
selected financial and operating data and the financial statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
OVERVIEW
G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently opened and remodeled stores. For the fiscal year ended
January 31, 1998, the Company's new and remodeled stores generated average
annual sales of approximately $9.9 million, compared to approximately $8.6
million for the Company's other stores. In fiscal 1998, new and remodeled stores
achieved average sales per selling square foot of $213, compared to $193 for
other stores. Average annual per store contribution (i.e., average per store
gross margin less average per store expenses) in fiscal 1998 was approximately
$1.6 million for new and remodeled stores and $1.3 million for other stores. The
Company has opened two new stores and remodeled four existing stores over the
past four fiscal years using its updated store concept.
Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and footwear and
(iii) automotive aftermarket parts and accessories. The Company's net sales of
$128.2 million in fiscal 1998 were derived 39% from the sale of sporting goods,
27% from the sale of outdoor apparel and footwear, 21% from the sale of
automotive parts and accessories and 13% from the sale of other assorted
products.
G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining the Company's internal
systems, distribution system and training programs and undertaking selective
management additions, all of which created a solid foundation to support future
expansion. In May 1998, Mr. Daniels acquired majority ownership of the Company
and the Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."
G.I. Joe's growth and expansion strategy is to increase the profitability
of the Company's existing stores through a major remodeling program; selectively
open new stores, primarily in Washington; enter new geographic markets in
Montana, Idaho, Utah, Nevada and Northern California through complementary
acquisitions or internal growth; further develop alternative distribution
channels; and examine opportunities for national expansion and vertical
integration.
As part of its growth and expansion strategy, the Company plans to open
eight new stores and remodel ten existing stores prior to the end of the fiscal
year ending January 31, 2003. Stores open for at least 12 months have generally
contributed positively to the Company's margins. For the fiscal year ended
January 31, 1998, the average annual per store contribution for stores open for
at least 12 months was approximately $1.4 million, or approximately 16% of
average annual per store sales. Management estimates that new stores will
contribute positively to the Company's margins after 12 months of operation and
that after approximately three years of operation new stores will generate net
sales comparable to average net sales
24
<PAGE> 26
generated at existing stores. However, new stores may not achieve historic or
anticipated levels of operating results. Unless and until new stores contribute
positively to operating margins or generate anticipated levels of sales, the
opening of new stores will result in reduced average per store results for the
Company. See "Risk Factors -- Ability to Implement Business and Growth and
Expansion Strategies and Manage Growth."
The Company has remodeled four stores using its updated store concept. Two
of these stores were remodeled in 1994, while the Company was in the process of
streamlining its product offerings to focus on sports and automotive
merchandise. See "Business -- Properties." Consequently, management does not
believe that same-store results of those two remodeled stores are comparable to
the same-store results for the two stores remodeled subsequent to the
streamlining of the Company's merchandise mix. Same-store sales at the two most
recently remodeled stores have increased approximately 18% on average in the
first year of operation after remodeling.
Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. In
addition, the Company's seasonal sporting goods merchandise mix is weighted
substantially toward the summer and winter seasons, which historically has led
to much stronger results of operations for the quarters ending July 31 and
January 31 than for the other two quarters. The Company has historically
incurred net losses in the quarters ending April 30 and achieved limited net
income or incurred net losses in the quarters ending October 31. In addition,
the Company's sporting goods and outdoor apparel and footwear operations are
subject to traditional retail seasonality patterns related to the holiday
season. This seasonality, dependence on weather conditions and other factors
contribute to fluctuations in periodic operating results. Accordingly, results
of operations in any period may not be indicative of the results to be expected
for any future period. See "Risk Factors -- Effects of Weather," "Risk
Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"-- Quarterly Operating Results and Seasonality."
Sales by the Company's automotive aftermarket parts and accessories
department have been relatively unchanged for each of the four fiscal years
ended January 31, 1998, and accounted for 21% of the Company's sales in fiscal
1998. For the purpose of increasing sales of its automotive merchandise, the
Company hired a new Automotive Merchandise Manager in June 1998, and has
recently implemented a revised automotive merchandise marketing plan. This plan
features lower everyday prices made possible by a change in product lines and
more aggressive promotional strategies. The plan also calls for an update of the
electronic automotive parts look-up systems at all stores, which are intended to
increase the efficiency with which the Company serves its automotive parts
customers.
In the first quarter of the fiscal year ended January 31, 1998, the Company
implemented a revised inventory management strategy that focused on reducing
inventory levels, increasing inventory turns and lowering carrying costs.
Although the strategy successfully met its direct objectives, it adversely
affected sales by limiting the availability of in-stock merchandise at the
Company's stores. In the second quarter of fiscal 1998, the Company returned to
its traditional inventory management strategy.
In the three-month period ended July 31, 1998, the Company was restructured
pursuant to the Reorganization. See "The Reorganization." The Reorganization was
financed primarily with net proceeds of approximately $19.6 million from the
sale and lease-back of substantially all the Company's owned real estate (net of
related mortgage payoffs, prepayment penalties and miscellaneous fees and
expenses) and proceeds from the sale of $9.5 million of the Company's
Subordinated Notes, which notes have since been exchanged for shares of the
Company's preferred stock and Common Stock. The terms of the leases covering the
real estate sold and leased back to the Company are triple net at market rates,
over a period of 15 years with two five-year renewal options. The Company
estimates that the incremental annual operating cost to lease these facilities
as compared to owning them is approximately $2.3 million, taking into account,
among other things, rental expense, reduced interest expense as a result of
mortgage payoffs and reduced depreciation. In conjunction with the sale and
lease-back of the real estate, the Company paid off mortgage loans and the
Company's former revolving credit facility before maturity, resulting in an
extraordinary loss on early extinguishment of debt of approximately $2.2 million
recorded in the three-month period ended April 30, 1998. Prior to the
Reorganization, the Company made S corporation distributions of approximately
$7.2
25
<PAGE> 27
million to its shareholders which are intended to cover all state and federal
income tax liabilities arising from the Company's income prior to the Redemption
and from the sale of the Company's real estate. As a result of the
Reorganization, including the termination of the Company's S corporation status
discussed below, results for the two-month period ended June 30, 1998 are not,
and results for future periods will not be, comparable to results for prior
periods.
Prior to the Reorganization, the Company was an S corporation and,
accordingly, not subject to federal or state income taxes. As part of the
Reorganization, the Company was converted to a C corporation and is now subject
to federal and applicable state income taxation. Pro forma statement of
operations data has been provided to give effect to estimated income tax
expenses that would have been incurred if the Company had been subject to
federal and state income taxes for all periods shown. Such pro forma statement
of operations data should not be construed as indicative of future tax expenses.
RESULTS OF OPERATIONS
The tables below set forth, for the periods indicated, (i) the percentage
of net sales of the Company and the Predecessor (as defined in footnote 1 to the
following table) represented by certain statement of operations and (ii) certain
store data. As a result of the Reorganization, results for the two-month period
ended June 30, 1998 are not comparable to prior periods.
<TABLE>
<CAPTION>
G.I.
JOE'S,
PREDECESSOR(1) INC.
--------------------------------------------------- --------
THREE THREE TWO
FISCAL YEARS ENDED MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED
------------------------- APRIL 30, APRIL 30, JUNE 30,
1996 1997 1998 1997 1998 1998
------ ------ ------ --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 66.4 65.7 65.9 68.4 68.2 66.1
------ ------ ------ ------ ------ ------
Gross margin................................. 33.6 34.3 34.1 31.6 31.8 33.9
Selling, general and administrative expense.... 30.0 29.6 30.8 36.3 37.7 31.0
------ ------ ------ ------ ------ ------
Income (loss) from operations.................. 3.6 4.7 3.3 (4.7) (5.9) 2.9
Interest expense, net.......................... (3.0) (2.9) (2.8) (3.4) (3.7) (2.6)
Gain on sale of real estate.................... 0.1 -- -- -- 2.5 --
------ ------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item........................... 0.7 1.8 0.5 (8.1) (7.1) 0.3
(Provision for) benefit from income taxes(2)... -- -- -- -- -- 0.1
------ ------ ------ ------ ------ ------
Income (loss) before extraordinary item........ 0.7 1.8 0.5 (8.1) (7.1) 0.2
Extraordinary item: loss on early
extinguishment of debt, net of taxes(2)...... -- -- -- -- (8.6) --
------ ------ ------ ------ ------ ------
Net income (loss).............................. 0.7% 1.8% 0.5% (8.1)% (15.7)% 0.2%
====== ====== ====== ====== ====== ======
STORE DATA:
Number of stores open for full period.......... 14 14 14 14 15 15
Number of remodeled stores open for full
period....................................... 2 3 3 3 4 4
Average sales per store (in thousands)(3)...... $8,861 $9,151 $8,999 $1,715 $1,725 $1,564
Store contribution (in thousands)(4)........... $1,321 $1,351 $1,417 $ 154 $ 195 $ 237
Total comparable store net sales increase
(decrease)(5)............................ (2.3)% 3.3% (1.8)% (5.6)% 3.1% (2.3)%
Remodeled same store net sales increase(6)..... 1.6% 14.6% -- -- 24.0% 27.2%
</TABLE>
- ---------------
(1) Effective May 1, 1998, the Company underwent a restructuring pursuant to
which Norman Daniels, the Company's current Chairman of the Board, President
and Chief Executive Officer, acquired a majority interest in Holdings, which
owned more than 80% of the outstanding capital stock of G.I. Joe's. In July
1998, Holdings merged into G.I. Joe's, with G.I. Joe's being the surviving
corporation. See "The Reorganization." The financial information with
respect to periods ended prior to May 1, 1998 reflects information for G.I.
Joe's prior to this restructuring (the "Predecessor").
26
<PAGE> 28
(2) The Company was an S corporation prior to May 1, 1998, and, accordingly, was
not subject to federal and state income taxes during the periods indicated
other than during the two-month period ended June 30, 1998. See Note 1 to
Financial Statements.
(3) Based upon the weighted average number of stores open during the period
indicated.
(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.
(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.
(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.
Selling, general and administrative expense includes store payroll, store
occupancy, advertising expenses, other store expenses, distribution expenses and
general and administrative expenses, including salary, bonuses and benefits of
corporate employees, administrative office occupancy expenses, data processing,
credit card and bank fees and expenses, professional expenses and other related
expenses.
Cost of sales includes inventory and certain freight costs.
TWO-MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO TWO-MONTH PERIOD ENDED
JUNE 30, 1997
Net Sales. Net sales for the two-month period ended June 30, 1998, were
approximately $23.5 million, compared with approximately $22.9 million for the
two-month period ended June 30, 1997, an increase of approximately $519,000, or
2.3%, due primarily to the opening of the Puyallup, Washington store in October
1997. While total net sales increased, comparable store sales for the period
declined by approximately $1.1 million, or 4.6%. The decrease in comparable
store sales was due to weaker sales in May, as rainy conditions and cool weather
reduced demand for spring and summer apparel, footwear and outdoor merchandise.
Gross Margin. Gross margin was 33.9% of the net sales for the two-month
period ended June 30, 1998, compared with 33.1% of net sales for the two-month
period ended June 30, 1997. The increase in gross margin for the period was the
result of a change in promotional strategy that resulted in less discounting and
fewer promotional markdowns. In the two-month period ended June 30, 1997, a
coupon book that focused heavily on automotive parts and accessories at
discounted prices was distributed to customers and promoted by the Company,
resulting in lower margin sales. For the two-month period ended June 30, 1998,
management changed its promotional strategy to include a new color catalog. The
new catalog format enhanced the merchandise presentation, was directed at higher
margin merchandise, including spring and summer apparel and footwear and
seasonal sporting goods, and resulted in sales of higher margin merchandise.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $7.3 million, or 31.0% of net sales, for the
two-month period ended June 30, 1998, compared to $6.5 million, or 28.3% of net
sales, for the two-month period ended June 30, 1997. Approximately $285,000 of
the $764,000 increase in selling, general and administrative expense related to
operating costs associated with the Puyallup, Washington store, which opened in
October 1997. The balance of the increase was attributable primarily to
increased rent expense as a result of the sale and lease-back of the Company's
owned real estate in April 1998 in connection with the Reorganization. See
"-- Overview" and The Reorganization."
Net Interest Expense. Net interest expense was $602,000 for the two-month
period ended June 30, 1998, compared to net interest expense of $586,000 for the
two-month period ended June 30, 1997. Increased interest expense associated with
higher average borrowings to finance operations, primarily due to higher
inventory levels as a result of the addition of the Puyallup, Washington store
and costs associated with the Reorganization, and increased interest on capital
lease obligations, primarily as a result of the addition of such store, were
largely offset by a reduction of approximately $125,000 in mortgage interest
expense resulting from the sale and lease-back of Company owned real estate
discussed above.
Net Income. As a result of the foregoing factors, the Company's net income
before taxes for the two-month period ended June 30, 1998 was $84,000, compared
to net income of $510,000 for the two-month period ended June 30, 1997.
27
<PAGE> 29
THREE-MONTH PERIOD ENDED APRIL 30, 1998 COMPARED TO THREE-MONTH PERIOD
ENDED APRIL 30, 1997
Net Sales. Net sales for the three-month period ended April 30, 1998, were
$25.9 million, compared with $24.0 million for the three-month period ended
April 30, 1997, an increase of $1.9 million, or 7.9%. Comparable store sales
increased by $744,000, or 3.1%, for the same period because of several factors,
including weather conditions more favorable to the sale of the Company's late
winter and spring merchandise lines, the Company's return to its traditional
inventory management strategy for its stores, and a 24% sales increase at the
Bend, Oregon store, which was remodeled in August 1997. See "-- Overview."
Gross Margin. Gross margin was 31.8% of net sales for the three-month
period ended April 30, 1998, compared with 31.6% of net sales for the
three-month period ended April 30, 1997. The increase in gross margin for the
period was due primarily to the liquidation during the three-month period ended
April 30, 1998 of certain LIFO inventory quantities carried at lower levels
compared with the cost of current purchases.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $9.8 million, or 37.7% of net sales, for the
three-month period ended April 30, 1998, compared to $8.7 million, or 36.3% of
net sales, for the three-month period ended April 30, 1997. Approximately
$402,000 of the $1.1 million increase in selling, general and administrative
expense related to operating costs associated with the Puyallup, Washington
store, which opened in October 1997. The balance of the increase in selling,
general and administrative expense related primarily to increased payroll costs
attributable to inflationary salary adjustments as well as bonuses based on
sales increases, and to increased rent expense as a result of the sale and
lease-back of the Company's owned real estate in April 1998. See "-- Overview"
and "The Reorganization."
Net Interest Expense. Net interest expense was $962,000 for the three-month
period ended April 30, 1998, compared to $822,000 for the three-month period
ended April 30, 1997. The increase in net interest expense of $140,000 resulted
from an increase in average outstanding borrowings for the period to finance the
Company's operations, including increased borrowings due to higher inventory
levels, primarily from the addition of the Puyallup, Washington store, and
interest on capital lease obligations incurred in connection with opening such
store.
Gain on Sale of Real Estate. The gain on the sale of real estate was
$640,000 for the three-month period ended April 30, 1998. The gain resulted from
the sale of a tract of undeveloped land adjacent to the Company's headquarters
and distribution center. The sale was made in conjunction with the sale and
leaseback of substantially all the Company's owned real estate as part of the
Reorganization. Because the undeveloped land was not leased back by the Company,
a gain was recognized on the sale.
Extraordinary Item: Loss on Early Extinguishment of Debt. In conjunction
with the sale and leaseback of substantially all the Company's owned real estate
in April 1998, the Company paid off mortgages and the Company's former revolving
credit facility before maturity, resulting in an extraordinary loss on early
extinguishment of debt of approximately $2.2 million. See "-- Overview" and "The
Reorganization."
Net Loss. As a result of the foregoing factors, the Company incurred a net
loss of $4.1 million for the three-month period ended April 30, 1998, as
compared to a net loss of $2.0 million for the three-month period ended April
30, 1997.
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1997
Net Sales. Net sales for the fiscal year ended January 31, 1998 were $128.2
million, compared with $128.1 million for the fiscal year ended January 31,
1997. While total net sales increased slightly, due to the opening in October
1997 of the Puyallup, Washington store, comparable store sales decreased by
1.8%. The comparable store sales decrease was due primarily to unseasonably mild
weather in the fall and early winter of calendar 1997, which had a significant
impact on sales of winter sports merchandise and cold weather apparel and
footwear during fiscal 1998, and to the Company's revised inventory management
strategy implemented in the first quarter of fiscal 1998. See "-- Overview." In
the second quarter of fiscal 1998, the Company returned to its traditional
inventory management strategy.
28
<PAGE> 30
Gross Margin. Gross margin was 34.1% of net sales in the fiscal year ended
January 31, 1998, compared with 34.3% of net sales in the fiscal year ended
January 31, 1997. This reduction in gross margin was due primarily to an
increase in inventory shrinkage, from approximately 1.0% to 1.3% of net sales.
The Company believes this level of inventory shrinkage is less than the average
in its industry.
Selling, General and Administrative Expense. Selling general and
administrative expense was $39.5 million, or 30.8% of net sales, in the fiscal
year ended January 31, 1998, compared to $38.0 million, or 29.6% of net sales,
in the fiscal year ended January 31, 1997. Approximately $925,000 of the $1.5
million increase in selling, general and administrative expense related to
pre-opening, promotional and operating costs associated with the Company's
Puyallup, Washington store, which opened in October 1997. It is the Company's
policy to expense all pre-opening costs as incurred. The balance of the increase
was due primarily to additional advertising and promotional costs incurred to
stimulate sales which were adversely affected by the mild fall and winter
weather conditions in calendar year 1997.
Net Interest Expense. Net interest expense was $3.5 million for the fiscal
year ended January 31, 1998, compared to $3.6 million for the fiscal year ended
January 31, 1997. The reduction in net interest expense resulted from lower
interest rates and lower average borrowings outstanding under the Company's
revolving line of credit facility, offset in part by an increase in interest
expense on capitalized lease obligations incurred in connection with the
construction of the Puyallup, Washington store. Interest income was virtually
unchanged for the fiscal year ended January 31, 1998 from 1997 levels. Interest
income relates primarily to interest earned by the Company on market-rate loans
to the Henway Partnerships, which partnership's partners are officers and former
officers of the Company, as well as interest earned on direct loans to officers
and former officers. See "Certain Related Transactions."
Net Income. As a result of the foregoing factors, the Company's net income
decreased to $681,000 in the fiscal year ended January 31, 1998, from $2.3
million in the preceding fiscal year.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1996
Net Sales. Net sales for the fiscal year ended January 31, 1997 were $128.1
million, compared with $124.1 million for the fiscal year ended January 31,
1996, an increase of $4.0 million, or 3.3%. This increase in net sales was
primarily the result of unusually cold weather and winter storms in the Pacific
Northwest during February, March, October and November of 1996. The cold weather
and storms in February and March resulted in significant increases in sales of
winter clothing and footwear, rain gear and winter-related automotive products
and sporting goods. The cold weather and storms in late October and November
provided an early start to the winter sports season and allowed the Company to
sell its winter clothing and footwear and skiing and snowboarding merchandise
early in the season at regular retail prices instead of at promotional prices
during the holiday season. Increased sales at remodeled stores and the
installation of additional concept shops featuring nationally prominent brands
within the Company's stores also contributed to increased sales in the fiscal
year ended January 31, 1997.
Gross Margin. Gross margin was 34.3% of net sales in the fiscal year ended
January 31, 1997, compared with 33.6% of net sales in the fiscal year ended
January 31, 1996. The increase in gross margin as a percent of sales was due
primarily to a reduction in inventory shrinkage from approximately 1.2% of net
sales in fiscal 1996 to 1.0% of net sales in fiscal 1997, the liquidation in
fiscal 1997 of certain LIFO inventory quantities carried at lower costs compared
with the cost of current purchases and fewer promotional markdowns as a
percentage of sales in fiscal 1997 as compared to fiscal 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $38.0 million, or 29.6% of net sales, in the fiscal
year ended January 31, 1997, compared to $37.2 million, or 30.0% of net sales,
in the fiscal year ended January 31, 1996. Selling, general and administrative
expense as a percentage of sales decreased in fiscal 1997 because net sales
growth exceeded the growth of selling, general and administrative expense in
that period. The $800,000 increase in selling, general and administrative
expense in fiscal 1997 was due primarily to a $705,000, or 4.0%, increase in
payroll costs attributable to inflationary salary adjustments, as well as to
bonuses based on sales increases. Other increases in employee
29
<PAGE> 31
benefit expenses, store operating expenses and credit card discount fees were
offset in part by reductions in advertising and promotional expenses.
Net Interest Expense. Net interest expense was $3.6 million for the fiscal
year ended January 31, 1997, compared to $3.7 million for the fiscal year ended
January 31, 1996. A $600,000 reduction in interest expense from $4.3 million in
the fiscal year ended January 31, 1996 to $3.7 million in the fiscal year ended
January 31, 1997 was largely offset by a reduction in interest income from
fiscal 1996 to fiscal 1997. The reduction in interest expense resulted from
lower interest rates and lower average borrowings outstanding under the
Company's revolving line of credit facility, the repayment in fiscal 1997 of a
bank term loan and the refinancing in late fiscal 1996 of two existing real
estate mortgages at lower interest rates. The decrease in interest income was
attributable to the repayment of a loan by the Henway Partnerships, the proceeds
of which were used to pay down the revolving credit facility and pay off the
term loan. See "Certain Related Transactions."
Net Income. As a result of the foregoing factors, the Company's net income
increased to $2.3 million for the fiscal year ended January 31, 1997, from
$851,000 in the preceding fiscal year.
QUARTERLY OPERATING RESULTS AND SEASONALITY
The following tables set forth certain unaudited financial information for
each of the four quarters in the fiscal years ended January 31, 1997 and 1998
and for the quarter ended April 30, 1998. This unaudited quarterly information
has been prepared on the same basis as the audited financial statements and, in
the opinion of management, includes all necessary adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the data
presented. The unaudited quarterly results should be read in conjunction with
the financial statements and related notes thereto included elsewhere in this
Prospectus. As a result of the recent Reorganization and for other reasons, the
Company believes that quarter-to-quarter comparisons of its historical financial
results should not be relied upon as an indication of future performance. See
"The Reorganization," "Risk Factors -- Effects of Weather" and "Risk
Factors -- Seasonality and Fluctuations in Periodic Operating Results."
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $25,450 $35,991 $31,868 $34,803 $24,013 $36,215 $32,538 $35,472 $25,908
Cost of sales.................. 17,103 24,408 20,848 21,825 16,425 24,134 21,434 22,559 17,670
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin................. 8,347 11,583 11,020 12,978 7,588 12,081 11,104 12,913 8,238
Selling, general and
administrative expense....... 8,659 9,581 9,609 10,127 8,717 9,871 10,244 10,696 9,755
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................... (312) 2,002 1,411 2,851 (1,129) 2,210 860 2,217 (1,517)
Interest expense, net.......... (903) (930) (882) (897) (822) (851) (816) (988) (962)
Gain on sale of real estate.... -- -- -- -- -- -- -- -- 640
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item........... (1,215) 1,072 529 1,954 (1,951) 1,359 44 1,229 (1,839)
Extraordinary item: loss on
early extinguishment of
debt......................... -- -- -- -- -- -- -- -- (2,220)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $(1,215) $ 1,072 $ 529 $ 1,954 $(1,951) $ 1,359 $ 44 $ 1,229 $(4,059)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per share
before extraordinary item.... $ (0.30) $ 0.26 $ 0.13 $ 0.48 $ (0.48) $ 0.34 $ 0.01 $ 0.30 $ (0.45)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted income (loss) per share
before extraordinary item.... $ (0.30) $ 0.26 $ 0.12 $ 0.43 $ (0.48) $ 0.31 $ 0.01 $ 0.27 $ (0.45)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per
share........................ $ (0.30) $ 0.26 $ 0.13 $ 0.48 $ (0.48) $ 0.34 $ 0.01 $ 0.30 $ (1.00)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted net income (loss) per
share........................ $ (0.30) $ 0.26 $ 0.12 $ 0.43 $ (0.48) $ 0.31 $ 0.01 $ 0.27 $ (1.00)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................. 67.2 67.8 65.4 62.7 68.4 66.6 65.9 63.6 68.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin................. 32.8 32.2 34.6 37.3 31.6 33.4 34.1 36.4 31.8
Selling, general and
administrative expense....... 34.0 26.6 30.2 29.1 36.3 27.3 31.5 30.1 37.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................... (1.2) 5.6 4.4 8.2 (4.7) 6.1 2.6 6.3 (5.9)
Interest expense, net.......... (3.6) (2.6) (2.8) (2.6) (3.4) (2.3) (2.5) (2.8) (3.7)
Gain on sale of real estate.... -- -- -- -- -- -- -- -- 2.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item........... (4.8) 3.0 1.6 5.6 (8.1) 3.8 0.1 3.5 (7.1)
Extraordinary item: loss on
early extinguishment of
debt......................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (8.6)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. (4.8)% 3.0% 1.6% 5.6% (8.1)% 3.8% 0.1% 3.5% (15.7)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company's results of operations have fluctuated, and likely will
continue to fluctuate, significantly from period to period. Weather and changes
in weather significantly affect the Company's sales of sporting goods equipment
and outdoor apparel and footwear. Net sales and margins are adversely affected
in periods of unseasonable weather conditions. In addition, the Company's
seasonal sporting goods merchandise mix is weighted substantially toward the
summer and winter seasons, which historically has led to much stronger results
of operations for the quarters ending July 31 and January 31 than for the other
two quarters. The Company has historically incurred net losses in the quarters
ending April 30 and achieved limited net income or incurred net losses in the
quarters ending October 31. The Company's sporting goods and outdoor apparel and
footwear operations are also subject to traditional retail seasonality patterns
related to the holiday season and to changes in general and regional economic
conditions and changes in consumer preferences. The timing and expenses
associated with the Company's store remodeling program and the opening of new
stores or the acquisition of other businesses as part of the Company's growth
and expansion strategy will also contribute to fluctuations in periodic
operating results. Accordingly, the Company's operating results may vary
materially from quarter to quarter. See "Risk Factors -- Effects on Weather,"
"Risk Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"Business -- Growth and Expansion Strategy."
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally to finance working capital needs,
remodel and upgrade existing stores and open new stores. Historically, these
activities have been funded by internally generated cash, long-term mortgage
financing, capital and operating leases and borrowings under the Company's
revolving line of credit facilities. Prior to the end of the fiscal year ending
January 31, 2003, the Company plans to open eight new stores and remodel ten
existing locations at an estimated aggregate cost of approximately $23.4
million, which figure excludes inventory for the new stores. See
"Business -- Growth and Expansion Strategy." Management expects to fund these
expenditures through internally generated cash, lease financings, borrowings
under the Company's revolving line of credit facility and proceeds from the sale
of shares in the Offering. See "Use of Proceeds." This or further expansion of
the Company's operations, including the possible acquisition of complementary
businesses, may also be funded by public or private debt or subsequent equity
offerings by the Company. See "Risk Factors -- Risks Associated With Potential
Acquisitions." Management estimates that the capital cost of new or remodeled
stores will be approximately $1.3 million per store. In addition, management
expects that each new store will require approximately $2.1 million for
inventory, which will be financed on normal trade credit terms, and
approximately $150,000 in pre-opening and promotional expenses. Actual costs to
remodel or to construct and open stores may substantially exceed such amounts.
Capital expenditures by the Company in the five-month period ended June 30,
1998 and in the fiscal years ended January 31, 1998, 1997 and 1996 were
approximately $986,000, $2.5 million, $2.3 million and $1.7 million,
respectively. These capital expenditures were primarily for remodeling existing
stores, acquiring land for new store locations and constructing and opening new
stores.
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In March 1998, the Company entered into a three-year revolving line of
credit facility with Foothill Capital Corporation to replace an existing
revolving line of credit facility and term loan. The amount available under the
new line of credit facility is the lesser of $20.0 million or an amount equal to
60% of eligible FIFO inventory, less specified reserves and the aggregate amount
of all undrawn letters of credit. Interest is payable monthly at the lender's
prime reference rate plus 1/2%. Letters of credit are issuable against the
revolving line of credit facility up to a maximum of the lesser of $1.0 million
or available borrowings under the facility. The line of credit facility is
secured by a security interest in substantially all of the Company's assets and
contains covenants which restrict, among other things, the Company's ability to
incur additional indebtedness.
In conjunction with the Reorganization, in the three-month period ended
July 31, 1998, the Company redeemed all of the Company's outstanding capital
stock, other than shares held by Norman Daniels and two minority shareholders,
for an aggregate purchase price of approximately $16.6 million, and repurchased
certain of the Company's outstanding options to purchase Common Stock for an
aggregate purchase price of approximately $3.9 million. See "Certain Related
Transactions." The redemption of shares as part of the Reorganization resulted
in no gain to redeemed shareholders for state or federal income tax purposes.
The Company financed the stock redemption and the repurchase of stock options
primarily with the net proceeds of approximately $19.6 million from the sale and
lease-back of substantially all its owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) and the
proceeds from the sale of $9.5 million of the Company's Subordinated Notes. See
"The Reorganization." The terms of the leases covering the real estate sold by
and leased back to the Company are triple net at market rates, over a period of
15 years with two five-year renewal options. The Company estimates that the
incremental annual operating cost to lease these facilities as compared to
owning them is approximately $2.3 million, taking into account, among other
things, rental expense, reduced interest expense as a result of mortgage payoffs
and reduced depreciation. In conjunction with the sale and lease back of the
real estate, the Company paid off mortgage loans and the Company's former
revolving credit facility before maturity, resulting in an extraordinary loss on
early extinguishment of debt of approximately $2.2 million recorded in the
three-month period ended April 30, 1998. Prior to the Reorganization, the
Company made S corporation distributions of approximately $7.2 million to its
shareholders which are intended to cover all state and federal income tax
liabilities arising from the Company's income prior to the Redemption and from
the sale of the Company's real estate. See "The Reorganization."
The Company believes that the net proceeds from the Offering, combined with
borrowings under its line of credit facility and internally generated funds,
will be sufficient to fund its requirements for working capital and capital
expenditures for at least the next 12 months.
As of June 30, 1998, the Company had checks outstanding in excess of cash
deposits of $707,000 and borrowing capacity under its revolving line of credit
facility of approximately $4.9 million.
Cash Flow for the Two-Month Period Ended June 30, 1998. Checks outstanding
in excess of cash deposits increased by $274,000 during the two-month period
ended June 30, 1998. Net cash provided by operating activities was $2.2 million,
derived principally from cash net income (net income plus depreciation and
amortization) of $428,000 and an increase in accounts payable and accrued
liabilities of $3.3 million, offset in part by an increase in accounts
receivable, inventory and other current assets of $1.5 million.
Investing activities during the period included capital expenditures of
$896,000, related principally to the Company's new store in Hillsboro, Oregon,
which opened in July 1998. Investing activities also included an increase in
other non-current assets of $77,000 related to professional fees and financing
fees incurred by the Company in connection with the Reorganization. See "The
Reorganization."
Financing activities during the period consisted of a net reduction in
borrowings of $1.3 million under the Company's revolving line of credit
facility, principal payments of $48,000 on term loan obligations and $133,000 on
capital lease obligations.
Cash Flow for the Three-Month Period Ended April 30, 1998. During the
three-month period ended April 30, 1998, checks outstanding in excess of cash
deposits decreased by $370,000. Net cash used by operating activities was $1.2
million, derived principally from a cash net loss (net loss less depreciation
and
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<PAGE> 34
amortization, plus the gain on sale of real estate, less the extraordinary loss
on early extinguishment of debt) of $1.9 million, an increase in accounts
payable and accrued liabilities of $2.8 million and a net reduction in all other
current assets, excluding inventory, of $289,000, offset in part by an increase
in inventory of $2.6 million. The increase in inventory is due primarily to
seasonal increases in spring and summer merchandise and inventory designated for
the new Hillsboro, Oregon store, which opened in July 1998.
Investing activities during the three-month period ended April 30, 1998
included the proceeds of $25.1 million from the sale and lease-back of
substantially all the Company's owned real estate and capital expenditures of
$90,000. Investing activities also included an increase in other non-current
assets of $768,000, related to professional and financing fees incurred by the
Company in conjunction with the Reorganization. See "The Reorganization."
Financing activities during the period included a net reduction in
borrowings of $3.5 million under the Company's revolving line of credit
facility. Net proceeds resulting from the sale and lease-back in late April 1998
of substantially all the Company's owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) were used to
pay down temporarily the revolving line of credit facility prior to the
redemption in May 1998 of capital stock and options of the Company as part of
the Reorganization. See "The Reorganization." This reduction in the revolving
line of credit facility was net of an increase of approximately $1.0 million
attributable to a term loan that was rolled into the revolving credit facility
when the Company replaced its former revolving credit facility in May 1998.
Prior to the sale and lease-back transaction, borrowings under the revolving
line of credit facility had actually increased for the period to finance the
Company's operations. The Company historically incurs net operating losses
during the three-month period ending April 30.
Financing activities during the three-month period ended April 30, 1998
also included a pay-down of long term debt of $10.1 million, which related
primarily to the payoff of mortgage obligations on the properties included in
the sale and lease-back transaction and the rollover of the term loan discussed
above, principal payments on capital lease obligations of $226,000, prepayment
penalties of $1.9 million incurred on the payoff of the mortgages and the
Company's former revolving credit facility, and S corporation distributions in
the amount of $6.9 million to cover shareholder tax liabilities for the fiscal
years ended January 31, 1997 and 1998, and the three-month period ended April
30, 1998. See "The Reorganization."
Cash Flow for the Fiscal Year Ended January 31, 1998. During the fiscal
year ended January 31, 1998, checks outstanding in excess of cash decreased by
$87,000. Operating activities generated net cash of $1.5 million, principally
from cash net income (net income plus depreciation and amortization) of $3.0
million and an increase in accounts payable and accrued liabilities of $2.0
million, offset in part by an increase in inventory of $3.9 million. The
increase in inventory was due primarily to the opening of the Puyallup,
Washington store in October 1997.
Investing activities during the period included capital expenditures of
$2.5 million, the majority of which was used to remodel an existing store in
Bend, Oregon, and to open the Puyallup, Washington store.
Financing activities during the period consisted principally of a net
increase of $1.4 million in borrowings under a revolving line of credit
facility, $3.2 million borrowed to refinance mortgages on two Company owned
store locations, and $1.3 million borrowed for fixtures and equipment for the
Puyallup, Washington store. Other financing activities included principal
payments of $3.4 million on term loan obligations, payments of $854,000 on
capital lease obligations and S corporation distributions of $370,000 to cover
shareholder tax liabilities.
YEAR 2000 COMPLIANCE
The Company relies on computer systems and software to operate its
business, including applications used in sales, purchasing, inventory
management, finance and various administrative functions. The Company has
determined that certain of its software applications will be unable to interpret
appropriately the calendar Year 2000 and subsequent years.
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<PAGE> 35
Since June 1997, the Company has been actively engaged in achieving Year
2000 compliance. The Company's Year 2000 compliance project has been divided
into several phases. First, all hardware and operating system software
applications were audited and found to be Year 2000 compliant. Second, all
third-party software applications were checked for compliance. Since the Company
has developed most of its applications internally, few applications needed to be
checked. Of these, only two minor applications were found to have Year 2000
issues and the Company has taken steps to replace these applications. Third, the
Company has completed an inventory of its database files and
internally-developed software applications, and has developed an application to
modify non-Year-2000-compliant database files, re-compile software applications
and monitor progress. Finally, the Company re-prioritized existing information
technology ("IT") projects to allocate programming resources to the Company's
Year 2000 project.
As of August 1998, 70 percent of the Company's systems are Year 2000
compliant. The target date for full compliance is June 30, 1999.
The Company's total budget for its Year 2000 project is $145,000,
approximately half of which amount will be spent through December 31, 1998. This
amount represents approximately 10 percent of total IT expenditures budgeted for
the period from June 1997 through June 1999. The Company continues to manage
total IT expenses by re-prioritizing or curtailing less critical investments,
incorporating Year 2000 readiness into previously planned system enhancements
and by using existing staff to implement its Year 2000 program. The Company has
not hired any outside consultants for its Year 2000 project, nor has it needed
to purchase any hardware or software.
The Company acquires a majority of its inventory from approximately 30
vendors. If these vendors have unresolved Year 2000 issues which affect their
ability to supply merchandise, the Company could be adversely affected. The
Company plans to complete a Year 2000 readiness survey of its top vendors by
December 1998. In the event that it appears a vendor will be adversely affected
by Year 2000 issues, the Company believes that it will be able to find
alternative suppliers.
Should the Company not achieve full compliance in a timely manner or
complete its Year 2000 project within its current cost estimates, the Company's
business, financial condition and results of operations could be adversely
affected. However, in the event that the Company fails to meet the deadlines
above, the Company believes that the financial impact will not be material since
all systems believed by the Company to be critical have already been certified
as Year 2000 compliant.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective in its fiscal year ending January 31, 1999, the Company will be
required to adopt SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. SFAS No.
131 changes current practice under SFAS No. 14 by establishing a new framework
on which to base segment reporting (referred to as the "management" approach)
and also requires interim reporting of segment information. Management does not
expect that the impact of adoption of these pronouncements will be material to
the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS 133 will have no impact on the Company's financial position or results of
operations.
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BUSINESS
INTRODUCTION
G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently opened and remodeled stores. For the fiscal year ended
January 31, 1998, the Company's new and remodeled stores generated average
annual sales of approximately $9.9 million, compared to approximately $8.6
million for the Company's other stores. In fiscal 1998, new and remodeled stores
achieved average sales per selling square foot of $213, compared to $193 for
other stores. Average annual per store contribution (i.e., average per store
gross margin less average per store expenses) in fiscal 1998 was approximately
$1.6 million for new and remodeled stores and $1.3 million for other stores. The
Company has opened two new stores and remodeled four existing stores over the
past four fiscal years using its updated store concept.
Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and footwear and
(iii) automotive aftermarket parts and accessories. The Company's net sales of
$128.2 million in fiscal 1998 were derived 39% from the sale of sporting goods,
27% from the sale of outdoor apparel and footwear, 21% from the sale of
automotive parts and accessories and 13% from the sale of other assorted
products.
G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining its internal systems,
distribution system and training programs and undertaking selective management
additions, all of which created a solid foundation to support future expansion.
In May 1998, Mr. Daniels acquired majority ownership of the Company and the
Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."
G.I. Joe's growth and expansion strategy is to increase the profitability
of the Company's existing stores through a major remodeling program; selectively
open new stores, primarily in Washington; enter new geographic markets in
Montana, Idaho, Utah, Nevada and Northern California through complementary
acquisitions or internal growth; further develop alternative distribution
channels; and examine opportunities for national expansion and vertical
integration.
INDUSTRY OVERVIEW
According to the National Sporting Goods Association, between 1992 and 1997
the U.S. sports merchandise retail market grew 23% to $42.9 billion from $34.9
billion, representing a compound annual growth rate of 4.0%. There are four
principal categories of sports merchandise retailers in the United States: (i)
traditional sports merchandise retailers which generally operate stores under
30,000 square feet in size and are regional in focus, (ii) specialty sports
merchandise retailers which generally focus on high-end products relating to a
single activity category, such as The Orvis Company, Inc., (iii) mass
merchandisers such as Wal-Mart and K-Mart and (iv) large format sports
merchandise retailers which generally operate stores larger than 50,000 square
feet in size, such as The Sports Authority, Inc. and Gart/Sportmart. Large
format sports merchandise retailers represent a rapidly increasing percentage of
this retail market. From 1995 to 1997, sales
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by the top five large format sports merchandise retailers grew approximately
20%, from approximately $3.0 billion to approximately $3.6 billion.
According to the Automotive Parts and Accessories Association, between 1992
and 1997 the U.S. market for automotive aftermarket parts and accessories grew
35% to $30.0 billion from $22.3 billion, representing a compound annual growth
rate of 6%. Automotive parts retailers account for over one-third of all sales
in this market. Growth in this market has been driven primarily by two trends:
(i) the increasing sales of pickup trucks, mini-vans and sports-utility vehicles
and (ii) the increasing average age of automobiles in the United States. In
1997, sales of light trucks accounted for 45% of all new U.S. vehicle sales and
a record 6.9 million pickup trucks, mini-vans and sport-utility vehicles were
sold, representing a 4.5% increase over 1996. Increased sales of pickup trucks,
mini-vans and sport-utility vehicles have increased demand for automotive
accessories such as utility racks, running boards and truck bed liners and
covers. In addition, as the average sales price of new vehicles has continued to
increase, so has the average length of vehicle ownership. In 1996, more than 33%
of vehicles were five to ten years old, and more than 35% of the remaining
vehicles were more than ten years old. These factors have led to growth in the
"do-it-yourself" automotive parts market, as vehicle owners reduce costs by
performing repairs and maintenance. People who perform work on their own
automobiles account for more than half of the purchases of starting, fuel system
and charging system parts, and more than one-third of all purchases of brake and
engine parts.
The retail markets for sports and automotive merchandise are both highly
fragmented on a national and regional basis. This fragmentation presents
numerous opportunities for consolidation. Although there is substantial overlap
between consumers of sports merchandise and automotive merchandise, most
participants in these retail markets carry only sports or automotive merchandise
or a limited mix of these products. Few participants take advantage of the
cross-selling opportunities available by carrying full lines of both types of
merchandise.
BUSINESS STRATEGY
The Company's business strategy is based on the following key competitive
strengths.
Unique Merchandise Mix. G.I. Joe's carries full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and accessories.
The Company's merchandise mix has led to substantial cross-shopping by customers
between the sporting goods and automotive departments. Based on a survey of
approximately 1,400 customers conducted by the Company in 1997, during the same
visit to a G.I. Joe's store over 50% of the Company's sporting goods customers
also purchased automotive products, and over 30% of the Company's automotive
customers also purchased sporting goods products. For example, a customer may
purchase both a bicycle and a bicycle rack for his vehicle, or snow skis, a ski
rack and snow chains for his vehicle. The Company continually adjusts its
merchandise mix to respond to changes in consumer preference, to target higher
margin products and to attract additional customers in an ongoing effort to
increase sales and improve profitability. A typical G.I. Joe's store stocks over
65,000 active stock keeping units ("SKUs") (including different styles and
colors as separate units) of sports and automotive merchandise. No other
superstore retailer pursues the Company's two-stores-in-one merchandise mix
strategy, and the Company's extensive and diverse merchandise selection
differentiates it from other retailers of sports or automotive merchandise.
Proven Store Concept and Remodeling Strategy. The Company has developed a
successful open ceiling, racetrack design concept for its stores that has
significantly increased same-store sales and sales per square foot. See "Store
Concept." Same-store sales at the two stores remodeled in the last three years
have increased approximately 18% on average in the first year of operation after
remodeling, which equates to an improvement in average sales from $196 per
selling square foot in the year prior to remodeling to $231 per selling square
foot in the first year after remodeling. For the fiscal year ended January 31,
1998, the Company's new and remodeled stores generated average annual sales of
approximately $9.9 million, compared to approximately $8.6 for the Company's
other stores. In fiscal 1998, new and remodeled stores produced average sales
per selling square foot of $213, compared to $193 for other stores. Average
annual per store contribution in fiscal 1998 was approximately $1.6 million for
new and remodeled stores and $1.3 million for other stores.
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In addition, in fiscal 1998 the average sale per transaction at the Company's
new and remodeled stores was $34, which is 17% higher than the $29 amount at the
Company's other stores. The Company has opened two new stores and remodeled four
existing stores over the past four fiscal years using its updated store concept.
The Company intends to open eight new stores and remodel ten existing stores
prior to the end of fiscal 2003. See "Business -- Growth and Expansion
Strategy."
Leading Position in the Pacific Northwest. By focusing on the Pacific
Northwest, the Company has established a significant presence in the region. The
Company has developed customer loyalty by offering an extensive selection of
quality merchandise. The Company has gained strong regional name recognition by
sponsoring nationally and regionally promoted sporting events, such as the
nationally televised Budweiser/G.I. Joe's 200 Champ Car race. The Company's
status as a leading regional retailer has increased its buying power with
vendors. In addition, the Company's regional focus has allowed it to benefit
from certain economies of scale, including those related to the Company's
concentrated advertising and marketing plan and centralized distribution system.
Management believes that favorable economic conditions and population trends in
the Northwest will result in increased demand for the Company's merchandise and
provide further opportunities for the Company to leverage its strong market
position in the region.
Quality Merchandise Competitively Priced. G.I. Joe's focuses on providing
customer value. The Company has developed strong working relationships with its
vendors, which contributes to the Company's ability to obtain leading brand name
merchandise at favorable prices. The Company frequently receives significant
volume discounts from vendors because of its strong regional presence, high
sales volume and membership in national buying groups. Favorable pricing from
vendors, together with the Company's direct purchasing and efficient
distribution system, enables the Company to offer premium quality merchandise at
competitive prices.
Superior Customer Service. Superior customer service is a key component of
the quality shopping experience provided at G.I. Joe's. The Company has
established a reputation in its markets for sales associates who understand the
needs of customers and are knowledgeable about the Company's merchandise. The
Company extensively trains its sales associates by merchandise department and
activity category, and many sales associates actively participate in the
activities related to the specific merchandise they sell. The Company also
specially trains its sales associates to serve female customers shopping in
traditionally male-oriented product categories, such as field and stream and
automotive products. The Company believes that the extensive product knowledge
of its sales associates and the Company's superior customer service and
after-sale support differentiate it from mass merchandisers and other large
concept sporting goods and automotive parts and accessories retailers.
Enhanced Margins. The Company continually seeks to improve its gross margin
and operating margin. The Company has improved its gross margin by: increasing
sales of higher margin outdoor apparel and footwear and private label products;
including vendor concept shops within the Company's stores; increasing the
quantity of merchandise the Company directly imports; and increasing its buying
power as a result of its expanded operations and membership in national buying
groups. To the extent the Company expands its business in the Pacific Northwest,
the Company anticipates that its operating margin will improve as a result of
further economies of sale, including those related to the Company's concentrated
advertising and marketing plan and centralized distribution system. Stores open
for at least 12 months have generally contributed positively to the Company's
margins. For the fiscal year ended January 31, 1998, the average annual per
store contribution for stores open for at least 12 months was approximately $1.4
million, or approximately 16% of average annual per store sales.
Management Ownership and Experience. In May 1998, Norman Daniels, the
Company's current Chairman, President and Chief Executive Officer, acquired
control of the Company in a management buy-out. After the Offering, Mr. Daniels
will own approximately 37.8% of the Company's outstanding Common Stock
(approximately 36.2% if the Underwriters' over-allotment option is exercised in
full). Mr. Daniels has served in various positions with the Company over the
past 34 years and the Company's executive officers have an average of over 18
years' experience with the Company. Ten of the Company's 14 full-time
purchasing, sales
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and managerial employees (excluding the executive officers) have been with the
Company for over ten years. The Company's store managers average over 12 years
of service with the Company.
GROWTH AND EXPANSION STRATEGY
G.I. Joe's intends to expand its business by implementing the following
growth and expansion strategy:
Remodel Existing Stores to Increase Sales. The Company has embarked upon a
major remodeling program to increase same-store sales. Same-store sales at the
two stores remodeled in the last three years have increased approximately 18% on
average in the first year of operation after remodeling, which equates to an
improvement in average sales from $196 per selling square foot in the year prior
to remodeling to $231 per selling square foot in the first year after
remodeling. The Company has remodeled four of its existing stores over the past
four fiscal years using its updated store concept and intends to remodel the
following ten stores prior to the end of the fiscal year ending January 31,
2003.
<TABLE>
<CAPTION>
SCHEDULED DATE PLACED IN
LOCATION REMODELING DATE(1) SERVICE SQUARE FOOTAGE
-------- ------------------ -------------- --------------
<S> <C> <C> <C>
Beaverton, Oregon 2/99 04/74 55,120
Tualatin, Oregon 7/99 09/85 55,120
Gresham, Oregon 7/99 05/87 55,120
Medford, Oregon 2/00 03/86 48,500
Federal Way, Washington 2/00 03/91 55,120
Vancouver, Washington 2/00 06/89 55,120
Oak Grove, Oregon 2/01 04/72 67,100
South Salem, Oregon 2/01 03/85 55,120
Albany, Oregon 2/01 11/89 55,120
Portland, Oregon 2/02 03/79 55,120
</TABLE>
- ---------------
(1) Scheduled remodeling dates represent management's estimate of the date
remodeling will commence. Actual commencement dates may differ from these
estimates.
The criteria used by the Company in determining when a store will be
remodeled includes the store's sales volume, the remaining term of the related
lease, proximity to other G.I. Joe's stores (to limit cannibalization of sales)
and to competitors' stores and the general prospects for the store based on
local population and demographic trends, including items such as income levels
and distribution, age and family size.
The remodeling procedure includes improvements in store layout, lighting,
signage, fixtures and merchandise presentation and a conversion from a drop
ceiling to an open ceiling. Remodeling of each store is performed in stages in
order to permit continued operation during the typical 70- to 90-day remodeling
period. Remodeling costs are estimated to be approximately $1.3 million per
store, including approximately $700,000 for fixtures and approximately $600,000
for leasehold improvements. Actual remodeling costs may be higher. The average
annual per store contribution (i.e., store gross margin less store expenses) for
the Company's four remodeled stores that have been operating for over a year is
approximately $1.6 million, compared to a corresponding per store contribution
of approximately $1.3 million for the Company's non-remodeled stores (excluding
newer stores).
Open New Stores in the Pacific Northwest. The Company intends to expand its
presence in the Pacific Northwest, primarily in Washington, by selectively
opening two new stores each year for the next four fiscal years. The Company
currently has two stores operating in the Seattle/Puget Sound area of
Washington, with two additional stores scheduled to open in this area in
calendar year 1999. The Company believes that it can successfully expand its
business in Washington because of the geographic proximity of this area to the
Company's Oregon operations, which strengthens name-brand recognition for the
Company in the Washington markets, and the lack of a dominant sports merchandise
retailer in Washington. Weather patterns and consumer demographics in Washington
and Oregon are similar, which will assist the Company in predicting
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the merchandise mix suitable for Washington stores and enable the Company to
employ advertising campaigns used successfully to target Oregon consumers. The
Company intends to implement in the Seattle/ Puget Sound area its strategic
multi-store placement strategy used successfully in the Portland metropolitan
area, where a cluster of stores in an urban center has led to increased market
penetration and economies of scale. Management believes that the Company's
distribution center can accommodate at least five additional stores in the
Pacific Northwest without material modification, and that further expansion in
Washington will lead to increased operating economies of scale. Expansion beyond
five additional stores in the Pacific Northwest and expansion into other
geographic areas may require material modification of the Company's distribution
center or the construction or development of additional distribution facilities.
See " -- Vendors, Purchasing and Distribution."
The Company carefully evaluates potential new store sites in an effort to
maximize profitability and market share. Factors considered by the Company in
evaluating a potential site include: proximity to other G.I. Joe's stores
(balancing the benefits of market penetration with possible cannibalization of
sales) and to competitors' stores; local demographics (such as income levels and
distribution, age and family size), and population base and trends; availability
of adequate parking; and proximity to commercial thoroughfares. The Company
generally decides whether to construct its standard 55,000 square foot store or
the smaller 35,000 square foot version based upon the size of the population of
the surrounding community, with larger stores typically serving local
populations in excess of 50,000 people and smaller stores typically serving
smaller communities.
The Company currently operates all of its stores on a long-term operating
lease basis. Management estimates that capital expenditures required to open new
stores on an operating lease basis will be approximately $1.3 million per store.
In addition, management expects that each new store will require approximately
$2.1 million of inventory, which will be financed on normal trade credit terms.
If the Company purchases the underlying real estate and building, or if opening
a new store at a location requires that an existing building be retrofitted, the
initial investment by the Company will increase. In addition to capital
expenditures, the Company anticipates incurring expenses of approximately
$150,000 for pre-opening and promotional activities associated with each store
opening, including the cost of training employees and stocking the store. It is
the Company's policy to expense all pre-opening costs as incurred.
Stores open for at least 12 months have generally contributed positively to
the Company's margins. For the fiscal year ended January 31, 1998, the average
annual per store contribution for stores open for at least 12 months was
approximately $1.4 million, or approximately 16% of average annual per store
sales. Management estimates that new stores will contribute positively to the
Company's margins after 12 months of operation and that after approximately
three years of operation new stores will generate net sales comparable to
average net sales generated at existing stores. However, new stores may not
achieve historic or anticipated levels of operating results for the Company. See
"Risk Factors -- Ability to Implement Business and Growth and Expansion
Strategies and Manage Growth."
Pursue Acquisitions in Existing and New Markets. The retail markets for
sports and automotive merchandise are both highly fragmented. Management
believes that the fragmented nature of these markets, together with the
similarity of the consumer demographics and seasonal outdoor activity patterns
in the Pacific Northwest and portions of Montana, Idaho, Utah, Nevada and
Northern California, provide attractive expansion opportunities for the Company
by means of strategic acquisitions. Most participants in the retail sports and
automotive markets carry only sports or automotive merchandise or a limited mix
of these products. After a strategic acquisition of a local or regional sports
or automotive retail chain, the Company would introduce its other product
categories into those stores' merchandise mix where management deems such new
product introductions to be profitable. The Company has no current
understandings or agreements regarding potential acquisitions.
Further Develop Alternative Channels of Distribution. G.I. Joe's is
entering new distribution channels that the Company believes are suited to its
competitive strengths. For example, management believes that expansion
opportunities exist in the mail order catalog and Internet-based retail
distribution channels. As part of this expansion, the Company recently completed
a test mailing of catalogs to 50,000 potential customers in
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the Pacific Northwest and has developed the G.I. Joe's Online Store, a complete
Internet store to sell its products. The Company is planning additional catalogs
for specific categories of its merchandise, including bicycles, camping gear,
backpacking equipment, snowboards, skateboards and aftermarket automotive
supplies. In addition, in September 1998 the Company acquired Timberline Direct,
a direct marketing retailer which sells merchandise complementary to that
offered by the Company through catalog and Internet-based channels. Management
anticipates that use of these types of alternative distribution channels will
present additional up-selling and cross-selling opportunities to the Company on
a national level.
Examine Opportunities for National Expansion and Vertical
Integration. Management believes that the Company's experience in developing a
strong position in the Pacific Northwest and the fragmented nature of the sports
and automotive retail markets place it in a position to replicate its success in
other regions. Management further believes that the Company's sports and
automotive merchandise mix would prove equally effective in other regions,
particularly in the Northern and Central portions of the United States. The
Company intends to evaluate national expansion opportunities, particularly those
available by means of acquisitions and alternative distribution channels. The
Company also intends to explore vertical integration opportunities through the
acquisition of complementary manufacturing operations.
TARGET CUSTOMERS
The Company tailors its merchandise mix of full lines of sports and
automotive products to the active Pacific Northwest lifestyle. The majority of
the consumers of the Company's merchandise are males between the ages of 21 and
59 who engage in outdoor activities, especially field and stream activities, and
who perform light to medium work on their vehicles. While many of the products
carried by the Company are geared to traditionally male-oriented activities
(such as hunting and fishing), approximately 45% of the Company's customers are
women purchasing products for themselves, as women's participation in outdoor
and team activities increases, or for men. In response to increasing numbers of
female customers, the Company has expanded its women's activewear departments.
The Company is also in the process of adding active kids' clothing departments
to its stores.
MERCHANDISE
G.I. Joe's stores offer full lines of sports and automotive merchandise at
a wide range of retail price points. A typical store stocks over 65,000 active
SKUs (including different styles and colors as separate units). The Company
supplements its extensive selection of in-stock merchandise by means of a
special order department. The Company's understanding of the Pacific Northwest's
seasonal weather patterns and its customers' active lifestyles allows it to
stock merchandise that appeals to its customers' unique needs. The demographics
of consumers drawn to the Company's sporting goods and automotive product lines
are similar, which leads to significant cross-shopping between G.I. Joe's
sporting goods and automotive departments.
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The following charts set forth the approximate percentage of sales and SKUs
attributable to each merchandise category during the fiscal year ended January
31, 1998.
PERCENTAGE SALES BY PRODUCT CATEGORY TOTAL SKUS BY PRODUCT CATEGORY
[GRAPHIC] [GRAPHIC]
Sporting Goods
Sales of sporting goods have increased at an average annual rate of 3% for
the four fiscal years ended January 31, 1998, and such sales accounted for
approximately 39% of the Company's sales in fiscal 1998. The sporting goods
departments of the Company's stores carry equipment for, among other activities,
cycling, golf, tennis, outdoor games, snow skiing and snowboarding, water skiing
and water sports, kayaking and canoeing, camping, backpacking, fishing, hunting,
archery, team sports and general fitness. The sporting goods departments also
stock fishing boats and motors and marine accessories.
The Company sells leading name-brand products, including sporting goods
supplied by the following manufacturers, among others:
- - ALUMACRAFT
- - BAUSCH AND LOMB
- - COLEMAN
- - CLEVELAND GOLF
- - DIAMONDBACK
- - DYNASTAR
- - EUREKA
- - G-LOOMIS
- - GARCIA
- - HOSPORTS
- - HUFFY SPORT
- - JANSPORT
- - K2
- - MARKER
- - NORDICA
- - O'BRIEN
- - OLD TOWN
- - RAICHLE
- - RAWLINGS
- - RIDE
- - ROLLERBLADE
- - ROSSIGNOL
- - SALOMON
- - SPALDING
- - TOMMY ARMOUR
- - WILSON
Outdoor Apparel and Footwear
The Company's fastest growing department is the outdoor apparel and
footwear department, which also generates the highest gross margin for the
Company. Sales attributable to this department have grown at an
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<PAGE> 43
average annual rate of 2.8% for the four fiscal years ended January 31, 1998,
and accounted for approximately 27% of the Company's sales in fiscal 1998. The
outdoor apparel and footwear department includes several categories of products:
men's and women's casual wear; men's and women's active wear; NFL, NBA, MLB, NHL
and NCAA-licensed team shops (with special emphasis on Northwest professional
and college teams); work clothing; outdoor wear; ski wear; and men's and women's
outerwear and accessories. Footwear includes various types of athletic shoes as
well as seasonal footwear, "brown shoes" (i.e., leather outdoor, non-athletic
footwear) and hiking, fishing and hunting boots, including waders and insulated
paks.
The Company purchases outdoor apparel and footwear from leading sports and
apparel manufacturers such as:
- - ADIDAS
- - AIRWALK
- - ASICS
- - CARHART
- - CHAMPION
- - COLUMBIA SPORTSWEAR
- - DANNER
- - HELLY-HANSEN
- - LEVI STRAUSS
- - NIKE
- - PACIFIC TRAIL
- - REEBOK
- - ROFFE
- - RUSSELL ATHLETICS
- - SPEEDO
- - STARTER
- - VANS
- - WOLVERINE
- - WOOLRICH
Automotive Aftermarket Parts and Accessories
Each G.I. Joe's store features a full-service automotive aftermarket parts
and accessory department. Sales by these departments have been relatively
unchanged for each of the four fiscal years ended January 31, 1998, and
accounted for approximately 21% of the Company's sales in fiscal 1998. These
"stores-within-a-store" are divided into parts, accessories and lube sections.
The parts section carries a full selection of name-brand parts, including
brakes, shocks, tune-up, exhaust and engine parts and batteries, as well as
certain private label products. Merchandise in the accessory section includes
seat covers, floor mats, light truck and sport utility vehicle accessories,
recreational vehicle parts, supplies and accessories (including chemical
toilets, propane accessories, solar panels and recreational vehicle hookup
parts), lift equipment, engine additives, utility racks and custom parts and
accessories. The sport utility and recreational vehicle parts, supplies and
accessories merchandise categories are the Company's fastest growing merchandise
categories within this department. The lube section of this department offers
oil and antifreeze and generates year-round traffic for the Company's stores.
For the purpose of increasing sales of its automotive merchandise, the Company
hired a new Automotive Merchandise Manager in June 1998, and has recently
implemented a revised automotive merchandise marketing plan. This plan features
lower everyday prices made possible by a change in product lines and more
aggressive promotional strategies. The plan also calls for an update of the
electronic automotive parts look-up systems at all stores, which are intended to
increase the efficiency with which the Company serves its automotive parts
customers.
The Company purchases name-brand automotive aftermarket parts and
accessories from leading manufacturers such as:
- - BOSCH
- - CHAMPION
- - FELPRO
- - FRAM
- - GNB
- - KENCO
- - LUND
- - MONROE
- - OMNIGUARD
- - PENNZOIL
- - PUROLATOR
- - STANDARD BATTERY
- - SUPERWINCH
- - SYLVANIA
- - VALVOLINE
Other Merchandise
The Company enhances its sporting goods and automotive merchandise mix with
related electronics equipment and other assorted merchandise. Sales of
electronics equipment and other assorted merchandise accounted for approximately
13% of the Company's sales in the fiscal year ended January 31, 1998. The
electronics department features name-brand electronic automotive accessories,
primarily for sports utility and recreational vehicles, and electronics suited
for an active lifestyle. Such products include auto alarms, CB and VHF radios,
cellular phones, radar detectors, compact stereos and CD players, car stereos,
personal
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electronics, sport watches, GPS (global positioning system) units and marine and
fishing electronics. The Company also offers a wide selection of outdoor cooking
and furniture merchandise on a seasonal basis.
TicketMaster
Each of the Company's retail locations includes a TicketMaster outlet,
which is located near the main entrance. During calendar 1997, the G.I. Joe's
TicketMaster outlets accounted for approximately 63% of all entertainment ticket
sales by ticket outlets in Oregon. These TicketMaster outlets offer tickets to
sporting events, concerts and plays as well as game licenses, ski lift tickets,
river running passes and snow park permits. Pursuant to an operating agreement
with The Ticket Group ("Ticket Group"), the Company receives a percentage of the
fees to which Ticket Group is entitled under its own operating agreement with
TicketMaster Northwest for sales generated in G.I. Joe's Oregon stores. The
Company has established a similar arrangement directly with TicketMaster
Northwest with respect to its Washington stores. Revenue to the Company
generated by the TicketMaster outlets is generally offset by related expenses,
primarily for labor. The primary benefits to the Company of having TicketMaster
outlets in its stores are the increased foot traffic and familiarity with the
Company's store locations generated thereby. Certain of Ticket Group's partners
are affiliated with the Company. See "Certain Related Transactions."
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STORE CONCEPT
The Company has developed a successful open-ceiling, racetrack design
concept for its new and remodeled stores. This store concept offers a flexible
store footprint that uses floor space more efficiently and is designed to
enhance the customers' shopping experience by creating an inviting atmosphere.
High ceilings, bright lighting and wide aisles create an open, spacious
environment and increase customer traffic flow and exposure to merchandise.
Within each store, merchandise is organized by activity category, and each
department and product category is identified with extensive, easy-to-read
signage to facilitate access to the Company's major product lines. The store
layout increases floor space by decreasing the area used for back room and
office purposes. Increased selling-floor space typically is used for the
prominent display of soft goods and other high margin products. The store layout
also promotes cross-shopping by strategically placing complementary departments
adjacent to one another.
A map of the Company's store layout is set forth below.
[MAP OF STORE LAYOUT]
The Company changes its merchandise mix by season and shifts its seasonal
display areas to highlight high margin products, which result in increases in
same-store sales and gross and operating margins for stores which employ this
layout.
VENDORS, PURCHASING AND DISTRIBUTION
The Company offers its customers a changing mix of products supplied by
over 2,600 vendors. The Company considers numerous factors in selecting vendors,
including: customer demand for the vendor's merchandise; product availability,
quality and performance; vendor return policies; and price and credit terms.
Although the Company has no long-term contracts with vendors for the purchase of
merchandise, the Company has developed strong working relationships with its
vendors. These relationships, together with the Company's high sales volume and
strong regional presence, frequently result in favorable volume discounts,
additional advertising funds and extended payment terms for the Company. The
Company also receives volume discounts and additional advertising funds as a
result of its participation in national buying groups. No vendor accounted for
more than 5% of total purchases by the Company in any of the last three fiscal
years and the Company is not dependent on any vendor. The Company's ten largest
vendors for the fiscal year ended January 31, 1998, which accounted for
approximately 24% of the Company's purchases for such year, were Nike, Inc.,
Columbia Sportswear Co., All Sports Supply, Inc., Coleman Company, Inc., Coast
Auto Supply,
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<PAGE> 46
World Wide Distributors, Remington Arms Co., Inc., Adidas U.S.A. Incorporated,
Levi Strauss & Company and Valvoline Incorporated. Although brand name products
and individual items are important to the Company's business, management
believes that competitive sources of supply are available in substantially all
of the merchandise categories that the Company carries. However, the Company
competes with other companies for the merchandise supplied by its vendors and
many of these other companies have substantially greater leverage and financial
and other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. See "Risk Factors -- Dependence on Vendors."
The Company's buying group utilizes three centralized buying teams: a
sporting goods team, an apparel and footwear team and an automotive parts and
accessories team. In addition, the Company has activity-based sub-teams (e.g.
skiing, fishing, hunting, etc.) to ensure that there is coordination between
equipment and apparel for certain activities. Each team is led by a merchandise
manager and is supported by individual category buyers, a store merchandiser and
an administrative assistant. The primary objective of the teams is to maintain
close relationships with vendors and store and department managers, and to
monitor changes in consumer preferences. Each buyer's performance is measured
against sales, inventory turns and gross margin targets.
The Company's purchasing system allows its buyers to ship inventory
directly to individual stores or to the Company's centralized, 150,000 square
foot distribution center located adjacent to the Company's headquarters. A
perpetual inventory system monitors each store's sales and replenishes the
inventory two or three times a week with shipments from the distribution center.
By monitoring SKU movements, the Company is able to optimize its purchasing and
maintain adequate amounts of merchandise at its distribution center. This system
has greatly reduced the levels of surplus inventory at the Company's retail
stores. Stores can obtain merchandise rapidly from the Company's distribution
center or can place special orders with vendors for items not held in inventory.
Approximately 80% of the merchandise purchased by the Company is shipped by
vendors to the Company's distribution center. The remaining merchandise is
shipped directly to individual stores. The Company makes two or three weekly
deliveries to its stores using its fleet of 3 leased tractors and 22 owned
trailers. Management believes this system is substantially less expensive than
drop shipping goods directly to its stores because it allows more timely
matching of store inventory needs, reduces each retail store's inventory
investment, allows better use of relatively higher cost store floor space and
reduces freight costs. Management believes that the distribution center has
sufficient capacity to support at least five additional stores, which would be
sufficient to support the Company's planned expansion in Washington for the next
two to three years. As the Company enters new markets and the geographic scope
of its operations increases, the Company will examine several options for
supplying new stores. Such options include increasing its use of direct vendor
deliveries and increasing its use of contract shipping to transport merchandise
to its retail stores from the distribution center. In addition, the Company may
acquire one or more additional regional distribution centers as the Company
expands its operations beyond Oregon and Washington.
MARKETING, ADVERTISING AND PROMOTION
The Company's extensive marketing plan is designed to identify and promote
the Company as a major retailer of sports and automotive merchandise, and to
differentiate the Company from its competition by emphasizing its extensive
selection, excellent customer service and competitive prices. The Company's
marketing plan primarily targets males between the ages of 21 and 59, who make
up the bulk of the consumers of the Company's merchandise. The Company has
recently highlighted its "Joe's" brand name in its advertisements in recognition
of its greater acceptability as a brand name in its markets. The Company created
its "Go to Joe's. Grab the Gear. Seize the Weekend." advertising campaign to
target its main customer base. Key components of the Company's marketing program
include multi-focus advertising via print, radio and television, in-store,
vendor-specific concept shops, sponsorship of high-profile local sports and
outdoors events and selective special promotional events.
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The Company's advertising strategy allocates its advertising budget as
follows: 62% print; 34% radio and television; and 4% event advertising. The
Company's print advertising campaign employs newspaper advertisements (usually
in the form of inserts or run of the press display advertisements), catalogs
(which are direct mailed to targeted households) and coupon books (which are
direct mailed to potential customers three times each year). The Company
produces several newspaper inserts annually, which are run in various local
newspapers. The Company's television and radio commercials generally focus on
seasonal messages to promote specific sales events, and showcase two to three
non-competing products.
The Company was an early proponent of vendor-sponsored concept shops.
Concept shops create a shopping environment that is consistent with the vendor's
specific image and enable the Company to display and stock a greater volume of
the vendor's products per square foot of retail space. The Columbia Sportswear
concept shops at the Company's Bend and Eugene, Oregon stores have increased
same-store sales of Columbia Sportswear products by as much as 45%. The
Company's stores feature two of the first 25 Adidas concept shops installed on
the West Coast. Installation of concept shops in the Company's stores as part of
the remodeling process boosts the potential for increasing sales and margins by
using the manufacturer's own fixtures and signage, and by targeting higher
margin products. As of July 31, 1998, the Company had over 28 concept shops in
its stores, including shops for Columbia Sportswear, Nike clothing, Woolrich,
Levi Strauss and Adidas.
Cooperative advertising is a vital part of the Company's advertising
strategy. The Company works closely with vendors to obtain cooperative
advertising funds. The Company's flexibility and mid-size market have led
vendors to make funds available in excess of normal allowances. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42% of such costs in the fiscal years ended January 31, 1996, 1997 and 1998,
respectively. Vendor promotions further supplement the Company's marketing
efforts.
As part of its marketing efforts, the Company sponsors sporting and auto
racing events in the Pacific Northwest. These include the nationally televised
Budweiser/G.I. Joe's 200 Champ Car race, and the G.I. Joe's/Thriftway Portland
Invitational Golf Tournament. The Budweiser/G.I. Joe's 200 Champ Car race is one
of 19 such races held annually worldwide and is broadcast to over 61 million
viewers in 188 countries. This race was attended by more than 150,000 people in
1998, which is the largest attendance of any sporting event in Oregon. The
Company has sponsored this race for 15 years and will continue to sponsor the
race for at least two more years. As a major annual golf event in the Pacific
Northwest, the G.I. Joe's/Thriftway Portland Invitational Golf Tournament draws
professional golfers from around the country to compete. The Company has
sponsored the golf tournament for 12 years and intends to continue this
sponsorship for the foreseeable future. The Company is also a long-time radio
sponsor of Portland Trailblazers basketball games, which are broadcast on more
than 25 radio stations in Oregon and Washington, and hosts several in-arena
promotions during home games. In addition to reinforcing the effects of the
Company's marketing efforts in its local markets, these sponsorships give the
Company regional and national exposure it would not otherwise receive.
Part of the Company's annual promotion events include sales designed to
highlight the latest sports and automotive merchandise. The Company has four
major annual sales events: the Anniversary Sale, the Sidewalk Sale, the Fall
Kick-Off and the Thanksgiving Weekend Sale. Other significant promotions are
seasonal or target specific holidays and special events. These activities are
designed to promote the Company as a leading retailer of sports and automotive
merchandise in the Pacific Northwest.
CUSTOMER SERVICE
The Company believes that the extensive product knowledge of its employees,
and its superior customer service and after-sale product support differentiate
G.I. Joe's from mass merchandisers and other large concept sporting goods and
automotive parts retailers. The Company strongly emphasizes the training of its
sales associates so that they are prepared to address customer inquiries and
assist with purchasing decisions. The Company trains its employees using
seminars, videos, vendor representative tours and product knowledge events. In
addition, the Company specially trains sales associates to serve female
customers shopping for traditionally male-oriented products. Key departments of
each store are supported by "Pro Staff" personnel
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who have met specified technical requirements and have extensive sales and
service experience. These highly qualified specialists offer exceptional product
knowledge and assistance to customers.
The Company's Sports and Recreation Services Department provides customers
certain product assembly, installation, testing, repair and other support
services, as well as winter equipment rental services. The Company's service
technicians are trained and certified by merchandise manufacturers. A Sports and
Recreation Service Department located at the Company's distribution center
provides much of this support for the Portland metropolitan area. Additional
Sports and Recreation Service Departments are prominently included in a majority
of the Company's stores in geographic areas located outside the Portland area
and will be included in the Company's new and remodeled stores. The Sports and
Recreation Departments primarily offer services in connection with the sale of
high-quality branded merchandise.
MANAGEMENT INFORMATION SYSTEM
The Company has made significant expenditures with respect to its
information system in order to operate efficiently and to control costs. The
Company's IBM AS/400-based information system includes fully integrated store,
merchandising, distribution and financial systems and includes a local area
network and a sophisticated wide area network, on-line credit and check
authorization and electronic data exchange. The wide area network links all
store locations with the Company's headquarters and distribution center and
allows (i) direct communications to all store locations, (ii) point-of-sale
("POS") data collection and (iii) daily reporting of store sales. This system
provides an immediate link between the Company, its stores and its customers,
enhancing the Company's ability to monitor its performance against historical
and budgetary benchmarks, as well as to make better informed operational
decisions. Other in-store systems capture payroll hours and inventory receipts,
and maintain on-hand inventory quantities. The perpetual inventory reporting
system monitors, at cost and retail, all SKUs carried in inventory. This system
interfaces with the merchandising, receiving and POS systems to provide the
Company with accurate real-time inventory information which assists management
in implementing merchandise assortment, allocation and markdown decisions, as
well as decisions regarding future merchandise orders. Each day, the Company's
IBM AS/400 processes merchandise movement by SKU to automatically generate
orders for the Company's distribution center and stores. This is accomplished by
calculating the store inventory, comparing it to the desired inventory level and
ordering appropriately. The Company utilizes a series of Microsoft Windows NT
servers to run in-house developed applications and a variety of third-party
software and maintains a high-speed Internet connection which supports the G.I.
Joe's Online Store. An in-house information systems staff performs development,
programming and support services for the Company's information system.
The Company's information system allows the Company to efficiently
integrate new stores, as demonstrated by the recent addition of the Company's
Puyallup, Washington and Hillsboro, Oregon stores. The system is also capable of
expansion as needed to service additional locations. Although management
believes that the Company's operating systems will provide the Company with an
adequate platform to support its growth and expansion strategy for the
foreseeable future, the Company intends to continue to invest in its information
systems as necessary to remain competitive.
COMPETITION
The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets the Company
faces significant competition from national, regional and local retailers, as
well as from manufacturers' own retail stores (such as stores owned and operated
by Nike, Inc.). The Company's retail competitors in the sporting goods market
include, among others: large format sporting goods retailers which generally
operate stores larger than 50,000 square feet in size, such as Gart/Sportmart
and The Sports Authority, Inc.; traditional sporting goods retailers which
generally operate stores under 30,000 square feet in size, such as Big 5
Corporation, Copeland's Sports, Inc. and Recreational Equipment, Inc. (REI);
specialty sporting goods retailers which focus on high-end products relating to
a specific activity category, such as The Orvis Company, Inc.; and mass
merchandisers such as Wal-Mart, K-Mart, Target and Fred Meyer. The Company
competes with these companies, chains such as Foot Locker and with department
stores in the apparel and footwear markets. Within the automotive parts and
accessories
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markets the Company faces competition from: national chains such as Shucks Auto
Supply, Sears and NAPA; regional and local companies such as Thrifty Auto
Supply, Baxter's Auto Supply and Al's Auto Supply; and from mass merchandisers
with automotive departments, such as Wal-Mart, K-Mart, Target and Fred Meyer.
Many of the Company's competitors have substantially greater financial,
distribution, marketing and other resources and have achieved greater name
recognition than the Company. The primary competitive factors in the sports and
automotive markets are merchandise selection, quality and mix, price and
customer service. See "Risk Factors -- Competition."
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company is subject to federal, state and local laws and regulations
which affect its business, relating to, among other things, advertising, worker
safety and the use, storage, discharge and disposal of environmentally sensitive
materials. Although Company's management is not aware of any significant
environmental contamination at any of the Company's properties from its own or
prior activities at such locations or from neighboring properties, such
contamination may exist at such properties or at additional store sites or
facilities acquired or leased by the Company, and any such contamination could
have a material adverse effect on the Company's business, financial condition
and results of operations. Because the Company is subject to various local
zoning requirements with regard to the location and design of its stores, the
development or expansion of the Company's operations will be contingent upon the
timely receipt of required licenses, permits and other governmental
authorizations. The Company is also subject to laws and regulations in certain
jurisdictions which may restrict the sale of certain merchandise, such as
firearms, ammunition and shooting accessories. In addition, state and local
government regulation of hunting can also affect the sales of hunting equipment
by the Company. See "Risk Factors -- Environmental and Other Governmental
Regulation." The Company believes that it is in compliance in all material
respects with all laws, regulations and requirements that affect its business,
and that compliance with such laws, regulations and requirements does not impose
a material impediment on the Company's ability to conduct its business.
TRADEMARKS
The Company uses a number of trademarks in connection with the operation of
its business, primarily in connection with its private label products. The
Company's "G.I. Joe's" trademark is registered with the United States Patent and
Trademark Office. The Company's other trademarks are not registered. The
Company's private label trademarks include: "Power Plus," used for automobile
supplies such as oil, anti-freeze and batteries; "North X Northwest," used for
fishing rods; "Cotton Wear By Joe's" and "Rugged Wear By Joe's," used for
certain outdoor apparel; "Comfort Plus by Joe's" for casual wear; and "Power
Play By Joe's," which it intends to use for additional private label sports and
active wear apparel. See "Risk Factors -- Dependence on Trademarks."
PROPERTIES
The Company's retail stores range in size from 35,000 to 73,000 square
feet, with an average size of approximately 55,000 square feet. The Company
generally decides whether to construct its standard 55,000 square foot store or
a smaller 35,000 square foot version based upon the size of the population of
the surrounding community, with larger stores typically serving local
populations in excess of 50,000 people and smaller stores typically serving
smaller communities. The stores are either free standing units or located in
malls or strip centers which are easily accessible and provide ample parking.
G.I. Joe's stores are open seven days a week, typically from 9 a.m. to 9 p.m.
All of the Company's retail store properties are leased. The Company generally
obtains long-term leases for its retail stores, with a minimum initial term of
15 years and renewal options for up to an additional 10 years. These leases
generally provide for fixed monthly rental payments plus additional amounts
calculated as a percentage of income earned on the leased premises above a given
threshold. The aggregate annualized minimum rental commitment under the
Company's real estate leases for the fiscal year ending January 31, 1999 is
approximately $7.0 million. See Note 10 to Financial Statements. The 16 stores
currently operated by the Company are located in Oregon and Washington,
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including eight in the Portland metropolitan area. An additional two stores are
scheduled to open in the Seattle/Puget Sound area of Washington in calendar year
1999.
The following table includes certain information for each of the Company's
properties:
<TABLE>
<CAPTION>
DATE
REMODELED OR
SCHEDULED LEASE
SQUARE DATE PLACED REMODELING MATURITY TYPE OF STORE
LOCATION FOOTAGE IN SERVICE DATE(1) DATE LOCATION
-------- ------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
RETAIL STORES:
North Portland, Oregon................ 73,000 03/82 5/94 8/2008 Free-Standing
Tualatin, Oregon...................... 55,120 09/85 7/99 4/2013 Strip Center
Gresham, Oregon....................... 55,120 05/87 7/99 4/2013 Strip Center
Oak Grove, Oregon..................... 67,100 04/72 2/01 4/2013 Free-Standing
Beaverton, Oregon..................... 55,120 04/74 2/99 4/1999 Mall
Portland, Oregon...................... 55,120 03/79 2/02 2/2004 Strip Center
Hillsboro, Oregon..................... 55,000 08/98 New 7/2018 Strip Center
Vancouver, Washington................. 55,120 06/89 2/00 6/2014 Strip Center
South Salem, Oregon................... 55,120 03/85 2/01 4/2013 Free-Standing
Salem, Oregon......................... 67,100 08/76 5/94 4/2013 Free-Standing
Albany, Oregon........................ 55,120 11/89 2/01 10/2014 Free-Standing
Eugene, Oregon........................ 55,120 03/83 10/95 12/2005 Free-Standing
Medford, Oregon....................... 48,500 03/86 2/00 10/2009 Strip Center
Bend, Oregon.......................... 35,400 07/79 8/97 1/2018 Mall
Federal Way, Washington............... 55,120 03/91 2/00 3/2021 Free-Standing
Puyallup, Washington.................. 53,000 10/97 New 9/2017 Strip Center
DISTRIBUTION CENTER................... 150,000 06/79 4/2013
HEADQUARTERS.......................... 20,000 07/82 4/2013
</TABLE>
- ---------------
(1) Scheduled remodeling dates represent management's estimate of the date
remodeling will commence. Actual commencement dates may differ from these
estimates.
In addition, the Company owns vacant parcels of land in Renton, Washington
and Grants Pass, Oregon. The Company is currently under contract to sell part of
the Renton property.
EMPLOYEES
As of June 30, 1998, the Company employed approximately 950 employees,
approximately 30% of whom worked part-time. The number of part-time employees
varies seasonally. The Company expects to increase its number of employees as it
expands its operations and hires additional employees to staff new stores. The
Company is not subject to any collective bargaining agreements and believes that
its relationships with its employees are good.
A typical G.I. Joe's store requires a store manager, a manager in training,
a training specialist, five department managers and 57 sales, merchandising and
support staff.
LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Such claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources. The Company is not aware of any
legal proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company and
their ages and positions as of October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Norman P. Daniels................ 50 Chairman of the Board, President and Chief
Executive Officer
Philip M. Pepin.................. 47 Vice President of Finance and Chief Financial
Officer
Edward A. Ariniello.............. 37 Vice President of Operations
Marc H. Mieher................... 35 Vice President and Chief Information Officer
David E. Orkney.................. 52 Director
Roy Rose......................... 40 Director
KEY EMPLOYEES
B.G. Eilertson................... 43 Merchandise Manager
David N. Fouts................... 43 Director of Planning and Logistics
Patrick E. Hortsch............... 43 Merchandise Manager
Dennis E. Irish.................. 47 Director of Advertising and Promotions
Ron J. Menconi................... 48 Merchandise Manager
Douglas B. Spink................. 27 General Manager of Direct Marketing
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
Norman P. Daniels joined the Company in 1965. Mr. Daniels has been a
Director since 1975 and was named President of the Company in March 1992 and
Chief Executive Officer in January 1996. Mr. Daniels became Chairman of the
Board in June 1998. Mr. Daniels also has served as the Company's Advertising
Manager, Sporting Goods Merchandise Manager and Vice President of Merchandise
and Marketing.
Philip M. Pepin joined the Company in 1994 as Controller and was promoted
to Vice President of Finance and Chief Financial Officer in November 1996. Prior
to joining the Company, from 1990 to 1994 and from 1982 to 1988, Mr. Pepin
worked in public accounting with Arthur Andersen LLP in Portland, Oregon and
Seattle, Washington. In addition, from 1988 to 1990, Mr. Pepin served as
corporate controller of VWR Corporation, a wholesale distributor of scientific
and laboratory equipment. Mr. Pepin is a Certified Public Accountant.
Edward A. Ariniello joined the Company in 1982 and has worked in various
operations positions, including Department Manager, Warehousing and Store
Manager. Mr. Ariniello was promoted to Director of Training and Merchandising in
March 1994, and Vice President of Operations in December 1996.
Marc H. Mieher joined the Company in 1989 as Programmer/Analyst and was
promoted to Director of Information Services in May 1994 and to Vice President
and Chief Information Officer on October 1, 1998.
David E. Orkney has served as a Director of the Company since 1974, and
served as Chairman of the Board of Directors from 1976 until May 1998. Mr.
Orkney has served in various positions at the Company, including President from
1976 to 1992 and Chief Executive Officer from 1976 to 1996. Mr. Orkney founded
and has served as chief executive officer of Buckingham Investment Group, a
personal investment company, since December 1997.
Roy Rose has served as a Director of the Company since May 1998. Mr. Rose
founded and has served as the president and chief executive officer of Peregrine
Holdings (Oregon), Ltd. since 1991 and Peregrine Capital, Inc. since 1997. These
entities are involved in making investments in various businesses. Peregrine
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<PAGE> 52
Capital, Inc. is a principal shareholder of the Company and, together with
affiliated entities, has entered into various transactions with the Company. See
"Certain Related Transactions."
KEY EMPLOYEES
B.G. Eilertson joined the Company in 1972 and has held various operations
and merchandising positions with the Company, including Department Manager,
Assistant Store Manager and Sporting Goods Buyer. He was promoted to Merchandise
Manager for Sporting Goods in March 1996.
David Fouts joined the Company in 1974 and became Director of Planning and
Logistics in October 1995. From 1980 until 1995, Mr. Fouts served as a Store
Manager. From 1974 to 1979 he held positions in location retail and distribution
center management. Mr. Fouts is a member of APICS Resource Management
Educational Society.
Patrick E. Hortsch joined the Company in June 1998 as Merchandise Manager
for the Automotive Group. Prior to joining the Company, from January 1997 to
June 1998, Mr. Hortsch owned and operated a retail automotive parts store in
Vancouver, Washington. From 1986 to 1996, Mr. Hortsch was the executive vice
president of Team Marketing Inc., a manufacturer's representative firm and from
1982 to 1986 was a district manager for Rognlien, Wright & Harrison, Inc., a
manufacturer's representative firm. Mr. Hortsch has over 23 years of experience
in the automotive aftermarket industry.
Dennis E. Irish joined the Company in 1974 and has worked in various
positions, including Store Manager. In 1987, Mr. Irish became Advertising
Manager and in March 1992 was promoted to Director of Advertising and
Promotions.
Ron J. Menconi joined the Company in 1967 and has held various positions
with the Company, including Department Manager and Buyer. Mr. Menconi became
Merchandise Manager for Sporting Goods in 1989 and Merchandise Manager for
Apparel and Footwear, Cycling, Athletics, Fitness and Winter Sports in May 1992.
Mr. Menconi served as the inaugural president of the Oregon Ski Industry
Association from 1988 to 1996, and as a board member from 1992 to 1995. Mr.
Menconi has been serving as a director of the National Sporting Goods
Association since June 1998.
Douglas B. Spink has served as the General Manager of Direct Marketing
since September 1998, when the Company acquired Timberline Direct. Mr. Spink was
a founder and the President and Chief Executive Officer of Timberline Direct, a
catalog and Internet-based retailer, since May 1997. From March 1996 to April
1997, Mr. Spink served as Western Regional Director for Tessera Enterprise
Systems, a leading builder of database marketing systems for large direct
marketers. From October 1994 to March 1996, he was Vice President of Finance for
Ideon Group, a financial services company. Mr. Spink, who started his career as
a database marketing analyst with Leo Burnett & Co., has also served as a
strategic consultant with the Boston Consulting Group.
The Company has no employment or noncompetition agreements with any of its
employees other than Mr. Spink and Gregory Biggs, Operations Manager of Direct
Marketing. See "-- Timberline Direct Acquisition Agreement; Employment
Agreements."
DIRECTOR COMMITTEES AND COMPENSATION
The Company will establish an Audit Committee and a Compensation Committee,
each of which will be comprised of independent directors. The Audit Committee
will review the functions of the Company's management and independent auditors
pertaining to the Company's financial statements and will perform such other
related duties and functions as are deemed appropriate by the Audit Committee
and the Board of Directors. The Compensation Committee will determine officer
and director compensation and administer the Company's compensation plans.
Directors who are employees of the Company receive no additional
compensation for their service as directors. Nonemployee directors will each
receive $1,000 for each Board of Directors meeting attended and $500 for each
committee meeting attended, plus reimbursement for travel expenses in attending
meetings. In addition, prior to the closing of the Offering, the Company intends
to grant nonqualified stock options to purchase 2,000 shares of Common Stock to
each nonemployee director which will be fully vested on the first
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<PAGE> 53
anniversary of the date of grant. The Company also intends to grant an
additional fully-vested nonqualified stock option to purchase 2,000 shares of
Common Stock to each nonemployee director immediately following each annual
meeting of shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to
compensation paid by the Company in the fiscal year ended January 31, 1998 to
its Chief Executive Officer and the other executive officers of the Company
whose total annual salary and bonus exceeded $100,000 (collectively the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS(2) (3)
--------------------------- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Norman P. Daniels,
President and Chief Executive
Officer.......................... $225,000 $100,000 $9,600 3,835 $2,192
Philip M. Pepin,
Chief Financial Officer.......... 100,000 12,000 6,000 3,835 1,010
David E. Orkney(4)
Chairman of the Board of
Directors........................ 190,000 -- -- -- 2,150
Wayne T. Jackson(5)
Chief Operating Officer.......... 210,000 -- 8,400 3,835 2,244
</TABLE>
- ---------------
(1) Consists of amounts paid for car allowance.
(2) Mr. Daniels' stock options (which, including the options indicated above,
entitled him to purchase up to 745,278 shares of Common Stock) were canceled
in connection with the Reorganization. Mr. Jackson's stock options (which,
including the options indicated above, entitled him to purchase up to
681,361 shares of Common Stock) were repurchased in connection with the
Reorganization for $2,267,268. See "Certain Related Transactions."
(3) Consists of Company matching contributions to the 401(k) Savings Plan.
(4) Mr. Orkney resigned as Chairman of the Board of the Company in May 1998.
(5) Mr. Jackson resigned as Chief Operating Officer of the Company in May 1998.
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended January 31,
1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE DATE 5% 10%
---- ---------- -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Norman P.
Daniels.......... 3,835 8.8% $2.42 7/31/2007 $5,837 $14,791
Philip M. Pepin.... 3,835 8.8 2.42 7/31/2007 5,837 14,791
David E. Orkney.... -- -- -- -- -- --
Wayne T. Jackson... 3,835 8.8 2.42 7/31/2007 5,837 14,791
</TABLE>
52
<PAGE> 54
- ---------------
(1) Mr. Daniels' stock options (which, including the options indicated above,
entitled him to purchase up to 745,278 shares of Common Stock) were canceled
in connection with the Reorganization. Mr. Jackson's stock options (which,
including the options indicated above, entitled him to purchase up to
681,361 shares of Common Stock) were repurchased in connection with the
Reorganization for $2,267,268. See "Certain Related Transactions."
(2) Based on a total of 43,464 shares subject to options granted to employees in
the fiscal year ended January 31, 1998.
(3) The assumed rates of growth are prescribed by the Securities and Exchange
Commission (the "Commission") for illustrative purposes only and are not
intended to forecast or predict future stock prices.
Year-End Option Values
No options were exercised by the Named Executive Officers during the fiscal
year ended January 31, 1998. The following table sets forth certain information
regarding unexercised stock options held by the Named Executive Officers as of
January 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END(1) FISCAL YEAR-END (2)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Norman P. Daniels..................... 383,505 361,773 $3,602,056 $3,346,233
Philip M. Pepin....................... -- 16,619 -- 173,539
David E. Orkney....................... -- -- -- --
Wayne T. Jackson...................... 383,505 297,856 3,602,056 2,758,641
</TABLE>
- ---------------
(1) Mr. Daniels' stock options were canceled in connection with the
Reorganization. Mr. Jackson's stock options were repurchased in connection
with the Reorganization for $2,267,268. See "Certain Related Transactions."
(2) Calculated based on the difference between the exercise price and the
assumed initial public offering price of $10.00 per share (the mid-point of
the range set forth on the cover page of this Prospectus).
RETIREMENT AND CERTAIN OTHER BENEFIT PLANS
Defined Benefit Pension Plan
The Company established a defined benefit retirement plan (the "Pension
Plan"), effective March 1, 1976, which is intended to be qualified under Section
401(a) of the Code. The Pension Plan covers all non-union employees who have
both attained the age of 21 and completed one year of service with the Company.
The Pension Plan generally provides each participant with a retirement
benefit in an amount equal to the benefit accrued by such participant as of
February 28, 1993, under the terms of the Pension Plan as then in effect, plus
the sum of 1.1% of such participant's annual compensation and .364% of the
participant's excess compensation for each plan year of participation in the
plan during which the participant completes at least 1,000 hours of service with
the Company. A participant's annual compensation generally is the participant's
compensation for the plan year for federal income tax withholding purposes,
except that for the plan year commencing March 1, 1993, a participant's annual
compensation is limited to $235,840 and for plan years commencing after February
28, 1994, a participant's annual compensation is limited to $150,000 (plus cost-
of-living increases promulgated by the Internal Revenue Service). A
participant's excess contribution for a plan year is the amount of such
participant's annual compensation for such plan year in excess of the social
security taxable wage base in effect under Section 230 of the Social Security
Act for the calendar year in which such plan year begins. A plan year is the
12-consecutive-month period beginning each March 1. The formula set forth above
calculates benefits in the form of a single life annuity (payable for the
participant's lifetime) with a 10-year term commencing at age 65. If a
participant's benefit is distributed in a form other
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<PAGE> 55
than a single life annuity with a 10-year term or commencing prior to the
participant's 65th birthday, the benefit amount will be the actuarial equivalent
of such an annuity. Actuarial adjustments may also be made to a participant's
benefit, if that benefit commences after the participant's 65th birthday.
The Pension Plan provides for full vesting of benefits upon the earlier of
the participant's completion of five years of service with the Company,
attainment of age 65 while employed by the Company or death while employed by
the Company. Payment of the participant's vested benefit will generally commence
upon the latest of the participant's separation from service, attainment of age
55 or completion of a distribution request.
The Company funds at least the minimum annual contribution required under
Section 412 of the Code and the Employee Retirement Income Security Act of 1974,
as amended.
The estimated annual benefit (calculated as a single life annuity with a
10-year term) payable under the Pension Plan upon retirement at normal
retirement age (age 65) for each of the Named Executive Officers, based on their
current compensation levels, are as follows:
<TABLE>
<CAPTION>
ESTIMATE OF
NAME ANNUAL BENEFIT
---- --------------
<S> <C>
Norman P. Daniels $60,882
Philip M. Pepin 3,790
David E. Orkney 71,142
Wayne T. Jackson 54,286
</TABLE>
401(k) Savings Plan
The G. I. Joe's, Inc. Savings Plan (the "Savings Plan"), established in
1991, is intended to be qualified under Sections 401(a) and 401(k) of the Code.
The Savings Plan covers all non-union employees who have both attained age 21
and completed one year of service with the Company. Subject to certain
limitations imposed by the Code and the regulations promulgated thereunder,
under the Savings Plan, employees may contribute up to 15% of their compensation
each calendar year on a pre-income-tax basis and the Company may make matching
contributions in such amount as it determines each calendar year. Only the first
6% of compensation deferred by a participant during a calendar year will be
taken into account for purposes of allocating any matching contributions made by
the Company for such year. In addition, the Company may make supplemental
contributions for any calendar year in such amount as it determines.
Supplemental contributions are allocated among eligible participants in
proportion to their compensation. Only participants who have completed 1,000
hours of service with the Company during the calendar and are employed with the
Company on the last day of such year and participants whose employment with the
Company terminated during the calendar year on account of their retirement,
disability or death are eligible to share in the Company's supplemental
contributions for such calendar year. The Company's matching and supplemental
contributions to the Savings Plan for the fiscal years ended January 31, 1996,
1997 and 1998 totaled $99,000, $103,000 and $109,000, respectively.
1998 Stock Incentive Compensation Plan
In July 1998, the Company adopted the 1998 Plan. The purpose of the 1998
Plan is to enhance the long-term shareholder value of the Company by offering
employees, directors, officers, consultants, agents, advisors and independent
contractors of the Company an opportunity to participate in the Company's growth
and success, and to encourage them to remain in the service of the Company and
acquire and maintain stock ownership in the Company. The 1998 Plan includes both
stock options and stock awards, including restricted stock. A maximum of 800,000
shares of Common Stock are subject to the 1998 Plan. As of July 31, 1998, 69,033
shares of Common Stock were issuable upon the exercise of outstanding stock
options under the 1998 Plan, with a weighted average exercise price of $1.90 per
share, and 730,967 shares were reserved for future grants. All such outstanding
options were issued under a prior stock option plan of the Company and rolled
over into the 1998 Plan when it was adopted in July 1998. These outstanding
options include options granted to Philip M. Pepin, the Company's Chief
Financial Officer, for 16,619 shares of Common Stock with a weighted average
exercise price of $1.96 per share, and options granted to Edward A. Ariniello,
the
54
<PAGE> 56
Company's Vice President of Operations, for 3,835 shares of Common Stock with an
exercise price of $2.42 per share.
Stock Option Grants. The Plan Administrator of the 1998 Plan is currently
the Company's Board of Directors, which has the authority to select individuals
who are to receive options under the 1998 Plan and to specify the terms and
conditions of each option granted (incentive or nonqualified), the exercise
price (which, for incentive stock options, must be at least equal to the fair
market value of the Common Stock on the date of grant), the vesting provisions
and the option term. For purposes of the 1998 Plan, fair market value means the
closing sale price of the Common Stock as reported on the Nasdaq National Market
on the date of grant. Unless otherwise provided by the Plan Administrator, and
to the extent required for incentive stock options by the Code, an option
granted under the 1998 Plan will expire 10 years from the date of grant or, if
earlier, three months after the optionee's termination of service, other than
termination for cause, or one year after the optionee's retirement, early
retirement at the Company's request, death or disability. Once established, the
Compensation Committee of the Board of Directors will serve as the Plan
Administrator.
Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Restrictions may be based on continuous
service with the Company or its subsidiaries or the achievement of such
performance goals as the Plan Administrator may determine. Holders of restricted
stock are recorded as shareholders of the Company and have, subject to certain
restrictions, all the rights of shareholders with respect to such shares.
Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
splits and other capital adjustments.
Corporate Transactions. In the event of certain Corporate Transactions (as
defined below), each outstanding option and restricted stock award under the
1998 Plan will automatically accelerate so that it will become fully vested
immediately before the Corporate Transaction, except that acceleration will not
occur if such option or restricted stock award is, in connection with the
Corporate Transaction, to be assumed by the successor corporation or parent
thereof. Any option or restricted stock award granted to an "executive officer"
(as defined below) that is assumed or replaced in the Corporate Transaction and
does not otherwise accelerate at that time shall be accelerated in the event the
executive officer, for Good Reason (as defined below), or the successor
corporation, without cause, terminates the executive officer's employment or
services within two years following such Corporate Transaction.
As used in this paragraph, the term "Corporate Transaction" means any of
the following events: (a) consummation of any merger or consolidation of the
Company in which the Company is not the continuing or surviving corporation, or
pursuant to which shares of Common Stock are converted into cash, securities or
other property, if following such merger or consolidation the holders of the
Company's outstanding voting securities immediately prior to such merger or
consolidation own less than 66 2/3% of the outstanding voting securities of the
surviving corporation; (b) consummation of any sale, lease, exchange or other
transfer in one transaction or a series of related transactions of all or
substantially all of the Company's assets other than a transfer of the Company's
assets to a majority-owned subsidiary corporation of the Company; (c) approval
by the holders of the Common Stock of any plan or proposal for the liquidation
or dissolution of the Company; or (d) acquisition by a person of a majority or
more of the Company's outstanding voting securities (whether directly or
indirectly, beneficially or of record). The term "executive officer" means the
Company's president, principal financial officer, principal accounting officer
(or, if there is no such accounting officer, the controller), any vice president
of the Company in charge of a principal business unit, division or function
(such as sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the Company. The term "Good Reason" means the occurrence of any of
the following events or conditions and the failure of the successor corporation
to the Company after a Corporate Transaction (or the parent company of such
successor corporation) to cure such event or condition within 30 days after
receipt of written notice by the option holder: (a) a change in the holder's
status, title, position or responsibilities (including reporting
responsibilities) that, in the holder's reasonable judgment, represents a
substantial reduction in the status,
55
<PAGE> 57
title, position or responsibilities as in effect immediately prior thereto; the
assignment to the holder of any duties or responsibilities that, in the holder's
reasonable judgment, are materially inconsistent with such status, title,
position or responsibilities; or any removal of the holder from or failure to
reappoint or reelect the holder to any of such positions, except in connection
with the termination of the holder's employment for cause, for disability or as
a result of his or her death, or by the holder other than for Good Reason; (b) a
reduction in the holder's annual base salary; (c) the successor corporation's
requiring the holder (without the holder's consent) to be based at any place
outside a 50-mile radius of his or her place of employment prior to a Corporate
Transaction, except for reasonably required travel on the successor
corporation's business that is not materially greater than such travel
requirements prior to the Corporate Transaction; (d) the successor corporation's
failure to (i) continue in effect any material compensation or benefit plan (or
the substantial equivalent thereof) in which the holder was participating at the
time of a Corporate Transaction, including, but not limited to, the 1998 Plan,
or (ii) provide the holder with compensation and benefits substantially
equivalent (in terms of benefit levels and/or reward opportunities) to those
provided for under each material employee benefit plan, program and practice as
in effect immediately prior to the Corporate Transaction; (e) any material
breach by the successor corporation of its obligations to the holder under the
1998 Plan or any substantially equivalent plan of the successor corporation; or
(f) any purported termination of the holder's employment or service for cause by
the successor corporation that does not comply with the terms of the 1998 Plan
or any substantially equivalent plan of the successor corporation.
Timberline Direct Acquisition; Employment Agreements
In September 1998, the Company acquired Timberline Direct, a direct
marketing retailer that sells merchandise complimentary to that offered by the
Company through catalog and Internet-based channels. The purchase price for the
acquisition is $5.5 million, subject to adjustment based on the final
determination of the value of current assets and fixed assets acquired by the
Company. On September 1, 1998, $450,000 of the purchase was paid in cash. On
December 1, 1998, an additional $550,000 of the purchase price will be paid in
cash. The balance of the purchase price will be paid in shares of the Company's
Common Stock, valued at $11.00 per share or, if the initial public offering
price of the Company's Common Stock is less than $8.80 per share, the initial
public offering price. The Common Stock is payable in four equal installments.
The first two installments will be paid on January 2 and February 1, 1999. The
third installment will be paid following the fiscal year ending January 31, 2000
or any subsequent fiscal year in which the Company's catalog and Internet-based
sales division achieves (i) earnings before interest, depreciation and
amortization, income taxes and bonus payments to Messrs. Spink and Biggs of at
least 10% of the division's gross sales and (ii) gross sales of at least $5.5
million. The final installment shall be paid following the fiscal year ending
January 31, 2001 or any subsequent fiscal year in which standards similar to
those for the third installment are achieved but at levels of 12% and $8.0
million, respectively. The Company has granted registration rights with respect
to the shares to be issued as part of the purchase price. See "Description of
Capital Stock -- Registration Rights."
As part of the Timberline Direct acquisition, the Company entered into
employment agreements with Douglas B. Spink and Gregory Biggs, executive
officers and the majority shareholders of Timberline Direct. The employment
agreements, which continue until January 31, 2004 unless earlier terminated,
provide for an annual base salary of $100,000 for Mr. Spink and $80,000 for Mr.
Biggs. They also provide for annual bonuses for Mr. Spink and Mr. Biggs in
amounts equal to 0.6% and 0.4%, respectively, of the annual sales for the
Company's catalog and Internet-based sales division, but only if certain net
profit and sales thresholds are achieved. The net profit thresholds are
calculated before income taxes and bonus payments to these employees and range
from 10% to 15% of sales for the Company's catalog and Internet-based sales
division; the minimum sales thresholds range from $5.5 million to $30.0 million.
The employment agreements may be terminated by the Company at any time,
generally upon notice. However, if either employee is terminated without cause,
the agreements provide that base salary will continue to be paid through January
31, 2004, as will bonuses in annual amounts equal to the average of bonuses paid
prior to termination of employment.
Mr. Spink and Mr. Biggs also entered into noncompetition agreements that
contain noncompetition, nonsolicitation and confidentiality provisions.
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<PAGE> 58
CERTAIN RELATED TRANSACTIONS
Prior to the Offering, the Company entered into transactions and business
relationships with certain of its officers, directors and 5% shareholders. Any
future transactions between the Company and its officers, directors and 5%
shareholders will be subject to approval by a majority of the Company's
disinterested directors and will be on terms no less favorable to the Company
than would be available from unaffiliated third parties.
The Ticket Group, a partnership whose partners include Norman Daniels, the
Company's Chairman of the Board, President and Chief Executive Officer, David
Orkney, a Director of the Company, and former shareholder and officer Wayne
Jackson ("Ticket Group"), has entered into an operating agreement with
TicketMaster Northwest. Ticket Group has placed TicketMaster outlets which are
operated by the Company in all of the Company's Oregon stores. The Company
receives a percentage of the fees to which Ticket Group is entitled under its
operating agreement with TicketMaster Northwest for sales generated in G.I.
Joe's Oregon stores. For the fiscal years ended January 31, 1996, 1997 and 1998,
Ticket Group received an aggregate of $221,727, $284,084 and $279,955,
respectively, from TicketMaster fees. Messrs. Daniels, Orkney and Jackson each
beneficially own 20% of Ticket Group. Revenue to the Company generated by the
TicketMaster outlets is generally offset by related expenses, primarily for
labor. The primary benefits to the Company of having TicketMaster outlets in its
stores are the increased foot traffic and familiarity with the Company's store
locations generated thereby. See "Business -- Merchandise -- TicketMaster."
In July 1994, the Company loaned $181,788, $97,769 and $127,791 to Messrs.
Daniels, Orkney and Jackson, respectively. Each loan was made pursuant to a
promissory note with an annual interest rate equal to the Applicable Federal
Rate determined by the Internal Revenue Service, and which required minimum
annual payments of $10,000 each year until all interest and principal was paid
in full. Mr. Jackson repaid his loan in full upon termination of employment with
the Company in connection with the Reorganization in May 1998. In November 1995,
the Company loaned Mr. Daniels an additional $37,735 and from April 1996 through
April 1997, the Company loaned Mr. Orkney an additional $99,970, each on the
same terms described above. Just prior to the Reorganization, the outstanding
balances of Mr. Daniels' and Mr. Orkney's indebtedness to the Company were
approximately $187,000 and $132,000, respectively. In April 1998, the Company
awarded a bonus payment to Mr. Daniels which was paid by canceling his
indebtedness of $187,000. In connection with the Reorganization, the Company
forgave Mr. Orkney's indebtedness to the Company.
In July 1994, the Company loaned approximately $5.6 million in the
aggregate to two partnerships in which Messrs. Daniels, Orkney and Jackson are
three of four partners (the "Henway Partnerships") to refinance two parcels of
real estate upon which are located the Company's stores in Vancouver, Washington
and Albany, Oregon. Each partner holds a 25% interest in each Henway
Partnership. The Henway Partnerships lease these properties to the Company.
These loans accrued interest at Bank of America's prime rate plus 2.5% per year,
and were due in August 1996. The Henway Partnerships repaid all amounts
outstanding under these loans in January 1996, other than $257,849, which was
refinanced pursuant to a promissory note from one of the Henway Partnerships in
favor of the Company, with an annual interest rate of 10.5% and a 60-month
payment schedule. The leases for the Vancouver and Albany stores were entered
into in June and November 1989, respectively, and each has a 25-year term and a
10-year renewal option. Base rental payments under these leases are $385,836 and
$391,344 per year for the Vancouver and Albany locations, respectively, on a
triple-net basis. In addition, the Company is obligated to pay additional rent
for the Vancouver and Albany stores in the amount of 1.5% of gross receipts in
excess of approximately $15.3 million and $11.9 million, respectively, but has
not been required to pay any such additional rent in the last three fiscal
years. The Company believes the leases for the Vancouver and Albany stores were
entered into on terms no less favorable to the Company than would have been
obtained from unaffiliated third parties.
In April 1998, in connection with the Reorganization, the Company sold two
parcels of real estate to PD Properties, LLC ("PD"), an Oregon limited liability
company affiliated with Roy Rose, a Director of the Company and a director and
the president and chief executive officer of Peregrine Capital, Inc.
("Peregrine"), a principal shareholder of the Company. Linda Rose, Mr. Rose's
wife, has a controlling interest in both PD and Peregrine. PD paid approximately
$2.7 million in the aggregate to the Company for the South Salem,
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<PAGE> 59
Oregon store location and for the Company's vacant land located in Forest Grove,
Oregon (the "PD Real Properties"). The Company leases the South Salem property
from PD pursuant to a lease which commenced in April 1998 (the "PD Lease"). The
initial term of the PD Lease is 15 years, with two renewal options of 5 years
each. Rental payments under the PD Lease consist of a base rent of $385,836 per
year on a triple net basis. The base rent will be adjusted every five years
based on changes in the consumer price index. The PD Lease is in substantially
the same form as the six leases (the "Non-PD Leases") entered into with an
unaffiliated party in connection with the sale and lease-back of the Company's
owned store locations consummated in connection with the Reorganization. The
Company believes the PD Lease was entered into on terms no less favorable to the
Company than would have been obtained from an unaffiliated third party. In
connection with the Reorganization, four individuals associated with Peregrine,
including Mr. Rose and his spouse, agreed to guarantee the Company's performance
of its obligations under the Non-PD Leases. Aggregate annual base rent under the
Non-PD Leases is approximately $3.0 million. This guarantee will expire upon the
closing of an initial public offering of the Company's Common Stock. PD received
a fee of $1 million in connection with the sale of the properties subject to the
Non-PD Leases, which fee was credited against the purchase price for the PD Real
Properties.
As stated above, Roy Rose, a Director of the Company, is a director and the
president and chief executive officer of Peregrine, a principal shareholder of
the Company. Mr. Rose's wife, Linda Rose, has a controlling interest in
Peregrine. In connection with the Reorganization, Peregrine purchased $1.45
million of Subordinated Notes from the Company. Peregrine exchanged $1.0 million
of the Subordinated Notes for common stock of ND Holdings, Inc. ("Holdings"),
which was converted into 356,898 shares of the Company's Common Stock in the
Merger. Peregrine exchanged the remaining $450,000 of the Subordinated Notes for
preferred stock and a warrant to purchase common stock of Holdings. In the
Merger, the shares of preferred stock of Holdings were converted into 4,500
shares of the Company's Series A 9% Non-Voting Redeemable Preferred Stock (the
"Redeemable Preferred Stock") and the warrant was converted into 40,909 shares
of the Company's Common Stock. See "The Reorganization." For services rendered
in connection with the Reorganization, Peregrine received an additional warrant
exercisable for shares of Holdings common stock (the "Master Warrant"), which in
the Merger was converted into 1,606,599 shares of the Company's Common Stock.
Prior to the Merger, Peregrine assigned to various unaffiliated third parties a
portion of the Master Warrant which otherwise would have entitled Peregrine to
315,053 shares of the Company's Common Stock issuable upon conversion of the
Master Warrant. Peregrine has certain registration rights with respect to the
shares of the Company's Common Stock it received in exchange for the Holdings
warrants. See "Description of Capital Stock -- Registration Rights." Subsequent
to the Merger, Peregrine transferred 45,454 shares of the Company's Common Stock
to an unaffiliated third party in connection with a loan. Peregrine is entitled
to repurchase up to 22,727 of such shares if it repays the loan prior to the
maturity date. Peregrine purchased from another Investor 250,000 shares of
Holdings preferred stock, which in the Merger were converted into 2,500 shares
of Redeemable Preferred Stock. All outstanding shares of Redeemable Preferred
Stock will be redeemed for $100 per share using proceeds from the Offering. See
"Use of Proceeds." Peregrine has agreed to pay certain accounting, legal and
other expenses in connection with the Reorganization, paid a fee of $100,000 to
David Orkney to induce him to extend the terms of his agreement regarding the
sale of his interest in the Company and has agreed to reimburse the Company for
all dividends paid on the Company's Redeemable Preferred Stock. In addition,
Peregrine has agreed to purchase from the Investors all outstanding shares of
the Company's Redeemable Preferred Stock for $8.5 million, plus accumulated
dividends, if the Company does not complete, prior to May 8, 1999, an initial
public offering of its Common Stock with net proceeds to the Company of at least
$12.0 million. See "The Reorganization."
In connection with the Reorganization, in May 1998 the Company redeemed all
of Mr. Orkney's outstanding shares of Common Stock in the Company for an
aggregate purchase price of approximately $13.9 million. In addition, the
Company issued to Mr. Orkney a warrant to purchase a number of shares equal to
5% of the Company's Common Stock outstanding, on a fully-diluted basis, at the
time of exercise at a purchase price equal to 70% of the fair market value of
the Common Stock on the exercise date. Mr. Orkney has certain registration
rights with respect to the Common Stock issuable upon exercise of the warrant.
See "The Reorganization" and "Description of Capital Stock -- Registration
Rights." The Company also entered into an agreement with Mr. Orkney pursuant to
which Mr. Orkney received a $140,000 bonus in May 1998
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(consisting of $132,000 in debt forgiveness and a Company car with an estimated
value of $8,000) and will be paid an additional $150,000 over the following two
years ($100,000 of which is to be paid in 12 equal monthly installments during
the first year, and the remaining $50,000 of which is to be paid in 12 equal
monthly installments during the second year). During the first year, Mr. Orkney
will also receive a car allowance in accordance with the Company's past practice
as well as health insurance and certain other benefits. Mr. Orkney's mother and
sister received compensation from the Company for the last three fiscal years in
the aggregate amounts of approximately $105,000 and $59,000, respectively. The
Company stopped making such payments in May 1998.
In connection with the Reorganization, the Company redeemed all of Mr.
Jackson's outstanding shares of Common Stock for approximately $977,000 (at the
same price per share offered to the Company's other shareholders, excluding the
warrant issued to Mr. Orkney). The Company also repurchased Mr. Jackson's
outstanding options exercisable for 681,361 shares of the Company's Common Stock
for approximately $2.3 million. The Company issued to Mr. Jackson a promissory
note in the amount of approximately $283,000 in partial payment of the purchase
price for such options. This promissory note is due in July 1999, and does not
bear interest, except after maturity or default.
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<PAGE> 61
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July 31, 1998, certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person (or group of affiliated persons) known by the Company to
beneficially own more than a number of shares equal to 5% of the Common Stock,
(ii) each director of the Company, (iii) each of the Named Executive Officers
and (iv) all of the Company's directors and executive officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such owners,
have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
SHARES BENEFICIALLY --------------------------------
NAME AND ADDRESS OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- ------------------- --------------- --------------
<S> <C> <C> <C>
Norman P. Daniels............................ 3,212,084 53.5% 37.8%
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Roy Rose(2).................................. 1,666,626 27.8% 19.6%
c/o Peregrine Capital, Inc.
9725 S.W. Beaverton-Hillsdale Highway, #350
Beaverton, OR 97005
Peregrine Capital, Inc....................... 1,666,626 27.8% 19.6%
9725 S.W. Beaverton-Hillsdale Highway, #350
Beaverton, OR 97005
David E. Orkney(3)........................... 319,423 5.1% 5.0%
2562 S.W. Buckingham Avenue
Portland, OR 97201
Philip M. Pepin(4)........................... 16,619 * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Wayne T. Jackson(5).......................... -- -- --
5250 S.W. Landing Square #3
Portland, OR 97201.
All directors and executive officers as a
group
(six persons)(6)........................... 5,218,587 82.3% 59.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days are
deemed outstanding for purposes of computing the percentage ownership of the
person holding the options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.
(2) Consists entirely of shares beneficially owned by Peregrine Capital, Inc.
("Peregrine"), of which Mr. Rose is the president and chief executive
officer. Includes up to 22,727 shares of Common Stock which Peregrine is
entitled to repurchase from a lender upon prepayment of the loan.
(3) Consists solely of shares to be issued upon exercise of the Orkney Warrant,
which is exercisable for a number of shares equal to 5% of the Company's
Common Stock outstanding, on a fully diluted basis, on the date of exercise
at an exercise price equal to 70% of the fair market value of the Common
Stock on the exercise such date. The number of shares listed in the table is
based upon a total of (i) 6,319,423 shares of Common Stock outstanding
before the closing of the Offering on a fully-diluted basis (including
319,423 shares issuable upon exercise of the Orkney Warrant) and (ii)
9,020,035 shares outstanding after the Offering on a fully-diluted basis
(including 451,002 shares issuable upon exercise of the Orkney Warrant if it
is not exercised prior to the closing of the Offering).
(4) Consists solely of shares subject to options exercisable within 60 days.
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(5) All of Mr. Jackson's shares and options were redeemed and canceled,
respectively, in connection with the Reorganization. See "The
Reorganization." Mr. Jackson resigned as the Company's Chief Operating
Officer in May 1998.
(6) Includes (i) 20,454 shares subject to options exercisable within 60 days,
(ii) 1,666,626 shares beneficially owned by Peregrine Capital, Inc. (see
Note 2 above) and (iii)(a) 319,423 shares issuable upon exercise of the
Orkney Warrant before the closing of the Offering (based upon a total of
6,339,877 shares of Common Stock outstanding, on a fully-diluted basis
(including the shares issuable upon exercise of the Orkney Warrant)) and (b)
451,002 shares issuable upon exercise of the Orkney Warrant after the
closing of the Offering (based upon a total of 8,971,456 shares outstanding,
on a fully-diluted basis (including the shares issuable upon exercise of the
Orkney Warrant)) See Note 3 above.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, having no par value, and 10,000,000 shares of Preferred Stock,
having no par value.
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation (the "Articles") and Amended and Restated Bylaws,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.
COMMON STOCK
As of July 31, 1998, there were 6,000,000 shares of Common Stock
outstanding held of record by approximately 88 shareholders.
The holders of shares of Common Stock, on the basis of one vote per share,
have the right to vote for the election of members of the Board of Directors of
the Company and the right to vote on all other matters. Subject to preferences
that may be applicable to any Preferred Stock outstanding at the time, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive rights and no rights to convert their Common
Stock into any other securities, and there are no redemption provisions with
respect to such shares. All the outstanding shares of Common Stock are fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares
of Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. As of July 31,
1998 there were 85,000 shares of Series A 9% Non-Voting Redeemable Preferred
Stock outstanding, all of which will be redeemed with $8.5 million of the net
proceeds from the Offering. See "Use of Proceeds."
The issuance of additional shares of Preferred Stock could have one or more
of the following effects: (i) restrict Common Stock dividends if Preferred Stock
dividends have not been paid, (ii) dilute the voting power and equity interest
of holders of Common Stock to the extent that any series of Preferred Stock has
voting rights or is convertible into Common Stock or (iii) prevent current
holders of Common Stock from participating in the Company's assets upon
liquidation until any liquidation preferences granted to holders of Preferred
Stock are satisfied. In addition, the issuance of Preferred Stock may, under
certain circumstances, have the effect of discouraging a change in control of
the Company by, for example, granting voting rights to holders of Preferred
Stock that require approval by the separate vote of the holders of Preferred
Stock for any amendment to the Articles or any reorganization, consolidation or
merger (or other similar transaction involving the Company). As a result, the
issuance of such Preferred Stock may discourage bids for the Company's Common
Stock at a premium over the market price therefor and could have a material
adverse effect on the market value of the Common Stock. The Board of Directors
does not currently intend to issue any additional shares of Preferred Stock. See
"Risk Factors -- Potential Issuance of Preferred Stock; Anti-Takeover Effect of
Oregon Law."
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WARRANTS AND STOCK OPTIONS
In connection with the Reorganization, the Company granted David Orkney a
warrant to purchase a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at a purchase
price equal to 70% of the fair market value of the Common Stock on the exercise
date. Mr. Orkney's warrant is exercisable until May 8, 2008. See "The
Reorganization" and "Certain Related Transactions." As of July 31, 1998, the
Orkney Warrant was exercisable for 319,423 shares of Common Stock. If the Orkney
Warrant is not previously exercised, it will be exercisable for 451,002 shares
of Common Stock upon the closing of the Offering.
In connection with the Offering, the Company has agreed to issue to each of
Black & Company Inc. and Cruttenden Roth Incorporated, as representatives for
the Underwriters, warrants (the "Representatives' Warrants") to purchase an
aggregate of 250,000 shares. The Representatives' Warrants are exercisable for a
period of three years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the
initial public offering price per share. The number of shares covered by the
Representatives' Warrants and the exercise price are subject to adjustment in
certain circumstances to prevent dilution. The Representatives' Warrants are
nontransferable for a period of one year following the date of this Prospectus,
except to (i) other brokers or dealers; (ii) one or more bona fide officers
and/or partners of the Representatives; (iii) a successor to the transferring
holder in a merger or consolidation; (iv) a purchaser of all or substantially
all of the transferring holder's assets; or (v) any person receiving a
Representatives' Warrant from one or more of the persons listed in subsections
(i), (ii), (iii) or (iv) above. The holders of the Representatives' Warrants
will have, in that capacity, no voting, dividend or other shareholder rights.
As of July 31, 1998, the Company had options outstanding to purchase 69,033
shares of Common Stock, with a weighted average exercise price of $1.90 per
share. All of such options had vested as of such date and an additional 730,967
shares were reserved for future grants under the 1998 Plan. See "Management --
Retirement and Certain Other Benefit Plans -- 1998 Stock Incentive Compensation
Plan."
REGISTRATION RIGHTS
Pursuant to the terms of a Registration Rights Agreement, individuals and
entities, including Peregrine and its affiliates who received in the Merger an
aggregate of 2,379,320 shares of the Company's Common Stock in exchange for
warrants exercisable for Holdings common stock may request that their Common
Stock be included in any public offering of Common Stock of the Company at the
Company's expense. In addition, at any time after the first anniversary of the
closing of the Offering, the holders of 50% or more of such shares of Common
Stock may make one request that the Company use its best efforts to register
such shares of Common Stock under the Securities Act at the Company's expense.
In any underwritten offering of shares of Common Stock being issued by the
Company, if the underwriters determine that marketing factors require a
limitation on the number of shares to be sold on account of shareholders, the
Company may limit or exclude from the registration such shares of Common Stock.
Mr. Orkney received registration rights with respect to the shares of
Common Stock to be issued to him upon exercise of the warrant he received in
connection with the Reorganization. The Company has also granted registration
rights with respect to the shares of Common Stock to be issued in connection
with the Company's acquisition of Timberline Direct. See
"Management -- Timberline Direct Acquisition; Employment Agreements." Mr. Orkney
and the persons who will receive these shares to be issued may request that
their shares of Common Stock be included in any public offering of capital stock
of the Company at the Company's expense. In any underwritten offering of the
Company's capital stock, if the underwriters determine that marketing factors
require a limitation on the number of shares to be sold for the account of
shareholders, then the Company may limit or exclude from the registration such
shares of Common Stock.
At any time during the period in which the Representatives' Warrants are
exercisable, the holders of the Representatives' Warrants have the right,
subject to certain limitations, to require the Company on one occasion to
register under the Securities Act, at the Company's expense, the shares of
Common Stock issuable upon exercise of the Representatives' Warrants.
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<PAGE> 65
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
The Company is subject to certain provisions of the Oregon Business
Corporation Act that, in certain circumstances, restrict the ability of
significant shareholders to exercise voting rights (the "Control Share Act").
The Control Share Act generally provides that a person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction that results
in the Acquiring Person holding more than 20%, 33 1/3% or 50% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote the
shares such person acquires in a Control Share Acquisition ("Control Shares")
unless voting rights are accorded to the Control Shares by (i) a majority of
each voting group entitled to vote and (ii) the holders of a majority of the
outstanding voting shares, excluding the Control Shares held by the Acquiring
Person and shares held by the corporation's officers and inside directors. The
term "Acquiring Person" is broadly defined to include persons acting as a group.
The Acquiring Person may, but is not required to, submit to the corporation
a statement setting forth certain information about the Acquiring Person and its
plans with respect to the corporation. The statement may also request that the
corporation call a special meeting of shareholders to determine whether voting
rights will be accorded to the Control Shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of Control
Shares will be considered at the next annual or special meeting of shareholders.
If the Acquiring Person's Control Shares are accorded voting rights and
represent a majority of all voting power, shareholders who do not vote in favor
of voting rights for the Control Shares will have the right to receive the
appraised "fair value" of their shares, which may not be less than the highest
price paid per share by the Acquiring Person for the Control Shares.
The Company is also subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that if a person or entity acquires 15% or
more of the voting stock of an Oregon corporation (an "Interested Shareholder"),
the corporation and the Interested Shareholder, or any affiliated entity of the
Interested Shareholder, may not engage in certain business combination
transactions for three years following the date the person became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sale, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the Interested Shareholder. These restrictions do not apply if (i) the
Interested Shareholder, as a result of the transaction in which such person
became an Interested Shareholder, owns at least 85% of the outstanding voting
stock of the corporation (disregarding shares owned by directors who are also
officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's outstanding voting stock
or (iii) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Company's
Common Stock and a significant public market for the Common Stock may not be
developed or sustained after the Offering. Future sales of substantial amounts
of the Company's Common Stock in the public market, or the prospect of such
sales, could adversely affect the prevailing market prices of the Company's
Common Stock or the future ability of the Company to raise capital through an
offering of equity securities.
Upon the closing of the Offering, the Company will have 8,500,000 shares of
Common Stock outstanding (8,875,000 shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of
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outstanding options under the Company's 1998 Plan and no exercise of the Orkney
Warrant. The 2,500,000 shares sold in the Offering will be freely tradable
without restriction or limitation under the Securities Act, except for any such
shares purchased by "affiliates" of the Company, as such term is defined under
Rule 144 of the Securities Act, which will be subject to the resale limitations
of Rule 144. The remaining 6,000,000 shares of the Company's Common Stock issued
and outstanding are "restricted securities" within the meaning of Rule 144 and
were issued and sold by the Company in private transactions. Such restricted
securities may be publicly sold only if registered under the Securities Act or
sold in accordance with an applicable exemption from registration, such as Rule
144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including an affiliate of the Company, would be entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of 1% of the then-outstanding shares of Common Stock (85,000
shares upon the closing of the Offering) or the average weekly trading volume in
the Common Stock during the four calendar weeks immediately preceding the date
on which a notice of sale is filed with the Commission, provided certain manner
of sale and notice requirements and requirements as to the availability of
current public information about the Company are satisfied. In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of Common Stock which are not restricted securities. As defined in Rule
144, an "affiliate" of an issuer is a person who directly or indirectly through
the use of one or more intermediaries controls, or is controlled by, or is under
common control with, such issuer. Under Rule 144(k), a holder of "restricted
securities" who is not deemed an affiliate of the issuer and who has
beneficially owned shares for at least two years would be entitled to sell
shares under Rule 144(k) without regard to the limitations described above.
Currently outstanding restricted shares of the Company's Common Stock are
not yet eligible for sale under Rule 144, but will become eligible for sale in
July 1999, subject to Rule 144 restrictions. The holders of 2,379,320 of the
Company's outstanding restricted shares, including Peregrine, have certain
registration rights with respect to such shares. All shares registered under the
Securities Act upon exercise of these registration rights will be freely
tradable without restriction or limitation under the Securities Act, except for
any such shares (i) purchased by affiliates of the Company, which will remain
subject to the resale limitations of Rule 144, or (ii) subject to lock-up
agreements with the Underwriters. The Company, its directors, executive officers
and other certain shareholders holding an aggregate of 5,289,618 shares have
agreed that, without the prior written consent of Black & Company, Inc., they
will not directly or indirectly offer to sell, sell, or otherwise dispose of
shares of Common Stock or any securities convertible or exchangeable therefor,
for a period of 180 days after the date of this Prospectus, subject to certain
limited exceptions. See "Underwriting."
The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to 800,000 shares of Common Stock under the 1998 Plan. Shares issued under the
1998 Plan after the effective date of such registration statement will be freely
tradable in the open market, subject to the lock-up agreements with the
Underwriters described above and, in the case of sales by affiliates, to certain
requirements of Rule 144. As of July 31, 1998, options to purchase 69,033 shares
of Common Stock were outstanding under the 1998 Plan, all of which options were
vested. In addition, the Orkney Warrant is exercisable for a number of shares
equal to 5% of the Company's Common Stock outstanding, on a fully-diluted basis,
on the date of exercise at an exercise price equal to 70% of the fair market
value of the Common Stock on the exercise date. If the Orkney Warrant is not
previously exercised, it will be exercisable for 451,002 shares of Common Stock
upon the closing of the Offering. The holder of the Orkney Warrant has certain
registration rights with expect to the shares of Common Stock issuable upon
exercise thereof. See "Description of Capital Stock -- Registration Rights."
65
<PAGE> 67
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), for whom Black &
Company, Inc. and Cruttenden Roth Incorporated are acting as representatives
(the "Representatives"), have severally agreed to purchase from the Company, and
the Company has agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite their respective names in the table
below. The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent and that the Underwriters are committed
to purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Black & Company, Inc..............................
Cruttenden Roth Incorporated......................
---------
Total................................... 2,500,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to certain other dealers (who may include the
Underwriters) not in excess of $ per share. After the initial offering to
the public, the offering price and other selling items may be changed by the
Representatives.
The Company has granted an option to the Underwriters exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 shares of Common Stock at the initial public offering price per
share, less the underwriting discounts, set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common stock to be purchased by such underwriter as shown in the above
table bears to the total shown.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
the Offering, including liabilities under the Securities Act, or to contribute
payments that the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company, its directors, executive officers and other shareholders have
agreed that, without the prior written consent of Black & Company, Inc., they
will not directly or indirectly offer to sell, sell, or otherwise dispose of
shares of Common Stock or any securities convertible or exchangeable therefor,
for a period of 180 days after the date of this Prospectus, subject to certain
limited exceptions.
66
<PAGE> 68
In connection with the Offering, the Underwriters may reserve up to
approximately 125,000 shares of Common Stock for sale at the initial public
offering price to persons associated with the Company. The number of shares
available for sale to the general public will be reduced to the extent any
reserved shares are purchased. Any reserved shares not so purchased will be
offered by the Underwriters on the same basis as the other shares offered
hereby.
In connection with the Offering, the Company has agreed to issue to each of
the Representatives Representatives' Warrants to purchase an aggregate of
250,000 shares of Common Stock. The Representatives' Warrants are exercisable
for a period of three years, beginning one year from the date of this
Prospectus. The Representatives' Warrants are exercisable at a price equal to
120% of the initial public offering price per share. The number of shares
covered by the Representatives' Warrants and the exercise price are subject to
adjustment in certain circumstances to prevent dilution. The Representatives'
Warrants are nontransferable for a period of one year following the date of this
Prospectus, except to (i) other brokers or dealers; (ii) one or more bona fide
officers and/or partners of the Representatives; (iii) a successor to the
transferring holder in a merger or consolidation; (iv) a purchaser of all or
substantially all of the transferring holder's assets; or (v) any person
receiving a Representatives' Warrant from one or more of the persons listed in
subsections (i), (ii), (iii) or (iv) above. The holders of the Representatives'
Warrants will have, in that capacity, no voting, dividend or other shareholder
rights. At any time during the period in which the Representatives' Warrants are
exercisable, the holders of the Representatives' Warrants shall have the right,
subject to certain limitations, to require the Company on one occasion to
register under the Securities Act, at the Company's expense, the shares of
Common Stock issuable upon exercise of the Representatives' Warrants.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of and prospects for the
Company and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
present state of the Company's development, the general condition of the
securities markets at the time of the Offering and the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods.
LEGAL MATTERS
Certain legal matters will be passed on for the Company by Perkins Coie
LLP, Portland, Oregon. Certain legal matters will be passed on for the
Underwriters by Stoel Rives LLP, Portland, Oregon.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby (as
amended, the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, omits certain information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The Commission also maintains a Web site on
the Internet that contains reports, proxy and information statements
67
<PAGE> 69
and other information regarding registrants that file electronically, including
the Company, with the Commission at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. All provisions of such
contracts, agreements and other documents that are material to the subject of
such statements, however, are described in the appropriate portions of this
Prospectus.
The Company will furnish its shareholders with annual reports containing
audited financial statements and an opinion thereon expressed by independent
auditors and will furnish its shareholders with quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.
68
<PAGE> 70
G.I. JOE'S, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... F-2
Financial Statements:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
G.I. Joe's, Inc.:
We have audited the accompanying balance sheets of G.I. Joe's, Inc. (an
Oregon corporation) as of June 30, 1998, and the related statements of
operations, shareholders' equity and cash flows for the two months ended June
30, 1998. We have also audited the accompanying balance sheets of the
Predecessor, as described in Note 1, as of January 31, 1997 and 1998 and April
30, 1998, and the related statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended January 31, 1998 and
for the three months ended April 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of G.I. Joe's, Inc. as of June
30, 1998, and the results of its operations and its cash flows for the two
months ended June 30, 1998, and the financial position of the Predecessor as of
January 31, 1997 and 1998 and April 30, 1998, and the results of its operations
and its cash flows for each of the three years in the period ended January 31,
1998 and for the three months ended April 30, 1998, in conformity with generally
accepted accounting principles.
Portland, Oregon,
September 18, 1998 /s/ ARTHUR ANDERSEN LLP
F-2
<PAGE> 72
G.I. JOE'S, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------- G.I. JOE'S, INC.
JANUARY 31, ----------------
----------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- ----------- ----------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash................................................... $ -- $ -- $ -- $ --
Accounts and notes receivable.......................... 302 264 235 260
Current portion of receivables from officers and
employees............................................ 48 49 39 9
Merchandise inventories................................ 29,442 33,368 35,919 41,687
Prepaid expenses and other............................. 1,236 873 613 1,371
Amounts held in escrow................................. -- -- 5,002 819
------- ------- ------- -------
Total current assets............................ 31,028 34,554 41,808 44,146
PROPERTY AND EQUIPMENT, net.............................. 17,393 18,531 7,255 8,545
CAPITALIZED LEASED PROPERTY AND EQUIPMENT, net........... 8,797 12,021 13,312 17,323
OTHER ASSETS:
Receivables from officers and employees, net of current
portion.............................................. 583 631 449 250
Other, net............................................. 726 802 1,252 1,852
------- ------- ------- -------
Total other assets.............................. 1,309 1,433 1,701 2,102
------- ------- ------- -------
$58,527 $66,539 $64,076 $72,116
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks outstanding in excess of cash deposits.......... $ 705 $ 618 $ 248 $ 522
Current portion of long-term obligations............... 1,194 1,560 1,089 1,102
Accounts payable....................................... 9,641 11,665 14,787 17,219
Accrued payroll and related liabilities................ 1,280 1,201 1,205 1,311
Deferred income taxes.................................. -- -- -- 1,844
Other accrued liabilities.............................. 3,285 3,983 2,922 3,905
------- ------- ------- -------
Total current liabilities....................... 16,105 19,027 20,251 25,903
REVOLVING LINE OF CREDIT................................. 11,563 12,976 9,445 14,348
LONG-TERM DEBT, net of current portion................... 9,758 10,532 948 900
CAPITAL LEASE OBLIGATIONS, net of current portion........ 11,308 14,584 15,874 15,728
NOTES PAYABLE............................................ -- -- -- 474
DEFERRED GAIN ON SALE LEASEBACK.......................... -- -- 18,363 --
DEFERRED INCOME TAXES.................................... -- -- -- 2,624
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares
authorized, Series A nonvoting redeemable preferred
0, 0, 0 and 85,000 shares issued and outstanding,
$8,500 redemption value.............................. -- -- -- 7,887
Common stock, no par value, 50,000,000 shares
authorized, 4,052,906, 4,052,906, 4,052,906 and
6,000,000 shares issued and outstanding.............. 1,585 1,585 1,585 2,888
Warrants for common stock.............................. -- -- -- 1,100
Additional paid-in capital............................. 911 911 911 342
Retained earnings (accumulated deficit)................ 7,297 6,924 (3,301) (78)
------- ------- ------- -------
Total shareholders' equity...................... 9,793 9,420 (805) 12,139
------- ------- ------- -------
$58,527 $66,539 $64,076 $72,116
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 73
G.I. JOE'S, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
---------------------------------------------------------- ----------------
THREE THREE TWO
MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED
------------------------------ APRIL 30, APRIL 30, JUNE 30,
1996 1997 1998 1997 1998 1998
-------- -------- -------- ----------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES.................... $124,052 $128,112 $128,238 $24,013 $25,908 $23,461
COST OF GOODS SOLD........... 82,346 84,184 84,552 16,425 17,670 15,511
-------- -------- -------- ------- ------- -------
Gross margin............... 41,706 43,928 43,686 7,588 8,238 7,950
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE..... 37,154 37,976 39,528 8,717 9,755 7,264
OTHER INCOME (EXPENSE):
Interest expense............. (4,331) (3,663) (3,542) (829) (971) (602)
Interest income.............. 605 51 65 7 9 --
Gain on sale of real
estate..................... 25 -- -- -- 640 --
-------- -------- -------- ------- ------- -------
(3,701) (3,612) (3,477) (822) (322) (602)
-------- -------- -------- ------- ------- -------
INCOME (LOSS) BEFORE TAXES
AND EXTRA-ORDINARY ITEM.... 851 2,340 681 (1,951) (1,839) 84
INCOME TAX PROVISION......... -- -- -- -- -- 34
-------- -------- -------- ------- ------- -------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM......... 851 2,340 681 (1,951) (1,839) 50
EXTRAORDINARY ITEM:
Loss on early extinguishment
of debt.................... -- -- -- -- (2,220) --
-------- -------- -------- ------- ------- -------
NET INCOME (LOSS)............ 851 2,340 681 (1,951) (4,059) 50
Preferred dividends.......... -- -- -- -- -- (128)
-------- -------- -------- ------- ------- -------
INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS........ $ 851 $ 2,340 $ 681 $(1,951) $(4,059) $ (78)
======== ======== ======== ======= ======= =======
INCOME (LOSS) PER SHARE
BEFORE EXTRAORDINARY ITEM
Basic...................... $ 0.21 $ 0.58 $ 0.17 $ (0.48) $ (0.45) $ (0.01)
Diluted.................... $ 0.20 $ 0.52 $ 0.15 $ (0.48) $ (0.45) $ (0.01)
NET INCOME (LOSS) PER SHARE
Basic...................... $ 0.21 $ 0.58 $ 0.17 $ (0.48) $ (1.00) $ (0.01)
Diluted.................... $ 0.20 $ 0.52 $ 0.15 $ (0.48) $ (1.00) $ (0.01)
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 74
G.I. JOE'S, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------- ------------------- PAID-IN (ACCUMULATED)
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT) TOTAL
------ ------ ---------- ------ -------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1995
Predecessor................. 4,075,917 $1,594 $946 $ 4,914 $ 7,454
Acquisition of common
stock..................... (4,551) (2) (6) -- (8)
Dividends................... -- -- -- (484) (484)
Net income.................. -- -- -- 851 851
---------- ------ ---- ------- -------
BALANCE, January 31, 1996
Predecessor................. 4,071,366 1,592 940 5,281 7,813
Acquisition of common
stock..................... (18,460) (7) (29) -- (36)
Dividends................... -- -- -- (324) (324)
Net income.................. -- -- -- 2,340 2,340
---------- ------ ---- ------- -------
BALANCE, January 31, 1997
Predecessor................. 4,052,906 1,585 911 7,297 9,793
Dividends................... -- -- -- (1,054) (1,054)
Net income.................. -- -- -- 681 681
---------- ------ ---- ------- -------
BALANCE, January 31, 1998
Predecessor................. 4,052,906 1,585 911 6,924 9,420
Dividends................... -- -- -- (6,166) (6,166)
Net loss.................... -- -- -- (4,059) (4,059)
---------- ------ ---- ------- -------
BALANCE, April 30, 1998
Predecessor................. 4,052,906 $1,585 $911 $(3,301) $ (805)
========== ====== ==== ======= =======
=======================================================================================================================
BALANCE, May 1, 1998
G.I. Joe's, Inc............. 85,000 $7,887 6,000,000 $2,888 $1,100 $214 $ -- $12,089
Net income.................. -- -- -- -- -- -- 50 50
Dividends accrued but
undeclared................ -- -- -- -- -- 128 (128) --
------ ------ ---------- ------ ------ ---- ------- -------
BALANCE, June 30, 1998
G.I. Joe's, Inc............. 85,000 $7,887 6,000,000 $2,888 $1,100 $342 $ (78) $12,139
====== ====== ========== ====== ====== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 75
G.I. JOE'S, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
---------------------------------------------------- ----------------
THREE THREE TWO
MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED
-------------------------- APRIL 30, APRIL 30, JUNE 30,
1996 1997 1998 1997 1998 1998
------- ------ ------- ----------- --------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 851 $2,340 $ 681 $(1,951) $ (4,059) $ 50
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities --
Extraordinary item:
Loss on early extinguishment of debt............... -- -- -- -- 2,220 --
Gain on sale of property and equipment............. (25) -- -- -- (640) --
Depreciation and amortization...................... 2,481 2,472 2,366 573 604 378
Amortization of deferred gain on sale leaseback.... -- -- -- -- (32) --
Forgiveness of officer receivables................. -- -- -- -- 187 --
Change in deferred income taxes.................... -- -- -- -- -- (36)
Changes in current assets and liabilities:
Accounts and notes receivable.................... 153 358 38 182 29 (25)
Merchandise inventories.......................... (1,919) (481) (3,926) 805 (2,551) (757)
Prepaid expenses and other....................... (26) (129) 363 (6) 260 (735)
Accounts payable and accrued liabilities......... 879 (3,266) 1,959 (268) 2,779 3,278
------- ------ ------- ------- -------- -------
Net cash provided by (used in) operating
activities..................................... 2,394 1,294 1,481 (665) (1,203) 2,153
------- ------ ------- ------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................. (1,668) (2,292) (2,491) (199) (90) (896)
Proceeds from sale of property and equipment, net.... 82 -- -- -- 25,057 --
Increase in deposits and other assets................ (238) (71) (196) (75) (768) (77)
Increase in receivables from officers and
employees.......................................... (315) (94) (86) (38) -- --
Payments received on receivables from officers and
employees.......................................... 5,439 227 37 2 5 --
------- ------ ------- ------- -------- -------
Net cash provided by (used in) investing
activities..................................... 3,300 (2,230) (2,736) (310) 24,204 (973)
------- ------ ------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in checks outstanding in excess of cash
deposits........................................... (1,027) 705 (87) (705) (370) 274
Net borrowings (repayments) on revolving line of
credit............................................. (2,062) 843 1,413 2,765 (3,531) (1,273)
Borrowings on long-term debt......................... 6,300 1,100 4,525 -- -- --
Payments on long-term debt........................... (7,725) (291) (3,372) (90) (10,054) (48)
Payments on capital lease obligations................ (896) (883) (854) (202) (226) (133)
Prepayment penalties due to early extinguishment of
debt............................................... -- -- -- -- (1,940) --
Acquisition of common stock.......................... (8) (36) -- -- -- --
Cash dividends....................................... (160) (618) (370) (147) (6,880) --
------- ------ ------- ------- -------- -------
Net cash provided by (used in) financing
activities..................................... (5,578) 820 1,255 1,621 (23,001) (1,180)
------- ------ ------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH........................ 116 (116) -- 646 -- --
CASH, beginning of period.............................. -- 116 -- -- -- --
------- ------ ------- ------- -------- -------
CASH, end of period.................................... $ 116 $ -- $ -- $ 646 $ -- $ --
======= ====== ======= ======= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION --
Cash paid for interest............................... $ 4,297 $3,662 $ 3,559 $ 906 $ 897 $ 602
NONCASH TRANSACTIONS:
Additions of capital leases for property and
equipment.......................................... -- 268 4,117 -- 1,515 --
Applied deposits to purchase options of leased
equipment.......................................... -- 108 -- -- -- --
Dividends declared but unpaid........................ 324 30 714 -- -- 128
Sale of property in exchange for note receivable..... 211 -- -- -- -- --
Proceeds from sale of property held in escrow........ -- -- -- -- 5,002 --
Deferred gain on sale of property and equipment...... -- -- -- -- 18,395 --
Write-off of unamortized loan fees................... -- -- -- -- 280 --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 76
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
G.I. Joe's, Inc. (the "Company") was founded in 1952 by Edward Orkney as a
government surplus store, and evolved over the years into a mass merchandiser.
By 1995, under the direction of Norman Daniels, the Company's current Chairman
of the Board, President and Chief Executive Officer, the Company had streamlined
its product offerings to focus on sports and automotive merchandise, its
best-selling product lines. The Company currently has 16 stores in Oregon and
Washington, and also maintains a corporate office and operates an attached
150,000 square foot distribution center at its headquarters location in
Wilsonville, Oregon. In addition, the Company sells tickets to all major
entertainment and sporting events through TicketMaster outlets located in all of
its retail locations. The Ticket Group, which has entered into an operating
agreement with TicketMaster Northwest to operate TicketMaster outlets in Oregon,
includes officers and former officers of the Company.
Reorganization and Prior S Corporation Status
A majority of the Company's capital stock was owned by David Orkney, the
founder's son and a Director of the Company. On May 5, 1998, the Company
redeemed all of the Company's outstanding capital stock and options, other than
shares held by Mr. Daniels and two minority shareholders, for an aggregate
consideration of approximately $20,500 (the "Redemption"). In connection with
the Redemption, the Company granted David Orkney a warrant to purchase 5% of the
Company's Common Stock outstanding on the date of exercise at a purchase price
equal to 70% of the fair market value of the Common Stock on such date (the
"Orkney Warrant").
The Company financed the Redemption with the proceeds from the sale of its
owned real estate and the sale of $9,500 of subordinated notes of the Company to
investors (the "Investors"). Following the Redemption, Mr. Daniels exchanged his
common stock in the Company for all the common stock of ND Holdings, Inc., an
Oregon corporation ("Holdings"), which resulted in the Company becoming a
subsidiary of Holdings. In addition, holders of the Company's subordinated notes
exchanged their notes for preferred stock, common stock and warrants to purchase
common stock of Holdings (the "Exchange"). Following the Redemption and the
Exchange, Mr. Daniels and the Investors owned 54% and 46%, respectively, of the
common stock of Holdings, on a fully-diluted basis, and the Investors owned all
of the outstanding preferred stock of Holdings.
In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, all preferred
shareholders of Holdings received shares of preferred stock of the Company, and
all common shareholders and warrant holders of Holdings received 5,948,302
shares of the Company's Common Stock. Following the Merger, there were 85,000
outstanding shares of the Company's Series A Non-Voting Redeemable Preferred
Stock, all of which shares are redeemable with approximately $8,500 of the
proceeds from an initial public offering, and 6,000,000 outstanding shares of
the Company's Common Stock.
The Redemption, the Exchange and the Merger are a series of planned
transactions (the "Reorganization") executed to consummate the acquisition of
the Company. Accordingly, this series of transactions has been reflected as if
they occurred on May 1, 1998. The financial statements with respect to periods
prior to May 1, 1998 reflect the financial position and results of operations of
the Company prior to the Reorganization (the "Predecessor").
F-7
<PAGE> 77
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
The acquisition was accounted for as a purchase. The total purchase price
was comprised of cash of $20,500, common stock valued at $1,888, the Orkney
Warrant valued at $1,100, forgiveness of loans of $132 (see Note 5), and $475 of
fees and expenses related to the acquisition. The aggregate consideration has
been allocated to the assets of the Company, based on fair market value. The
excess of the purchase price over the assets acquired and liabilities assumed
was allocated as follows:
<TABLE>
<S> <C>
Inventory.................................................. $ 5,011
Property................................................... 572
Capitalized leased property and equipment.................. 4,209
Goodwill................................................... 1,037
-------
$10,829
=======
</TABLE>
The following unaudited pro forma financial information has been prepared
based upon the historical financial statements of the Company as if the
acquisition had occurred at the beginning of the respective periods.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FIVE MONTHS
JANUARY 31, ENDED JUNE 30,
1998 1998
------------------ -------------------
<S> <C> <C>
Net sales................................... $128,238 $49,369
Net loss attributable to common
shareholders.............................. (1,941) (1,768)
Basic net loss per share.................... (0.32) (.29)
Diluted net loss per share.................. (0.32) (.29)
</TABLE>
Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. Upon the Exchange,
the Company's S Corporation status was terminated and, accordingly, the Company
is fully subject to federal and state income taxes on its earnings. See also
"Income Taxes" below.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist of accounts and notes
receivable and debt instruments. For the periods presented, the fair value of
the Company's receivables and debt under the loan and security agreement
approximated the carrying value.
Advertising
Advertising costs are expensed as incurred. The Company has cooperative
advertising arrangements with certain vendors whereby the vendors will reimburse
the Company for advertising their products. Cooperative advertising funds are
accounted for as a reduction in advertising expense. For the fiscal years ended
F-8
<PAGE> 78
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
January 31, 1996, 1997 and 1998 and for the three months ended April 30, 1998
and the two months ended June 30, 1998, advertising costs were $4,963, $3,828,
$4,498, $890 and $756, respectively.
Property and Equipment
The Financial Accounting Standards Board has issued SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which establishes criteria for measuring impairment losses of long-lived
assets and determining when such losses should be recognized. In fiscal year
1997, the Company adopted SFAS 121, with no effect on its financial position or
results of operations.
Property and equipment are recorded at cost. Additions and improvements,
including interest costs incurred during construction, are capitalized, whereas
maintenance and repairs are charged to expense as incurred.
Revenue Recognition
Revenues are recorded at the time of sale of merchandise to customers.
Capitalized Leased Property and Equipment
Capitalized leased property and equipment are recorded at the lesser of the
present value of minimum lease payments or the fair value of the leased
property.
Depreciation and Amortization
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized on the straight-line method over the shorter of the remaining lease
period or the estimated useful life of the asset. Capital leases are amortized
using the straight-line method over the shorter of the estimated useful lives of
the leased assets or primary terms of the leases. The estimated useful lives of
property and equipment are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................ 20-40
Fixtures & equipment................................. 3-10
Leasehold improvements............................... 10-25
</TABLE>
Sale-Leaseback Transaction
The Company entered into a sale-leaseback transaction totaling $31,200 in
April 1998, relating to 5 store locations and the Company's distribution center.
The net gain of $18,395 was deferred and was being amortized over the applicable
leaseback period. In conjunction with the acquisition, the deferred amount was
reduced to zero. The leases for the distribution center and four of the five
store locations are operating leases and the lease for the remaining store
location is a capital lease.
Goodwill
Goodwill is the excess of the purchase price paid over the value of net
assets acquired. Amortization expense is calculated on a straight-line basis
over forty years. The carrying value of goodwill is reviewed quarterly if the
facts and circumstances suggest that it may be permanently impaired. If the
review indicates that goodwill will not be recoverable, as determined by the
undiscounted cash flow method, the asset will be
F-9
<PAGE> 79
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
reduced to its estimated recoverable value. Goodwill is included in other
long-term assets in the accompanying balance sheet as of June 30, 1998.
Income Taxes
Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company prior to the Exchange were included in the taxable
income of the Company's shareholders at their individual federal and state
income tax rates, rather than that of the Company. Upon the Exchange, the
Company's S Corporation status was terminated and, accordingly, the Company is
fully subject to federal and state income taxes on its earnings.
In connection with the Redemption and Exchange, the Company established a
net deferred tax liability of $4,504 using the asset and liability method.
Under the asset and liability method, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of changes in tax rates is recognized in income in the period that includes the
enactment date.
Computation of Per Share Amounts
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standard No. 128,
Earnings per Share (SFAS 128). Basic EPS is calculated using the weighted
average number of common shares outstanding for the period and diluted EPS is
computed using the weighted average number of common shares and dilutive common
equivalent shares outstanding. Following is a reconciliation of basic EPS and
diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------
1996 1997 1998
--------------------------- --------------------------- ---------------------------
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to Common
Shareholders................... $851 4,076 $0.21 $2,340 4,065 $0.58 $681 4,053 $0.17
===== ===== =====
Effect of Dilutive Securities:
Stock Options.................... -- 235 -- 443 -- 572
---- ----- ------ ----- ---- -----
Diluted EPS:
Income available to Common
Shareholders................... $851 4,311 $0.20 $2,340 4,508 $0.52 $681 4,625 $0.15
===== ===== =====
</TABLE>
F-10
<PAGE> 80
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
PERIOD ENDED APRIL 30, 1997 PERIOD ENDED APRIL 30, 1998 PERIOD ENDED JUNE 30, 1998
---------------------------- ---------------------------- ----------------------------------
PER SHARE PER SHARE INCOME PER SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT (LOSS) SHARES AMOUNT
------- ------ --------- ------- ------ --------- ------ ------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income (Loss)...... $(1,951) $(4,059) $ 50
Preferred Dividends.... -- -- (128)
------- ------- ------
Loss attributable to
Common Shareholders.. $(1,951) 4,053 $(0.48) $(4,059) 4,053 $(1.00) $ (78) 6,000 $(0.01)
====== ====== ======
Effect of Dilutive
Securities:
Stock Options and
Warrants............. -- -- -- -- -- --
------- ----- ------- ----- ------ ------
Diluted EPS:
Loss attributable to
Common Shareholders.. $(1,951) 4,053 $(0.48) $(4,059) 4,053 $(1.00) $ (78) 6,000 $(0.01)
====== ====== ======
</TABLE>
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to current year presentation.
Interim Financial Statements
The accompanying interim financial statements of the Company for the three
month period ended April 30, 1997 have been prepared by the Company without
audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. G.I. Joe's, Inc. believes the
disclosures made are adequate to make the information presented not misleading.
However, the interim financial statements should be read in conjunction with the
financial statements and notes thereto.
In the opinion of G.I. Joe's, Inc., the accompanying unaudited financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of G.I. Joe's,
Inc. as of April 30, 1997 and the results of operations and cash flows for the
three months ended April 30, 1997. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
Recent Accounting Pronouncements
Effective in its fiscal year ending January 31, 1999, the Company will be
required to adopt SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. SFAS No.
131 changes current practice under SFAS No. 14 by establishing a new framework
on which to base segment reporting (referred to as the "management" approach)
and also requires interim reporting of segment information. Management does not
expect that the impact of adoption of these pronouncements will be material to
the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company
F-11
<PAGE> 81
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
currently has no derivative instruments and, therefore, the adoption of SFAS No.
133 will have no impact on the Company's financial position or results of
operations.
2. MERCHANDISE INVENTORIES:
Substantially all of the Company's inventories are determined using the
retail last-in, first-out (LIFO) inventory valuation method. Vendor discounts on
inventory are accounted for as a reduction in inventory cost. Merchandise
inventories are summarized as follows:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- ----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- ----------------
<S> <C> <C> <C> <C>
Inventories at retail cost...................... $36,231 $39,686 $42,131 $41,687
Less -- LIFO reserve............................ (6,789) (6,318) (6,212) --
------- ------- ------- -------
$29,442 $33,368 $35,919 $41,687
======= ======= ======= =======
</TABLE>
During fiscal years 1996, 1997 and 1998, certain inventory quantities were
reduced, resulting in a liquidation of LIFO inventory quantities carried at
lower costs than prevailing in prior years as compared with the cost of
purchases. The effect of these liquidations was to increase net income by
approximately $146, $190 and $98 for the years ended January 31, 1996, 1997 and
1998, respectively. For the three months ended April 30, 1998 and the two months
ended June 30, 1998, the effect of liquidation of LIFO inventory quantities on
net income was not material.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
--------------------------------- ----------------
JANUARY 31,
-------------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
-------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Property and equipment used in operations --
Land...................................... $ 2,871 $ 2,940 $ -- $ --
Buildings................................. 11,089 11,370 -- --
Fixtures and equipment.................... 9,401 8,969 8,857 2,646
Leasehold improvements.................... 4,238 5,416 4,134 2,942
Construction in progress.................. 80 111 81 973
-------- -------- ------- ------
27,679 28,806 13,072 6,561
Less -- Accumulated depreciation and
amortization.............................. (12,979) (12,877) (7,405) (178)
-------- -------- ------- ------
Net property and equipment used in
operations...................... 14,700 15,929 5,667 6,383
-------- -------- ------- ------
Property held for future development or
sale:
Land...................................... 2,071 2,010 1,588 2,162
Buildings................................. 1,058 1,007 -- --
-------- -------- ------- ------
3,129 3,017 1,588 2,162
Less -- Accumulated depreciation............ (436) (415) -- --
-------- -------- ------- ------
Net property held for future
development or sale............. 2,693 2,602 1,588 2,162
-------- -------- ------- ------
$ 17,393 $ 18,531 $ 7,255 $8,545
======== ======== ======= ======
</TABLE>
F-12
<PAGE> 82
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
4. CAPITALIZED LEASED PROPERTY AND EQUIPMENT:
Capitalized leased property and equipment consist of the following:
<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
------------------------------- -----------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- -----------
<S> <C> <C> <C> <C>
Buildings.......................................... $15,223 $19,132 $19,899 $17,308
Fixtures and equipment............................. 6,790 6,645 6,645 213
------- ------- ------- -------
22,013 25,777 26,544 17,521
Less -- Accumulated amortization................... (13,216) (13,756) (13,232) (198)
------- ------- ------- -------
$ 8,797 $12,021 $13,312 $17,323
======= ======= ======= =======
</TABLE>
5. RECEIVABLES FROM OFFICERS AND EMPLOYEES:
Receivables from officers include loans made by the Company to four current
and former officers at interest rates that approximate market rates. They also
include advances, at market rates, made to a partnership comprised of former
officers and shareholders of the Company. Receivables from employees consist
mainly of advances made by the Company to facilitate employee relocations.
Interest income earned on these receivables was $588, $46, $48, $9 and $0 for
the years ended January 31, 1996, 1997 and 1998 and for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively.
In 1994, the Company advanced amounts to the partnership referred to above
for bridge financing for two retail sites owned by the partnership which are
leased to and operated by the Company. In fiscal years 1997 and 1998, and the
three months ended April 30, 1998, $31, $34 and $9, including principal and
interest, of these advances were repaid to the Company, respectively. In May
1998, in conjunction with the termination of their employment, two officers of
the Company repaid the principal and interest on their loans totaling $99. The
outstanding balance of the partnership at January 31, 1997, January 31, 1998,
April 30, 1998 and June 30, 1998 was $251, $243, $240, and $240, respectively.
In April 1998, the Company awarded a bonus to one officer which was paid by
forgiving all principal and interest owed by the officer of approximately $187.
In May 1998, in connection with the Redemption and Exchange the Company
forgave all principal and interest owed by one officer of the Company, who was a
selling shareholder, totaling approximately $132. This forgiveness was
considered a part of the purchase price in connection with the acquisition of
the Company. (See Note 1.)
Outstanding receivables from current and former officers and employees are
as follows:
<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
------------------------- -----------
JANUARY 31,
------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
---- ---- --------- -----------
<S> <C> <C> <C> <C>
Officers............................................... $612 $660 $469 $240
Employees.............................................. 19 20 19 19
---- ---- ---- ----
631 680 488 259
Less -- Current portion................................ (48) (49) (39) (9)
---- ---- ---- ----
$583 $631 $449 $250
==== ==== ==== ====
</TABLE>
F-13
<PAGE> 83
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
----------------------------- -----------------
JANUARY 31,
---------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
------ ------ --------- -----------------
<S> <C> <C> <C> <C>
Amounts due to TicketMaster..................... $1,597 $1,399 $1,133 $1,671
Unredeemed customer gift certificates........... 835 973 893 873
Other........................................... 853 1,611 896 1,361
------ ------ ------ ------
$3,285 $3,983 $2,922 $3,905
====== ====== ====== ======
</TABLE>
7. LONG-TERM DEBT:
Following is a summary of long-term debt:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- -----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- -----------------
<S> <C> <C> <C> <C>
Term loan, prime plus .25%, payable $6 monthly
plus interest, matures August 1999 with
final payment of $1,027..................... $ 1,100 $ 1,033 $ -- $ --
Term loan, 8.80%, payable $33 monthly
including interest, matures 2001............ -- 1,293 1,246 1,198
Revolving line of credit facility, prime plus
.25%, balance refinanced in March 1998...... 11,563 12,976 -- --
Revolving line of credit facility, reference
rate plus .50%, due March 2001.............. -- -- 9,445 14,348
Mortgage notes:
8.63%, payable $12 monthly including interest,
matures 2011................................ 1,193 1,185 -- --
8.63%, payable $21 monthly including interest,
matures 2011................................ 1,794 1,974 -- --
8.30%, payable $22 monthly including interest,
fully amortizing, matures 2010.............. 2,205 2,116 -- --
7.96%, payable $38 monthly including interest,
fully amortizing, matures 2011.............. 3,855 3,699 -- --
------- ------- ------- -------
21,710 24,276 10,691 15,546
Less -- Current portion....................... (389) (768) (298) (298)
------- ------- ------- -------
$21,321 $23,508 $10,393 $15,248
======= ======= ======= =======
</TABLE>
On March 10, 1998, the Company entered into a $20,000, three-year loan and
security agreement with Foothill Capital Corporation (Foothill) to replace its
existing revolving line of credit facility and term loan. Amounts available
under this line of credit facility are the lesser of $20,000, or an amount
calculated as the sum of 60% of eligible FIFO inventory, as defined, less
specified reserves and the aggregate amount of all undrawn outstanding letters
of credit. Interest is payable at the bank's reference rate plus .50% (9% at
June 30, 1998). Letters of credit are issuable against the revolving line of
credit up to a maximum of the lesser of $1,000 or available borrowings under the
revolving line of credit facility.
F-14
<PAGE> 84
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Borrowings outstanding under the Foothill loan and security agreement are
secured by all of the assets of the Company, including receivables, inventory,
and property and equipment. The loan and security agreement contain restrictive
covenants relating to minimum levels of EBITDA and net worth, and restrictions
on dividend payments and capital expenditures. The Company was in compliance
with these covenants at June 30, 1998.
During the three months ended April 30, 1998, the Company used the proceeds
from the sale of certain properties to pay-off certain mortgages and other
long-term debt prior to maturity. This resulted in an extraordinary charge of
$2,220 ($0.55 per diluted share).
Principal payment requirements on long-term debt after June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999(for the remaining 7 months)............................ $ 203
2000........................................................ 324
2001........................................................ 352
2002........................................................ 14,667
-------
$15,546
=======
</TABLE>
8. SHAREHOLDERS' EQUITY:
Common Stock
In the fiscal year ended January 31, 1998, the Company declared a 10-for-1
stock split of its common stock effective April 15, 1997 and in the fiscal year
ended January 31, 1999, the Company declared a 2.5567-for-1 stock split of its
common stock effective in July 1998. All share and per share amounts have been
retroactively restated for the stock splits.
Redeemable Preferred Stock
In connection with the Redemption, Exchange and Merger, the Company
authorized 10,000,000 shares of preferred stock without par value. Of the total
authorized shares, 85,000 shares were issued. These shares designated as Series
A Non-Voting Preferred Stock (Preferred Stock), are non-voting and have a
redemption price equal to the original issue price of $100 per share, together
with any accrued and unpaid dividends thereon. The Preferred Stock is redeemable
upon the completion of an initial public offering of the Company's common stock
in which the aggregate offering proceeds to the Company are not less than
$12,000.
The net proceeds received have been classified as Preferred Stock on the
Company's balance sheet. The difference between the stated value and the
carrying amount represents the fair value of warrants issued to the holders of
Preferred Stock. This difference will be accreted to the Preferred Stock upon
redemption with a corresponding charge to retained earnings (accumulated
deficit).
Dividends on the Preferred Stock are due at a rate of 9% of the original
issue price per share, payable when, as and if declared by the Board of
Directors. Accrued but undeclared dividends totaled $128 for the two months
ended June 30, 1998. No dividends have been paid by the Company.
The Preferred Stock has liquidation preferences over any other class of
preferred stock and the common stock. The Preferred Stock is nonconvertible and
has a liquidation value equal to the original issue price of $100 per share plus
any accrued and unpaid dividends.
F-15
<PAGE> 85
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
9. INCOME TAXES
The provision for income taxes for the two months ended June 30, 1998 is as
follows:
<TABLE>
<S> <C>
Current
Federal................................................... $ 58
State..................................................... 12
----
70
Deferred.................................................... (36)
----
Total............................................. $ 34
====
</TABLE>
Total deferred income tax assets were $246 and liabilities were $4,714 at
June 30, 1998. Individually significant temporary differences, which are
primarily a result of the purchase accounting treatment for the Redemption and
Exchange and the allocation of excess purchase price to the fair value of assets
and liabilities, are as follows at June 30, 1998:
<TABLE>
<S> <C>
Inventory (including unicap)............................... $(1,844)
Fixed Assets............................................... (2,709)
Other...................................................... 85
-------
$(4,468)
=======
</TABLE>
The Company's deferred tax assets are realizable as a result of past and
future income, therefore, a valuation allowance is not considered necessary.
The difference between the effective tax rate of 40% and the statutory
federal income tax rate of 34% is a result of state income taxes.
10. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases certain retail store facilities, fixtures and equipment
under operating leases. The real estate leases generally range in terms from 20
to 30 years with renewal options from 5 to 10 years. Certain real estate leases,
with terms of 25 years, are leased from a partnership made up of current and
former officers and stockholders of the Company. Rental expense incurred on
operating leases was $1,636, $1,767 and $1,909 for the years ended January 31,
1996, 1997 and 1998, respectively, and $618 and $888 for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively. These
amounts include rental expense incurred on leases from related parties of $403,
$415 and $314 for the years ended January 31, 1996, 1997 and 1998, respectively,
and $61 and $40 for the three months ended April 30, 1998 and the two months
ended June 30, 1998, respectively. The Company also incurs other direct rental
costs associated with its operating leases, principally real estate taxes and
insurance.
F-16
<PAGE> 86
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Future minimum rental commitments after June 30, 1998 for all noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months).......................... $ 2,770
2000....................................................... 4,486
2001....................................................... 4,301
2002....................................................... 4,239
2003....................................................... 4,221
Thereafter................................................. 45,203
-------
$65,220
=======
</TABLE>
Capital Leases
Capital leases for retail store facilities and equipment range in terms
from 5 to 30 years with renewal options on certain leases to 70 years.
Future minimum lease payments under capital leases as of June 30, 1998 are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months)......................... $ 1,585
2000...................................................... 2,639
2001...................................................... 2,572
2002...................................................... 2,516
2003...................................................... 2,292
Thereafter................................................ 23,923
--------
Total minimum lease payments.................... 35,527
Less -- Amount representing interest (at a weighted
average interest rate of 11.4%)......................... (18,995)
--------
Present value of minimum lease payments................... 16,532
Less -- Current portion................................... (804)
--------
$ 15,728
========
</TABLE>
The Company pays contingent rentals based on sales volume for certain of
its retail store facilities under capital leases. Total contingent rentals were
$198, $218 and $200 in fiscal years 1996, 1997 and 1998. Total contingent
rentals were $5 and $23 for the three months ended April 30, 1998 and the two
months ended June 30, 1998, respectively. The Company also incurs other direct
expenses for its capital leases, principally real estate taxes and insurance.
Included in total capital lease obligations is $4,154, $4,086, $4,067 and
$4,055 at January 31, 1997, January 31, 1998, April 30, 1998 and June 30, 1998,
respectively, payable to a partnership comprised of current and former officers
and shareholders of the Company.
Contingencies
There are various claims involving employment matters against the Company
incident to the operations of its business. The liability, if any, associated
with these matters was not determinable at April 30, 1998. It is
F-17
<PAGE> 87
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
the opinion of management that the ultimate resolution of these claims will not
have a materially adverse effect on the Company's financial position or results
of operations.
11. PENSION AND OTHER POST-RETIREMENT PLANS:
Defined Benefit Pension Plan
Full-time employees who have attained the age of 21 and have completed one
year of service are covered under a Company sponsored defined benefit pension
plan (the Plan). The Plan provides benefits based on participants' years of
service and compensation. The Company funds at least the minimum annual
contribution required by the Employee Retirement Income Security Act of 1974.
The following table sets forth the funded status of the Plan:
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
JANUARY 31,
----------------- APRIL 30,
1997 1998 1998
------- ------- ---------
<S> <C> <C> <C>
Accumulated benefit obligations:
Vested.................................................... $(3,857) $(5,287) $(5,287)
Nonvested................................................. (286) (333) (333)
------- ------- -------
(4,143) (5,620) (5,620)
Projected benefit obligation................................ (5,258) (6,591) (6,591)
Plan assets at fair value................................... 5,054 5,756 5,756
------- ------- -------
Projected benefit obligation in excess of plan assets....... (204) (835) (835)
Unrecognized prior service cost............................. (1,020) (933) (933)
Unrecognized net obligation at February 1, 1987 being
recognized over 15 years.................................. 144 115 115
Unrecognized net loss from past experience different from
that assumed and effects from changes in assumptions...... 611 1,032 1,032
------- ------- -------
Accrued pension cost........................................ $ (469) $ (621) $ (621)
======= ======= =======
</TABLE>
In connection with the Merger and Exchange, and in accordance with APB 16,
the Company recorded an additional accrued pension cost of $214 in order to
record the projected benefit obligation in excess of plan assets at May 1, 1998.
This represents the projected benefit obligation in excess of plan assets as of
the most recent actuarial valuation received by the Company.
Net pension expense included the following components:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
THREE
MONTHS
JANUARY 31, ENDED
--------------------- APRIL 30,
1996 1997 1998 1998
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Service cost -- benefits earned during the period..... $ 233 $ 236 $ 289 $ 88
Interest cost on projected benefit obligations........ 354 363 429 127
Actual return on plan assets.......................... (863) (553) (786) (136)
Net amortization and deferral......................... 525 108 293 (4)
----- ----- ----- -------
Net periodic pension cost............................. $ 249 $ 154 $ 225 $ 75
===== ===== ===== =======
</TABLE>
F-18
<PAGE> 88
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Rates used in determining the actuarial present value of the projected
benefit obligation were as follows:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
JANUARY 31,
------------ APRIL 30,
1997 1998 1998
---- ---- ---------
<S> <C> <C> <C>
Discount rate............................................... 8.0% 7.5% 7.5%
Increase in future compensation levels...................... 5.0 5.0 5.0
Expected long-term rate of return........................... 9.0 9.0 9.0
</TABLE>
The Company has a custodial agreement with a trust wherein certain plan
assets are invested in one or more pooled investment funds.
Savings Plan
The G.I. Joe's, Inc. Savings Plan is a defined contribution plan and covers
substantially all employees who have attained age 21 and have completed one year
of service. The Savings Plan provides for employer matching contributions, which
are determined annually by the Company. Contributions to the Savings Plan made
by the Company were $99, $103, $109, $27 and $19 in fiscal years 1996, 1997 and
1998 and the three months ended April 30, 1998 and the two months ended June 30,
1998, respectively.
Executive Stock Option Plan
The Company has three Incentive Stock Option Plans (the Plans), the purpose
of which is to make available common stock of the Company for purchase by
eligible officers and other key employees. The Plans have authorized an
aggregate of 2,216,664 shares of common stock, no par value, to be reserved for
issuance under the Plans. The administrator of the Plans, an officer of the
Company, is responsible for granting options, and is not eligible to receive any
options. The option price shall be set by the administrator of the Plans, and
shall approximate, as nearly is feasible without appraisal, the fair market
value of the common stock as of the date on which the options are granted, but
may not be less than the stated par value. The options vest over three to five
years from date of grant and expire at dates no later than March 31, 2010.
<TABLE>
<CAPTION>
SHARES
AVAILABLE FOR SHARES SUBJECT WEIGHTED AVERAGE
GRANT TO OPTIONS EXERCISE PRICE
------------- -------------- ----------------
<S> <C> <C> <C>
BALANCE, January 31, 1995 -- Predecessor............ 299,135 1,917,529 $1.67
--------- ---------- -----
BALANCE, January 31, 1996 -- Predecessor............ 299,135 1,917,529 $1.67
Granted........................................... (12,784) 12,784 $1.83
--------- ---------- -----
BALANCE, January 31, 1997 -- Predecessor............ 286,351 1,930,313 $1.67
Granted........................................... (43,464) 43,464 $2.42
--------- ---------- -----
BALANCE, January 31, 1998 -- Predecessor............ 242,887 1,973,777 $1.69
--------- ---------- -----
BALANCE, April 30, 1998 -- Predecessor.............. 242,887 1,973,777 $1.69
Redeemed.......................................... 1,159,464 (1,159,464) $1.68
Canceled.......................................... 745,280 (745,280) $1.68
--------- ---------- -----
BALANCE, June 30, 1998 -- G.I. Joe's, Inc. ......... 2,147,631 69,033 $1.90
========= ========== =====
</TABLE>
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for Stock Based
Compensation, which defines a fair value based method of accounting for employee
stock options and similar equity instruments and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However,
F-19
<PAGE> 89
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
SFAS123 also allows an entity to continue to measure compensation cost for those
plans using the method of accounting prescribed by APB25. Entities electing to
remain with the accounting in APB25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based method
of accounting defined in SFAS123 had been adopted.
The Company has elected to account for its stock based compensation plans
under APB25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during fiscal 1997 and 1998 (no
options were granted during fiscal 1996) using the minimum value method, as
prescribed by SFAS123, using the following weighted average assumptions for
grants:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31, 1997 1998
------------------------------ ---- ----
<S> <C> <C>
Risk-free interest rate..................................... 6% 6.25%
Expected dividend yield..................................... 0% 0%
Expected lives (years)...................................... 6 4
</TABLE>
Using the minimum value methodology, the total value of options granted
during fiscal 1997 and fiscal 1998 was $7 and $23, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (5 years
for 1997 grants and 3 years for 1998 grants). The weighted average fair value of
options granted during 1997 and 1998 was $0.55 per share and $0.53 per share,
respectively.
If the Company had accounted for its stock-based compensation plan in
accordance with SFAS123, the Company's net income would not have been materially
different and net income (loss) per share would have been the same as reported
net income (loss) per share amounts.
The following table summarizes information about stock options outstanding
on June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 6/30/98 LIFE (YEARS) PRICE AT 6/30/98 PRICE
- ------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.53 25,567 5.8 $1.53 25,567 $1.53
1.83 12,784 7.8 1.83 12,784 1.83
1.99 12,784 4.8 1.99 12,784 1.99
2.42 17,898 9.1 2.42 17,898 2.42
- ------------ ------ --- ----- ------ -----
$1.53 - 2.42 69,033 6.8 $1.90 69,033 $1.90
============ ====== === ===== ====== =====
</TABLE>
At January 31, 1996, 1997 and 1998, 383,505, 767,010 and 1,150,515 options,
respectively, were exercisable at a weighted average exercise price of $1.61 per
share at each date. At April 30, 1997 (unaudited) and 1998, 1,150,515 and
1,534,021 options, respectively, were exercisable at weighted average exercise
prices of $1.61 and $1.71, respectively.
1998 Stock Option Plan (unaudited)
In July 1998, the Company adopted the G.I. Joe's, Inc. 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). In conjunction with the adoption of the
1998 Plan, options outstanding under the Plans covering 69,033 shares of the
Company's common stock were converted to options outstanding under the 1998 Plan
and the Plans were terminated. The purpose of the 1998 Plan is to enhance the
long-term shareholder value of the Company by offering employees, directors,
officers, consultants, agents, advisors and independent contractors of the
Company an opportunity to participate in the Company's growth and success, and
to
F-20
<PAGE> 90
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
encourage them to remain in the service of the Company and acquire and maintain
stock ownership in the Company. The 1998 Plan includes both stock options and
stock awards, including restricted stock. A maximum of 800,000 shares of common
stock are available for issuance under the 1998 Plan.
The Plan Administrator of the 1998 Plan will be the Compensation Committee
of the Board of Directors (the "Plan Administrator"), which will have the
authority to select individuals who are to receive options under the 1998 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which, for incentive stock options, must be
at least equal to the fair market value of the common stock on the date of
grant), the vesting provisions and the option term. For purposes of the 1998
Plan, fair market value means the closing sale price of the common stock as
reported on the Nasdaq National Market on the date of grant. Unless otherwise
provided by the Plan Administrator, and to the extent required for incentive
stock options by the Code, an option granted under the 1998 Plan will expire 10
years from the date of grant or, if earlier, three months after the optionee's
termination of service, other than termination for cause, or one year after the
optionee's retirement, early retirement at the Company's request, death or
disability.
At June 30, 1998, there were options covering 69,033 shares of the
Company's common stock outstanding at a weighted average exercise price of
$1.90, all of which were exercisable. At June 30, 1998, there were 800,000
shares of the Company's common stock reserved for issuance under the 1998 Plan
and 730,967 shares available for future grant.
12. RELATED PARTY TRANSACTIONS:
Ticket Group
The Ticket Group, a partnership whose partners include Norman P. Daniels,
the Company's Chairman of the Board, President and Chief Executive Officer,
David E. Orkney, a Director of the Company, and former shareholders and officers
Wayne Jackson and B. Duane Mellen ("Ticket Group"), has entered into an
operating agreement with TicketMaster Northwest to operate TicketMaster outlets
in Oregon. Ticket Group has placed TicketMaster outlets in all of the Company's
Oregon stores. The Company receives a percentage of the fees to which Ticket
Group is entitled under its operating agreement with TicketMaster Northwest for
sales generated in G.I. Joe's Oregon stores. For the fiscal years ended January
31, 1996, 1997 and 1998 and for the three months ended April 30, 1998 and the
two months ended June 30, 1998, the Company received an aggregate of $665, $539,
$589, $125 and $88 respectively, from TicketMaster fees.
Officer Loans
In July 1994, the Company loaned $182, $98 and $128 to Messrs. Daniels,
Orkney and Jackson, respectively. Each loan was made pursuant to a promissory
note with an annual interest rate equal to the applicable federal rate
determined by the Internal Revenue Service, and require minimum annual payments
of $10 each year until all interest and principal was paid in full. Mr. Jackson
repaid his loan in full upon termination of employment with the Company in
connection with the Redemption and Exchange in May 1998. In November 1995, the
Company loaned Mr. Daniels an additional $38 and from April 1996 through April
1997, the Company loaned Mr. Orkney an additional $100, each on the same terms
described above. Just prior to the Redemption and Exchange, the outstanding
balance of Mr. Daniels' and Mr. Orkney's indebtedness to the Company were
approximately $187 and $132, respectively. In April 1998, the Company awarded a
bonus payment to Mr. Daniels which was paid by canceling his indebtedness of
$187. In connection with the Redemption and Exchange, the Company canceled Mr.
Orkney's indebtedness to the Company. See also Note 5.
F-21
<PAGE> 91
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Henway Partnerships
In July 1994, the Company loaned $5,672 in the aggregate to two
partnerships in which Messrs. Daniels, Orkney and Jackson are three of four
partners (the "Henway Partnerships") to finance the purchase by the partnerships
of two parcels of real estate upon which are located the Company's stores in
Vancouver, Washington and Albany, Oregon. Each partner holds a 25% interest in
each Henway Partnership. The Henway Partnerships lease these properties to the
Company. These loans accrued interest at Bank of America's prime rate plus 2.5%
per year, and were due in August 1996. The Henway Partnerships repaid all
amounts outstanding under these loans in January 1996, other than $258, which
was refinanced pursuant to a promissory note from one of the Henway Partnerships
in favor of the Company, with an annual interest rate of 10.5% and a 60-month
payment schedule. The leases for the Vancouver and Albany stores were entered
into in June and November 1989, respectively, and each has a 25-year term and a
10-year renewal option. Base rental payments under these leases are $386 and
$391 per year for the Vancouver and Albany locations, respectively, on a
triple-net basis. In addition, the Company is obligated to pay additional rent
for the Vancouver and Albany stores in the amount of 1.5% of gross receipts to
the extent that gross receipts exceed $15,304 and $11,898, respectively, but has
not been required to pay any such additional rent in the last three fiscal
years. The Company believes the leases for the Vancouver and Albany stores were
entered into on terms no less favorable to the Company than would have been
obtained from unaffiliated third parties.
PD Properties
In April 1998, in connection with the Redemption and Exchange, the Company
sold two parcels of real property to PD Properties, LLC ("PD"), an Oregon
limited liability company affiliated with Roy Rose, a Director of the Company
and of Peregrine Capital, Inc. ("Peregrine"), a principal shareholder of the
Company. PD paid $2,725 in the aggregate to the Company for the South Salem,
Oregon store location and for the Company's vacant land located in Forest Grove,
Oregon (the "PD Real Properties"). The Company leases the South Salem property
from PD pursuant to a lease, which commenced in April 1998 (the "PD Lease"). The
initial term of the PD Lease is 15 years, with two renewal options of 5 years
each. Rental payments under the PD Lease consist of a base rent of $386 per year
on a triple net basis. The base rent will be adjusted every five years based on
changes in the consumer price index. The PD Lease is in substantially the same
form as the six leases (the "Non-PD Leases") entered into with an unaffiliated
party in connection with the sale and lease-back of the Company's owned store
locations consummated in connection with the Reorganization. The Company
believes the PD Lease was entered into on terms no less favorable to the Company
than would have been obtained from an unaffiliated third party. In addition, in
connection with the Reorganization, four individuals associated with Peregrine,
including Roy Rose and his wife, agreed to guarantee the performance of the
Company's obligations under the Non-PD Leases. Aggregate annual base rent under
the Non-PD Leases is approximately $3,000. This guarantee will expire upon the
closing of an initial public offering of the Company's Common Stock. PD received
a fee of $1,000 in connection with the sale of the properties subject to the
Non-PD Leases, which fee was credited against the purchase price for the PD Real
Properties.
Peregrine Capital, Inc.
In connection with the Redemption and Exchange, Peregrine Capital, Inc.
("Peregrine") purchased $1,450 of subordinated notes from the Company. Peregrine
exchanged $1,000 of the subordinated notes for common stock of Holdings, which
was converted into 356,898 shares of the Company's Common Stock in the Merger.
Peregrine exchanged the remaining $450 of the subordinated notes for preferred
stock and a warrant to purchase common stock of Holdings, which in the Merger
were converted into 4,500 shares of the Company's Series A Non-Voting Redeemable
Preferred Stock (the "Redeemable Preferred Stock") and
F-22
<PAGE> 92
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
40,909 shares of the Company's common stock. For services rendered in connection
with the Redemption and Exchange, Peregrine received an additional warrant
exercisable for shares of Holdings common stock (the "Master Warrant"), which in
the Merger was converted into 1,606,599 shares of the Company's Common Stock.
Prior to the Merger, Peregrine assigned to various unaffiliated third parties a
portion of the Master Warrant which otherwise would have entitled Peregrine to
315,053 shares of the Company's Common Stock issued upon conversion of the
Master Warrant. In addition, Peregrine has agreed to purchase from the Investors
all outstanding shares of the Company's Redeemable Preferred Stock for $8,500,
plus accumulated dividends, if the Company does not complete, prior to May 8,
1999, an initial public offering of its Common Stock with net proceeds to the
Company of at least $12,000.
Orkney Agreement
In connection with the Redemption and Exchange, in May 1998 the Company
redeemed all of Mr. Orkney's outstanding shares of common stock in the Company
for an aggregate purchase price of $13,893. In addition, the Company issued to
Mr. Orkney a warrant to purchase 5% of the Company's common stock outstanding,
on a fully-diluted basis, at the time of exercise at a purchase price equal to
70% of the fair market value of the common stock on the exercise date. Mr.
Orkney has registration rights with respect to the common stock issuable upon
exercise of the warrant. The Company also entered into an agreement with Mr.
Orkney, pursuant to which Mr. Orkney received a $140 bonus in May 1998
(consisting of $132 in debt forgiveness and a Company car worth $8) and will be
paid an additional $150 over the following two years ($100 of which is to be
paid in 12 equal monthly installments during the first year, and the remaining
$50 of which is to be paid in 12 equal monthly installments during the second
year). During the first year, Mr. Orkney will also receive a car allowance in
accordance with the Company's past practice as well as health insurance and
certain other benefits. Mr. Orkney's mother and sister received compensation
from the Company for the last two fiscal years in the aggregate amounts of
approximately $105 and $59, respectively. The Company stopped making such
payments in May 1998.
Buyout of Former Officer of the Company
In connection with the Redemption and Exchange, the Company redeemed all of
Mr. Jackson's outstanding shares of common stock for $977 (at the same per share
purchase price received by the Company's other shareholders, excluding the
warrant issued to Mr. Orkney). The Company also repurchased Mr. Jackson's
outstanding options exercisable for 681,361 shares of the Company's common stock
for $2,267. The Company issued to Mr. Jackson a promissory note in the amount of
$283, in partial payment of the purchase price for such options. The promissory
note is due in July 1999, and does not bear interest, except after maturity or
default. The promissory note is included in Notes Payable in the accompanying
balance sheets.
13. SUBSEQUENT EVENTS:
In July 1998, the Board of Directors of the Company approved the G.I.
Joe's, Inc. 1998 Stock Incentive Compensation Plan (the "1998 Plan"). See Note
10 for a detail description of the 1998 Plan.
In July 1998, the Board of Directors of the Company approved a 2.5567 to 1
split of the Common Stock in conjunction with the Merger (See Note 1). All share
and per share data has been retroactively adjusted to reflect the effect of the
split.
In September 1998, the Company agreed to acquire a direct marketing
retailer which sells merchandise complementary to that offered by the Company
through catalog and Internet-based channels.
F-23
<PAGE> 93
G.I. JOE'S INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(PREDECESSOR) PRO FORMA G.I. JOE'S, INC.
G.I. JOE'S, INC. ADJUSTMENTS PRO FORMA
---------------- ----------- ----------------
<S> <C> <C> <C>
Net sales............................................ $128,238 $ -- $128,238
Cost of goods sold................................... 84,552 -- 84,552
-------- ------- --------
Gross margin....................................... 43,686 -- 43,686
Selling, general and administrative expense.......... 39,528 3,143(a) 42,671
Other income (expense)
Interest expense................................... (3,542) 502(b) (3,040)
Interest income.................................... 65 -- 65
-------- ------- --------
(3,477) 502 (2,975)
-------- ------- --------
Income (loss) before income taxes.................... 681 (2,641) (1,960)
Benefit from income taxes............................ -- 784(c) 784
-------- ------- --------
Net income (loss).................................... 681 (1,857) (1,176)
Preferred dividends.................................. -- (765)(d) (765)
-------- ------- --------
Loss attributable to common shareholders............. $ 681 $(2,622) $ (1,941)
======== ======= ========
Basic net income (loss) per share.................... $ 0.17 $ -- $ (0.32)
======== ======= ========
Diluted net income (loss) per share.................. $ 0.15 $ -- $ (0.32)
======== ======= ========
Shares used in per share calculations:
Basic.............................................. 4,053 -- 6,000
Diluted............................................ 4,625 -- 6,000
</TABLE>
PF-1
<PAGE> 94
G.I. JOE'S INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE FIVE MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(PREDECESSOR)
G.I. JOE'S, INC. G.I. JOE'S, INC.
THREE MONTHS TWO MONTHS
ENDED ENDED PRO FORMA G.I. JOE'S, INC.
APRIL 30, 1998 JUNE 30, 1998 ADJUSTMENTS PRO FORMA
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Net sales.............................. $25,908 $23,461 $ -- $49,369
Cost of goods sold..................... 17,670 15,511 -- 33,181
------- ------- ------ -------
Gross margin......................... 8,238 7,950 -- 16,188
Selling, general and administrative
expense.............................. 9,755 7,264 785(a) 17,804
Other income (expense)
Interest expense..................... (971) (602) 125(b) (1,448)
Interest income...................... 9 -- -- 9
Gain on sale of real estate.......... 640 -- -- 640
------- ------- ------ -------
(322) (602) 125 (799)
------- ------- ------ -------
Income (loss) before income taxes...... (1,839) 84 (660) (2,415)
(Provision for) benefit from income
taxes................................ -- (34) 1,000(c) 966
------- ------- ------ -------
Net income (loss)...................... (1,839) 50 340 (1,449)
Preferred dividends.................... -- -- (319)(d) (319)
------- ------- ------ -------
Loss attributable to common
shareholders......................... $(1,839) $ 50 $ 21 $(1,768)
======= ======= ====== =======
Basic net loss per share............... $ (0.45) $ (0.01) $ -- $ (0.29)
======= ======= ====== =======
Diluted net loss per share............. $ (0.45) $ (0.01) $ -- $ (0.29)
======= ======= ====== =======
Shares used in per share calculations:
Basic and diluted.................... 4,053 6,000 -- 6,000
</TABLE>
PF-2
<PAGE> 95
G.I. JOE'S, INC.
FOOTNOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements have been
prepared to present the effect of the Redemption, the Exchange and the Merger of
the Company as more fully discussed in Note 1 to the financial statements. The
pro forma financial statements have been prepared based upon the historical
financial statements of the Predecessor and the Company as if the Redemption,
the Exchange and the Merger had occurred at the beginning of the respective
periods.
A Pro Forma Balance Sheet is not included since the most recent balance
sheet filed with the Company's financial statements includes the effects of the
Redemption, the Exchange and the Merger. The Redemption, the Exchange and the
Merger are a series of planned transactions executed to consummate the
acquisition of the Company. Accordingly, this series of transactions has been
reflected as if they occurred on May 1, 1998.
The Pro Forma Statements of Operations may not be indicative of the results
of operations that actually would have occurred if the transactions had been in
effect as of the beginning of the respective periods nor do they purport to
indicate the results of future operations of the Company. The pro forma
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's audited financial statements and
notes thereto, included elsewhere in this Prospectus. Management believes that
all adjustments necessary to present fairly such pro forma financial statements
have been made based on the terms and structure of the transaction.
2. EXTRAORDINARY ITEM
The Pro Forma Statement of Operations for the five-month period ended June
30, 1998 does not include an extraordinary loss item related to the early
extinguishment of debt in the amount of $1,332, net of tax benefit of $888.
3. PRO FORMA ADJUSTMENTS
(a) The adjustment to selling, general and administrative expense consists
of the following:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
JANUARY 31, 1998 JUNE 30, 1998
---------------- -----------------
<S> <C> <C>
Reduction in depreciation from properties sold
and leased back............................... $ (336) $(84)
Rental expense on properties sold and leased
back.......................................... 3,092 773
Amortization expense on capitalized leased
assets recorded at fair market value.......... 387 96
------ ----
$3,143 $785
====== ====
</TABLE>
(b) To record the reduction in interest expense related to mortgages on
sold properties.
(c) To record income taxes at an effective rate of 40%.
(d) To record 9% cumulative dividend on preferred stock.
PF-3
<PAGE> 96
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Reorganization.................... 16
Use of Proceeds....................... 19
Dividend Policy and Prior S
Corporation Status.................. 19
Dilution.............................. 20
Capitalization........................ 21
Selected Financial and Other Data..... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 35
Management............................ 50
Certain Related Transactions.......... 57
Principal Shareholders................ 60
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 64
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Additional Information................ 67
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BLACK & COMPANY, INC.
CRUTTENDEN ROTH
INCORPORATED
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,330
NASD filing fee............................................. 3,663
Nasdaq National Market listing fee.......................... 72,875
Printing and engraving expenses............................. 90,000
Legal fees and expenses..................................... 230,000
Accounting fees and expenses................................ 140,000
Directors' and Officers' Liability Insurance................ 96,000
Transfer Agent and Registrar fees........................... 4,000
Miscellaneous expenses...................................... 54,132
--------
Total............................................. $700,000
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As an Oregon corporation, the registrant is subject to the laws of the
State of Oregon governing private corporations and the exculpation from
liability and indemnification provisions contained therein. Pursuant to Section
60.047(2)(d) of the Oregon Revised Statutes ("ORS"), Article 6 of the
registrant's Amended and Restated Articles of Incorporation, as amended (the
"Articles"), eliminates the liability of the registrant's directors to the
registrant or its shareholders except for any liability related to (i) breach of
the duty of loyalty; (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) any unlawful
distribution under ORS 60.367; or (iv) any transaction from which the director
derived an improper personal benefit.
ORS Section 60.391 allows corporations to indemnify their directors and
officers against liability where the director or officer has acted in good faith
and with a reasonable belief that actions taken were in the best interests of
the corporation or at least not opposed to the corporation's best interests and,
if in a criminal proceeding, the individual had no reasonable cause to believe
the conduct in question was unlawful. Under ORS Sections 60.387 to 60.414,
corporations may not indemnify a director or officer against liability in
connection with a claim by or in the right of the corporation or for any
improper personal benefit in which the director or officer was adjudged liable
to the corporation. ORS Section 60.394 mandates indemnification for all
reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claim was by or in the right of the corporation.
Finally, pursuant to the ORS Section 60.401, a court may order indemnification
in view of all the relevant circumstances, whether or not the director or
officer met the good-faith and reasonable belief standards of conduct set out in
ORS Section 60.391.
ORS Section 60.414 also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's articles of incorporation or
bylaws, any agreement, general or specific action of the board of directors,
vote of shareholders or otherwise.
The Articles provide that the registrant is required to indemnify its
current and former directors to the fullest extent permitted by law. The Company
intends to enter into indemnification agreements with all its directors and
executive officers which would obligate the registrant to indemnify such
individuals for liabilities incurred by such individuals while serving as
directors or officers of the registrant.
II-1
<PAGE> 98
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 31, 1995, the registrant has issued and sold the following
unregistered securities:
1. On July 31, 1997, the registrant granted to 15 of its employees
stock options exercisable for an aggregate of 43,467 shares of the
registrant's Common Stock at an exercise price of $2.42 per share, the fair
market value per share of Common Stock on the grant date. The options were
granted under a written stock option plan of the registrant in
consideration of these employee's services to the registrant, and in
issuing these securities the Company relied on an exemption from
registration pursuant to Rule 701 under Section 3(b) of the Securities Act.
2. On May 8, 1998, the registrant issued to 61 individuals and
entities an aggregate principal amount of $9.5 million of its 9%
Subordinated Notes due 2008. The consideration paid for the notes was $9.5
million. Each such investor represented that he, she or it is an
"accredited investor" within the meaning of Rule 501 under the Securities
Act and the shares were not offered or sold by means of a general
solicitation or general advertising. In issuing these securities, the
Company relied on an exemption from registration pursuant to Rule 506 under
Section 4(2) of the Securities Act.
3. On May 8, 1998, the Company issued to David E. Orkney a warrant to
purchase an amount of the Company's common stock equal to 5% of the
registrant's outstanding shares of common stock (on a fully-diluted basis)
at an exercise price equal to 70% of the initial public offering price. Mr.
Orkney represented that he is an "accredited investor" within the meaning
of Rule 501 under the Securities Act. This warrant was issued in connection
with the redemption of shares of the Company's Common Stock owned by Mr.
Orkney, and in issuing this security the Company relied on an exemption
from registration under Section 4(2) of the Securities Act.
4. On July 27, 1998, and in connection with the merger of ND Holdings,
Inc. with and into the registrant (with the registrant being the surviving
corporation), the registrant issued to (a) 86 individuals and entities an
aggregate of 5,948,302 shares of the registrant's Common Stock in exchange
for common stock and warrants exercisable for common stock of ND Holdings,
Inc. and (b) to 61 individuals and entities an aggregate of 85,000 shares
of the registrant's Series A 9% Non-Voting Redeemable Preferred Stock in
exchange for preferred stock of ND Holdings, Inc. Each such investor
represented that he, she or it is an "accredited investor" within the
meaning of Rule 501 under the Securities Act and the shares were not
offered or sold by means of a general solicitation or general advertising.
In issuing these securities, the Company relied on an exemption from
registration pursuant to Rule 506 under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
See Exhibit List.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are inapplicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of
II-2
<PAGE> 99
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wilsonville, State of Oregon, on the 12th day of November, 1998.
G.I. JOE'S, INC.
By: /s/ NORMAN P. DANIELS
------------------------------------
Norman P. Daniels
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities indicated below on the 12th day of November, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ NORMAN P. DANIELS Chairman of the Board, President
- -------------------------------------------------------- and Chief Executive Officer
Norman P. Daniels (principal executive officer)
PHILIP M. PEPIN* Chief Financial Officer
- -------------------------------------------------------- (principal financial and accounting officer)
Philip M. Pepin
DAVID E. ORKNEY* Director
- --------------------------------------------------------
David E. Orkney
ROY ROSE* Director
- --------------------------------------------------------
Roy Rose
</TABLE>
* By: /s/ NORMAN P. DANIELS
---------------------------------
Norman P. Daniels,
Attorney-in-Fact
II-4
<PAGE> 101
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon
November 12, 1998
II-5
<PAGE> 102
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement between G.I. Joe's, Inc., and
Black & Company, Inc. and Cruttenden Roth Incorporated, as
agents for the Underwriters
2.1 Agreement and Plan of Merger dated July 1, 1998 between ND
Holdings, Inc. and G.I. Joe's, Inc.
3.1 Amended and Restated Articles of Incorporation
3.2 Bylaws, as restated
*4.1 Form of Common Stock Certificate
*5.1 Opinion of Perkins Coie LLP
***10.1 Agreement dated October 4, 1991 between Tom Lasley, Inc.,
Norman P. Daniels, David E. Orkney, B. Duane Mellen, Wayne
T. Jackson, Thomas W. Lasley and G.I. Joe's, Inc.
10.2 Lease dated June 3, 1997, as amended, between Milestone
Properties, Inc. and G.I. Joe's, Inc. (Bend, Oregon)
10.3 Eastport Plaza Lease dated April 21, 1978 between Eastport
Plaza Shopping Center and G.I. Joe's, Inc.
10.4 Lease dated May 10, 1973, as amended, between Center
Development Oreg., Ltd. and G.I. Joe's, Inc. (Beaverton,
Oregon)
10.5 Sublease dated March 28, 1984 between Donald R. Wyant, Sr.
and Martin L. Peterson, (dba The Wyant-Peterson Company) and
G.I. Joe's, Inc. (Medford, Oregon)
10.6 Building Lease dated October 9, 1980, as amended, between
Hayden Meadows and G.I. Joe's, Inc. (North Portland, Oregon)
**10.7 Lease dated April 17, 1998 between WREP 1998-1 LLC and G.I.
Joe's, Inc. (South Salem, Oregon)
10.8 Purchase and Sale Agreement dated April 17, 1998 among WREP
1998-1 LLC, G.I. Joe's, Inc., and PD Properties, L.L.C.
10.9 Real Estate Purchase and Sale Agreement dated April 17, 1997
between PD Properties, L.L.C. and G.I. Joe's, Inc.
10.10 Sublease dated October 8, 1981 between Pacific Cascade
Corporation, dba PCC Associates and G.I. Joe's, Inc.
10.11 First Amendment to Lease dated June 15, 1991 between Eugenie
E. Keene and Philip A. Keene and G.I. Joe's, Inc. (Eugene,
Oregon)
10.12 Lease dated May 12, 1997 between South Hill Village Limited
Partnership and G.I. Joe's, Inc. (Puyallup, Washington)
**10.13 Lease dated June 23, 1989, as amended, between The Henway
Group XII and G.I. Joe's, Inc. (Vancouver, Washington)
10.14 Lease dated June 23, 1989, as amended, between West Campus
Square Joint Venture and G.I. Joe's, Inc. (Federal Way,
Washington)
10.15 Lease dated January 28, 1998 between Pacific Realty
Associates, L.P. and G.I. Joe's, Inc. (Hillsboro, Oregon)
10.16 Purchase and Sale Agreement dated April 21, 1998 between
G.I. Joe's and ESA Management, Inc. (Renton, Washington)
10.17 G.I. Joe's, Inc. Pension Plan
10.18 1998 Incentive Compensation Plan
10.19 Loan and Security Agreement dated March 10, 1998 between
G.I. Joe's, Inc. and Foothill Capital Corporation
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
**10.20 9% Subordinated Note Due 2008 dated May 4, 1998 in favor of
certain investors
10.21 ND Holdings, Inc. Common Stock Purchase Warrant dated May 8,
1998 evidencing the right of Peregrine Capital, Inc. to
purchase shares of common stock of ND Holdings, Inc.
**10.22 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
Blackwell Donaldson & Company
**10.23 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
certain investors
10.24 Registration Rights Agreement dated May 8, 1998 between ND
Holdings, Inc. and certain investors
10.25 Security Agreement dated October 31, 1997 between G.I.
Joe's, Inc. and Heller Financial, Inc.
10.26 Promissory Notes dated October, 1997 and December 22, 1997
in the amounts of $929,092.82 and $396,003.00, respectively,
in favor of Heller Financial, Inc.
10.27 Promissory Note dated April, 1998 in the amount of
$283,410.00 in favor of Wayne T. Jackson
10.28 Promissory Note dated April, 1998 in the amount of
$191,106.00 in favor of B. Duane Mellen
10.29 Agreement between David Orkney and G.I. Joe's, Inc.
10.30 G.I. Joe's, Inc. Common Stock Purchase Warrant evidencing
the right of David E. Orkney to purchase shares of Common
Stock
*23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP (included on page II-5)
***27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998
***27.2 Financial Data Schedule for the Three-Month Period Ended
April 30, 1998
***27.3 Financial Data Schedule for the Two-Month Period Ended June
30, 1998
</TABLE>
- ---------------
* To be filed.
** A schedule attached to this exhibit identifies all other documents not
required to be filed as exhibits because such exhibits are substantially
identical to this exhibit. The Schedule also sets forth material detail by
which the omitted documents differ from this exhibit.
*** Previously filed.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATE: July 1, 1998
PARTIES: ND Holdings, Inc., ("ND")
an Oregon corporation
c/o Peregrine Capital, Inc.
9725 SW Beaverton Hillsdale Hwy., Ste. 350
Beaverton, OR 97005-3366
G.I. JOE'S, Inc., ("JOE'S")
an Oregon corporation
9805 Boeckman Dr.
Wilsonville, OR 97070
ND and JOE'S are referred to jointly as the Merging Corporations in some
sections of this Agreement.
RECITALS:
A. The Merging Corporations desire to effect a merger on the terms set
forth in this Agreement, pursuant to the provisions of the Oregon Business
Corporation Act.
B. The Merging Corporations intend the merger to be a reorganization within
the meaning of Internal Revenue Code ss.368(a)(1)(A).
AGREEMENT:
SECTION 1. MERGER OF MERGING CORPORATIONS
1.1 Merger. At the Effective Date, as defined in Section 1.3, ND shall
be merged with and into JOE'S, the separate existence of ND shall cease and
JOE'S shall survive as a corporation under the name G. I. Joe's, Inc. (the
"Surviving Corporation"), organized under and governed by the laws of the state
of Oregon. From that time, the Surviving Corporation, shall possess all the
rights, privileges, immunities, and franchises of each of the Merging
Corporations; all property belonging to ND shall be transferred to and vested in
the Surviving Corporation without further act or deed; the Surviving Corporation
shall be responsible for all liabilities of each of the Merging Corporations.
Page 1--AGREEMENT AND PLAN OF MERGER
<PAGE> 2
1.2 Further Assurances. After the Effective Date, the officers and
directors of ND last in office shall execute and deliver such deeds and other
instruments and shall cause to be taken such further actions as shall reasonably
be necessary in order to vest or perfect in the Surviving Corporation title to
and possession of all the property, interests, assets, rights, immunities, and
franchises of ND.
1.3 Effective Date. The merger of ND and JOE'S shall become effective
upon the filing of articles of merger pursuant to ORS 60.494. The date and time
of such filing are herein called the Effective Date.
1.4 Closing. Subject to the satisfaction of the conditions set forth
in Section 6 of this Agreement, the closing of the contemplated transactions
shall occur at the principal offices of JOE'S at 9805 Boeckman Dr., Wilsonville,
Oregon 97070, at 10:00 a.m. on July 15, 1998, or at such other time and place as
the Merging Corporations may mutually agree upon. At such time, the parties
shall cause articles of merger to be filed and the merger to become effective.
SECTION 2. ARTICLES OF INCORPORATION, BYLAWS, DIRECTORS, AND OFFICERS
At the Effective Date:
2.1 Articles of Incorporation. Restated Articles of Incorporation in
the form attached as Schedule A shall be filed and thereafter shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with applicable law.
2.2 Bylaws. Restated Bylaws in the form attached as Schedule B shall
be the Bylaws of the Surviving Corporation until amended or repealed.
2.3 Directors. Directors of the Surviving Corporation shall be: Norm
Daniels, David Orkney and Roy Rose.
2.4 Officers. The officers of the Surviving Corporation shall be:
Norman Daniels, President, Chief Executive Officer and Chairman
of the Board
Phillip Pepin, Secretary; Vice-President, Finance; Treasurer and
Chief Financial Officer
Page 2--AGREEMENT AND PLAN OF MERGER
<PAGE> 3
Edward Ariniello, Vice-President, Operations
SECTION 3. MANNER AND BASIS OF CONVERTING SHARES
3.1 Conversion of Shares. At the Effective Date:
3.1.1 Common stock of ND issued and outstanding immediately prior
to the effective date shall be converted into shares of fully paid,
non-assessable common stock of the Surviving Corporation as provided in the
summary attached as Schedule C 1.
Warrants of ND issued and outstanding immediately prior to the effective
date shall be converted into shares of fully paid, non-assessable common stock
of ND and then into shares of fully paid, non-assessable common stock of the
Surviving Corporation as provided in the summary attached as Schedule C 1 and in
the detailed listing attached as Schedule C 2 of the warrant holders and their
respective post-merger shares in the surviving corporation.
As noted below, this Merger Transaction is conditioned upon all of the ND
warrant holders consenting to the procedure detailed above in this Section 3.1.1
as part of this Merger Transaction.
3.1.2 Except as provided below, each share of common stock of
JOE'S issued and outstanding immediately prior to the Effective Date shall be
converted into shares of fully paid, non-assessable common stock of the
Surviving Corporation as provided in the summary attached as Schedule C 1.
3.1.3 Each share of common stock of JOE'S owned by ND immediately
prior to the Effective Date shall be cancelled.
3.1.4 Each share of Series A Non-Voting Redeemable Preferred
Stock of ND shall be converted into 1/100th share fully paid, non-assessable
Series A Non-Voting Redeemable Preferred Stock of the Surviving Corporation with
the rights, preferences, restrictions and other matters relating to the Series A
stock as detailed in Section 4.4 of Schedule A. The ND Shareholders listed on
Schedule C 3 shall receive one (1) share of Series A Non-Voting Redeemable
Preferred Stock of the Surviving Corporation for every one hundred (100) shares
of ND Series A Non-Voting Redeemable Preferred Stock that they hold.
Page 3--AGREEMENT AND PLAN OF MERGER
<PAGE> 4
3.1.5 Any dissenting shares of the Merging Corporations will be
cancelled in exchange for cash paid to the dissenting shareholder, as required
by Oregon law.
3.2 Adjustment of Conversion Ratio. If, between the date of this
Agreement and the Effective Date, ND or JOE'S shall reclassify, combine, or
subdivide any class of stock, or declare or pay any dividend or distribution in
shares of any class of stock, or shall agree to do any of the foregoing as of a
record date prior to the Effective Date, then an appropriate adjustment shall be
made in the number of shares of common or preferred stock of the Surviving
Corporation into which shares of common or preferred stock of ND would otherwise
be converted by the merger.
3.3 Certificates for Shares.
3.3.1 Except for cancelled shares as described above, each certificate
which prior to the Effective Date represented shares of common stock of JOE'S,
from and after the Effective Date, shall represent shares of common stock for
the Surviving Corporation into which such shares are converted. Each holder of
such shares upon surrender of the certificates to the Surviving Corporation,
shall be entitled to receive a certificate evidencing the ownership of shares of
the Surviving Corporation into which such shares of common stock of JOE'S are
converted at the Effective Date.
3.3.2 Each certificate which prior to the Effective Date represented shares
of common, warrants to purchase common or preferred stock of ND, from and after
the Effective Date, shall represent the number of shares of common or preferred
stock of the Surviving Corporation into which such shares are converted. Each
holder of shares of common, warrants to purchase common or preferred stock of ND
which are converted in the merger into shares of common or preferred stock of
the Surviving Corporation, upon surrender of the certificate or warrant therefor
to the Surviving Corporation, shall be entitled to receive a certificate
evidencing the ownership of shares of the Surviving Corporation into which such
shares of common, warrants to purchase common and preferred stock of ND are
converted at the Effective Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ND
4.1 Corporate Organization. ND is a corporation duly organized and
validly existing under the laws of the state of Oregon. ND has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business
Page 4--AGREEMENT AND PLAN OF MERGER
<PAGE> 5
as it is now being conducted, and is duly licensed or qualified to do business
in each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on it.
4.2 Capitalization. The authorized capital stock of ND consists of
30,000,000 shares of Common Stock and 20,000,000 shares of preferred stock.
There are currently issued and outstanding 600,000 shares of common stock,
8,500,000 shares of preferred stock and warrants to purchase 400,000 shares of
common stock.
4.3 Validity of Shares. All the common stock and preferred stock to be
tendered to the Surviving Corporation in connection with the Merger shall be
validly issued, fully paid and nonassessable.
4.4 Authority; No Violation.
4.4.1 ND has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of ND. No other corporate proceedings on the part of ND are
necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by ND and (assuming due authorization, execution and delivery by
Company and the Shareholders) constitutes valid and binding obligations of ND,
enforceable against ND in accordance with its terms, except as enforcement may
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
4.4.2 Neither the execution and delivery of this Agreement by ND
nor the consummation by ND of the transactions contemplated hereby, nor
compliance by ND with any of the terms or provisions hereof, will (i) violate
any provision of the Articles of Incorporation or Bylaws of ND or (ii) assuming
that the consents and approvals referred to in Sections 6.1 and 6.2 are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree, or injunction applicable to ND or any of its properties or
assets, or (iii) violate, conflict with, result in a breach of any provision of
or
Page 5--AGREEMENT AND PLAN OF MERGER
<PAGE> 6
the loss of any benefit under, constitute a default (or an event that, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge, or other encumbrance upon any of the respective
properties or assets of ND under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement,
or other instrument or obligation to which ND is a party, or by which it or any
of its properties or assets may be bound or affected.
4.5 Consents and Approvals. Except for the filing of the Articles of
Merger with the Oregon Secretary of State pursuant to ORS 60.494, no consents or
approvals of or filings or registrations with any Governmental Entity or with
any third party are necessary in connection with (A) the execution and delivery
by ND of this Agreement and (B) the consummation by ND of the Merger and the
other transactions contemplated hereby.
4.6 Accredited Investors. All shareholders of ND common stock and
preferred stock and the holders of warrants to purchase the common stock of ND
are "accredited investors" as such term is defined in Rule 501 of the Securities
Act of 1933 as amended.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF JOE'S
5.1 Corporate Organization. JOE'S is a corporation duly organized and
validly existing under the laws of the state of Oregon. JOE'S has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on it.
5.2 Capitalization. The authorized capital stock of JOE'S consists of
5,000,000 shares of common stock at no par value. Issued and outstanding shares
of JOE'S common stock as of the effective date will be 112,550 shares.
5.3 Validity of Shares. When issued in accordance with this Agreement,
the common stock and preferred stock to be issued for JOE'S by the Surviving
Corporation in connection with
Page 6--AGREEMENT AND PLAN OF MERGER
<PAGE> 7
the Merger shall be validly issued, fully paid and nonassessable.
5.4 Authority; No Violation.
5.4.1 JOE'S has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of JOE'S. No other corporate proceedings on the part of JOE'S
are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by JOE'S and (assuming due authorization, execution and delivery by
Company and the Shareholders) constitutes valid and binding obligations of
JOE'S, enforceable against JOE'S in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
5.4.2 Neither the execution and delivery of this Agreement by
JOE'S nor the consummation by JOE'S of the transactions contemplated hereby, nor
compliance by JOE'S with any of the terms or provisions hereof, will (i) violate
any provision of the Articles of Incorporation or Bylaws of JOE'S or (ii)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree, or injunction applicable to JOE'S or any of its properties or assets, or
(iii) violate, conflict with, result in a breach of any provision of or the loss
of any benefit under, constitute a default (or an event that, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge, or other encumbrance upon any of the respective properties or
assets of JOE'S under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement, or other
instrument or obligation to which JOE'S is a party, or by which it or any of its
properties or assets may be bound or affected.
Page 7--AGREEMENT AND PLAN OF MERGER
<PAGE> 8
5.5 Consents and Approvals. Except for the filing of the Articles
of Merger with the Oregon Secretary of State pursuant to ORS 60.494, no consents
or approvals of or filings or registrations with any Governmental Entity or with
any third party are necessary in connection with (A) the execution and delivery
by JOE'S of this Agreement and (B) the consummation by JOE'S of the Merger and
the other transactions contemplated hereby.
SECTION 6. CONDITIONS
6.1 Conditions to Obligation of ND. The obligation of ND to effect the
merger is subject to the satisfaction or waiver of each of the following
conditions:
6.1.1 The representations and warranties of JOE'S set forth in
Section 5 of this Agreement shall be true and correct at the Effective Date as
though made on and as of the Effective Date, and all obligations and covenants
of JOE'S required under this Agreement to be performed prior to the Effective
Date shall have been performed.
6.1.2 There shall not have been any material adverse change in
the business or financial condition of JOE'S from the date hereof through the
Effective Date.
6.1.3 This Agreement shall have been duly approved by the board
of directors of JOE'S in accordance with the Oregon Business Corporation Act.
6.1.4 This Agreement shall have been approved by the holders of a
majority of the outstanding shares of common stock of ND entitled to vote
thereon and by the holders of a majority of the outstanding shares of common
stock of JOE'S entitled to vote thereon in accordance with the Oregon Business
Corporation Act.
6.1.5 All of the ND warrant holders consenting to the procedure
detailed above in Section 3.1.1 as part of this Merger Transaction.
6.2 Conditions to Obligation of JOE'S. The obligation of JOE'S to
effect the merger is subject to the satisfaction or waiver of each of the
following conditions:
6.2.1 The representations and warranties of ND set forth in
Section 4 of this Agreement shall be true and correct at the Effective Date as
though made on and as of the
Page 8--AGREEMENT AND PLAN OF MERGER
<PAGE> 9
Effective Date, and all obligations and covenants of ND required under this
Agreement to be performed prior to the Effective Date shall have been performed.
6.2.2 There shall not have been any material adverse change in
the business or financial condition of ND from the date hereof through the
Effective Date.
6.2.3 This Agreement shall have been duly approved by the board
of directors of ND in accordance with the Oregon Business Corporation Act.
6.2.4 This Agreement shall have been approved by the holders of a
majority of the outstanding shares of common stock of ND entitled to vote
thereon and by the holders of a majority of the outstanding shares of common
stock of JOE'S entitled to vote thereon in accordance with the Oregon Business
Corporation Act.
6.2.5 All of the ND warrant holders consenting to the procedure
detailed above in Section 3.1.1 as part of this Merger Transaction.
SECTION 7. TERMINATION
7.1 Failure of Shareholder Approval. This Agreement shall
automatically terminate in the event it is brought to a vote and not adopted by
the holders of a majority of the outstanding shares of common stock of either ND
or JOE'S, respectively, entitled to vote thereon at a meeting called for such
purpose in accordance with the Oregon Business Corporation Act.
7.2 Other Termination. This Agreement may be terminated and the merger
abandoned at any time prior to the Effective Date, whether before or after
submission to or approval by the shareholders of either of the Merging
Corporations:
7.2.1 By mutual agreement of the boards of directors of ND and
JOE'S;
7.2.2 By the board of directors of ND if any condition provided
in Section 8.1 of this Agreement has not been satisfied or waived on or before
the Effective Date;
7.2.3 By the board of directors of JOE'S if any condition
provided in Section 8.2 of this Agreement has not been satisfied or waived on or
before the Effective Date; or
Page 9--AGREEMENT AND PLAN OF MERGER
<PAGE> 10
7.2.4 By the board of directors of either ND or JOE'S if the
Effective Date shall not have occurred by September 1, 1998, other than by
reason of default by the terminating party.
7.3 Effect of Termination. In the event of termination of this
Agreement as provided in this Section 9, this Agreement shall become wholly void
and of no effect, each party shall bear its own expenses, and, except for
liability of a party when default by such party has occasioned the termination
of this Agreement by the non-defaulting party, there shall be no liability or
obligation on the part of either party.
SECTION 8. EMPLOYEE STOCK OPTION PLAN.
8.1 JOE'S has heretofore adopted several Employee Stock Incentive
Plans. At the present time, there are no outstanding options under such plans.
8.2 As of the effective date, JOE'S shall cancel and terminate all
existing Employee Incentive Stock Option Plans and shall adopt a Stock Incentive
Compensation Plan in the form attached as Schedule D ("1998 ISOP").
8.3 ND currently has an Employee Stock Incentive Plan with vested
participants (the "Participants") and options outstanding as described in
Schedule E.
8.4 Subject to approval of the Participants, on the Effective Date the
Participants shall receive vested options under the 1998 ISOP to purchase common
stock of JOE'S as described in Schedule E attached.
SECTION 9. MISCELLANEOUS PROVISIONS
9.1 Waivers. Each party, by written instrument, may extend the time
for performance of any of the obligations or other acts of the other party,
waive any inaccuracies of the representations and warranties of the other party,
waive compliance with any of the covenants of the other party, waive performance
of any of the obligations of the other party set forth in this Agreement, or
waive any condition to its obligation to effect the merger other than the
conditions contained in Sections 6.1.3, 6.1.4, 6.2.3, and 6.2.4 of this
Agreement.
Page 10--AGREEMENT AND PLAN OF MERGER
<PAGE> 11
9.2 Survival. The representations, warranties, covenants, agreements,
terms, and conditions contained or referred to in this Agreement shall survive
the Effective Date.
9.3 Amendment. This Agreement may be amended at any time prior to the
Effective Date, whether before or after the meetings of the shareholders of the
respective Merging Corporations with approval of the respective boards of
directors of the Merging Corporations, provided that no amendment shall change
the conversion ratios set forth in Section 3.1 of this Agreement without the
approval of the shareholders of the Merging Corporations.
9.4 Expenses. Each party shall pay the expenses incurred by it in
connection with the transactions contemplated hereby.
ND HOLDINGS, INC. G. I. JOE'S, INC.
By: /s/ NORMAN DANIELS By: /s/ NORMAN DANIELS
------------------------------ ------------------------------
NORMAN DANIELS NORMAN DANIELS
President President
Page 11--AGREEMENT AND PLAN OF MERGER
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
G. I. JOE'S, INC.
ARTICLE 1. NAME
The name of the Corporation is G. I. Joe's, Inc.
ARTICLE 2. DURATION
The period of the corporation's existence shall be perpetual.
ARTICLE 3. PURPOSES AND POWERS
The corporation may engage in any business, trade or activity which
may lawfully be conducted by a corporation organized under the Oregon Business
Corporation Act.
ARTICLE 4. SHARES
4.1 Authorized Capital.
The corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock". The total number
of shares for stock which the corporation shall have authority to issue shall be
60,000,000, consisting of 50,000,000 shares of Common Stock, without par value,
and 10,000,000 shares of Preferred Stock, without par value.
4.2 Common Stock. The rights and restrictions relating to the common
stock are as follows:
4.2.1 Dividends. Subject to any preferential or other rights
granted to any series of Preferred Stock, the holders of shares of the Common
Stock shall be entitled to receive dividends out of funds of the corporation
legally available therefor, at the rate and at the time or times as may be
provided by the Board of Directors.
4.2.2. The holders of shares of Common Stock, on the basis of one
vote per share, shall have the right to vote for the election of members of the
Board of Directors of the corporation and the right to vote on all other matters
requiring shareholder approval under applicable law, these Articles or Bylaws of
the corporation as adopted or amended from time to time.
<PAGE> 2
4.3 Preferred Stock
Shares of Preferred Stock may be issued from time to time in one or
more series in any manner permitted by law as determined from time to time by
the Board of Directors and stated in the resolution or resolutions providing for
the issuance thereof, prior to the issuance of any shares thereof. The Board of
Directors shall have the authority to fix and determine, subject to the
provisions hereof, the rights and preferences of the shares of any series so
established.
4.4 Series A Non-Voting Redeemable Preferred Stock
The corporation is authorized to issue 85,000 shares of Preferred
Stock which shall be designated "Series A Non-Voting Redeemable Preferred
Stock," (the "Series A Stock"). The voting rights, preferences, restrictions and
other matters relating to the Series A Stock are as follows:
4.4.1 Dividends.The holders of shares of the Series A Stock shall
be entitled to receive dividends, out of any assets of the corporation legally
available therefore, prior and in preference to any declaration or payment of
any dividend (payable other than in Common Stock of the corporation) on the
Common Stock of this corporation during any fiscal year, at the rate of 9
percent of the Original Issue Price (as defined in Articles 4.4.2.(a) hereof)
per share, payable when as and if declared by the Board of Directors.
4.4.2 Liquidation. Upon the voluntary or involuntary dissolution,
liquidation or winding up of this corporation, the assets of this corporation
available for distribution to its shareholders shall be distributed in the
following order and amounts:
(a) The holders of the Series A Stock then outstanding shall
be entitled to receive an amount equal to $100.00 for each outstanding share of
such Series A Stock, appropriately adjusted for any stock dividend, split,
combination or similar recapitalization of such Series A Stock (the "Original
Issue Price") and, in addition, an amount equal to any accrued and unpaid
dividends.
(b) After setting apart or paying in full the preferential
amounts due the holders of the Series A Stock, if assets available for
distribution remain, such remaining assets shall be distributed to holders of
Common Stock.
<PAGE> 3
4.4.3 Merger, Reorganization or Other Transaction. The sale of
all or substantially all of the assets of this corporation or the acquisition of
this corporation by another entity by means of a merger, consolidation,
reorganization or any other transaction or series of related transactions
resulting in the exchange of the outstanding shares of this corporation for
securities or consideration issued or caused to be issued by the acquiring
entity or any of its affiliates and as a result of which the shareholders of
this corporation immediately prior to such transaction hold or receive, by
virtue of their ownership of securities of the corporation, less than fifty
percent (50%) of the capital stock of the resulting entity (collectively
referred to herein as a "Corporate Transaction"), shall be regarded as a
liquidation, dissolution or winding up of affairs of this corporation within the
meaning of this Section.
4.4.4 Liquidation Dissolution or Winding Up. If, upon the
occurrence of any liquidation, dissolution or winding up of this corporation and
the distribution of this corporation's assets pursuant to Section 4.4.2, such
assets available for distribution shall be insufficient to permit the payment to
the holders of the Series A Stock, for the full preferential amounts to which
they may be entitled, then the entire assets of the corporation legally
available for distribution shall be distributed ratably among the holders of
shares of such Series A Stock in the same proportions as the full preferential
amount each such holder would otherwise be entitled to receive bears to the
total of the full preferential amount that would otherwise be payable to the
holders of the Series A Stock.
4.4.5 Distributions to Shareholders. The board of directors'
right to authorize and make distributions to its shareholders is subject to the
restrictions set forth in ORS 60.181 and such other applicable legal
restrictions as are or may hereafter become effective.
4.4.6 Voting Power. Except as otherwise required by law, the
holders of the Series A Stock shall have no voting powers whatsoever and no
holder of Series A Stock shall vote on or otherwise participate in any
proceedings in which actions shall be take by this corporation or the
shareholders thereof or be entitled to notification as to any meeting of the
shareholders.
4.4.7 Conversion Rights. Except as otherwise required by law, the
holders of shares of Series A Stock shall have no rights of conversion of the
Series A Stock into any other class of Preferred Stock or Common Stock.
<PAGE> 4
4.4.8 Redemption. With the proceeds of an Initial Public Offering
(as defined below), the corporation shall be required to redeem, and the holders
of the outstanding Series A Stock shall be required to sell to the corporation,
all outstanding shares of Series A Stock at a redemption price equal to the
Original Issue Price per share plus 9% interest from the date of original
issuance of the Series A Stock (the "Redemption Price"). The Redemption Price
shall be paid in cash within 5 days following the closing of an Initial Public
Offering. An "Initial Public Offering" shall mean a public offering of the
corporation's Common Stock or the Common Stock of any subsidiary of the
corporation through underwriters upon effectiveness of a registration statement
filed with the Securities Exchange Commission in which the aggregate offering
proceeds to the corporation or any subsidiary of the corporation (after
deduction of underwriter's commissions and expenses) are not less than
$12,000,000. No other capital stock of the corporation is redeemable prior to
the Series A Stock without the prior written consent of holders of a majority of
the shares of Series A Stock then outstanding.
4.4.9 Reissuance of Stock. Shares of Series A Stock redeemed,
purchased or otherwise acquired by this corporation shall revert back and be
added to the corporation's authorized but unissued shares of preferred stock.
ARTICLE 5. LIMITATION OF DIRECTOR LIABILITY
To the fullest extent that the Oregon Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors, a director of the corporation shall
not be liable to the corporation or its shareholders for any monetary damages
for the conduct as a director. Any amendment to or repeal of this Article or
amendment to the Oregon Business Corporation Act shall not adversely affect any
right or protection of a director of the corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
ARTICLE 6. INDEMNIFICATION
To the fullest extent not prohibited by law, the corporation: (i) shall
indemnify any person who is made, or threatened to be made, a party to an
action, suit or proceeding,whether civil, criminal, administrative,
investigative, or otherwise (including an action, suit or proceeding by or in
the right of the corporation), by reason of the fact that the person is or was a
director of the corporation, and (ii) may indemnify any person who is made, or
threatened to be made, a party to an action, suite or proceeding, whether
<PAGE> 5
civil, criminal, administrative, investigative, or otherwise (including an
action, suit or proceeding by or in the right of the corporation), by reason of
the fact that the person is or was an officer, employee or agent of the
corporation, or a fiduciary (within the meaning of the Employee Retirement
Income Security Act of 1974), with respect to any employee benefit plan of the
corporation, or serves or served at the request of the corporation as a director
or officer of, or as a fiduciary (as defined above) of an employee benefit plan
of, another corporation, partnership, joint venture, trust or other enterprise.
This Article shall not be deemed exclusive of any other provisions for the
indemnification of directors, officers, employees, or agents that may be
included in any statute, bylaw, agreement, resolution of shareholders or
directors or otherwise, both as to action in any official capacity and action in
any other capacity while holding office, or while an employee or agent of the
corporation. For purposes of this Article, "corporation: shall mean the
corporation incorporated hereunder and any successor corporation thereof.
ARTICLE 7. NOTICES
The address where the State of Oregon Corporation Division may mail notices
to the corporation is:
Terry DeSylvia
Brownstein, Rask, Arenz, Sweeney, Kerr & Grim, LLP
1200 S.W. Main Building
Portland, Oregon 97205
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
G.I. JOE'S, INC.
ARTICLE I
OFFICES
The principal office shall be in Wilsonville, Oregon. The Corporation
may also have offices at such other places within or without Oregon as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETINGS: The annual meeting of the shareholders
shall be held within ninety (90) days immediately prior to, or immediately
after, the end of the Corporation's fiscal year. At the annual meeting, the
shareholders shall elect a Board of Directors and transact any other business
that may legally come before the meeting.
Section 2. SPECIAL MEETINGS: Special meetings of the shareholders may
be called by the President, the Board of Directors, or shareholders holding at
least twenty-five percent (25%) of all votes entitled to be cast on any issue
proposed to be considered at the special meeting.
Section 3. PLACE OF MEETINGS: Meetings of the shareholders shall be
held at the Corporation's principal office or any other place designated by the
Board of Directors.
Section 4. NOTICE OF MEETINGS: Written or printed notice stating the
date, time and place of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not earlier
than sixty (60) days nor less than ten (10) days before the meeting date, either
personally or by mail, by or at the direction of the President, the Secretary,
the Board of Directors or the persons calling the meeting, to each shareholder
of record entitled to receive notice of the meeting. The notice is effective
when mailed, if it is mailed postpaid and is correctly addressed to the
shareholders' addresses shown in the Corporation's current record of
shareholders.
Section 5. PROOF OF NOTICE: An entry of the service of notice of a
meeting of the shareholders, given in the manner above provided, shall be made
in the minutes of the proceedings of the shareholders, and such entry, if read
and approved at the next meeting of the shareholders, shall be conclusive on the
question of such service.
PAGE 1 - BYLAWS
<PAGE> 2
Section 6. QUORUM: A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
not-withstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 7. ADJOURNMENT: Any regular or special meeting of the
shareholders may adjourn from day to day, or from time to time, without further
notice, until its business is completed; and any regular or special meeting of
the shareholders may adjourn from day to day, or from time to time, without
further notice, if for any reason the holders of a majority of the shares of
stock of the Corporation entitled to vote are not present, in person or by
proxy, until a quorum shall attend, such adjournment and the reasons therefor
being recorded in the minutes of the proceedings of the shareholders. When a
quorum shall attend, any business may be transacted that might have been held on
the day on which the same originally was appointed or called.
Section 8. PRESIDING OFFICER: The President, or in the President's
absence, the Vice President, or in the absence of the President and Vice
President, a Chairman, elected by the shareholders present, shall call the
meetings of the shareholders to order and shall act as a presiding officer
thereof.
Section 9. SECRETARY: The Secretary of the Corporation shall act as
Secretary at all meetings of the shareholders, and in the Secretary's absence,
the presiding officer may appoint any person to act as Secretary.
Section 10. ELECTION OF BOARD: At the regular Annual Meeting of the
shareholders, the shareholders entitled to vote shall elect a Board of Directors
as constituted by these Bylaws. Every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number or
shares owned by such shareholder for as many persons as there are Directors to
be elected and for whose election such shareholder has a right to vote.
Section 11. VOTING: At each meeting of the shareholders, each
shareholder shall have the right to vote, in person or by proxy, the number of
common shares entitled to vote standing in the shareholder's own name on the
books of the Corporation. Notwithstanding the foregoing, the shares held by an
administrator, executor, guardian, conservator, or receiver may be voted by such
person, either in person or by proxy, without a transfer of such shares into the
name of the administrator, executor, guardian, conservator, or receiver.
Section 12. MAJORITY VOTE: When a quorum is present or represented at
any meeting in person or by proxy and entitled to vote on the subject matter,
action on any matter, other than the election of directors, is approved if the
votes cast favoring the action exceed the votes cast opposing the action, unless
the vote of a greater number is required by law, the Articles of Incorporation
or these Bylaws, in which case the contrary provision shall be controlling.
PAGE 2 - BYLAWS
<PAGE> 3
Section 13. PROXIES: All proxies must be in writing, executed by the
shareholders themselves or by their duly authorized attorney-in-fact, and must
be filed with the Secretary of the Corporation at or before the meeting of
shareholders. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
ARTICLE III
BOARD OF DIRECTORS
Section 1. NUMBER, QUALIFICATIONS, AND TERM OF OFFICE: The management
of all the affairs, property and business of the Corporation shall be vested in
a Board of Directors, except as otherwise provided in this paragraph, consisting
of between a minimum of one (1) and a maximum of seven (7) persons, inclusive,
and the exact number between such minimum and maximum shall be fixed from time
to time by resolution of the Board of Directors, but no decrease shall have the
effect of shortening the term of an incumbent Director. The Board of Directors
shall elect a Chairman, who shall have the authority to call meetings of the
Board of Directors. Each director shall be elected by a majority of the votes
cast by the shares entitled to vote in the election at a shareholders' meeting
for a term of one (1) year, and shall hold office until their successors are
elected and qualified, or until death, resignation or removal. Directors need
not be shareholders or residents of the State of Oregon. In addition to the
powers and authority expressly conferred upon it by these Bylaws and the
Articles of Incorporation, the Board of Directors may exercise all powers of the
Corporation and may do all lawful acts that are not by statute or by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
Section 2. VACANCIES: All vacancies in the Board of Directors, whether
caused by resignation, death or removal, by a majority vote of the shareholders
represented at any meeting, may be filled by appointment by the remaining
Directors. A Director thus appointed to fill any vacancy shall hold office for
the unexpired term of such Director's predecessor and until such Director's
successor is elected and qualified, or until the death, resignation, or removal
of the appointed Director.
Section 3. ANNUAL MEETINGS: A regular annual meeting of the Board of
Directors shall be held without notice other than this bylaw immediately after
the adjournment of the annual meeting of the shareholders.
Section 4. SPECIAL MEETINGS: Special meetings of the Board of
Directors may be called at any time and place on the order of the Chairman of
the Board, President, Secretary or on the order of any member of the Board of
Directors.
PAGE 3 - BYLAWS
<PAGE> 4
Section 5. NOTICE OF SPECIAL MEETINGS: Notices of special meetings of
the Board of Directors, stating the date and hour, the place, and, in general
terms, the purpose(s) shall be mailed, telegraphed or personally delivered to
the Directors not later than five (5) days before the day appointed for the
meeting. An entry of the service of the notice, given in the manner above
provided, shall be made in the minutes of the proceedings of the Board of
Directors, and such entry, if read and approved at the next meeting of the Board
of Directors, shall be conclusive on the question of service. If all of the
Directors shall be present at any Directors' meeting, however called, any
business may be transacted at such meeting, and the transactions of such meeting
shall be valid as if had at a meeting regularly called.
Section 6. PLACE OF MEETINGS: Meetings of the Board of Directors shall
be at the Corporation's principal office or any other place designated by the
Board of Directors. Meetings of the Board of Directors may be held by means of
conference telephone or similar communications equipment by which all persons
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
Section 7. WAIVER OF NOTICE: A director's attendance at or
participation in a meeting waives any required notice of the meeting unless the
director at the beginning of the meeting, or promptly upon the director's
arrival, objects to holding the meeting, or transacting business at the meeting
and does not there-after vote for or assent to action taken at the meeting.
Section 8. QUORUM: A majority of the number of directors in office
immediately before the meeting begins shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors. The
affirmative vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors, unless the vote of
a greater number of directors is required by law, the Articles of Incorporation
or these Bylaws, in which case the contrary provision shall control.
Section 9. REMOVAL: Any director may be removed by the shareholders,
with or without cause. A director may be removed by the shareholders only at a
meeting called for the purpose of removing the director and the meeting notice
must state that the purpose, or one of the purposes, of the meeting is removal
of the director.
Section 10. RESIGNATION: A director may resign at any time by
delivering written notice to the Board of Directors, its chairman or the
Corporation. A resignation is effective when delivered, unless the notice
specifies a later effective date, and the Board of Directors accepts the later
date. Once delivered, a notice of resignation is irrevocable unless revocation
is permitted by the Board of Directors. Unless otherwise specified in the
notice, the acceptance of such resignation shall not be necessary to make it
effective.
PAGE 4 - BYLAWS
<PAGE> 5
Section 11. COMPENSATION: By resolution of the Board of Directors, the
directors (i) may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors, and (ii) may be paid a fixed sum for attendance at
each meeting or a stated salary as director, or (iii) may be paid any
combination of the foregoing. No such payments shall prevent any director from
serving the Corporation in any other capacity and receiving compensation for
that service. Members of committees may be allowed similar compensation for
attending committee meetings.
Section 12. COMMITTEES: The Board of Directors may create one or more
committees and appoint members of the Board of Directors to serve on them. Each
committee shall have two (2) or more members, who serve at the pleasure of the
Board of Directors. Creation of a committee and appointment of members to it
shall be approved by a majority of all the directors in office when the action
is taken. Any such committee shall have and may exercise such authority as
authorized by the Board of Directors in the management of the Corporation except
to the extent such delegation of authority is prohibited by law. Until further
action by the Board of Directors, there shall be two (2) authorized committees,
an Audit Committee and a Compensation Committee.
Section 13. PRESUMPTION OF ASSENT: A director of the Corporation who
is present at a meeting of the Board of Directors or a committee of the Board of
Directors shall be presumed to have assented to the action taken:
(a) Unless the director's dissent to the action is entered in the
minutes of the meeting;
(b) Unless a written dissent to the action is filed with the person
acting as the Secretary of the meeting before the adjournment thereof or
forwarded by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting; or
(c) Unless the director objects at the meeting to the holding of the
meeting or transacting business at the meeting. The right to dissent shall not
apply to a director who voted in favor of the action.
ARTICLE IV
OFFICERS
Section 1. DESIGNATION: The officers of this Corporation shall be a
President and a Secretary, and shall be appointed by the Board of Directors. The
Board of Directors may appoint additional officers or assistant officers, as
necessary from time to time including a Treasurer and one or more
Vice-Presidents. If not appointed by the Board of Directors, the President may
appoint additional officers or assistant officers from time to time. Any two or
more offices may be held by the same person.
Section 2. APPOINTMENT: The officers shall be appointed by the Board
of Directors at the first meeting after the organization of the Corporation and
thereafter, at the regular meeting of Directors after the Annual Meeting of the
shareholders, and they shall hold office for one year, unless removed by the
Board of Directors, and until their successors are appointed.
PAGE 5 - BYLAWS
<PAGE> 6
Section 3. COMPENSATION: The compensation of the officers and
employees of the Corporation shall be fixed by the Board of Directors.
ARTICLE V
DUTIES OF OFFICERS
Section 1. PRESIDENT: The President shall be the chief executive
officer of the Corporation. The President shall preside at all the meetings of
the shareholders and of the Board of Directors. The President shall execute,
with the Secretary, in the name of the Corporation, all deeds, bonds, contracts
and other obligations and instruments authorized by the Board of Directors to be
executed, and with the Secretary shall sign all certificates of stock of the
Corporation. The President shall also have such other powers and perform such
other duties as may be assigned to that office by the Board of Directors.
Section 2. VICE PRESIDENT: The Vice President, if such office is
created by the Board of Directors, shall assist the President in the performance
of the President's duties; and whenever, for any reason, the President is unable
to act, the Vice President shall possess the powers and perform the duties of
the President; and, in the event of the death or resignation of the President,
the Vice President shall, until a new President is elected by the Board of
Directors, possess all the powers and perform all of the duties of the
President. The Vice President shall also have such other powers and shall
perform such other duties as may be assigned to that office by the Board of
Directors.
Section 3. SECRETARY: The Secretary shall keep the minutes of all
proceedings of the shareholders and of the Board of Directors in books provided
for that purpose. The Secretary shall attend to the giving and service of notice
of all meetings of the shareholders and of the Board of Directors and otherwise.
The Secretary shall execute with the President, in the name of the Corporation,
all deeds, bonds, contracts and other obligations and instruments authorized by
the Board of Directors to be executed, and with the President shall sign all
certificates for shares of the Corporation. The Secretary shall be the custodian
of the corporate seal of the Corporation, and when so ordered by the Board of
Directors shall affix the seal to deeds, bonds, contracts, and other obligations
and instruments. The Secretary shall keep and have charge of the journal of the
meetings of the shareholders and of the Board of Directors, the stock and
transfer book, the book of stock certificates, the Bylaws, and such other books
and papers as the Board of Directors may direct. The Secretary shall, in
general, perform all the duties incident to the office of Secretary subject to
the control of the Board of Directors.
Section 4. TREASURER: The Treasurer, if such office is created by the
Board of Directors, shall perform such duties as are incident to the office of
Treasurer or as are required of the Treasurer by law and by the Board of
Directors.
Section 5. VACANCIES: If any office becomes vacant by reason of death,
resignation, removal or otherwise, the Board of Directors shall elect a
successor who shall hold office for the unexpired term and until the successor
is elected.
PAGE 6 - BYLAWS
<PAGE> 7
Section 6. ABSENCE OR INABILITY TO ACT: In the case of absence or
inability to act of any officer of the Corporation and of any person herein
authorized to act in such officer's place, the Board of Directors may from time
to time delegate the powers or duties of such officer to any other officer, or
any Director or other person whom it may select.
ARTICLE VI
INDEMNIFICATION
Section 1. RIGHTS TO INDEMNIFICATION; STANDARD OF CONDUCT:
1.1 Nonderivative Actions. Subject to the provisions of this Article,
the Corporation shall indemnify and hold harmless any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative (including all appeals (other than an action by or in the right
of the Corporation)), by reason of or arising from the fact that the person is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, or trustee of
another foreign or domestic corporation, partnership, joint venture, trust
employee benefit plan or other enterprise against reasonable expenses (including
attorney's fees), judgments, fines, penalties, excise taxes assessed with
respect to any employee benefit plan and amounts paid in settlement actually and
reasonably incurred by the person to be indemnified in connection with such
action, suit or proceeding if the person:
(a) Acted in good faith;
(b) Reasonably believed his conduct to be in, or at least not opposed
to, the best interests of the Corporation; and
(c) With respect to any criminal action or proceeding, did not know
and had no reasonable cause to believe the conduct was unlawful.
1.2 Derivative Actions. Subject to the provisions of this Article, the
Corporation shall indemnify and hold harmless any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit (including all appeals) by or in the right of the Corporation by
reason of or arising from the fact that the person is or was a director of
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, or trustee of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against reasonable expenses (including attorneys' fees)
actually incurred by the person to be indemnified in connection with such
action, suit or proceeding if the person:
(a) Acted in good faith;
(b) Reasonably believed his conduct to be in, or at least not opposed
to, the best interests of the Corporation; and
PAGE 7 - BYLAWS
<PAGE> 8
(c) With respect to any criminal action or proceeding, did not know
and had no reasonable cause to believe the conduct was unlawful.
However, no indemnification shall be made hereunder in connection with
any action suit or proceeding by or in the right of the Corporation in which
such person shall have been adjudged to be liable to the Corporation.
1.3 Effect of Plea of Nolo Contendere. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not meet the above-described standard of conduct.
1.4 Improper Personal Benefit. The Corporation shall not indemnify any
person in connection with any suit, action or proceeding charging improper
personal benefit to such person in the event such person is adjudged liable by
reason of having improperly received personal benefit unless indemnification is
ordered by a court of competent jurisdiction.
1.5 Conduct with Respect to Employee Benefit Plan. The conduct of an
officer or director with respect to an employee benefit plan shall meet the
requirement of Sections 1.1 and 1.2 that such person must have reasonably
believed his conduct to be in or at least not opposed to the best interests of
the Corporation if the person acted for a purpose he reasonably believed to be
in the interests of the plan participants and beneficiaries.
1.6 Reports to Shareholders. In the event the Corporation indemnifies
or advances expenses in connection with a proceeding described in Section 1.2,
the Corporation shall report such indemnification or advance to the shareholders
with or before notice of the next shareholders' meeting.
1.7 Initiation of Proceedings. The Corporation shall indemnify any
person seeking indemnification hereunder in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors, except proceedings to enforce
indemnification hereunder for which such person shall be indemnified to the
extent such person is successful in whole or in part.
Section 2. DETERMINATION AND AUTHORIZATION OF RIGHT TO INDEMNIFICATION
OF CERTAIN CASES:
2.1 Determination of Right to Indemnification. Indemnification under
Section 1 of this Article shall not be made by the Corporation unless it is
expressly determined that indemnification is proper in the circumstances because
the person to be indemnified has met the applicable standard of conduct set
forth in Section 1. That determination may be made by any of the following:
(a) By the Board of Directors by majority vote of a quorum consisting
of directors who are not at the time parties to the action, suit or
proceeding;
PAGE 8 - BYLAWS
<PAGE> 9
(b) If a quorum cannot be obtained under paragraph (a) of this
subsection, by majority vote of a committee duly designated by the Board of
Directors consisting solely of two or more directors not at the time
parties to the proceeding (directors who are parties to the proceeding may
participate in designation of the committee);
(c) By special legal counsel selected by the Board of Directors or its
committee in the manner prescribed in (a) or (b), or if a quorum of the
Board of Directors cannot be obtained under (a) and a committee cannot be
designated under (b), the special legal counsel shall be selected by
majority vote of the full Board of Directors, including directors who are
parties to the proceeding; or
(d) By the shareholders.
2.2 Authorization of indemnification. Authorization of indemnification
and evaluation of reasonableness of expenses shall be made in the same manner as
set forth in Section 2.1, except that if the determination is made by special
legal counsel, the authorization and evaluation shall be made by a majority vote
of those entitled under Section 2.1(c) to select the legal counsel.
Section 3. INDEMNIFICATION OF PERSONS OTHER THAN OFFICERS OR
DIRECTORS: In the event any person not included within the group of persons
referred to in Section 1 of this Article was or is a party or is threatened to
be made a party to any threatened pending or completed action, suit or
proceeding of a type referred to in Section 1 of this Article by reason of or
arising from the fact that such person is or was an employee or agent (including
an attorney) of the Corporation or one of its subsidiaries, or is or was serving
at the request of the Corporation as an employee or agent (including an attorney
of another foreign or domestic Corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, the Board of Directors of the
Corporation by a majority vote of a quorum (whether or not such quorum consists
in whole or part of directors who were parties to such action, suit or
proceeding) may, but shall not be required to, grant to such person a right of
indemnification as if the person were an officer or director referred to herein,
provided that such person meets the applicable standard of conduct set forth
herein. Furthermore, the Board of Directors may designate by resolution in
advance of any action, suit or proceeding, those employees or agents (including
attorneys) who shall have all right of indemnification granted to officers and
directors under this Article.
Section 4. SUCCESSFUL DEFENSE: Notwithstanding the provisions of
Sections 1 and 2 of this Article, to the extent a director or officer is
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2 of this Article, or in defense of any
claim, issue or matter therein, the Corporation shall indemnify that person
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith.
PAGE 9 - BYLAWS
<PAGE> 10
Section 5. ADVANCES FOR EXPENSES: Reasonable expenses incurred by a
person indemnified hereunder in connection with a civil, criminal,
administrative or investigative action, suit or proceeding (including all
appeals) or threat thereof, shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt by the
Corporation of an undertaking by or on behalf of such person to repay such
expenses if it shall ultimately be determined that the person is not entitled to
be indemnified by the Corporation and a written affirmation of the person's good
faith belief that he has met the applicable standard of conduct. The undertaking
must be a general personal obligation of the party receiving the advances, but
need not be secured and may be accepted without reference to financial ability
to make repayment.
Section 6. RIGHT OF CLAIMANT TO BRING SUIT:
6.1 A person seeking indemnification or payment pursuant to Section 1
of this Article shall submit a written claim therefor to the Board of Directors.
If such claim under Section 1 of this Article is not paid in full be the
Corporation within 60 days after a written claim has been received by the
Corporation, except in the case of a claim for reasonable expenses incurred in
connection with a proceeding in advance of its final disposition, in which case
the applicable period shall be 30 days, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
6.2 It shall be a defense to any such action, other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation, that the claimant has not met
the standards of conduct which make it permissible under the Oregon Business
Corporation Act for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
6.3 Neither the failure of the Corporation, including its Board of
Directors, independent legal counsel or its shareholders, to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Oregon Business Corporation Act nor an
actual determination by the Corporation, including its Board of Directors,
independent legal counsel or its shareholders, that the claimant has not met
such applicable standard of conduct shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
6.4 In the event a claimant brings suit against the Corporation
pursuant to this Section 6, then to the extent the claimant is successful, the
claimant shall be entitled to be paid reasonable expenses incurred in presenting
such claim, but to the extent the Corporation is successful in defending such
claim, the claimant shall be required to pay the reasonable expenses of the
Corporation in defending such claim.
PAGE 10 - BYLAWS
<PAGE> 11
Section 7. INSURANCE: The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or one of its subsidiaries or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another foreign or domestic Corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against and incurred by that person in any such capacity arising out of his
status as such, whether or not the Corporation would have the power to indemnify
that person against such liability under the provisions of this Article or under
the Oregon Business Corporation Act.
Section 8. NONEXCLUSIVITY: The indemnification referred to in this
Article shall be deemed to be in addition to and not in lieu of any other rights
to which those indemnified may be entitled under any statute, rule of law or
equity, order issued by a court of competent jurisdiction, agreement, vote of
the Board of Directors or otherwise. The provisions of this Article shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall issue to the benefit of the heirs, executors and administrators
of such person. The Corporation is authorized to enter into agreements of
indemnification.
Section 9. SEVERABILITY: If any provision of this Article is found, in
any action, suit or proceeding, to be invalid or ineffective, the validity and
the effect of the remaining provisions shall not be affected.
Section 10. EFFECT OF STATUTE: The Corporation shall indemnify any
person who is or was a director or officer of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, partner or
trustee of another foreign or domestic Corporation, partnership, joint venture,
trust, employees benefit plan or other enterprise to the fullest extent
permitted by the Oregon Business Corporation Act as in effect as of the date of
the adoption of these provisions and as may be subsequently amended; provided,
however, in the event such subsequent amendment reduces or diminishes such
person's rights to indemnification, such amendments shall not apply to the
extent permitted by law.
ARTICLE VII
CORPORATE RECORDS - INSPECTION
Section 1. MAINTENANCE OF RECORDS: The Corporation shall maintain
adequate and correct books, records and accounts of its business and properties.
Except as otherwise provided by law, all of these books, records and accounts
shall be kept at its principal office.
PAGE 11 - BYLAWS
<PAGE> 12
Section 2. INSPECTION OF BOOKS AND RECORDS: A shareholder of the
Corporation is entitled to inspect and copy, during regular business hours at a
reasonable location specified by the Corporation, all books, records and
accounts of the Corporation if the shareholder gives the Corporation written
notice of the shareholder's demand at least five (5) business days before the
date on which the shareholder wishes to inspect and copy. The shareholder may
inspect and copy such records only if the shareholder's demand is made in good
faith and for a proper purpose; the shareholder describes with reasonable
particularity the shareholder's purpose and the records the shareholder desires
to inspect; and the records are directly connected with the shareholder's
purpose.
Section 3. INSPECTION OF BYLAWS AND ARTICLES OF INCORPORATION: A
shareholder of the Corporation is entitled to inspect and copy, during regular
business hours at the Corporation's principal office, the Articles of
Incorporation and all amendments or restatements, the Bylaws and all amendments
or restatements and any resolution adopted by the Board of Directors, if the
shareholder gives the Corporation written notice of the shareholder's demand at
least five (5) business days before the date on which the shareholder wishes to
inspect and copy. The Corporation may impose a reasonable charge covering the
costs of labor and materials for copies of any documents provided to the
shareholder. Such charge may not exceed the estimated cost of production or
reproduction of the records.
ARTICLE VIII
STOCK AND CERTIFICATES FOR STOCK
Section 1. FORMS: Certificates for shares of this Corporation shall be
issued in such form as shall be provided by the Board of Directors and shall
fully comply with the laws of the state of its incorporation. The certificates
shall be signed by the President and by the Secretary. The signatures of such
officers on a certificate may be facsimiles if the certificate is countersigned
by a transfer agent, or registered by a registrar, other than the corporation
itself or an employee of the corporation. All certificates for shares or stock
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be canceled and no new certificates shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, stolen, destroyed, or mutilated certificate a new
certificate may be issued therefor pursuant to Article VIII, Section 3 hereof on
such terms and indemnity to the corporation as the board of directors may
prescribe.
PAGE 12 - BYLAWS
<PAGE> 13
Section 2. TRANSFER ON THE BOOKS: Upon surrender to the Corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Corporation shall issue a
new certificate to the person entitled to that certificate, cancel the old
certificate and record the transaction upon its stock transfer books. Transfer
of shares of stock of the corporation shall be made only on the stock transfer
books of the corporation by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney thereunto authorized by power of attorney duly executed
and filed with the secretary of the corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name shares
of stock stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES: In the event a
certificate is represented to be lost, stolen or destroyed, a new certificate
shall be issued in place of that certificate upon such proof of the loss, theft
or destruction and upon the giving of a bond or other security as may be
required by the Board of Directors.
ARTICLE IX
ACTION WITHOUT MEETING
Any action required to be taken at a meeting of the shareholders or
Directors of this Corporation, or any action which may be taken at a meeting of
this Corporation's shareholders or Directors, may be taken without a meeting if
a consent in writing setting forth the action so taken is signed by all those
entitled to participate at such meeting. Such consent shall have the same force
and effect as the unanimous vote at a duly called, convened and conducted
meeting of the shareholders or Directors.
ARTICLE X
CONTRACTS WITH INTERESTED DIRECTORS
No contract or other transaction between this Corporation and any
other Corporation shall be affected by the fact that any Director of this
Corporation is interested in, or is a director or officer of, such other
Corporation, and any Director, individually or jointly, may be a party to, or
may be interested in, any con-tract or transaction of this Corporation or in
which this Corporation is interested. No contract or other transaction of this
Corporation with any person, firm, or Corporation, shall be affected by the fact
that any Director of this Corporation is a party to, or is interested in, such
contract, act, or transaction, or in any way connected with such person, firm,
or Corporation, and every person who may become a Director of this Corporation
is hereby relieved from any liability that might otherwise exist from
contracting with the Corporation for the benefit of such person or any firm,
association, or Corporation in which such person may be in any way interested.
PAGE 13 - BYLAWS
<PAGE> 14
ARTICLE XI
DIVIDENDS AND FINANCE
Section 1. DIVIDENDS. Dividends may be declared by the Board of
Directors and paid by the Corporation in the manner provided for by the Oregon
Business Corporation Act. The stock transfer books may be closed for the payment
of dividends during such periods of not exceeding sixty (60) days, as from time
to time may be fixed by the Board of Directors. The Board of Directors, however,
without closing the books of the Corporation, may declare dividends payable only
to the holders of record at the close of business, on any business day not more
than sixty (60) days prior to the date on which the dividend is paid.
Section 2. DEPOSITORIES: The monies of the Corporation shall be
deposited in the name of the Corporation in such bank or banks or trust company
or trust companies as the Board of Directors shall designate, and shall be drawn
out only by check or other order for payment of money signed by such persons and
in such manner as may be determined by resolution of the Board of Directors.
ARTICLE XII
GENERAL PROVISIONS
Section 1. AMENDMENT OF BYLAWS: The Board of Directors may amend or
repeal these Bylaws, except as otherwise provided by law.
Section 2. WAIVER OF NOTICE: Whenever a notice is required to be given
to any shareholder or director of this Corporation by law, the Articles of
Incorporation or these Bylaws, a written waiver of that notice describing the
meeting for which notice is waived and signed by the person entitled to the
notice, before or after the meeting stated in the notice, and delivered to the
Corporation for inclusion in the minutes of the meeting, shall be equivalent to
giving notice.
Section 3. EXECUTION OF DOCUMENTS: Unless otherwise specified by
resolution of the Board of Directors, any documents may be executed on behalf of
the Corporation by the President or other officer or officers as may be
designated by the President.
ARTICLE XIII
AMENDMENTS, REVISIONS AND REPEAL
The power to amend, revise or repeal these Bylaws, or to adopt new
Bylaws, shall be solely vested in the Board of Directors.
EFFECTIVE DATE: ______________, 199__.
/s/
-----------------------------------------
____________________, Secretary
PAGE 14 - BYLAWS
<PAGE> 15
AMENDMENTS
Article and Section Date Text
- ------------------- ---- ----
PAGE 15 - BYLAWS
<PAGE> 1
EXHIBIT 10.2
LEASE BETWEEN:
Lessor:
Milestone Properties, Inc.,
a Delaware corporation
and
Lessee:
G.I. Joe's, Inc.
an Oregon corporation
May 16, 1997
<PAGE> 2
ARTICLE I
DEMISED PREMISES
Section 1.01 - Demised Premises ...............................................1
Section 1.02 - Use of Additional Areas ........................................1
ARTICLE II
TERM
Section 2.01 - Commencement Date ..............................................1
Section 2.02 - Length of Term .................................................1
Section 2.03 - Lease Year .....................................................2
ARTICLE III
RENT
Section 3.01 - Payment of Rent ................................................2
Section 3.02 - Fixed Minimum Rent .............................................2
Section 3.03 - Percentage Rent ................................................2
Section 3.04 - Gross Sales ....................................................3
ARTICLE IV
RECORDS AND ACCOUNTING
Section 4.01 - Records ........................................................4
Section 4.02 - Statements by Lessee ...........................................4
Section 4.03 - Audit ..........................................................5
Section 4.04 - Failure to Furnish Statements ..................................5
ARTICLE V
IMPROVEMENTS
Section 5.01 - Improvements by Lessor .........................................6
Section 5.02 - Improvements by Lessee .........................................6
Section 5.03 - Description ....................................................6
Section 5.04 - Installation of Fixtures .......................................6
Section 5.05 - Parking Areas ..................................................6
<PAGE> 3
ARTICLE VI
COMMON AREAS AND OPERATING COSTS
Section 6.01 - Common Areas: ..................................................7
Section 6.02 - Operating Costs ................................................8
ARTICLE VII
MERCHANT'S ASSOCIATION OR MARKETING FUND
Section 7.01 - Merchant's Association ........................................11
Section 7.02 - Marketing Fund ................................................11
ARTICLE VIII
CONDUCT OF BUSINESS BY LESSEE
Section 8.01 - Use of Demised Premises........................................11
Section 8.02 - Restrictions on Use ...........................................12
Section 8.03 - Restrictions on Lessor ........................................12
ARTICLE IX
MAINTENANCE AND REPAIRS
Section 9.01 - Maintenance by Lessee .........................................12
Section 9.02 - Maintenance by Lessor .........................................12
Section 9.03 - Alterations ...................................................13
Section 9.04 - Waiver Claims .................................................13
Section 9.05 - Lessor's Right to Inspect .....................................14
Section 9.06 - Cleanliness and Waste .........................................14
ARTICLE X
INSURANCE
Section 10.01 - Insurance by Lessee ..........................................14
Section 10.02 - Insurance by Lessor ..........................................15
Section 10.03 - Indemnity for Accidents ......................................15
Section 10.04 - Destruction by Fire or Casualty...............................16
Section 10.05 - Dram Shop Liability ..........................................16
<PAGE> 4
ARTICLE XI
TITLE
Section 11.01 - Possession by Lessee .........................................17
Section 11.02 - Sublease .....................................................17
Section 11.03 - Mortgages by Lessor ..........................................18
Section 11.04 - Surrender of Premises ........................................18
Section 11.05 - Eminent Domain ...............................................19
Section 11.06 - Attornment ...................................................19
ARTICLE XII
SIGNS, LIGHTING, AND UTILITIES
Section 12.01 - Signs ........................................................20
Section 12.02 - Lighting .....................................................20
Section 12.03 - Utilities and Services .......................................20
ARTICLE XIII
DEFAULT
Section 13.01 - Default by Lessee ............................................21
Section 13.02 - Lien of Lessor for Rent, Taxes, and Other Sums ...............23
Section 13.03 - Default by Lessor ............................................25
ARTICLE XIV
TAXES
Section 14.01 - Real Estate Taxes.............................................25
Section 14.02 - Personal Property Taxes and Assessments ......................27
ARTICLE XV
MISCELLANEOUS
Section 15.01 - Notices ......................................................28
Section 15.02 - Waiver .......................................................28
Section 15.03 - Relationship of Parties ......................................28
Section 15.04 - Governing Law ................................................28
Section 15.05 - Savings Clause ...............................................28
Section 15.06 - Marginal Headings ............................................28
Section 15.07 - Covenant to Bind Successors ..................................29
<PAGE> 5
Section 15.08 - Credit Reports ...............................................29
Section 15.09 - Letter of Estoppel ...........................................29
Section 15.10 - Exculpation ..................................................29
Section 15.11 - Force Majeure ................................................29
Section 15.12 - Entire Agreement .............................................29
Section 15.13 - Negotiation and Execution ....................................30
<PAGE> 6
ATTACHMENTS
RIDER I
EXHIBIT A - LEGAL DESCRIPTION
EXHIBIT B - SITE PLAN
<PAGE> 7
LEASE
THIS LEASE, made and entered into this 3rd day of June, 1997 by and between
Milestone Properties, Inc., a Delaware corporation (hereinafter referred to as
"Lessor"), and G. I. Joe's, Inc. a(n) Oregon corporation (hereinafter referred
to as "Lessee");
WITNESSETH: THAT
In consideration of the rents, covenants and agreements hereinafter
reserved and contained on the part of Lessee to be observed and performed, the
Lessor demises and leases to the Lessee, and Lessee takes, accepts and rents
from Lessor, the premises hereinafter described, for the period, at the rental,
and upon the terms and conditions hereinafter set forth.
ARTICLE I
DEMISED PREMISES
Section 1.01 - Demised Premises: The Lessor demises and leases to the
Lessee, and the Lessee rents from Lessor, those certain premises, now erected in
the City of Bend, County of Deschutes, and State of Oregon, which Demised
Premises consist of a store space containing an area of approximately
thirty-four thousand nine hundred sixty-four (34,964) square feet of floor area,
herein referred to as the "Demised Premises".
Section 1.02 - Use of Additional Areas: The use and occupancy by the Lessee
of the Demised Premises shall include the use in common with others entitled
thereto of the common areas, and other facilities as may be designated from time
to time by the Lessor, subject, however, to the terms and conditions of this
agreement, and to reasonable rules and regulations for the use thereof, as
prescribed from time to time by the Lessor.
ARTICLE II
TERM
Section 2.01 - Commencement Date: The term of this Lease shall commence on
February 1, 1998.
Section 2.02 - Length of Term: The term of this Lease shall commence on the
Commencement Day and end on January 31, 2018 unless otherwise terminated or
extended as provided herein.
1 May 16, 1997
<PAGE> 8
Section 2.03 - Lease Year: The term "Lease Year", as used herein, shall
mean the period beginning with the commencement of the term of this Lease as
hereinbefore determined in Section 2.01, and ending on January 31 and each
successive twelve (12) month period thereafter or during the term of this Lease.
ARTICLE III
RENT
Section 3.01 - Payment of Rent: Lessee hereby covenants and agrees to pay
rent, to Lessor, which said rent shall be in the form of "Fixed Minimum Rent",
"Percentage Rent" and "Additional Rent" as hereinafter provided. The payment of
said Fixed Minimum Rent shall begin on the Commencement Date, and thereafter the
Fixed Minimum Rent shall be paid in equal monthly installments on the first day
of each and every month in advance. Said Rent shall be paid to the office of the
Lessor at, 5200 Town Center Circle, Fourth Floor, Boca Raton, FL 33486, or at
such other place as may be designated in writing from time to time by Lessor.
Section 3.02 - Fixed Minimum Rent:
A. Lessee shall pay to Lessor for each and every Lease Year of the leased
term, without any prior demand therefore, and without any deduction or setoff
whatsoever, a Fixed Minimum Rent of two hundred fifteen thousand five hundred
dollars & 00/100 ($215,500.00), payable in equal monthly installments of
seventeen thousand nine hundred fifty-eight dollars & 33/100 ($17,958.33), in
advance on the first day of each and every calendar month, as provided in
Section 3.01 hereof.
B. Late fee: Any payment not received by Lessor by the tenth (10th) day of
the month shall be considered in arrears and in default of the terms hereof and
shall be subject to an applicable late charge in the amount of $500.00 and
$150.00 every fifth (5th) day thereafter, which Lessee agrees to pay along with
the late rent in the form of a cashier's check, certified check or money order.
C. Returned Checks: In the event that Lessee's check is returned for any
reason, Lessee agrees to pay Lessor $250.00 as a handling charge in addition to
any applicable late charge. Returned checks must be redeemed by cashier's check
or money order. In the event that more than one (1) check is returned, Lessee
agrees to pay all subsequent rents and charges by cashier's check, certified
check or money order.
Section 3.03 - Percentage Rent:
A. In addition to the payment of the Fixed Minimum Rent, as hereinbefore
provided, Lessee shall pay to Lessor, in the manner, and upon the conditions,
and at the time hereinafter set forth, during each year of the term hereof, as
additional rent, a
2 May 16, 1997
<PAGE> 9
sum equivalent to the amount, if any, determined by multiplying one and one-half
percent (1.5%) by the gross annual sales, as hereinafter defined, from all
business done on and from the premises, in excess of seven million two hundred
seventy thousand dollars & 00/100 ($7,270,000.00) ("Break Point"). Said
Percentage Rent shall be paid without any prior demand therefore, and without
any setoff or deduction whatsoever.
B. The said Percentage Rent shall become due and payable on or before
thirty (30) days after the close of each and every month commencing with the
month in any Lease Year when Lessee first becomes obligated to pay Percentage
Rent.
C. In the event that the Lessee is actually engaged in business prior to
the commencement of the term, then the period prior to the commencement of the
term when the Lessee is actually engaged in business (which shall not exceed one
[1] month) shall be added to and included in the first Lease Year of this term,
it being the intention of the parties that Percentage Rent shall be paid on all
gross sales in excess of the specified amounts, whether made from the Demised
Premises prior to or during the first Lease Year. If in any Lease Year, Lessee
is actually engaged in business for less than a full Lease Year, the Percentage
Rent Break Point shall be reduced proportionately. If Fixed Minimum Rent for any
Lease Year should be reduced or abated or if Lessee discontinues its business
operations for more than ten (10) continuous days, the Break Point shall
likewise be reduced proportionately.
Section 3.04 - Gross Sales: The term "Gross Sales" as used herein is hereby
defined to mean Gross Sales of Lessee, from all business conducted upon or from
the Demised Premises, and whether such business be conducted by Lessee or by any
licensees, concessionaires or sublessees of Lessee, and whether such sales be
evidenced by check, credit, charge account, exchange or otherwise, and shall
include, but not be limited to, the amount received from the sale of goods,
wares and merchandise and for services performed on or at the Demised Premises
together with the amount of all orders taken or received at the Demised
Premises, whether such order be filled from the Demised Premises or elsewhere,
and whether such sales be made by means of merchandise or other vending devices
in the Demised Premises, or sidewalk sales from outside the Demised Premises. If
any one (1) or more departments or other divisions of the Lessee's business
shall be sublet by Lessee or conducted by any person, firm or corporation other
than Lessee, then there shall be included in Gross Sales for the purpose of
fixing the Percentage Rent payable hereunder all the Gross Sales of such
departments or divisions, the same manner and with the same effect as if the
business or sales of such departments and divisions of Lessee's business had
been conducted by Lessee itself. Gross Sales shall not include sales of
merchandise for which cash has been refunded, or allowances made on merchandise
claims to be defective or unsatisfactory provided they shall have been included
in Gross Sales; and there shall be deducted from Gross Sales the price of
3 May 16, 1997
<PAGE> 10
merchandise returned by customers for exchange, provided that the sales price of
merchandise delivered to the customer in exchange shall be included in Gross
Sales. Gross receipts shall not include the amount of any sales, use or gross
receipts tax imposed by any federal, state, municipal or governmental authority
directly on sales and collected from customers, provided that the amount thereof
is added to the selling price or absorbed therein, and paid by Lessee to such
governmental authority. No franchise or capital stock tax and no income tax or
similar tax based upon income or profits as such shall be deducted from gross
receipts, in any event whatsoever.
ARTICLE IV
RECORDS AND ACCOUNTING
Section 4.01 - Records: For the purpose of ascertaining the amount payable
as rent, Lessee agrees to prepare and keep on the Demised Premises or corporate
headquarters for a period of not less than three (3) years, following the end of
each Lease Year, adequate records which shall show inventories and receipts of
merchandise at the Demised Premises, and daily receipts from all sales and other
transactions on the Demised Premises or corporate headquarters by Lessee and any
other persons conducting any business upon said premises. Adequate records shall
include, without limitation, cash receipts and/or sales journals; general
ledgers; sales tax returns; federal, state, and local income tax returns;
financial statements; and cash register tapes. Lessee shall record at the time
of sale, in the presence of the customer all receipts from sales or other
transactions whether for cash or credit in a cash register or in cash registers
having a cumulative total which shall be sealed in a manner approved by Lessor.
Lessee further agrees to keep on the Demised Premises or corporate headquarter
for at lease three (3) years following the end of each Lease Year all pertinent
original sales records.
Section 4.02 - Statements by Lessee: Lessee shall submit to Lessor on or
before the fifteenth (15th) day following each one (1) month period during the
term hereof (including the fifteenth (15th) day of the month following the end
of the term) at the place then fixed for the payment of rent, together with the
remittance of monthly Percentage Rent, a written statement signed by Lessee, and
certified by it to be true and correct, showing in
4 May 16, 1997
<PAGE> 11
reasonably accurate detail the amount of Gross Sales for each month during the
preceding one (1) month and fractional month, if any, prior to the commencement
of the term of this Lease. Such statement shall be accompanied by a facsimile
copy of Lessee's quarterly or monthly state sales tax report where applicable.
Lessee shall submit to the Lessor on or before the thirtieth (30) day following
the end of each Lease Year at the place then fixed for the payment of rent a
written statement signed by Lessee and certified to be true and correct, showing
in reasonably accurate detail the amount of Gross Sales during the preceding
Lease Year, and duly certified to Lessee by an independent public accountant.
The statements referred to herein shall be in such form and style acceptable to
Lessor and showing in reasonable detail the elements and amounts of Gross Sales
during the preceding monthly period, or fraction thereof. If such statement
shows Gross Sales to be other than as previously reported, Lessee and Lessor
shall make appropriate adjustments.
Section 4.03 - Audit: The acceptance by the Lessor of payments of
Percentage Rent shall be without prejudice to the Lessor's right to an
examination of the Lessee's books and records of its Gross Sales and inventories
of merchandise on the Demised Premises in order to verify the amount of annual
gross receipts received by the Lessee in and from the Demised Premises. At its
option, Lessor may cause, at any reasonable time, upon fifteen (15) days prior
written notice to the Lessee, a complete audit to be made of the Lessee's
business affairs and records relating to the Demised Premises for a period
covered by any statement issued by the Lessee as set forth in Section 4.02
hereof. Lessor shall have the right within three (3) years from the date of
delivery of such statement to Lessor to have an accountant selected by the
Lessor commence a special audit at the end of such fifteen (15) day written
notice. If such audit shall disclose an underreporting of Gross Sales of greater
than three percent (3%) of Gross Sales, whether or not Percentage Rent is due,
Lessee shall pay the cost of the audit. If such audit shall disclose a liability
for rent in excess of two percent (2%) of the rentals theretofore computed and
paid by Lessee, Lessee shall promptly pay to the Lessor the cost of the audit,
in addition to the deficiency. In addition, Lessor shall have the further remedy
of terminating the term of this Lease upon thirty (30) days written notice to
Lessee. In the event there is no deficiency disclosed as a result of the special
audit, the cost thereof shall be paid by the Lessor. It is further agreed that
such special audit as may be performed by an accountant elected by the Lessor
shall be conclusive and binding upon the parties.
Section 4.04 - Failure to Furnish Statements: If Lessee shall fail to
prepare and deliver within the time hereinabove specified any statement of Gross
Sales or if Lessee fails to maintain and/or furnish books and records required
hereunder, Lessor may elect to treat Lessee's said failure as a breach of this
Lease, entitling Lessor to terminate the term of this Lease or Lessee's right to
possession of the Demised Premises, or both, but only after Lessor has given to
the Lessee twenty (20) days notice in writing to submit said statement. If
Lessee fails to prepare and deliver said statement, or if Lessee fails to
maintain and/or furnish books and records after receiving said twenty (20) days
notice, Lessor may also, or in the alternative, elect to make an audit of all
book and records of Lessee, including Lessee's bank accounts, which in any way
pertain to or show Gross Sales, and to prepare or construct the statements or
records which Lessee has failed to prepare and deliver. Such audit shall be made
and the statements or records shall be prepared by an accountant selected by
Lessor, and shall be conclusive on Lessee. The Lessee shall pay on demand all
expenses of such audit and of the preparation or construction of any such
statements or records and all sums as may be shown by such audit to be due as
Percentage Rent.
5 May 16, 1997
<PAGE> 12
ARTICLE V
IMPROVEMENTS
Section 5.01 - Improvements by Lessor: Lessor shall not be responsible for
any improvements to the Demised Premises. Lessee takes the Demised Premises in
an "as is" condition, subject to those items set forth on Rider I.
Section 5.02 - Improvements by Lessee: Except as set forth on Rider I,
Lessee, at its own cost and expense, shall be responsible for all improvements
to the Demised Premises. Providing, however, before any such improvements are
made, Lessee shall submit its plans, drawings and specifications to Lessor for
Lessor's approval which approval shall not be unreasonably withheld. All bills
shall be paid for in full, and Lessee does hereby indemnify and hold harmless
Lessor from any liens, claims or demands. If any liens are placed against the
Demised Premises or the Shopping Center itself, Lessee shall be responsible for
clearing all such liens immediately, and, to the extent Lessor incurs any
expenses (including attorney fees), Lessee shall be responsible for
reimbursement.
Section 5.03 - Description: The Shopping Center is commonly known as the
Mountain View Mall. The legal description, if any, is shown on attached Exhibit
"A", and the boundaries and location of the Demised Premises are outlined in
"red" on the site plan marked Exhibit "B". The purpose of Exhibit "B" attached
hereto is to show the approximate location of the Demised Premises. The Lessor
reserves the right, at any time, to relocate the various lessees at the expense
of Lessor. The Lessor also reserves the right raze the existing buildings, add
to existing buildings or add additional buildings, and alter automobile parking
areas from that which is shown on Exhibit "B", provided such renovations do not
unreasonably impact Lessee's day to day business operation.
Section 5.04 - Installation of Fixtures: Lessee may enter upon the Demised
Premises for the purpose of installing trade fixtures and furnishings, provided,
however, such activity on the part of the Lessee shall be done only in such
manner as not to interfere with the normal operations of the Shopping Center or
any work being done by Lessor and that Lessor shall not be liable for damage to
or loss of such fixtures, equipment or furnishings. Any equipment or work done
which the Lessor installs or constructs in the Demised Premises on the Lessee's
behalf shall be paid for by the Lessee before such work, as outlined above, is
performed by the Lessor. All such additional work shall be billed to Lessee, in
advance, at Lessor's cost. It is mutually agreed that all work requested by the
Lessee shall be subject to the approval of Lessor's architect, mechanical and
electrical engineers.
Section 5.05 - Parking Areas: Lessor shall, at its own expense, maintain at
all times during the term of this Lease, the parking area on that portion of the
premises on
6 May 16, 1997
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which the Shopping Center is erected, and designated as "parking area" on the
site plan hereto attached and marked Exhibit "B" attached hereto and made a part
hereof. Said parking common area, which may be enlarged, altered or reduced,
from time to time, shall be for the joint use of all lessees of the Lessor in
the Shopping Center and for the use of the customers, employees, visitors, and
invitees of said lessees for driveway, walkway, or parking purposes. The parking
area shall be kept in reasonable order and repair and reasonably free from snow,
ice, and obstructions by the Lessor. All work or improvements made herein shall
be undertaken by Lessor so as not to unreasonably impact Lessee's day to day
business operations.
ARTICLE VI
COMMON AREAS AND OPERATING COSTS
Section 6.01 - Common Areas: All common areas and other common facilities
(hereinafter collectively called "common areas") made available by Lessor in,
on, over or about the Shopping Center shall be subject to the exclusive control
and management of Lessor, expressly reserving to Lessor, without limitation, the
right to erect, install, lease and remove within the malls or the parking areas,
kiosks, planters, pools, sculpture, free-standing buildings, additional
buildings, additional stories to buildings or otherwise, wherever and howsoever
located, provided all work or improvements hereunder shall be undertaken so as
not to unreasonably impact Lessee's day to day business operations. Common areas
(as initially constructed or as the same may be enlarged or reduced at any time
thereafter) shall mean all areas, space, facilities, equipment, signs and
special services from time to time made available by Lessor for the common and
joint use and benefit of Lessor, Lessee and other lessees and occupants of the
Shopping Center and their respective employees, agents, sublessees,
concessionaires, licensees, customers and invitees, which may include (but shall
not be deemed a representation as to their availability) the sidewalks, parking
areas, (including employee parking areas), access roads, driveways, landscaped
areas, truck serviceways, tunnels, loading docks, pedestrian malls (enclosed or
open), courts, stairs, ramps, elevators, escalators, comfort and first aid
stations, public washrooms, community hall or auditorium and parcel pick-up
stations. Lessor hereby expressly reserves the right from time to time, to
construct, maintain, operate and remove lighting and other facilities, equipment
and signs on all or any of the common areas; to police the same; to change the
area, level, location and arrangement of the parking areas and other facilities
forming a part of said common areas; to build multi-story parking facilities; to
restrict parking by Lessees an other occupants of the Shopping Center and their
employees, agents, sublessees, concessionaires and licensees; to enforce parking
charges (by operation of meters or otherwise), but in such event the net
proceeds from such charges (except for proceeds from multi-story parking
facilities), after deducting the cost of enforcing the same or charges thereon
by governmental authority, shall be applied in reduction of the cost of
maintaining the common areas; to close temporarily all or any portion of the
common
7 May 16, 1997
<PAGE> 14
areas for the purpose of making repairs or changes thereof and to discourage
non-customer parking; to establish, modify and enforce reasonable rules and
regulations with respect to the common areas and the use to be made thereof; and
to grant individual lessees and others the right to conduct sales in the common
areas. Lessor may operate, manage, equip, light and maintain the common areas in
such manner as Lessor may from time to time determine, and Lessor shall have the
right and exclusive authority to employ and discharge all personnel with respect
thereto. Lessee is hereby given a non-exclusive license to use during the Term
the common areas of the Shopping Center if and as they may now or at any time
during the Term exist, provided, however, that if the size, location or
arrangement of such common areas or the type of facilities at any time forming a
part thereof be changed or diminished, Lessor shall not be subject to any
liability therefor, nor shall Lessee be entitled to any compensation or
diminution or abatement of rent therefor, nor shall such change or diminution of
such areas be deemed a constructive or actual eviction. Lessor reserves the
right to grant to third persons the non-exclusive right to cross over and use in
common with Lessor and all Lessees of the Shopping Center the common areas as
designated from time to time by Lessor. In order to establish that the Shopping
Center and any portion thereof is and will continue to remain private property
and to prevent a dedication thereof or the accrual of any rights of any person
or the public therein, Lessor hereby reserves the unrestricted right to close to
the general public for one (1) day in each calendar year all or any portion of
the Shopping Center owned, leased or controlled by Lessor, and, in connection
therewith, to seal off all entrances to the Shopping Center, or any portion
thereof. Lessee hereby acknowledges, consents and agrees that any and all
services, facilities, and access by the public to the Demised Premises and/or to
the Shopping Center may be suspended in whole or in part during such temporary
times as any of the department stores in the Shopping Center are not open for
business, on legal holidays, or such other days as may be declared by local,
state or federal authorities as days of observance and/or during any periods of
actual or threatened civil commotion, insurrection or other circumstances beyond
Lessor's control.
Section 6.02 - Operating Costs:
(a) Lessor shall, during the entire term of this lease, operate
and maintain or cause to be operated or maintained the common area, including,
without limiting the generality of the foregoing, the surface, lighting, marking
and landscaping thereof, and keep the same or cause the same to be kept as clean
as reasonably proper. The cost of such operation and maintenance shall include
without limiting the generality of the foregoing, the cost for lighting, snow
removal, marking, cleaning, (including depreciation, interest, insurance,
repairs and fuel for mechanical equipment) landscaping, policing, wages,
supplies, insurance, repairs, 10% of the foregoing to cover Lessor's
administrative cost, and personal property taxes shall be designated herein as
"common area maintenance cost". Lessee agrees to pay unto Lessor, in
8 May 16, 1997
<PAGE> 15
addition to all other rental in the lease provided during each rent year of the
term of this lease, Lessee's proportionate share of said common area maintenance
cost not to exceed 10.1% of such costs. Lessee's proportionate share shall be
the ratio which the sum of all ground floor area in the Demised Premises is to
the sum of all leasable ground floor area of each completed building intended
for lease in the Shopping Center, including the leased premises hereunder. For
the purpose of this section, all motor vehicle parking areas, (including
employee parking areas) roadways, walkways, truck ways, loading docks, delivery
areas, landscaped areas, and malls (excluding the enclosed mall) shall be deemed
a portion of the common area. Buildings and other facilities for commercial use
shall not be deemed a portion of said common area.
(b) Lessee agrees to pay unto Lessor, in addition to all other rental in
this lease provided, as its share of the "cost of maintenance of the enclosed
mall" (hereinafter defined) an amount determined by multiplying the entire
amount of the cost of maintenance of the enclosed mall by a fraction having as
its numerator the number of Lessee's store front linear feet which abut said
enclosed mall and as its denominator the number of store front linear feet of
the enclosed mall, which abut all buildings on said enclosed mall. Neither
Lessee's Demised Premises nor the Lessor's enclosed mall premises shall unduly
drain conditioned air from the other party's premises.
The term "maintenance of enclosed mall", as used in this section, shall
mean the actual costs incurred in connection with the operation, maintenance,
and repair of the enclosed mall and all machinery, equipment, and facilities
used in connection therewith. The said term shall include but shall not be
limited to the following elements of costs:
Charges for power, electricity and other utilities used for lighting and
for operating air conditioning and heating equipment;
Premiums for fire, extended coverage, vandalism, public liability, property
damage, and plate glass insurance covering or applicable to the enclosed
mall;
Maintenance, repair and replacement of air conditioning and heating
equipment and machinery;
Maintenance, repair and replacement of automatic door openers, lighting
fixtures (including replacement of tubes and bulbs), sprinkler systems, and
all other machinery, equipment, tools and facilities used exclusively in
connection with the operation of the enclosed mall;
Maintenance, repair and cleaning of the structural portions of the enclosed
mall, including floors, ceilings, roofs, skylights and windows;
Security protection for the enclosed mall (excluding security of Lessee's
property within its Demised Premises which shall be the sole responsibility
of Lessee);
9 May 16, 1997
<PAGE> 16
Maintenance, repair, renewal and replacement of landscaping, including
pruning, watering and fertilization.
Generally, the expenses to be taken into consideration in determining the
cost of maintenance of the enclosed mall shall be customary and reasonably
necessary; but shall in no event include the original cost of construction of
the enclosed mall, interest on Lessor's investment, compensation of executives,
overhead, office rental, or profit, except that Lessor shall be entitled to a
reasonable annual allowance for Lessor's supervision of the maintenance of the
enclosed mall not exceeding 10% of the annual total cost of maintenance of the
enclosed mall.
The Lessor shall have the right to provide all or any part of the foregoing
elements of the maintenance of the enclosed mall by an independent contractor or
contractors and the amounts paid to such contractor or contractors shall
constitute elements of expense within the definition of "cost of maintenance of
enclosed mall".
Lessor agrees that the services to be rendered in operating and maintaining
the enclosed mall shall be furnished in as economical a manner as is reasonably
possible consistent with proper performance of Lessor's obligations in the
management and operation of said enclosed mall, and Lessor agrees to keep and
maintain accurate, separate and complete records of Lessor's costs in connection
with the enclosed mall.
(c) "Common area maintenance costs" and "cost of maintenance of the
enclosed mall" are collectively defined as "Operating Costs". Lessee's annual
share of the Operating Costs for each full calendar year and partial calendar
year shall be paid in monthly installments on the first day of each calendar
month, in advance, in an amount estimated by Lessor from time to time. Lessor
shall have the right, at any time and from time to time during each calendar
year, to increase said estimate based on change, circumstances or additional
facts. Subsequent to the end of each full calendar year or partial calendar
year, Lessor shall notify Lessee of Lessee's proportionate share of Operating
Costs for such full calendar year or partial calendar year. If the payment made
by Lessee pursuant to this Section for any full or partial calendar year shall
be less than the actual amount due from Lessee for such year as shown on such
notice, Lessee shall pay to Lessor the difference between the amount paid by
Lessee and the actual amount due, within ten (10) days after receipt of such
notice. If the total amount paid by Lessee for any full or partial calendar year
shall exceed the actual amount due from Lessee for such full or partial calendar
year, such excess shall be credited against the next payment for Operating Costs
due from Lessee to Lessor pursuant to this Section. If the Term commences on a
day other than the first day of the calendar year, then Lessee's proportionate
share of Operating Costs shall be billed and adjusted on the basis of such
fraction of a calendar year. Lessee shall have the right within sixty (60) days
of receipt of Lessor's notice of Lessee's proportionate shares of Operating
Costs to undertake an audit, at Lessee's expense, of
10 May 16, 1997
<PAGE> 17
such Operating Costs. If such audit discloses a discrepancy of greater than five
percent (5%), then Lessor shall reimburse Lessee the cost of such audit.
ARTICLE VII
MERCHANT'S ASSOCIATION OR MARKETING FUND
Section 7.01 - Merchant's Association:
(a) The Lessee will be a member of, participate fully in, and remain in
good standing in the Merchant's Association limited to tenants occupying
premises in the Shopping Center, and abide by the regulations of such
Association. Each member tenant shall have one vote and the Lessor shall also
have one vote in the operation of said Association. The object of such
Association shall be to encourage its members to deal fairly and courteously
with their customers, to follow ethical business practices, to assist the
business of the tenants by sales promotions and center-wide advertising, and in
particular to help the interest of members of said Association. The Lessee
agrees to pay minimum dues to the Merchant's Association in the amount of
$350.00 per month.
(b) Lessee further agrees to participate not less than once each month in a
printed newspaper advertisement jointly with the other tenants of the Shopping
Center in which Lessee's participation shall be not less than payment for a
statement of the name under which it does business, a general description of its
merchandise and its location in the Shopping Center.
Section 7.02 - Marketing Fund: In lieu and instead of a Merchant's
Association, Lessor at its option may establish a Marketing Fund for the
Shopping Center and, if established, Lessee agrees to contribute to such Fund
$350.00 per month. The failure of any other Lessee in the Shopping Center to
participate in the Merchant's Association or Marketing Fund, as the case may be,
shall not in any way release Lessee from Lessee's obligations hereunder, such
obligations being separate and independent covenants of this Lease.
ARTICLE VIII
CONDUCT OF BUSINESS BY LESSEE
Section 8.01 - Use of Demised Premises: Lessee shall occupy and use the
Demised Premises for maintenance and operation of a sporting goods department
store and automotive aftermarket association and parts and for no other purpose,
under the trade name G.I. JOE'S. Lessee shall continuously and uninterruptedly
during the term of this Lease conduct its customary business activity therein
during all normal business days and hours. Lessor reserves the right to dictate
to Lessee reasonable hours to stay open during a seven (7) day week, unless
prevented from so doing by union contract, strikes, fire, casualty or other
causes beyond Lessee's control
11 May 16, 1997
<PAGE> 18
and except during reasonable periods for repairing, cleaning and decorating the
Demised Premises. Lessee shall not directly or indirectly engage in any similar
or competing business to that conducted by Lessee in the Demised Premises within
a radius of five (5) miles from the Demised Premises. It is the intention of
this Paragraph to avoid any merchandising conflicts between the lessees in this
Shopping Center.
Section 8.02 - Restrictions on Use: Lessee shall not use nor permit the
Demised Premises to be used for any purpose other than that set forth in Section
8.01 above, and further covenants and agrees to execute and comply promptly with
all statues, ordinances, rules, orders, regulations and requirements of federal,
state, county and city governments regulating the use by Lessee of the Demised
Premises. Lessee will not use, or permit the use of the Demised Premises in any
such manner that will tend to create a nuisance or tend to disturb other Lessees
or occupants of the Shopping Center. The restrictions set forth in this
Paragraph shall extend to all agents and employees of the Lessee. No auctions,
fire or bankruptcy sales may be conducted in the Demised Premises without the
previous written consent of the Lessor. Lessee shall not use nor permit in
excess of 3,200 square feet to be used for the sale of electronics and video
appliances and merchandise, or books and magazines.
Section 8.03 - Restrictions on Lessor: Lessor agrees to not lease 10,000
square feet or more of building area in the Shopping Center to a retailer
selling sporting goods or after market auto parts and supplies.
ARTICLE IX
MAINTENANCE AND REPAIRS
Section 9.01 - Maintenance by Lessee: Lessee shall at all times keep the
Demised Premises, in good order, condition and repair, including, but not
limited to, the maintenance, repair and replacement of the roof, structural
portions of the premises, exterior entrances, sidewalks, all glass in show
windows, moulding, partitions, doors, fixtures, equipment and appurtenances and
all heating, air conditioning, periodic painting as may be required, lighting
and plumbing fixtures, any damage by unavoidable casualty excepted. To the
extent Lessor receives any roof warranties, same shall be assigned to Lessee.
Section 9.02 - Maintenance by Lessor: If Lessee refuses or neglects to
repair promptly the Demised Premises as required in Section 9.01 above, in a
reasonable time after written demand by the Lessor, the Lessor may make such
repairs without liability to Lessee for any loss or damage that may accrue to
Lessee's merchandise, fixtures and/or other property; or to the loss of business
occasioned by reason thereof; and, further, upon completion of such repairs,
Lessee shall pay Lessor's incurred costs occasioned by such repairs, plus twenty
percent (20%) for overhead upon presentation
12 May 16, 1997
<PAGE> 19
of the bill so incurred. It is further agreed and understood that said billing
of costs so incurred shall include interest at the rate of ten percent (10%) per
year from the date of completion of the repairs by the Lessor.
Section 9.03 - Alterations:
(a) Lessee shall not make any alterations or additions to the Demised
Premises, nor make any contract therefore, without first procuring Lessor's
written consent. All alterations, additions and improvements made by Lessee to
or upon the Demised Premises, except light fixtures, signs, electrical
equipment, cases, counters or other removable trade fixtures shall as between
Lessor and Lessee at once when made or installed be deemed to have attached to
the freehold and to have become the property of Lessor; provided, however, if
prior to termination of this Lease, or within fifteen (15) days thereafter,
Lessor so directs by written notice to Lessee, Lessee shall promptly remove the
additions, improvements, fixtures, trade fixtures and installations which were
placed in the Demised Premises by the Lessee and which are designated in said
notice and shall repair any damage occasioned by such removal, and, in default
thereof, Lessor may effect said removals and repairs at Lessee's expense.
(b) Lessee may from time to time (if Lessee shall not then be in default
under this Lease), at its own expense, alter, renovate, or improve the Demised
Premises in accordance with the terms hereof the same to be performed in a good
workmanlike manner, in accordance with accepted building practices and
applicable laws (including, but not limited to, building codes and zoning
ordinances), and so as not to weaken or impair the strength, or lessen the
value, of the building in which the Demised Premises are located or the Shopping
Center. No changes, alterations or improvements affecting the exterior of the
Demised Premises or the structure of the building or the Shopping Center shall
be made by Lessee without the prior written consent of Lessor. Prior to
commencement of all such work, Lessee shall obtain Lessor's prior written
approval of the plans and specifications therefor and shall cause Lessor's
requirements for bonding, insurance and other contractor requirements to be
satisfied. Any work done by Lessee under the provisions of Sections 5.01 and
9.01 shall not interfere with the use by the other lessees of their premises in
the Shopping Center.
Section 9.04 - Waiver Claims: Notwithstanding anything set forth in this
Lease to the contrary, Lessor and Lessee do hereby waive any and all rights of
recovery, claim, action or cause of action against the other, their respective
agents, officers and employees for any loss or damage that may occur to the
Demised Premises or any addition or improvements thereto, or any contents
therein, by reason of fire, the elements or any other cause for which the
waiving party is reimbursed by either party thereto, regardless of cause or
origin, including the negligence of Lessor or Lessee, or their respective
agents, officers and employees. In addition, all
13 May 16, 1997
<PAGE> 20
insurance policies carried by either party covering the Demised Premises
including, but not limited to contents, shall permit the waiving of any right on
the part of the insured against the other party for damage to or destruction of
the Demised Premises and/or the building thereon or contents therein resulting
from the acts, omissions or negligence of the other party. Lessee waives all
claims for damage to property sustained by Lessee or any occupant of the Demised
Premises or any equipment or appurtenance becoming out of repair, or resulting
from any accident in or about the Demised Premises or resulting directly or
indirectly from any act or neglect of any Lessee or occupant or of any other
person, including Lessor's agents or servants. This Paragraph shall apply
especially, but not exclusively, to the flooding of basements or other
subsurface areas, and to damage caused by refrigerators, roof leaks, air
conditioning apparatus, sprinkling devices, water, snow, frost, steam, excessive
heat or cold, failing plaster, broken glass, sewage, gas odors or noise, or the
bursting or leaking of pipes or plumbing fixtures and shall apply equally
whether any such damage results from the act or neglect of Lessor or of other
lessees, occupants or servants in the Shopping Center or of any other person and
whether such damage be caused or result from any thing or circumstances above
mentioned or referred to, or any other thing or circumstances, whether of a like
nature or of a wholly different nature. All property belonging to Lessee or any
occupant of the Demised Premises or the Shopping Center shall be there at the
risk of Lessee or such other person only, and Lessor shall not be liable for
damage thereto or theft or misappropriation thereof.
Section 9.05 - Lessor's Right to Inspect: Lessor and its agents shall have
free access to the Demised Premises during all reasonable hours for the purpose
of examining same and to ascertain if they are in good repair, to make
reasonable repairs which the Lessor may be required to make hereunder and to
exhibit the same to prospective purchasers, lenders or lessees.
Section 9.06 - Cleanliness and Waste: Lessee shall keep the Demised
Premises and the interior and exterior walks adjacent thereto at all times in a
neat, clean and sanitary condition, free from snow, ice, waste or debris and
shall neither commit nor permit any waste or nuisance thereon.
ARTICLE X
INSURANCE
Section 10.01 - Insurance by Lessee: Lessee agrees that, at its own cost
and expense, it shall procure and continue in force, in the names of the Lessor
and Lessee, general liability insurance against any and all claims for injuries
to persons occurring in, upon, or about the Demised Premises, including all
damages from signs, glass, awnings, fixtures, or other appurtenances, now or
hereafter erected upon the Demised Premises, during the term of this Lease; such
insurance, at all times, shall be in an amount not less than One Million
($1,000,000) Dollars combined single limit per
14 May 16, 1997
<PAGE> 21
occurrence. Lessee shall in the first instance obtain and maintain insurance
upon the Demised Premises, inclusive of all leasehold improvements against loss
or damage by fire and other risks included under "extended coverage" policies,
in the amount of the full replacement value thereof. Such insurance shall be
written on a company or companies authorized to engage in the business of
general liability insurance in the State in which the Demised Premises are
located, and there shall be delivered to the Lessor, upon the commencement of
this Lease and annually thereafter, customary certificates evidencing such
paid-up insurance, which certificates are to be issued by the insurance
companies.
The policies of insurance provided herein are to be provided by the Lessee,
and shall be for a period of not less than one (1) year, it being understood and
agreed that fifteen (15) days prior to the expiration of any policy of
insurance, the Lessee will deliver to the Lessor a renewal or new policy to take
the place of the expiring policy, with the further understanding that, should
the Lessee fail to furnish policies, as is provided in this Lease, and at the
times herein provided, the Lessor may obtain such insurance, and the premiums on
such insurance shall be deemed additional rental to be paid by the Lessee unto
the Lessor upon demand. Lessee shall make no claim for recovery against Lessor
and expressly waives any right of recovery against Lessor for damage to or loss
of the Demised Premises or improvements thereon, which damage or loss may arise
by fire or any other peril covered by any policy of insurance containing a
waiver of subrogation right against the Lessor in which said policy the Lessee
is or may be the insured and when said loss is caused by or results from any
acts of carelessness or negligence of the Lessor, its officers, employees or
other persons under is control. Lessee further covenants and agrees to apply to
its insurers for waiver of subrogation against Lessor, its agents and employees,
and to obtain same if Lessee's insurers will issue such waiver without cost.
Section 10.02 - Insurance by Lessor: Lessor shall procure at its own cost
and expense during the term of this Lease, common area public liability
insurance, fire, windstorm, and extended coverage insurance on the buildings
composing the Shopping Center; provided, Lessee shall reimburse Lessor for its
share of the actual net cost and expense to Lessor for such insurance for each
Lease Year in accordance with the formula established for Operating Costs in
Article VI.
Section 10.03 - Indemnity for Accidents: Lessee covenants and agrees that
it will protect and save and keep the Lessor forever harmless and indemnified
against and from any penalty or damage or charges imposed for any violation of
any laws or ordinances, whether occasioned by the neglect of Lessee or those
holding under Lessee, and that Lessee will at all times protect, indemnify and
save and keep harmless the Lessor against and from any and all claims, loss,
cost, damage or expense, arising out of or from any accident or other occurrence
on or about the Demised Premises, causing injury to any person or property
whomsoever or
15 May 16, 1997
<PAGE> 22
whatsoever and will protect, indemnify and save and keep harmless the Lessor
against and from all claims, loss, cost, damage or expense arising out of any
failure of Lessee in any respect to comply with and perform all the requirements
and provisions of this Lease. The indemnity herein provided shall not extend to
any claim or charges which are caused or arise from any act or omission of
Lessor or a condition, in on or under the Demised Premises, not caused or
contributed to by the Lessee its employees, invites, customers, contractors or
agents.
Section 10.04 - Destruction by Fire or Casualty: The Lessee shall give
immediate notice to Lessor in case of fire or other casualty in or about the
Demised Premises or the building of which the Demised Premises is a part. In the
event the Demised Premises shall be damaged by fire, explosion, windstorm or any
other casualty, the Lessor, utilizing the proceeds of the insurance claims
payable under Lessee's policy described in paragraph 10.01, shall repair such
damages and put the Demised Premises in good condition as rapidly as reasonably
possible, and Lessee shall be entitled to an equitable abatement of the Fixed
Minimum Rent, unless Lessor shall establish that such damage was occasioned by
the acts of Lessee, its agents or employees.
In the event that fifty percent (50%) or more of the area of the Demised
Premises shall be damaged or destroyed by a fire or other cause, Lessor shall
have the right, to be exercised by notice in writing to be delivered within
sixty (60) days from the date of the occurrence, to elect to cancel and
terminate this lease. Upon the giving of such notice to the Lessee, the terms of
this lease shall expire by lapse of time upon the thirtieth day after such
notice is given, and the Lessee shall vacate the Demised Premises and surrender
the same to the Lessor. If Lessor does not elect to cancel this lease, Lessor
will rebuild the Demised Premises to the extent of the insurance proceeds
received by Lessor and/or Lessee.
Notwithstanding any other provisions of this Paragraph to the contrary, if
the Demised Premises shall be damaged during the last two (2) years of the Lease
term, and such damage shall be to the extent of more than twenty-five percent
(25%) of the value of the Demised Premises at the time of such damage, then
Lessor may, at its election, upon notice to Lessee, within ninety (90) days
after such damage, terminate this Lease as of the date of such damage.
Section 10.05 - Dram Shop Liability: In the event that at any time during
the term of this Lease, or any extensions or renewals thereof, beer, wines, or
other alcoholic liquors or beverages are sold or given away upon or from the
Demised Premises (it being understood and agreed, however, that the foregoing
provision shall not authorize the use of the Demised Premises for such purposes
without the express consent of the Lessor being set forth otherwise in this
Lease), Lessee shall, at its sole expense, obtain, maintain and keep in force
adequate Dram Shop insurance protecting
16 May 16, 1997
<PAGE> 23
both Lessee and Lessor in connection therewith with policy limits covering the
full amount of potential liability provided for from time to time under the laws
of the state where the Demised Premises is located. Said policies shall be with
such companies as are authorized to write such coverage in the state where the
Demised Premises is located, shall be acceptable to Lessor and/or its Lender
(which shall be named an additional insured if requested in writing) and copies
shall be maintained on file with Lessor, and shall contain non-cancelable
clauses unless Lessor is given at least ten (10) days prior written notice of
such proposed cancellation. In the event Lessee shall fail to procure such
insurance, where applicable, Lessor may procure the same and in the event Lessor
shall be unable to procure the same (all at Lessee's expense), then sales of the
foregoing products shall be suspended until such coverage is again in force.
ARTICLE XI
TITLE
Section 11.01 - Possession by Lessee: Lessor covenants and warrants that is
has full right and authority to enter into this Lease for the full term hereof.
Lessor further covenants that Lessee, upon paying the Fixed Minimum Rent,
Percentage Rent and Additional Rent provided for herein and upon performance of
the covenants and agreements of this Lease to be performed by said Lessee, will
have, hold and enjoy quiet possession of the Demised Premises.
Section 11.02 - Sublease: Lessor shall have first refusal right to
recapture the premises, on a request by Lessee to sublease or assign to be
exercised within fifteen (15) days of receipt of such request. If Lessor does
not desire to recapture the premises, then Lessee shall not sublease, sublet or
assign the Demised Premises to assignees or sublessees except by written
permission and consent of Lessor. Lessor reserves the right to impose such
conditions upon assignment or subletting as in the circumstances may be
reasonable and necessary. Any such subleasing or assignment, even with the
approval of the Lessor, shall not relieve the Lessee from liability for payment
of the rent and any other monies due Lessor herein provided for or from the
obligation to keep and be bound by the terms conditions and covenants of this
Lease. The acceptance of rent from any other person shall not be deemed to be a
waiver of any of the provisions of this Lease or a consent to the assignment or
subletting of the Demised Premises. Any change in fifty percent (50%) or more of
the equitable or beneficial ownership of Lessee shall be deemed an assignment of
the Lease, except not as to the right to recapture herein provided. Lessee shall
pay Lessor a fee of $300 for the review of any proposed sublease or assignment
instrument and if such sublease or assignment is permitted and results in
rentals in excess of those rentals hereunder, Lessee shall pay fifty percent
(50%) of such excess rent to Lessor as Additional Rent as and when received by
Lessee.
17 May 16, 1997
<PAGE> 24
Section 11.03 - Mortgages by Lessor:
A. Lessee agrees that, except as hereinafter provided with respect to
Lessee's right to possession of the Demised Premises, Lessee's rights under this
Lease are and shall always be subordinate to the lien of any mortgage or
mortgages or trust deed now or hereafter placed from time to time upon the land
and building of which the Demised Premises are a part, and to all advances
hereafter made from time to time upon the security thereof. Lessee shall, upon
written demand from Lessor, execute such other and further instruments or
assurances subordinating this Lease to the lien or liens of any such mortgage or
mortgages or trust deeds, or Lessor may execute such instrument on Lessee's
behalf and Lessee does hereby appoint Lessor as its attorney in fact in such
instances and towards such end, provided that if Lessor is not in default after
expiration of any applicable notice and grace period, Lessor acknowledges on
behalf of itself and any successors or assigns that this tenancy shall not be
terminated or materially modified nor shall Lessee's occupancy of the Demised
Premises be disturbed or interfered with as a result of any default under such
underlying mortgage or trust deed. If any mortgagee or trustee under a trust
deed elects to have Lessee's interest in this Lease superior to any such
interest by notice to Lessee, then this Lease shall be deemed superior to any
such mortgage or trust deed whether this Lease was executed before or after such
mortgage or trust deed.
B. The Lessee agrees to an assignment of rentals by the Lessor to a present
or future mortgagees, notification of which shall be given to Lessee. If
assignment is made by Lessor, then Lessee agrees to deliver to said mortgagee a
copy of any request for performance made upon the Lessor, or any notice of a
default made upon Lessor. In the event Lessor fails to cure any default, the
Lessee will give said mortgagee a reasonable period of time to cure said defect,
which period of time shall be no less than that allowed Lessor. The mortgagee's
reasonable period of time will begin following the last day which the Lessor
could have cured such default before the Lessee could exercise any remedy by
reason of such default unless such mortgagee is notified simultaneously with
Lessor in which event mortgagee's right shall be coterminous with Lessor of such
default.
Section 11.04 - Surrender of Premises: Lessee shall, upon the expiration
date or sooner termination of this Lease, surrender to Lessor the Demised
Premises, together with all replacements thereto, in good order, condition and
repair, except for ordinary wear and tear and loss by fire or other casualty, as
the same are now or may hereafter be found during the term of this lease. If
Lessee fails to surrender the Demised Premises as required herein, except with
the consent of Lessor, Lessee may be deemed a month to month Lessee and shall
pay Lessor, as holdover rent, twice the monthly rental amount as was payable in
the last month of the lease term in addition to all other Additional Rent
required under this Lease Agreement, for the duration of such holdover period.
18 May 16, 1997
<PAGE> 25
Section 11.05 - Eminent Domain: In the event the Demised Premises, or any
part thereof, shall be taken or condemned for public purposes by any competent
authority, the entire compensation awarded therefore shall belong to the Lessor,
without any deduction therefrom for any present or future estate of Lessee;
provided, however that in the event any part of the Demised Premises itself or
more than twenty percent (20%) of the land described in Exhibit "A" shall be so
taken or condemned, then either the Lessor or Lessee shall have the option of
terminating this Lease upon giving the other written notice of such election
within thirty (30) days after possession of the part condemned has been taken by
proper authorities, whereupon the term of this Lease shall be terminated, as of
the date on which possession is so taken. If neither Lessor or Lessee elects to
terminate the term of this Lease, the Lessor, at its own expense, shall repair
and restore the premises not affected by the taking and thereafter if a part of
Demised Premises itself has been taken or condemned, the Fixed Minimum Rent to
be paid by the Lessee shall be equitably and proportionately reduced. To the
extent recoverable, Lessee shall be entitled to pursue its own claim against the
condemning authority for relocation benefits, business loss or loss of personal
property, provided such claim does not reduce any amount awarded to Lessor.
Section 11.06 - Attornment: If, at any time prior to the termination of
this Lease, the holder of any mortgage referred to in Paragraph 11.03(A) (or any
person or such person's successors or assigns, who acquires the interest of
Lessor under this Lease through foreclosure action or an assignment or deed in
lieu of foreclosure) shall succeed to the rights of Lessor under this Lease
through possession or foreclosure or delivery of a new lease or deed or
otherwise, Lessee agrees at the election and upon request of any such person, to
fully and complete attorn, from time to time, to and recognize such person as
Lessee's Lessor under this Lease upon the then executory term of this Lease.
Upon such attornment this Lease shall continue in full force and effect as a
direct lease between Lessee and such successor Lessor except that such successor
Lessor shall not be:
(i) liable for any previous act or omission of any prior Lessor
(including Lessor);
(ii) subject to any offsets or defenses which may have theretofore
accrued to Lessee against any prior Lessor (including Lessor); or
(iii) bound by any previous prepayment of Basic Rent or Additional
Rent for a period greater than one month in advance.
19 May 16, 1997
<PAGE> 26
ARTICLE XII
SIGNS, LIGHTING, AND UTILITIES
Section 12.01 - Signs: Without Lessor's prior consent and approval, which
shall not be unreasonably withheld, Lessee shall not (a) install any exterior
lighting, under-canopy signs, awnings or shades, or any exterior decorations or
painting, or build any fences or make any changes to the store front; (b) erect
or install any exterior or interior window or door signs or advertising media,
window or door lettering or placards; (c) keep or display any merchandise on, or
otherwise obstruct the sidewalks to areaways adjacent to the Demised Premises;
(d) fail to maintain the show windows and signs in a neat and clean condition.
Lessee shall not use any advertising or other media objectionable to Lessor
and/or local codes governing same, such as loudspeakers, phonographs or radio
broadcasts that can be heard outside the Demised Premises.
It is the intention of this Section, as related to signs, to effectively
originate and maintain an overall sign control and design for the protection of
all lessees. In this connection, Lessee further agrees to furnish and install a
sign that will meet the sign standards that may be required.
All signs must conform with the Lessor's sign specifications and/or be
approved by Lessor prior to installation.
Section 12.02 - Lighting: Lessee shall keep the display windows in the
Demised Premises well lighted from dusk until such reasonable hour as may be
determined by Lessor, which reasonable hour will be determined from time to
time, during each and every weekday, except Sundays and Holidays, during the
term of this Lease unless prevented by cause or causes beyond the control of the
Lessee.
Section 12.03 - Utilities and Services:
(a) Lessee shall pay promptly, as and when the same become due and payable,
all water rents, rates and charges, all sewer rents and all charges for
electricity, gas, heat, steam, hot and/or chilled water, air conditioning,
ventilating, lighting systems, and other utilities supplied to the Demised
Premises whether by Lessor, a governmental unit or utility company, or
otherwise. If any such utilities are not separately metered or assessed or are
only partially separately metered or assessed and are used in common with other
Lessees in the Shopping Center, Lessee will pay to Lessor a proportionate share
of such charges for utilities used in common based on square footage of floor
space leased to each Lessee using such common facilities, in addition to
Lessee's payments of the separately metered charges. Lessor shall in no event be
liable for the quality, quantity, or interference of such services.
20 May 16, 1997
<PAGE> 27
(b) Lessor may install re-registering meters and collect any and all
charges aforesaid from Lessee, making returns to the proper public utility
company or governmental unit, provided that Lessee shall not be charged more
than the rates it would be charged for the same service if furnished directly to
the Demised Premises for such companies or governmental units.
(c) Notwithstanding anything else contained in this Lease to the contrary,
Lessor shall have the right, at any time and from time to time, to cause one or
more utilities (including, without limitation, any heating, ventilating, air
conditioning, and/or lighting systems serving the Demised Premises and/or any
other Shopping Center areas) to be furnished by means of a central energy system
(whether so-called "total energy" or otherwise) in lieu of the direct furnishing
of the same to Lessee and other occupants of the Shopping Center from the
appropriate utility company, and Lessee agrees in any such case, to accept any
such utility from such alternative source in lieu of the appropriate utility
company directly, and to pay Lessor and/or such alternative source or other
designee as Lessor shall determine all costs and charges therefor provided that
the same shall not result in any additional cost or expense for the energy to
Lessee over and above that which it would pay if it purchased same directly from
the appropriate utility company, plus an additional ten (10%) percent for
Lessor's overhead costs; and provided further that same is in compliance with
all law, regulation, ordinances and other governmental requirements. Lessor
shall have no liability to Lessee for the quality, quantity, failure or
disruption of any utility service, and in no event shall such disruption
constitute constructive eviction or entitle Lessee to an abatement of rent or
other charges. Any such charges for service supplied by Lessor shall be due and
payable on the first day of each calendar month throughout the Term along with
all other payments made hereunder, or if separately billed within ten (10) days
after billings therefor are rendered to Lessee.
ARTICLE XIII
DEFAULT
Section 13.01 - Default By Lessee: All of the right and remedies of Lessor
herein enumerated shall be cumulative, and none shall exclude any other right or
remedy allowed by Law. It is agreed that in the event:
(i) That the Lessee shall fail, neglect or refuse to pay any
installment of Fixed Minimum Rent or Percentage Rent or Additional Rent at the
time, and in the amount as herein provided, or to pay any other monies agreed by
it to be paid promptly when and as the same shall become due and payable under
the terms hereof, if such failure to pay exceeds a period of more than ten (10)
days after notice thereof in writing is given to Lessee (provided such notice is
not required if such notice were previously given in any twelve (12) month
period), or if the Lessee shall vacate or abandon the Demised Premises during
the term hereof;
21 May 16, 1997
<PAGE> 28
(ii) That any voluntary petition or similar pleading, under any
section or sections of any bankruptcy act, shall be filed by or against Lessee,
or any voluntary or involuntary proceeding in any court or tribunal shall be
instituted to declare Lessee insolvent, or unable to pay Lessee's debts, and the
same shall not be dismissed or discharged within thirty (30) days after notice
thereof in writing, given to the Lessee by Lessor;
(iii) That the Lessee shall fail, neglect or refuse to keep and
perform any of the other covenants conditions, stipulations or agreements herein
contained and covenants and agrees to be kept and performed by it, and in the
event any such default shall continue, for a period of more than thirty (30)
days after notice thereof in writing given to the Lessee, by the Lessor;
provided, however, that if the cause for giving such notice involves the making
of repairs, or other matters reasonably requiring a longer period of time than
the period of such notice, the Lessee shall be deemed to have complied with such
notice so long as it has commenced to comply with said notice within the period
set forth in the notice, and is diligently prosecuting compliance with said
notice, or has taken proper steps or proceedings, under the circumstances, to
prevent the seizure, destruction, alteration or other interference with said
Demised Premises by reason of non-compliance with the requirements of any law or
any ordinance or with the regulations, rules or directions of any government
authority, as the case may be;
(iv) That the Lessee makes any assignment of its property for the
benefit of creditors, or should the Demised Premises be taken under a levy of
execution or attachment, in action against the Lessee, and such levy, attachment
or assignment is not dismissed and discharged within thirty (30) days after
written notice thereof to Lessee by Lessor;
The Lessee does hereby authorize and fully empower said Lessor or Lessor's
agent to cancel or annul this Lease at once and to re-enter and take possession
of said Demised Premises immediately, and by force if necessary, without any
previous notice to re-enter and remove all persons and their property therefrom,
and to use such force and assistance in effecting and perfecting such removal as
said Lessor may deem necessary and advisable to recover at once full and
exclusive possession of all of said Demised Premises, whether in possession of
said Lessee or of their persons or otherwise, and relet the Demised Premises,
and Lessee agrees to pay to Lessor, on demand, any deficiency that may arise by
reason of such reletting. Alternatively, at Lessor's option, Lessor may declare
all installments of Minimum Rent and Additional Rent as adjusted at the time of
default for the remainder of the lease term, to be immediately due and payable
(the "Lump Sum") whereupon the same shall become immediately due and payable.
Should Lessor elect such option and subsequently Lessor relets the Demised
Premises whereupon rent is payable by a new lessee prior to January 31, 2018,
then Lessor will (to the extent the new rent is equal to or greater
22 May 16, 1997
<PAGE> 29
than the rent payable by Lessee) refund, as received, to Lessee that portion of
the Lump Sum that is equal to the rents that would be payable by such new lessee
through January 31, 2018 (the "Refund"). To the extent rentals payable by the
new lessee are less than the rents required under this Lease, then the Refund
will be reduced for the total of such difference through January 31, 2018.
The Lessor may, however, at its option, at any time after such default or
violation of condition or covenant, re-enter and take possession of said Demised
Premises without such re-entering working a forfeiture of the rents to be paid
and the covenants, agreements and conditions to be kept and performed by said
Lessee for the full term of this Lease. In such event, the Lessor shall have the
right, but not the obligation, to divide or subdivide the Demised Premises in
any manner the Lessor may determine and to lease or let the same or portions
thereof for such periods of time and at such rentals and for such use and upon
such covenants and conditions as Lessor may elect, applying the net rentals from
such letting first to the payment of the Lessor's expenses incurred in
dispossessing the Lessee and the costs and expenses of making such improvements
in the Demised Premises as may be necessary in order to enable the Lessor the
relet the same, and to the payment of any brokerage commissions or other
necessary expenses of the Lessor in connection with such reletting. The balance,
if any, shall be applied by the Lessor from time to time, but in any event not
less than once each month, on account of the payments due or payable by the
Lessee hereunder, with the right reserved to Lessor to bring such actions or
proceedings for the recovery of any deficits remaining unpaid as it may deem
advisable from time to time, without being obligated to await the end of the
term hereof for a final determination of the Lessee's account and the
commencement or maintenance of one (1) or more actions shall not bar the Lessor
from bringing other or subsequent actions for further accruals pursuant to the
provisions of this Paragraph. Any balance remaining, however, after full payment
and liquidation of Lessor's account, as aforesaid, shall be paid to the Lessee
from time to time with the right reserved to the Lessor at any time to give
notice in writing to the Lessee of Lessor's election to cancel and terminate
this Lease and all Lessee's obligations hereunder and upon the giving of such
notice and simultaneous payment by Lessor to Lessee of any credit balance in
Lessee's favor that may at the time be owing to Lessee shall constitute a final
and effective cancellation and termination of this Lease and the obligations
thereunder on the part of either party to the other.
A monthly delinquency charge may be imposed upon the delinquent Lessee and
shall be paid by Lessee. Collection costs and reasonable attorneys' fees,
totaling a) the greater of the actual costs or b) no more than fifteen percent
(15%) of the unpaid balance, shall also be paid if delinquencies are referred
for collection.
Section 13.02 - Lien of Lessor for Rent, Taxes, and Other Sums: Lessor
shall have, and Lessee hereby grants, a security interest in any furnishings,
equipment,
23 May 16, 1997
<PAGE> 30
fixtures, inventory, accounts receivable, or other personal property of any kind
belonging to Lessee, or the equity of Lessee therein, on the Demised Premises.
The security interest is granted for the purpose of securing the payment of
rent, other charges, assessments, penalties and damages herein covenanted to be
paid by Lessee and for the purpose of securing the performance of all other
obligations of Lessee under this Lease. Upon Lessee's default or breach of any
covenants of this Lease, Lessor shall have all remedies available under the
Uniform Commercial Code enacted in the State where the Demised Premises are
located and all other laws of said State, including, but not limited to the
right to take possession of the above mentioned property and dispose of it by
public or private sale in a commercially reasonable manner. Lessee shall execute
and deliver, from time to time, Financing Statements at Lessor's request for the
purpose of perfecting and maintaining the priority of the security interest
granted to Lessor under this Section 13.02 in the manner provided by law. Lessee
shall, upon demand, reimburse Lessor for all filing and recording fees and taxes
incurred in connection with filing and recording such Financing Statements. Any
statutory lien for rent is not hereby waived, the express contractual lien
herein granted being in addition and supplementary thereto. Any Lessor lien
herein provided or statutory lien, to the extent permitted by law, for Lessee's
fixtures, equipment or inventory, may be subordinated to any institutional
lender ("Lender") such fixture, equipment ("Collateral") or inventory, provided
that
Lessor's security interest in and to the Collateral is hereby subordinated
to Lenders interest therein and it will only assert against the Collateral any
statutory, contractual, or possessory liens, including without limitation,
rights of levy or distraint for rent, subject to Lender's priority interest and
further provided:
(a) none of the Collateral located on the Demised Premises shall be
fixtures;
(b) it will notify Lender if Borrower defaults on its lease obligations to
the Lessor and allow Lender thirty (30) days from its receipt of notice in which
to cure or cause Borrower to cure any such defaults;
(c) if, for any reason whatsoever, the Lessor either deems itself entitled
to redeem or to take possession of the Demised Premises during the term of
Borrower's lease, the Lessor will notify Lender thirty (3) days before taking
such action;
(d) if Borrower defaults on its obligations to Lender and, as a result,
Lender undertakes to enforce its security interest in the Collateral located on
the Demised Premises, will permit Lender to remain on the Demised Premises for
thirty (3) days after Lender undertakes to enforce its security interest in the
Collateral, if Lessor is paid the rent provided under the lease that is
attributable only to the number of days that Lender remains on the Demised
Premises, or, at Lender's option to remove the
24 May 16, 1997
<PAGE> 31
Collateral from the Demised Premises within a reasonable time, not to exceed
thirty (30) days after lender undertakes to enforce its security interest in the
Collateral, if Lessor is paid rent provided under the lease that is attributable
only to the number of days that Lender remains on the Demised Premises, and will
not hinder Lender's actions in enforcing its liens on the Collateral, provided:
(1) The Lender shall notify the Lessor in writing, in advance, of its
intentions to enter upon the Demised Premises;
(2) The Lender shall indemnify, defend and hold the Lessor harmless from
any and all claims, loss, liability, damage, cost and expense arising out of the
entry upon the Demised Premises, removal of Collateral therefrom and all other
actions in or about the Demised Premises by the Lender, its agents or employees,
which cause injury or damage to any person or property in or about the Demised
Premises and/or the shopping center of which the Premise is a part; and
(3) The Lender shall carry out all such acts at such time and in such a
manner as to not interfere with the normal activity of the said shopping center.
Section 13.03 - Default by Lessor: Lessor shall in no event be charged with
default in the performance of any of its obligations unless and until Lessor
shall have failed to perform such obligations within thirty (30) days (or such
additional time as is reasonably required to correct any such defaults) after
notice by Lessee to Lessor properly specifying wherein Lessor has failed to
perform any such obligation.
ARTICLE XIV
TAXES
Section 14.01 - Real Estate Taxes:
(a) Lessee shall pay to Lessor its proportionate share of real estate taxes
for the Demised Premises, the Shopping Center and all common areas thereof.
Lessee's proportionate share shall be the ratio which the sum of all ground
floor area in the Demised Premises is to the sum of all leasable ground floor
area of each completed building intended for lease in the Shopping Center,
including the leased premises hereunder.
(b) The term "real estate taxes" shall mean all taxes and assessments and
other governmental charges and levies, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind and nature (including
interest on such assessments whenever the same are payable in installments),
levied or assessed directly or indirectly against all or any portion of the
Shopping Center (including without limitation, land, buildings, and/or
improvements, as the same may be enlarged or reduced from time to time), and
other taxes arising out of the use
25 May 16, 1997
<PAGE> 32
and/or occupancy of the Shopping Center or any part thereof, imposed by federal,
state or local governmental authority or any other taxing authority having
jurisdiction over the Shopping Center or any part thereof, including expenses
incurred by or on behalf of Lessor in contesting the validity of, in seeking a
reduction in, or in seeking to prevent an increase in any such tax(es) or
assessment(s), but shall exclude franchise, capital stock income, estate or
inheritance taxes personal in nature to Lessor.
(c) Lessor shall pay all real property taxes and assessments levied or
payable during the term hereof, by the county and municipality upon the Demised
Premises, building and other improvements making up the Shopping Center;
provided, however, that Lessee shall reimburse Lessor for its share of such
payment of real property taxes and assessments. Reimbursement by Lessee to
Lessor for its share of real property taxes, shall be made on the basis of the
tax year July 1 to the following June 30 as the same may be changed from time to
time.
(d) Lessor shall pay taxes on an annual basis within 30 days of receiving
property tax invoice from Lessee. Lessor shall have the right, at any time and
from time to time during each calendar year, to increase said estimate based on
changed circumstances or additional facts. After the end of each calendar year,
Lessor shall furnish Lessee a statement of the actual real estate taxes,
prepared in accordance with sound accounting practices by Lessor's accounting
department, and there shall be an adjustment between Lessor and Lessee, with
payment to Lessor, or credit to Lessee against the next payment for real estate
taxes due from Lessee to Lessor under this Section, as the case may require, to
the end that Lessor shall receive taxes for such period. If the Term commences
on a day other than the first day of the calendar year, then Lessee's
proportionate share of real estate taxes shall be billed and adjusted on the
basis of such fraction of a calendar year.
(e) If any taxing authority includes in such real estate taxes the value of
any machinery, equipment, fixtures, inventory or other personal property or
assets of Lessee, then Lessee agrees to pay the entire taxes attributable to
such items in addition to, but not in duplication of, the real estate taxes
referred to in this Section.
(f) Lessor shall promptly furnish Lessee with copies of any notice of
increased assessed value of the leased premises of the Shopping Center. Lessee
at its expense shall have the right to contest the amount of validity of all or
part of the taxes for which it is required to reimburse Lessor pursuant hereto,
and for that purpose, Lessee shall have the right to file in the name of Lessor
all such protests or other instruments, and institute and prosecute proceedings
it may deem necessary for the purpose of such contest, Lessee hereby agreeing
that it shall indemnify Lessor against any loss or liability by reason of such
contest. Any refund of any tax or assessment for which Lessee has reimbursed
Lessor shall belong to Lessee, and Lessor agrees to
26 May 16, 1997
<PAGE> 33
pay the same to Lessee promptly in the event payment thereof is initially made
to Lessor.
Section 14.02 - Personal Property Taxes and Assessments:
(a) The Lessee shall pay, before delinquent, any and all taxes, licenses,
fees and public charges levied, assessed or imposed, and which become payable
during the lease term upon Lessee's fixtures, furniture, appliances and personal
property, located or installed in the Demised Premises. Lessee shall pay
promptly when due, or make reimbursement to Lessor upon demand, for all taxes
imposed upon Lessee's rent, lease and business operation including, without
limitation, any and all documentary stamps or similar taxes assessed upon this
Lease and/or the consideration to be received by Lessor by reason of this Lease
(except any franchise, estate, inheritance, capital stock, income or excess
profits taxes personal in nature to Lessor) and upon all personal property of
Lessee.
(b) If at any time during the Term, a tax or excise in rents or other tax,
however described (except any franchise, estate, inheritance, capital stock,
income or excess profits taxes personal in nature to Lessor) is levied or
assessed against Lessor by any lawful taxing authority on account of the
Lessor's interest in this Lease or the rents expressly reserved hereunder as a
substitute in whole or in part, or in addition to, the real property taxes
hereinbefore described, Lessee shall pay to Lessor, as additional rent
hereunder, the amount of such tax, excise on rents or other tax, but only to the
extent of the amount thereof which is lawfully assessed or imposed as a direct
result of Lessor's ownership of this Lease or the rentals reserved hereunder. In
the event any such tax, excise on rents or other tax, however described, is
levied or assessed directly against Lessee by any lawful taxing authority on
account of Lessee's interest in this Lease or the leasehold estate hereby
created or the rents to be paid by Lessee hereunder, then Lessee shall be
responsible therefor and agrees to pay the same before delinquency. If any
lawful taxing authority requires that any such tax or excise on rents or other
tax, however described, for which Lessee is responsible hereunder, other than
the real property taxes levied or assessed against the Shopping Center, be paid
by Lessee, but collected by Lessor, for and on behalf of such taxing authority
and from time to time forwarded by the Lessor to such taxing authority, then the
same shall be paid by Lessee to Lessor at such times as such taxing authority
shall require and be collectible by Lessor and the payment thereof enforced in
the same fashion as provided for the enforcement of payment of rent hereunder
and for the purpose of enforcing payment thereof shall be deemed additional rent
hereunder.
27 May 16, 1997
<PAGE> 34
ARTICLE XV
MISCELLANEOUS
Section 15.01 - Notices: Whenever under this Lease a provision is made for
any demand, notice or declaration of any kind, or where it is deemed desirable
or necessary by either party to give or serve any such notice, demand or
declaration to the other, it shall be in writing sent by overnight mail or
certified mail, return receipt requested, postage prepaid, if to the Lessee
addressed to the Lessee at 9805 Boeckman Road. Wilsonville, Oregon 97070 and if
to the Lessor, addressed to the Lessor at Milestone Properties, Inc. c/o Concord
Assets Management, 5200 Town Center Circle, Fourth Floor, Boca Raton, Florida
33486, and either party may, by like notice at any time and from time to time,
designate a different address to which notices shall be sent. Such notices,
demands or declarations shall be deemed sufficiently served or given for all
purposed hereunder at the time they shall be mailed or transmitted by overnight
delivery service or by United States certified mail, as aforesaid.
Section 15.02 - Waiver: One (1) or more waivers of any covenant, term or
condition of this Lease by either party shall not be construed by the other
party as a waiver of a subsequent breach of the same term, covenant, or
condition. The consent or approval of either party to or of any act by the other
party of a nature requiring consent or approval shall not be deemed to waive or
render unnecessary consent to or approval of any subsequent similar act.
Section 15.03 - Relationship of Parties: Nothing contained in this Lease
shall be deemed or construed by the parties hereto or by any third party to
create the relationship of principal and agent or of partnership or of joint
venture or of any association whatsoever between Lessor and Lessee, it being
expressly understood and agreed that neither the method of computation of rent
nor any of the other provisions contained in this Lease nor any act or acts of
the parties hereto shall be deemed to create any relationship between Lessor and
Lessee other than the relationship of Lessor and Lessee.
Section 15.04 - Governing Law: The laws of the State in which the Demised
Premises is situated shall govern the validity, performance and enforcement of
this Lease.
Section 15.05 - Savings Clause: The invalidity or unenforceability of any
provision of this Lease shall govern the validity of any other provision.
Section 15.06 - Marginal Headings: The paragraph titles herein are for
convenience only and do not define, limit or construe the contents of such
paragraphs.
28 May 16, 1997
<PAGE> 35
Section 15.07 - Covenant to Bind Successors: It is agreed that the
provisions, covenants and conditions of this Lease shall be binding on the legal
representatives, heirs, successors and assigns of the respective parties hereto.
Section 15.08 - Credit Reports: The Lessee's performance under this Lease
Agreement may be reported to credit reporting agencies. The Lessor may also
obtain a consumer report of Lessee's credit history from a credit reporting
agency. Upon request, Lessee will be informed whether a consumer report was
obtained and if so, the name and address of the agency furnishing the report.
Section 15.09 - Letter of Estoppel: Within ten (10) days after request
therefore by Lessor, the Lessee shall provide an offset statement. Lessee agrees
to deliver in recordable form a certificate, prepared by or caused to be
prepared by Lessor, to any proposed mortgagee or purchaser, or to Lessor,
certifying (if such be the case) that this Lease is in full force and effect and
there are no defenses or offsets thereto, or stating those claimed by Lessee. In
the event Lessee should refuse to execute and deliver said statement and/or
certificate, the Lessor shall have the right to cancel this Lease by giving
Lessee an additional ten (10) days notice in writing, whereupon this Lease shall
be of no further force and effect.
Section 15.10 - Exculpation: Lessee agrees that Lessee shall look solely to
Lessor's interest in the Shopping Center property of which the Demised Premises
are part for the satisfaction of any claims, judgements or decrees requiring the
payment of money by Lessor based upon default hereunder. No other property or
assets of Lessor, its successors or assigns shall be subject to levy, execution
or other enforcement procedure.
Section 15.11 - Force Majeure: Lessor or Lessee shall not be required to
perform any term, condition or covenant in this Lease so long a such performance
is delayed or prevented by force majeure, which shall mean Acts of God, strikes,
lockouts, material or labor restriction by any governmental authority, civil
riot, floods, earthquake, hurricane and other cause not reasonably within the
control of Lessor or Lessee, and which by the exercise of due diligence Lessor
or Lessee is unable, wholly or in part, to prevent or overcome.
Section 15.12 - Entire Agreement: This Lease, and Exhibits and Rider, if
any, attached hereto and forming a part hereof, set forth all of the covenants,
promises, agreements, conditions and understandings between the Lessor and
Lessee governing the Demised Premises. There are no covenants, promises,
agreements, conditions and understandings, either oral or written, between them
other than those herein set forth. Except as herein provided, no subsequent
alterations, amendments, changes or additions to this Lease shall be binding
upon the Lessor or Lessee, unless reduced to writing and signed by both parties.
29 May 16, 1997
<PAGE> 36
Section 15.13 - Negotiation and Execution: The furnishing of this Lease by
the Lessor to the prospective Lessee shall not be considered an offer to lease,
even though completed in every respect, until and unless the document has been
executed by the appropriate office of Lessor. No correspondence or other
communication respecting this Lease shall create any obligation to go forward
with this Lease until the Lease document is fully completed and executed by both
the Lessor and Lessee.
30 May 16, 1997
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the day
and year first above written.
Signed and Acknowledged Lessor:
In the Presence of:
Milestone Properties, Inc., a Delaware
corporation
/s/ By: /s/ HARVEY SHORE
- ---------------------------------- -------------------------------------
/s/ Harvey Shore
- ---------------------------------- Senior Vice President
Lessee:
G.I. Joes, Inc., a __________ corporation
/s/ By: /s/ NORMAN DANIELS
- ---------------------------------- -------------------------------------
/s/ Norman Daniels
- ---------------------------------- President and CEO
Federal Tax ID No.: 930500948
(Must be filled in)
31 May 16, 1997
<PAGE> 38
Rider I
Lessor Contributions:
a) New roof for the Demised Premises to be completed by September 1997.
b) Up to $30,000 allowance for new entrance doors upon presentation of
actual invoices certified by an officer of the Lessee.
c) Up to $52,450 allowance for new floor tile upon presentation of actual
invoices certified by an officer of the Lessee.
d) If available, Lessee will be provided with up to 2,500 square feet of
store space in the Shopping Center as close to its primary store as
then practical, for a period of up to ninety (90) days. During such
period, Lessee will be responsible for utilities servicing such store.
The space must be properly insured by Lessee and returned to Lessor in
good condition.
<PAGE> 39
SHORT FORM OF LEASE AMENDMENT
THIS AMENDMENT is dated as of the 1st day of February 1998, by and between
Milestone Properties, Inc., a Delaware corporation, Lessor and G.I. Joe's, Inc.,
an Oregon corporation, Lessee.
WHEREAS, Lessor's predecessor in interest and Lessee entered into a Lease
dated June 8, 1978, for certain demised premises located in Bend, Oregon, more
particularly described on Exhibit "A" attached hereto; and
WHEREAS, a Short Form of said Lease was filed of record in Volume 279, Page
493, in the Deschutes County Deed Records.
NOW THEREFORE, Lessor and Lessee have agreed to the termination of said
original Lease and its replacement by a new Lease executed June 3, 1997, for a
term commencing on February 1, 1998, for a term of twenty (20) years.
Henceforth, this new lease shall supersede all references of record to the Lease
or Lease Agreement. All terms, conditions, provisions and covenants of said new
lease agreement are incorporated in this Amendment by reference, as though
written out at length herein and this Amendment shall be deemed to supersede the
Short Form Of Lease previously recorded.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and sealed as of February 1, 1998.
Milestone Properties, Inc.
a Delaware corporation
By: /s/ ROBERT MANDOR
-------------------------------------
Robert Mandor, President
G.I. Joe's, Inc. an Oregon corporation
By: /s/ NORMAN DANIELS
-------------------------------------
Norman Daniels
President & CEO
<PAGE> 40
STATE OF FLORIDA
COUNTY OF PALM BEACH
The foregoing instrument was acknowledged before me this 27th day of
January 1998, by Robert Mandor, as President of Milestone Properties, Inc., a
Delaware corporation, on behalf of the corporation. He is personally known to me
or has produced a drivers license as identification.
Sign: /s/ BARBARA M. MARCELLO
-----------------------------------
NOTARIAL SEAL
Print: Barbara M. Marcello
----------------------------------
State of Florida at Large (SEAL)
My Commission Expires: February 20, 1999
------------------
STATE OF OREGON
COUNTY OF CLACKAMAS
The foregoing instrument was acknowledged before me this 28 day of January
1998, Norman Daniels, as President & CEO of G.I. Joe's, Inc., an Oregon
corporation, on behalf of the corporation. He/she is personally known to me or
has produced a drivers license as identification.
Sign: /s/ LANETTE C. MOORE
-----------------------------------
NOTARIAL SEAL
Print: Lanette C. Moore (SEAL)
----------------------------------
My Commission Expires: 12-15-2000
------------------
<PAGE> 1
EXHIBIT 10.3
EASTPORT PLAZA LEASE
THIS LEASE, made and entered into this 21 day of April, 1978 by and between
EASTPORT PLAZA SHOPPING CENTER, a partnership, herein called "Landlord" and G.I.
JOE'S, INC., an Oregon corporation herein called "Tenant"
WITNESSETH:
ARTICLE I
PREMISES AND TERM
See pages 1(a), 1(b), 1(c), 1(d), 1(e), 1(f), 1(g)
ARTICLE III
RENT
SECTION 1. See pages 1(g), 1(h) and 1(i).
SECTION 2. The term "gross sales", as used herein, shall mean the total
amount in dollars of the actual sales price, whether for cash or on credit or
partly for cash and partly on credit, of all sales of merchandise and services
and all other receipts of business conducted in or from the premises, including
all mail or telephone orders received or filled at the premises, and including
all deposits not refunded to purchasers, orders taken, although said orders may
be filled elsewhere, and sales by any sublessee, concessionaire or licensee or
otherwise in said premises. No deduction shall be allowed for uncollected or
uncollectible credit accounts. Gross sales shall not, however, include any sums
collected and paid out for any sales or excise tax imposed by any duly
constituted governmental authority, nor shall it include the exchange of
merchandise between the store of Tenant, if any, where such exchange of goods or
merchandise is made solely for the convenient operation of the business of
Tenant and not for the purpose of consummating a sale which has theretofore been
made at, originated in or from the premises, or for the purpose of depriving
Landlord of the benefit of a sale which otherwise would be made at, in or from
the premises, nor the amount of returns to shippers or manufacturers, nor the
amount of any cash or credit refunds made upon any sale where the merchandise
sold, or some part thereof, is thereafter returned by the purchaser and accepted
by Tenant, nor sales of fixtures, which are not a part of Tenant's stock in
trade. Each sale upon installment or credit shall be treated as a sale for the
full price in the month during which such sale shall be made, irrespective of
the time when Tenant shall receive payment from its customers.
SECTION 3. Tenant shall keep in the premises or some other location in
Portland, Oregon, notice in writing of which shall have theretofore been
furnished to Landlord, a permanent accurate set of books and records of all
sales of merchandise and all revenue
PAGE 1
<PAGE> 2
derived from business conducted in the premises during each day of the term
hereof, and all supporting records, including excise tax reports and state sales
tax, business and occupation tax and gross income tax reports; and such
pertinent records will be kept, retained and preserved for at least three (3)
years after the expiration of each lease year. Tenant shall keep, retain and
preserve for at least two (2) years after the expiration of each lease year all
original sales records and sales slips or sales checks and any other pertinent
original sales records. All such records, including sales tax reports, state
gross income tax reports, business and occupation tax reports and excise tax
reports, shall be open to inspection and audit of Landlord and its agents at all
reasonable times during ordinary business hours.
SECTION 4. On or before the 15th day of the calendar month following the
month in which the term of this lease commences, and on or before the 15th day
of each calendar month thereafter, to and including the calendar month following
the termination of the term of this lease, Tenant shall prepare and deliver to
Landlord, at the place where rent is payable, a monthly statement of gross sales
during the calendar month preceding the due date of said respective statement,
certified by Tenant, if Tenant is an individual or partnership, or by an
authorized officer of Tenant, if Tenant is a corporation.
SECTION 5. Tenant agrees, within sixty (60) days after the end of each
lease year, to cause a statement of the gross sales and business transacted in,
at, on or from the premises for such year to be prepared and certified to by the
Tenant, and a copy of such statement so certified shall be delivered to Landlord
within such sixty (60) day period. If it is determined by any audit or otherwise
that any such statement previously delivered by Tenant to Landlord was
inaccurate, then there shall be an adjustment, and one party shall pay to the
other, upon demand, such sums as may be necessary so that the correct amount of
percentage and fixed rent will have been paid. Each party agrees to pay to the
other, on demand, such amount as may be necessary to effectuate any such
adjustments.
SECTION 6. In the event Landlord is not satisfied with any such statement
submitted by Tenant, Landlord shall have the right to make a special audit, by
auditors selected by Landlord, of the books and records of Tenant, its
subtenants, concessionaires and licensees, hereinbefore required to be made and
preserved. Landlord's right to examine Tenant's books and records and those of
its subtenants, concessionaires and licensees, as hereinbefore set forth, or to
make an audit thereof in respect to any annual statement for such lease year
period, shall be available to Landlord only for a period of two (2) years after
the applicable annual statements for such periods shall have been furnished to
Landlord. If such audit shall show a deficiency in percentage rent for the
period covered, the amount thereof shall be paid promptly by Tenant; if such
audit shall show percentage rent to have been overpaid, the excess shall be
applied on any amounts then due to Landlord by Tenant, and the balance, if any,
refunded promptly to Tenant. The provisions of Section 2 and 3 of this Article
III shall apply in all respects to partial lease years. If any such statement is
found to be incorrect to an extent of more than three percent (3 %) over the
figures submitted by Tenant, Tenant shall pay for such special audit, and if
such special audit verifies Tenant's statements to be correct or to vary not
more than three percent (3%) over the figures submitted by Tenant, the expense
of such audit shall be borne by Landlord.
PAGE 2
<PAGE> 3
ARTICLE IV
TAXES
SECTION 1. Tenant shall pay, before delinquency, all property taxes and
assessments on the furniture, fixtures, equipment and other property of Tenant
at any time situated on or installed in the premises, and in addition, on
improvements in the premises made or installed by Tenant. If at any time during
the term of this lease, any of the foregoing are assessed as a part of the real
property of which the premises are a part, Tenant shall pay to Landlord, upon
demand, the amount of such additional taxes as may be levied against said real
property by reason thereof. For the purpose of determining said amount, figures
supplied by the County Assessor as to the amount so assessed shall be
conclusive.
SECTION 2. Section 2 is set forth in the attached Exhibit E.
SECTION 3. If at any time during the term of this lease, under the laws of
the State of Oregon or of any political subdivision thereof in which the
premises are situated, a tax or excise on rents, or other tax however described,
is levied or assessed by the state of Oregon, or by any such political
subdivision against Landlord on account of the guaranteed minimum monthly rental
or the percentage rental, or any other rentals accruing under this lease, as a
substitute in whole or in part for real property taxes on the premises or any
part thereof, or in addition thereto, such tax or excise on rents shall, to the
extent of the amount thereof which is lawfully assessed or imposed upon Landlord
and which was so assessed or imposed as a direct result of Landlord's ownership
of the premises or of this lease or of the rentals accruing under this lease, be
deemed to be a real property tax or assessment levied or assessed against the
premises for the purposes of Section 2 of Article IV hereof. However, nothing
contained in this lease shall require Tenant to pay any income, excess profits,
franchise or similar tax payable by Landlord on account of the rentals accruing
under this lease.
ARTICLE V
PARKING AND COMMON AREA
SECTION 1. The term "Shopping Center" means the entire area within the
outer property limits as shown on Exhibit A, and all other pieces or parcels of
land at any time and from time to time used by Landlord in the operation of the
Shopping Center. Any portion of the Shopping Center that may be taken by eminent
domain, private purchase in lieu thereof or be dedicated to public use shall,
upon such taking, purchase or dedication be excluded, and any property adjacent
thereto which may be purchased or leased by Landlord and in fact added to the
Shopping Center by Landlord shall thereupon be included. The term "accommodation
areas" means all common areas and facilities outside the premises, which are
provided and designated by Landlord for general use and convenience (among
others) of Tenant and other lessees of all or any part of the Shopping Center
and/or their respective employees, customers, and invitees, including, but not
limited to, pedestrian sidewalks, landscaped areas, exterior stairway, first-aid
stations, comfort stations, corridors, arcades,
PAGE 3
<PAGE> 4
sidewalks, elevators, interior stairs and balconies and similar areas and
improvements, the truck way or delivery tunnel, loading docks and delivery
yards. The site plan of the Shopping Center is tentative and the Landlord
reserves the right from time to time to make changes in the shape, size and
location of improvements, buildings, truck ways, accommodation areas, loading
docks, parking layout, and other improvements, and to eliminate from, or to add
to the Shopping Center, or to the parking areas or other portions of the
Shopping Center, any improvements or buildings.
SECTION 2. Landlord agrees to hard surface, mark, properly drain,
adequately light and landscape a parking area or areas, together with the
necessary access roads, within the limits of the Shopping Center, and Landlord
hereby grants to Tenant and Tenant's employees, agents, customers and invitees,
the right, during the term hereof, to use, in common with others entitled to the
use thereof, such parking area or areas, with access roads. Landlord further
agrees to operate, manage and maintain, during the term of this lease, all
parking areas, roads and accommodation areas within the Shopping Center. The
manner in which such areas and facilities shall be maintained, and the
expenditures therefor, shall be at the sole discretion of Landlord, and the use
of such areas and facilities shall be subject to such reasonable regulation as
Landlord shall make from time to time, including without limitation, the right
to close, if necessary, all or any portion of said areas, roads or facilities to
such extent as may in the opinion of Landlord's counsel be legally sufficient to
prevent a dedication thereof or the accrual of any rights of any person or of
the public therein, or to close temporarily all or any portion of the parking
areas or facilities.
SECTION 3.
(a) During the term of this lease Tenant agrees to pay upon demand, but not
more often than once each calendar month, in addition to fixed and percentage
rent, Tenant's proportionate share of all the costs and expenses of maintaining
and operating the parking areas, accommodation areas, delivery system and all
other common areas.
(b) Tenant's proportionate share of the cost and expenses described in this
Section 3 shall be determined by the ratio which the "Floor Area of the
Premises" bears to "Total Floor Area in the Shopping Center", as defined in (d)
and (e) of this Section 3.
(c) Such operating and maintenance costs shall include all costs and
expenses of operating and maintaining such areas and facilities in such manner
as Landlord may from time to time deem appropriate and for the best interests of
the tenants of the Shopping Center, including without limitation, labor,
compensation insurance, payroll taxes, materials, supplies, and all other costs
of operating, repairing, lighting, heating, air conditioning, cleaning,
painting, removing of rubbish or debris, policing, inspecting, and all casualty
and such other insurance in such amounts and covering hazards deemed appropriate
by Landlord, and real property taxes and assessments assessed against the
parking and common areas and all costs other than those which are properly
charged to capital account under generally accepted accounting principles, of
replacement of paving, curbs, walkways, remarking, direction or other signs,
landscaping, drainage and lighting facilities. There shall be excluded the cost
of
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construction of improvements to such common areas which is properly chargeable
to capital account and depreciation of the original cost of construction of such
common area. Tenant's share of such costs and expenses of maintaining and
operating such common areas may be estimated by Landlord, subject to adjustment
in future billing to Tenant. Such operating and maintenance costs shall be
computed under generally accepted accounting principles, and on or before March
1 of each year, Landlord shall determine (and furnish to Tenant a statement
showing in reasonable detail) the costs and expenses of maintaining such areas
referred to in this subparagraph during the preceding year ending December 31.
To the extent Tenant's proportionate share of such costs and expenses is greater
or less than the sum actually billed to and paid by Tenant therefor, as the case
may be, during said year, the difference shall be billed or refunded to Tenant,
as the case may be.
(d) "Floor Area of the Premises" is defined as the total square foot area
leased to Tenant. There shall be excluded from this area, however, space on
exterior or interior balconies or mezzanines, roofs or penthouses, or other
structures on roofs, unless used as selling space. No deduction or exclusion
shall be made from floor area otherwise computed by reason of columns, stairs,
elevators, escalators, ducts or other interior construction or equipment within
the premises. The "Floor Area of the Premises" demised in this lease is 60,000
square feet. Notwithstanding anything to the contrary herein contained, for
purposes of this Section 3 and for all purposes in which the total square foot
area leased to Tenant is utilized in this lease, the area shall be deemed to be
60,000 square feet regardless of the actual square footage of the building and
garden center.
(e) "Total Floor Area in the Shopping Center" is defined as the sum total
of the aggregate of the square foot areas, leased to and/or occupied from time
to time by all the tenants and occupants of the Shopping Center, including
Landlord, excluding exterior or interior balconies or mezzanines, roofs or
penthouses, or other structures on roofs unless used as selling space; common
areas; service corridors; and parking areas.
Any addition to, or subtractions from the "Total Floor Area in the Shopping
Center" shall be computed by Landlord, and a statement of any revision in the
"Total Floor Area in the Shopping Center" furnished to Tenant.
SECTION 4. Tenant and its officers, agents and employees shall park their
cars only in areas specifically designated for that purpose by Landlord from
time to time whether such areas be within or outside but reasonably near the
Shopping Center. Tenant further agrees that upon written notice from Landlord it
will, within five (5) days, furnish to Landlord the automobile license numbers
assigned to its car and the cars of all its officers, agents and employees.
Tenant shall not at any time park or permit the parking of its trucks or
vehicles of others in the truck passage or adjacent to loading docks so as to
interfere in any way with the use thereof, nor shall Tenant at any time park or
permit the parking of its truck or trucks of its suppliers in the parking lot.
SECTION 5. Landlord reserves the right to promulgate such reasonable rules
and regulations relating to the use of the parking areas and the accommodation
areas, and any part
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or parts thereof as Landlord may deem appropriate and for the best interests of
the tenants, and Tenant agrees to abide by such rules and to cooperate in the
observance thereof. Such rules and regulations shall be binding upon Tenant upon
delivery of a copy thereof to Tenant. Said rules and regulations may be amended
by Landlord from time to time, with or without advance notice, and all such
amendments shall be effective upon delivery of a copy thereof to Tenant.
SECTION 6. Landlord reserves the right to enforce parking charges (by
operation of meters or otherwise) with appropriate provisions for parking ticket
validation by Tenant. Landlord agrees that any parking charge shall be
determined by it from time to time in good faith primarily for the purpose of
discouraging the misuse and encouraging the maximum use and reuse of the parking
spaces by customers of tenants in the Shopping Center and not primarily for the
purpose of realizing a profit from parking operations, but the earning of a
profit shall not in and of itself constitute a breach of this provision, and any
such profit shall augment the maintenance fund provided for hereunder.
SECTION 7. In the event Landlord at any time hereafter determines, in its
sole judgment, that the best interest of the Shopping Center will be served by
having parking areas operated and maintained by a person, firm, or corporation
other than Landlord, it shall have the right to select and license or lease to
any person, firm or corporation the operation and maintenance of the parking
areas on such terms and conditions and for such time as Landlord shall, in its
sole judgment, deem reasonable and proper. Any such lease, license agreement or
contract shall require the licensee, lessee or operator to be bound by and to
perform all of the obligations of Landlord relative to the maintenance and
operation of the parking areas and shall make said occupant, licensee or lessee
responsible to Tenant and all other tenants in the Shopping Center, any such
lease or license shall not affect Tenant's obligation to contribute to the
operation and maintenance of the parking and accommodation areas as provided in
Section 3 of this Article.
SECTION 8. The Landlord, Tenant and other lessees, engaged in the work of
constructing improvements in the Shopping Center or making repairs therein,
including, but not limited to, construction of new buildings or building
addition(s) and construction or reconstruction work done by Tenant with respect
to improvements on the premises, shall have the right to make a reasonable use
of portions of the parking area and the accommodation areas and the truck way.
In determining the reasonableness of any such use all pertinent factors shall be
taken into consideration including, but not limited to, the interference, if
any, with the business and operations of the various business enterprises in the
Shopping Center, the availability of other space for such purpose and the cost
of using other space for such purposes.
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ARTICLE VI
CARE AND USE OF PREMISES
SECTION 1.
(a) The premises may be used and occupied only for the conduct of a typical
"G. I. Joe's" store under the trade name G. I. Joe's, subject always to the
provisions of Section 2 of this Article VI, and for no other purpose or purposes
and under no other trade name without the written consent of Landlord. Tenant
agrees to operate the entire premises during the term of this lease and any
renewal thereof, unless prevented from doing so by causes beyond Tenant's
control, and to conduct its business at all times in good faith, in a high grade
and reputable manner, and in such manner as will produce the maximum amount of
rent in and from the premises during the regular and customary hours for such
type of business and on all business days. Tenant shall promptly comply with all
laws, ordinances and regulations affecting the premises and promulgated by duly
constituted governmental authority affecting the cleanliness, safety, use and
occupation of the premises.
(b) Tenant shall continuously and uninterruptedly, during the term and any
extended term of this lease, during all usual business hours and on such days as
comparable businesses in the Shopping Center are open for business, occupy and
use the entire premises for the purpose or purposes specified herein and shall
continuously merchandise not less than one hundred percent (100%) of the
premises (except during any times when the premises may be untenantable by
reason of fire or other casualty and except those portions of the premises
designated as storage).
(c) Tenant shall at all times carry a full and complete stock of seasonable
merchandise offered for sale at competitive prices and will maintain an adequate
personnel for the efficient service of its customers, and in general employ its
best judgment, efforts and abilities to so operate the business conducted by it
on the premises in a manner calculated to produce the maximum volume of sales
and transactions obtainable.
SECTION 2. SEE ATTACHED EXHIBIT E
SECTION 3. SEE ATTACHED EXHIBIT E
SECTION 4. Tenant shall not perform any acts or carry on any practices
which may injure the building or be a nuisance or menace to other tenants in the
Shopping Center, and shall keep the premises under its control, including
sidewalks adjacent to the premises and loading platform areas allocated for the
use of Tenant, free and clean from rubbish and dirt at all times, and shall
store all trash and garbage within the premises and arrange for the regular
pick-up and cartage of such trash and garbage at Tenant's expense. Tenant shall
not burn any trash or garbage at any time in or about the building or anywhere
else in the Shopping Center. Tenant agrees to cooperate in the employment of a
trash removal contractor designated by Landlord should it be deemed desirable to
have all waste materials removed by one
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contractor, provided, however, that the employment of such contractor shall be
on a competitive basis insofar as the financial arrangement is concerned.
SECTION 5. SEE ATTACHED EXHIBIT E
SECTION 6. Tenant agrees that all receiving and delivery of goods and
merchandise and all removal of garbage and refuse shall be made only by way of
the truck ways and loading docks designated for Tenant's use. Landlord hereby
grants to Tenant and Tenant's employees, agents and invitees the right, during
the term hereof, to use, in common with others entitled to the use thereof, such
truck ways, service corridors, service elevators and loading docks subject to
such reasonable regulations as Landlord shall make from time to time.
SECTION 7. Unless prohibited by a labor Contract between Tenant and a labor
union representing Tenant's employees, Tenant agrees to keep open for business
at least two week nights designated by Landlord as to time and specific days,
and further agrees to keep open for business such additional nights as business
center merchants occupying more than fifty percent (50%) of the floor area in
the Shopping Center elect to remain open for business.
ARTICLE VII
MERCHANT'S ASSOCIATION
SECTION 1. A Promotional Fund or Merchants' Association has been
established for the Shopping Center. Tenant shall contribute to such fund on the
first day of each month during the term of this lease an amount not less than
one cent (1(cent)) per square foot of total store space under lease to Tenant,
but in any event not less than $5.00 per month. Landlord agrees to contribute to
such Promotional Fund throughout the term of this lease in an amount not less
than twenty percent (20%) of Tenant's contributions. During the term of this
lease, Tenant shall be an active participating member of the Merchants
Association.
SECTION 2. The Promotional Fund herein provided for shall be administered
by Landlord at the expense of the fund, and monthly reports of receipts and
expenditures shall be made available to Tenant. Disbursements from the fund
shall be made from time to time for the common benefit of Landlord and all
tenants and other occupants of the Shopping Center under the direction of a
promotional committee composed of a representative of Landlord, a representative
of any major department store which may become a tenant or occupant of the
Shopping Center, and not less than three (3) nor more than seven (7)
representatives of other tenants or occupants of the Shopping Center. Such
Promotional Committee may be, but is not required to be, a committee of any
tenant's organization which may be established for the Shopping Center. The
duties of such committee shall include planning and budgeting for promotional
and other special events and advertising for Eastport Plaza as a whole. Each
member of the committee shall have one vote. On matters which the committee may
refer for decision to all contributors of the fund, each contributor shall have
a vote in proportion to its monthly contribution. Contributions to be made to
the fund by tenants and occupants of the
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Center other than Landlord may be raised above the minimum herein set forth by a
majority vote of all such tenants and occupants other than Landlord, but shall
never be lowered below such minimum, nor shall Landlord's contribution be raised
other than indirectly by the raising of the contributions made by all tenants.
(a) SEE ATTACHED EXHIBIT E
SECTION 3. Any revenues, receipts, returns, rebates or reimbursements
derived from any promotional event or other activity paid for from the
promotional fund shall be returned to such fund and shall thereafter be
available for expenditure from such fund.
ARTICLE VIII
UTILITIES
SECTION 1. Landlord agrees that it will cause facilities to be made
available to the Tenant upon the premises for the delivery to and distribution
within the premises of water, power, electricity and telephone service, and for
the removal of sewage from the premises. Tenant agrees to use such utilities
with respect to the premises.
SECTION 2. Tenant agrees, at its own expense, to pay for all water, sewer,
natural gas, garbage removal, power and electric current and all other similar
utilities used by Tenant on the premises from and after the commencement of the
work to be performed by it. In the event and so long as any utilities are
furnished by Landlord, or are sub-metered by Landlord, then and in that event
the rates charged Tenant shall not exceed those of the local public utility
company if its services were furnished directly to Tenant, and shall not be less
than its pro rata share of any jointly metered service based upon the floor area
of the premises serviced.
ARTICLE IX
REPAIRS
SECTION 1. See attached Exhibit E.
SECTION 2. Except as provided in Section 1 of this Article, Landlord shall
not be obligated to make repairs, replacements or improvements of any kind upon
the premises, or any equipment, facilities or fixtures therein contained, which
shall at all times be kept in good order, condition and repair by Tenant, and in
a clean, sanitary and safe condition and in accordance with all applicable laws,
ordinances and regulations of any governmental authority having jurisdiction.
Tenant shall permit no waste, damage or injury to the premises. If Tenant
refuses or neglects to commence repairs within ten days after written demand, or
adequately to complete such repairs within a reasonable time thereafter,
Landlord may make the repairs without liability to Tenant for any loss or damage
that may occur to Tenant's stock or business by reason thereof, and if Landlord
make such repairs Tenant shall pay to Landlord on demand as additional rent the
cost thereof with interest at ten percent (10%) per annum from the date of
payment by Landlord until repaid by Tenant.
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SECTION 3. Tenant shall forthwith at its own costs and expense replace with
glass of the same quality any cracked or broken glass, including plate glass or
glass or other breakable materials used in structural portions, and any interior
and exterior windows and doors in the premises.
ARTICLE X
INSTALLATIONS, SIGNS AND ALTERATIONS
SECTION 1. At the beginning of and during the entire term, Tenant, at its
own expense, shall provide, install and maintain all necessary lighting
fixtures, store fixtures, floor coverings and other equipment required by it,
and all interior painting and decorating.
SECTION 2. Tenant shall not erect or install any exterior signs or window
or door signs, advertising media or window or door lettering or placards without
Landlord's prior written consent. Tenant shall not install any exterior lighting
or plumbing fixtures, shades or awnings, or make any exterior decoration or
painting, or build any fences, or install any radio or television antennae, loud
speakers, sound amplifiers or similar devices on the roof or exterior walls of
the building, or make any changes to the store front without Landlord's prior
written consent. Use of roof is reserved to Landlord.
SECTION 3. Except as hereinafter provided, Tenant shall not make or permit
to be made, any alterations, additions or changes to the premises without first
procuring Landlord's written consent. Should any repairs, changes, alterations,
improvements or additions (except structural changes) be required during the
term hereof by any governmental authority, or under or by virtue of any law,
ordinance or governmental regulation, the same shall be made by and at the cost
of Tenant. If structural alterations become necessary because of the application
of laws or ordinances or other directions, rule or regulations of any regulatory
authority having jurisdiction over the business carried on by Tenant, or because
of any act or default on the part of Tenant, or because Tenant has overloaded
any electrical or other facility, Tenant shall make such structural and/or
electrical alterations at its own cost and expense after first obtaining
Landlord's written approval of plans and specifications and furnishing such
indemnification against liens, costs and damages as Landlord may reasonably
require. All alterations, additions, improvements and fixtures, other than trade
fixtures, which may be made or installed by either of the parties hereto upon
the premises and which in any manner are attached to the floors, walls, or
ceilings, at the termination of this lease shall become the property of
Landlord, unless Landlord requests their removal, and shall remain upon and be
surrendered with the premises as a part thereof, without damage or injury; any
linoleum or other floor covering of similar character which may be cemented or
otherwise adhesively affixed to the floor shall likewise become the property of
Landlord, all without compensation or credit to Tenant. Notice is hereby given
that no mechanic's, materialmen's or other lien sought to be taken on the
premises shall in any manner affect the right, title or interest of Landlord
therein.
SECTION 4. See attached Exhibit E.
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ARTICLE XI
INDEMNITY
Tenant agrees to indemnify and save Landlord harmless against any and all
claims, demands, damages, cost and expenses, including reasonable attorneys'
fees for the defense thereof, arising from the conduct or management of the
business conducted by Tenant in the premises or from any breach or default on
the part of Tenant in the performance of any covenant agreement on the part of
Tenant to be performed pursuant to the terms of this lease, or from any act or
negligence of Tenant, its agents, contractors, servants, employees, sublessees,
concessionaires or licensees, in or about the premises, the sidewalks adjoining
the same, the loading platform area allocated to the use of Tenant, and the
common area. In case of any action or proceeding brought against Landlord by
reason of any such claim, upon notice from Landlord, Tenant covenants to defend
such action or proceeding by counsel reasonably satisfactory to Landlord. All
property kept, stored or maintained in the premises shall be so kept, stored or
maintained at the sole risk of Tenant. Tenant agrees to pay and discharge any
mechanic's, materialmen's or other lien against the premises or Landlord's
interest therein claimed in respect to any labor, services, materials, supplies
or equipment furnished or alleged to have been furnished to or upon the request
of Tenant, provided that Tenant may contest such lien claim, upon furnishing to
Landlord such indemnification for the final payment and discharge thereof,
together with the costs and expenses of defending the same, as Landlord may
reasonably require. Landlord shall not be liable, and Tenant waives all claims
for damages to person or property sustained by Tenant or Tenant's employees,
agents, servants, invitees and customers resulting from the building in which
the premises are located or by reason of the premises or any equipment or
appurtenances thereunto appertaining becoming out of repair, or through the acts
or omissions of person occupying adjoining premises or any part of the building
of which the premises are a part or any persons transacting any business in the
Shopping Center or present therein for any other purpose, or for loss or damage
resulting to Tenant or its property from burst, stopped or leaking water, gas,
sewer, or other pipes or conduits or plumbing fixtures, or from any failure of
or defect in any electric line, circuit or facility, or resulting from any
accident in or about the premises, the building in which the same are situated
or resulting directly or indirectly from any act or neglect of any other tenant
or person in said Shopping Center.
ARTICLE XII
INSURANCE
SECTION 1. Tenant shall not carry any stock of goods or do anything in or
about the premises which will in any way tend to increase insurance rates on the
premises or the building in which the same are located, nor invalidate any
insurance coverage thereon. If Landlord shall consent to such use, Tenant agrees
to pay as additional rental any increase in premiums for insurance against loss
by fire or extended coverage risks resulting from the business carried on in the
premises by Tenant. If Tenant installs any electrical equipment that overloads
the power lines to the building, Tenant shall at its own expense make whatever
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changes are necessary to comply with the requirements of insurance underwriters
and insurance rating bureaus and governmental authorities having jurisdiction.
SECTION 2. Tenant agrees to procure and maintain a policy or policies of
insurance, at its own cost and expense, insuring Landlord and Tenant from all
claims, demands or action for injury to or death of any one person in an amount
of not less than $300,000 and for injury to or death of more than one person in
any one accident to the limit of $1,000,000, and for damage to property in an
amount of not less than $50,000, made by or on behalf of any person or persons,
firm or corporation arising from, related to, or connected with the conduct and
operation of Tenant's business in the premises. Tenant shall carry like coverage
against loss or damage by boiler or internal explosion by boilers, if there is a
boiler in the premises. Said insurance shall not be subject to cancellation
except after at least ten (10) days' prior written notice to Landlord and the
policy or policies, or duly executed certificate or certificates for the same,
together with satisfactory evidence of the payment of the premiums thereon,
shall be deposited with Landlord at the commencement of the term and renewals
thereof not less than thirty (30) days prior to the expiration of the term of
such coverage. If Tenant fails to comply with such requirement, Landlord may
obtain such insurance and keep the same in effect, and Tenant shall pay to
Landlord the premium cost thereof upon demand.
SECTION 3. Tenant shall procure and maintain during the term of this lease
a policy or policies in acceptable Bureau companies, insuring Landlord and
Tenant, as their interests may appear, against breakage of all such glass in the
premises and shall deposit such policy or policies, or certificates evidencing
their existence, together with evidence of the payment of the premiums thereon,
with Landlord at the commencement of the term and at least thirty (30) days
prior to the expiration of each such policy. At Landlord's option, Landlord may
obtain such insurance to keep the same in force and effect, and Tenant shall pay
Landlord upon demand from time to time the premium cost thereof.
SECTION 4. Tenant agrees that it will at all times during the leased term
maintain in force on all of its fixtures and equipment in the premises a policy
or policies of fire insurance with a standard extended coverage endorsement
attached to the extent of at least eighty percent (80%) of their insurable
value, the proceeds of which will, so long as this lease is in effect, be used
for the repair or replacement of the fixtures and equipment so insured. It is
understood that Landlord shall have no interest in the insurance upon Tenant's
equipment and fixtures and will sign all documents necessary or proper in
connection with the settlement of any claim or loss by Tenant.
SECTION 5. See attached Exhibit E.
ARTICLE XIII
DAMAGE BY FIRE, ETC.
SECTION 1. In the event the premises shall be damaged or destroyed by
casualty, Landlord shall, with all reasonable diligence, repair such damage and
restore the premises to
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substantially their condition immediately prior to the happening of such event;
and the minimum rental (Article III, Section 1) shall be equitably reduced
during any period in which, by reason of such damage or destruction, there is
substantial interference with the operation of the business of Tenant in the
premises, having regard to the extent to which Tenant may be required to
discontinue its business in the premises, and such reduction shall continue for
the period commencing with such destruction or damage and ending with the
completion by Landlord of such work of repair and/or reconstruction as Landlord
is obligated to do. Nothing in this Section shall be construed to reduce
percentage rent. Provided, however:
(a) If the premises or the building of which they are a part be at any time
destroyed or damaged to the extent of one-third or more of its then replacement
value by a casualty which is not an "insured casualty" (an "insured casualty"
being a casualty which is not covered by Landlord's standard fire and extended
coverage insurance policy), Landlord shall have the right to cancel and
terminate this lease, as of the date of the happening of such event, by giving
Tenant notice of its election so to do within sixty (60) days after the
happening of such event.
(b) In the event the premises or the building of which they are a part
shall be destroyed or damaged to extent of one-third or more of its then
replacement value by a casualty (whether or not an insured casualty) within
three (3) years of the date when the term hereof, or any extension thereof
agreed to before such casualty, would otherwise expire, Landlord shall have the
right to cancel and terminate this lease, as of the date of the happening of
such event, by giving Tenant notice of its election so to do within sixty (60)
days after the happening of such event.
SECTION 2. Notwithstanding the foregoing provisions of this Article, Tenant
hereby agrees to repair any damage to the premises resulting from a casualty
(other than an insured casualty as that term is defined in Section l(a)) caused
by the negligence of Tenant, its employees, agents, contractors, customers,
invitees and licensees.
SECTION 3. In the event the Shopping Center of which the premises are a
part be damaged or destroyed to the extent of one-third or more of its then
replacement value, and whether or not the premises are themselves damaged,
Landlord shall have the right to cancel and terminate this lease, as of the date
of the happening of such event, by giving Tenant notice of its election so to do
within sixty (60) days after the happening of such event.
SECTION 4. In case Landlord elects to repair, rebuild or restore as in this
Article XIII provided, then its obligation shall be limited to the basic
building and exterior work as covered in Exhibit D attached hereto.
SECTION 5. In the event of any termination of this lease under the
provisions of Sections 1 and 3 of this Article XIII, the lease shall terminate
at the end of the calendar month in which the notice of termination prescribed
by said Sections 1 and 3 is given.
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ARTICLE XIV
CONDEMNATION
SECTION 1.
(a) If the premises, or a portion thereof exceeding one-third of the total
area leased to Tenant, shall be taken by condemnation, either party, upon notice
to the other, shall be entitled to terminate this lease provided that such
notice is given within thirty (30) days after Tenant has been deprived of
possession by such taking.
(b) If that part of the common areas of the Shopping Center devoted to
parking, that is to say, the common areas exclusive of mall and sidewalk areas,
shall be reduced by condemnation in an amount in excess of twenty percent (20%),
and Landlord shall not within ninety (90) days commence and thereafter with all
reasonable diligence complete action to restore such common area so taken,
either party, upon notice to the other, shall be entitled to terminate this
lease, provided that such notice is given within thirty (30) days after the
expiration of such ninety (90) days, if no action has been commenced by Landlord
within that period, or within thirty (30) days after Landlord ceases to
prosecute the work of restoring such common area with reasonable diligence.
SECTION 2. It is understood and agreed that Tenant shall have no right,
title or interest in or to any part of any condemnation award that may be made
for the whole or any part of the premises or for the whole or any part of the
common areas, but such award shall belong entirely to Landlord, except that
Tenant shall be entitled to receive and retain only such amounts as may be
specifically awarded to it in such condemnation proceedings because of the
taking of its trade fixtures and leasehold improvements which have not become
part of the realty. Tenant shall have no claim in any event against Landlord for
the value of any unexpired term of the lease and no right or claim to any part
of the award on account thereof.
SECTION 3. In the event some portion of the premises is taken by
condemnation but this lease is not terminated as above provided, this lease
shall remain in force, and during the period of restoration hereinafter provided
for the minimum rent or a fair and just proportion thereof according to the
nature and extent of the damage sustained shall be suspended or abated. In such
event, and promptly after the payment of damages for such condemnation, Landlord
shall restore the premises, at a cost to Landlord not to exceed the amount of
such damages, to a condition reasonably suitable for Tenant's continued
occupancy thereof. The annual minimum rent for the period after the completion
of such restoration shall be reduced proportionately to the reduction in the
total floor space of the premises effected by the taking.
SECTION 4. In the event there is taken by condemnation such a substantial
portion of the Shopping Center as it may then exist, as in Landlord's judgment
shall prevent the continued profitable operation of the Shopping Center, then
and in that event, Landlord shall have the right to cancel this lease upon
giving sixty (60) days' notice to Tenant.
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SECTION 5. The term "condemnation" shall include any form of taking under
any governmental or statutory authority, whether by formal proceedings or by
negotiation.
ARTICLE XV
ASSIGNMENT AND SUBLETTING
SECTION 1. Tenant shall not assign or in any manner transfer this lease or
any interest therein, nor sublet the premises or any part or parts thereof, nor
permit occupancy by anyone with, through or under it, without the previous
written consent of Landlord. Consent by Landlord to one or more assignments of
this lease, or to one or more sublettings of the premises shall not operate as a
waiver of Landlord's rights under this Article to any subsequent assignment or
subletting. No assignment shall release Tenant of any of its obligations under
this lease or be construed or taken as a waiver of any of Landlord's rights or
remedies hereunder.
SECTION 2. Tenant agrees not to change the advertised name of its place of
business operated in the premises without the written permission of Landlord.
SECTION 3. Neither this lease nor any interest therein, nor any estate
thereby created, shall pass to any trustee or receiver in bankruptcy, or any
assignee for the benefit of creditors, or by operation of law.
ARTICLE XVI
ACCESS TO PREMISES
Landlord shall have the right to enter upon the premises at all reasonable
hours for the purpose of inspecting the same or of making repairs, additions or
alterations thereto or to the building in which the same are located, or for the
purpose of exhibiting the same to prospective tenants, purchasers or others.
Landlord shall not be liable to Tenant in any manner for any expense, loss or
damage by reason thereof, nor shall the exercise of such right be deemed an
eviction or disturbance of Tenant's use or possession.
ARTICLE XVII
DEFAULT
SECTION 1. It is covenanted and agreed that if Tenant shall be in arrears
more than ten (10) days in the payment of rent, or if Tenant shall be in default
in the performance or keeping of any of the other covenants, agreements or
conditions contained in this lease, on Tenant's part to be performed and kept,
for a period of ten (10) days after notice of such default shall have been given
to Tenant, then and in any of said events, Landlord lawfully may, at Landlord's
option, immediately, or at any time thereafter while such default continues, and
without any further demand or notice, terminate this lease and enter upon the
premises, either with or without process of law, and repossess the same and
expel therefrom and remove the
PAGE 15
<PAGE> 16
effects of any occupant of the same, forcibly if necessary, without being deemed
guilty of trespass and without prejudice to any remedies which might otherwise
be used for arrears in rent or breach of any covenant, agreement or condition.
SECTION 2. It is further covenanted and agreed that in the event of any
such termination or reentry, by summary proceedings or otherwise, rents and all
other charges required to be paid up to the time of such termination or re-entry
shall be paid by Tenant, and Tenant shall also pay to Landlord all expenses
which Landlord may incur for restoring the premises to the same condition in
which by Section 1 of Article XVIII they are required to be surrendered, and
such further expenses which Landlord may reasonably incur in preparing the
premises for reletting, but not including the expenses of any alterations.
Landlord may, at any time thereafter and from time to time, relet the premises,
in whole or in part, for such rental as may then be obtainable, either in
Landlord's own name or as agent for Tenant, for a term or terms which, at
Landlord's option, may be for the remainder of the then current term of this
lease, or for any longer or shorter period.
SECTION 3. If this lease be so terminated, Tenant nevertheless covenants
and agrees, notwithstanding any termination or re-entry by Landlord, whether by
summary proceedings or otherwise, to pay and be liable for, on the days
originally fixed herein for payment thereof, amounts equal to the several
installments of rent and other charges reserved as they would, under the terms
of this lease, become due if this lease had not been terminated, or if Landlord
had not re-entered, and whether the premises be relet or remain vacant, in whole
or in part, or for a period less than the remainder of the term, or for the
whole thereof; but, in the event the premises be relet by Landlord, Tenant shall
be entitled to a credit in the net amount of rent received by Landlord in
reletting after deduction of all expenses and costs incurred or paid in
reletting the premises and collecting the rent in connection therewith. As an
alternative, at the election of Landlord, Tenant will upon such termination pay
to Landlord, as damages, such a sum as at the time of such termination
represents the amount of the excess, if any, of the value of the total rent and
other benefits which would have accrued to Landlord under this lease for the
remainder of the lease term if the lease provisions had been fully complied with
by Tenant, over and above the rental value of the premises for the balance of
the term, both discounted to the then value. For the purposes of this provision,
it shall be deemed that the percentage rent for any period after any such
default and entry by Landlord would have been at a monthly rate thereafter equal
to the average monthly percentage rental which Tenant was obligated to pay to
Landlord under this lease in respect to the last five (5) full lease years
immediately preceding the date of such entry, or such lesser period of the term
hereof as may have then elapsed.
SECTION 4. Landlord is hereby given a first lien upon all property of
Tenant which shall come in or be placed upon the premises and whether acquired
by Tenant before or after the date hereof to secure the payment of rent and the
performance of each and every other covenant herein contained to be performed by
Tenant. Upon such default, and failure to cure as aforesaid, Landlord without
notice or demand may take possession of and sell such property without legal
process of any kind, at public or private sale after one publication of a notice
thereof in a daily newspaper published in Portland, Oregon, not less than ten
(10) days
PAGE 16
<PAGE> 17
before such sale. The proceeds of such sale shall be applied first to the
payment of expenses thereof, second to the discharge of the rent or other
liability hereunder paid, and the balance, if any, held for the account of
Tenant. SEE ATTACHED EXHIBIT E
ARTICLE XVIII
SURRENDER OF POSSESSION
SECTION 1. At the expiration of the tenancy created hereunder, whether by
lapse of time or otherwise, Tenant shall surrender the premises in good
condition and repair, reasonable wear and tear and loss by fire or other
unavoidable casualty excepted.
SECTION 2. In the event Tenant remains in possession of the premises after
the expiration of the tenancy created hereunder, and without the execution of a
new lease, it shall be deemed to be occupying the premises as a tenant from
month to month, and shall pay as rent the greater of (i) two times the fixed
rental, or (ii) the percentage rental on gross sales and business transacted by
Tenant in that part of the premises operated by it, subject to all the other
conditions, provisions and obligations of this lease insofar as the same are
applicable to a month-to-month tenancy.
SECTION 3. Upon the expiration of the tenancy hereby created, if Landlord
so requests in writing, Tenant shall promptly remove any additions, fixtures,
and installations placed in the premises by Tenant and designated in said
request, and repair any damage occasioned by such removals at Tenant's expense,
and in default thereof. Landlord may effect such removals and repairs, and
Tenant shall pay Landlord the cost thereof, with interest at the rate of seven
percent (7%) per annum from the date of payment by Landlord.
ARTICLE XIX
SUBORDINATION
SECTION 1. This lease shall be subject and subordinate to any first
mortgages or trust deeds and to any extensions or renewals thereof that are now
or hereafter may be placed upon the whole or any part of the Shopping Center and
which include the premises; provided, however, that such first mortgages or
trust deeds shall contain provisions to the effect that this lease shall not be
cut off or terminated nor shall Tenant be disturbed in its possession or use of
the premises by foreclosure or other act under the terms of any such first
mortgages or trust deeds so long as Tenant is not in default in any of the
terms, conditions and covenants of this lease.
SECTION 2. Notwithstanding anything to the contrary elsewhere in this
lease, in the event of any act or omission by Landlord by reason of which Tenant
may claim the right to terminate this lease, or claim a partial or total
eviction, or claim a defense or offset against rental liability under this
lease, Tenant shall not attempt to exercise any such right (1) until it has
notified in writing the holder of any mortgage which at the time shall be a
first mortgage lien on the building of which the premises are a part (if the
name and address of such holder
PAGE 17
<PAGE> 18
shall previously have been furnished by written notice to Tenant) of such act or
omission, and (2) until a reasonable opportunity for remedying such act or
omission shall have been given to such holder following the receipt of such
notice, provided such holder, with reasonable diligence, shall have commenced
and continued to remedy such act or omission or to cause the same to be
remedied. If remedying such act or omission by such holder necessitates the
obtaining of possession by such mortgagee, the reasonable opportunity to be
afforded to such holder shall include such time as shall reasonably be required,
with the exercise of reasonable diligence, to secure possession where such
possession in necessary, or where foreclosure is necessary, to commence and to
carry to completion the foreclosure of said mortgage and the sale of the
mortgaged premises pursuant to said foreclosure.
ARTICLE XX
NOTICES
Whenever under this lease a provision is made for notice of any kind, such
notice shall be in writing and signed by or on behalf of the party giving or
making the same. It shall be deemed sufficient notice and service thereof if
such notice is to Tenant and sent by registered mail, postage prepaid, to the
last post office address of Tenant, furnished to Landlord for such purpose, or
to the premises; and if to Landlord, sent by registered mail, postage prepaid,
to the Landlord at the address furnished for such purpose, or to the place then
fixed for the payment of rent, or to such other place or places designated in
writing by Landlord. If Landlord or Tenant is more than one person, notice need
be sent to but one Tenant or one Landlord, as the case may be.
ARTICLE XXI
STATEMENT OF TENANT
Tenant shall at any time and from time to time, upon not less than twenty
(20) days' prior written request by Landlord, execute, acknowledge and deliver
to Landlord a statement in writing, certifying that this lease is unmodified and
in full force and effect (or if there has been any modification thereof that the
same is in full force and effect as modified and stating the modification or
modifications) and the dates to which the minimum rent and other charges have
been paid in advance, if any, and such other statement relating to delivery and
acceptance of the premises as Landlord's lending institution may require. Any
such statement delivered pursuant to this Paragraph may be relied upon by any
prospective purchaser of the fee or the mortgagee or assignee of any mortgages
or any mortgage or the trustee or beneficiary of any deed of trust on the fee or
including the fee of the premises.
PAGE 18
<PAGE> 19
ARTICLE XXII
QUIET ENJOYMENT
Landlord agrees that Tenant, upon paying the rent and performing the
covenants of this lease, may quietly enjoy, have and hold the premises during
the term hereof, or any extension thereof.
ARTICLE XXIII
ENCLOSED MALL
It is contemplated that during the term hereof, Landlord may modify the
Shopping Center so as to provide and include, among other improvements, the
installation of an enclosed air-conditioned mall (hereinafter referred to as the
"Enclosed Mall"). Landlord and Tenant hereby agree that if and when such an
Enclosed Mall is installed in the Center, the following terms and provisions of
this lease shall be effective and applicable; subject to the terms of Article
II, Section 5:
Enclosed Mall operation and maintenance expense refers to the amount equal
to the actual annual cost paid out in connection with the Enclosed Mall for the
following: utility expenses for lighting and operation of air-conditioning and
heating equipment; real and personal property taxes on the Enclosed Mall (land,
improvements and equipment); premiums on fire and extended insurance coverage,
vandalism insurance and plate glass insurance for the Enclosed Mall improvements
and equipment; maintenance, repair and replacement of mechanical equipment,
including automatic door openers, lighting fixtures (including replacement of
tubes and bulbs), air-conditioning and heating equipment, fire sprinkler
systems, security alarm systems, and all other items of equipment used
exclusively in connection with the Enclosed Mall; all other items of expense
incurred as a result of enclosing the mall; repair, maintenance and cleaning of
the Enclosed Mall structure including floors, ceilings, roof, skylights and
windows; and a reasonable allowance to Landlord for Landlord's supervision of
maintenance of the Enclosed Mall. Landlord may, however, cause any or all of
such services to be provided by an independent contractor or contractors. All
other items except as herein enumerated shall be treated as expenses of parking
and common areas and prorated as provided for in Article V.
Tenants whose premises face or open onto the Enclosed Mall shall pay the
entire cost of the Enclosed Mall operation and maintenance expenses as herein
described. Contributions towards Enclosed Mall operation and maintenance
expense, if any, during the term of this lease, by the major department stores
in the Shopping Center shall be credited towards payment of such Enclosed Mall
operation and maintenance expense. Tenant's share of the expenses of the
Enclosed Mall shall be equal to the product obtained by multiplying said
expenses by a fraction, the numerator of which shall be the total square foot
area of the premises and the denominator of which shall be Landlord's gross
leasable area which faces or opens onto the Enclosed Mall. Tenant shall pay
Landlord its share of the aforesaid costs and
PAGE 19
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expenses on a periodic basis not more frequently than monthly within thirty (30)
days after Landlord's written request therefor.
Tenant, provided its premises fronts on the Enclosed Mall, agrees, during
all business hours, to operate the heating, ventilating and air-conditioning
equipment serving the demised premises so that inside temperatures are
maintained (i) within a range in which a majority of adults will be comfortable
in the demised premises and (ii) which will not unduly drain heat, ventilation
or cooled air from the Enclosed Mall. Landlord agrees to cause the heating,
ventilating and air-conditioning equipment serving the Enclosed Mall to be so
operated during such hours that heat, ventilation and cooled air are not unduly
drained from the premises.
ARTICLE XXIV
GENERAL
SECTION 1. Nothing herein contained shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that neither the method of computation of
rent nor any other provision contained herein, nor any acts of the parties
hereto, shall be deemed to create any relationship between parties hereto other
than the relationship of Landlord and Tenant. Whenever herein the singular
number is used, the same shall include the plural, and the masculine gender
shall include the feminine and neuter genders.
SECTION 2. The various rights and remedies herein contained and reserved to
each of the parties shall not be considered as exclusive of any other right or
remedy of such party, but shall be construed as cumulative and shall be in
addition to every other remedy now or hereafter existing at law, in equity, or
by statute. No delay or omission of the right to exercise any power by either
party shall impair any such right or power, or shall be construed as a waiver of
any default or as acquiescence therein. One or more waivers of any covenant,
term or condition of this lease by either party shall not be construed by the
other party as a waiver of a subsequent breach of the same covenant, term or
condition. The consent or approval by either party to or of any act by the other
party of a nature requiring consent or approval shall not be deemed to waive or
render unnecessary consent to or approval of any subsequent similar act.
SECTION 3. The laws of the State of Oregon shall govern the validity,
performance and enforcement of this lease. The invalidity or unenforceability of
any provisions of this lease shall not affect or impair any other provisions.
SECTION 4. The headings of the several articles and sections contained
herein are for convenience only and do not define, limit or construe the
contents of such articles and sections. All negotiations, considerations,
representations and understandings between the parties are incorporated herein
and may be modified or altered by agreement in writing between the parties.
PAGE 20
<PAGE> 21
SECTION 5. In the event of any action at law or in equity between Landlord
and Tenant to enforce any of the provisions and/or rights hereunder, the
unsuccessful party to such litigation covenants and agrees to pay to the
successful party all costs and expenses, including reasonable attorneys' fees,
incurred therein by such successful party, and if such successful party shall
recover final judgment in any such action or proceeding, such costs, expenses
and attorneys' fees shall be included in and as a part of such judgment. Should
Landlord, without fault on its part, be made a party to any litigation
instituted by or against Tenant, Tenant covenants to pay to Landlord all costs
and expenses, including reasonable attorneys' fees, incurred by Landlord in or
in connection with such litigation.
SECTION 6. Tenant warrants that Tenant has not had any dealings with any
realtor, broker or agent, in connection with the negotiation of this lease
excepting only Bullier & Bullier, Inc., and Tenant hereby agrees to pay and to
hold Landlord harmless from any cost, expense or liability for any compensation,
commissions or charges claimed by any realtor, broker or agent, excluding those
named above, with respect to this lease and/or the negotiation thereof.
SECTION 7. In the event that, during the term of this lease, Landlord shall
sell its interest in the premises, then from and after the effective date of
such sale, Landlord shall be released and discharged from any and all further
obligations and responsibilities under this lease except those already accrued.
SECTION 8. Tenant agrees that in the event all or substantially all of
Tenant's assets be placed in the hands of a receiver or trustee, and such
receivership or trusteeship continues for a period of sixty (60) days, or should
Tenant make an assignment for the benefit of creditors or be finally adjudicated
a bankrupt, or should Tenant institute any proceedings under the Bankruptcy Act
as the same now exists or under any amendment thereof which may hereafter be
enacted, or under any other act relating to the subject of bankruptcy wherein
Tenant seeks to be adjudicated a bankrupt, or to be discharged of its debts, or
to effect a plan of liquidation, composition or reorganization, or should any
involuntary proceeding be filed against Tenant under any such bankruptcy laws
and such proceedings not be removed within ninety (90) days thereafter, then
this lease and any other interest, if any, in and to the premises shall not
become an asset in any of such proceedings and, in any such events and in
addition to any and all rights or remedies of Landlord hereunder or by law
provided, it shall be lawful for Landlord to declare the term hereof ended and
to re-enter the premises and take possession thereof and remove all persons
therefrom, and Tenant shall have no further claim thereon or hereunder. The
provisions of this Section 8 shall also apply to any Guarantor of this lease.
SECTION 9. The covenants, agreements and obligations herein contained shall
extend to bind and inure to the benefit of not only the parties hereto but their
respective personal representatives, heirs, successors and assigns.
SECTIONS 10, 11 and 12. See attached Exhibit E.
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ARTICLE XXV
OPTION TO EXTEND
See attached Exhibit E.
Attached hereto and by this reference made a part hereof are Exhibits A, C
and D. (There is no Exhibit B.) Exhibit E, setting forth additional provisions,
terms and conditions of this lease, is also attached hereto and by this
reference made a part hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this lease
together with the herein referred to Exhibits which are attached hereto, the day
and year first above written.
EASTPORT PLAZA SHOPPING CENTER G. I. JOE'S, INC., an Oregon
corporation
by /s/ by /s/
---------------------------------- ----------------------------------
President
by by
---------------------------------- ----------------------------------
Landlord Tenant Secretary
PAGE 22
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ARTICLE I.
PREMISES AND TERM
SECTION 1. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, those certain premises defined herein. The premises are within
Eastport Plaza Shopping Center (hereinafter called the "Shopping Center"). The
Development Plan of the Shopping Center is attached hereto as Exhibit A and by
this reference made a part hereof. With reference to Exhibit A, the Shopping
Center consists of Parcel A, the Landlord's property, Parcel B, not owned by
Landlord, and Parcel C, which is part the Landlord's property and part not owned
by Landlord. The legal description of Landlord's property is set forth in
Exhibit C attached hereto and by this reference made a part hereof. The Shopping
Center lies within Multnomah County, Oregon, adjacent to and partially within
the present corporate limits of the City of Portland, in said County and State.
(a) The premises shall consist of a building to be constructed of
approximately 55,000 square feet, together with approximately 5,000 square feet
of fenced garden center, in the Shopping Center. The exact location of the
building in the Shopping Center is subject to the approval of the parties, as
more particularly set forth in Article I, Section 6(a). The location of the
building shall be north of the primary buildings in the Shopping Center, and a
sketch is attached hereto as Exhibit D and by this reference made a part hereof
showing the approximate contemplated location of the building.
(b) The premises shall be improved with a building and other improvements
in accordance with the final plans and specifications, as more particularly set
forth in Article I, Section 6(a). The improvements to be constructed, as set
forth in said plans and specifications, extend beyond the exterior walls of the
building to be constructed. However, upon completion of construction of the
building and all improvements as set forth in the plans and specifications and
upon commencement of the term of this lease, the "premises" shall be deemed to
consist of that portion of the Shopping Center lying within the exterior walls
of the building and the exterior fencing of the garden center. At that time, the
walkways, landscaping, paved areas and other improvements in areas outside of
said exterior walls and fences shall become a part of the common areas and
parking areas for the general use and convenience of Tenant and other tenants of
the Shopping Center and their respective employees, customers and invitees
("accommodation areas"), and shall be subject to all of the terms and conditions
of Article V of this lease. Reference to the "premises" in this lease from and
after the commencement date shall mean the premises as defined in this
subparagraph (b).
SECTION 2. The term of this lease shall commence when the building and
improvements are substantially complete and ready for use and occupancy, or when
Tenant begins to transact business on, at or from, the premises, whichever shall
be the sooner. Said date is herein referred to as the "commencement date". No
rent shall be payable by Tenant to Landlord until said term shall have commenced
as herein provided; however, Tenant's
PAGE 1(a). Eastport Plaza Lease
<PAGE> 24
occupancy of the premises for any period prior to the commencement date shall be
subject to all other terms and provisions of this lease.
SECTION 2(a), (b), (c) SEE ATTACHED EXHIBIT E
SECTION 3. The term of this lease shall be: (i) The period from the
commencement date to the date upon which Landlord reimburses Tenant for the
construction costs (as hereinafter defined), and (ii) in the event the date of
such reimbursement occurs on a day other than the first day of a calendar month,
then plus the partial month between the date of such reimbursement and the next
succeeding first day of the calendar month, and (iii) plus twenty-five (25)
years thereafter; and this lease shall expire (unless sooner terminated as
provided herein) at midnight on the last day of the last calendar month of said
25-year period.
SECTION 4. For the purpose of this lease, a "lease year" shall mean a
period of 12 consecutive full calendar months, subject to the terms of this
Section 4. The first lease year shall begin on the first day of the calendar
month immediately succeeding the commencement date, or on the commencement date
in the event the commencement date occurs on the first day of a calendar month.
Each succeeding lease year shall commence upon the anniversary date of the first
lease year. In the event the commencement date occurs on a day other than the
first day of a calendar month, the partial month between the commencement date
and the next succeeding first day of the calendar month shall be deemed to form
a part of the first lease year. The final lease year shall end on the expiration
date of the term hereof, as set forth in Section 3 above, and the final lease
year may be less than 12 full calendar months.
SECTION 5. When the expiration date of the term of this lease is determined
pursuant to Section 3 above, Landlord and Tenant shall execute, acknowledge and
deliver a supplemental agreement in recordable form specifying the commencement
and termination dates of the term hereof.
SECTION 6. This lease is hereby made specifically contingent upon all of
the following conditions:
(a) Landlord approving the final plans and specifications for the
construction of the building and other improvements, as provided in Section 1
above, within 20 days of the date Tenant submits said plans and specifications
to Landlord. The location of the building in the Shopping Center and the design
of the building shall be subject to Landlord's approval. Said plans and
specifications shall include the design of the building, and an approval of said
plans and specifications by Landlord shall be deemed to be an approval of the
design of the building. Said plans and specifications shall include a site plan
designating the exact location of the building in the Shopping Center, and
Landlord's approval of said plans and specifications shall be deemed to be an
approval of the designated location of the building. Tenant shall submit said
plans and specifications to Landlord for approval within 20 days of the date of
execution of this lease. In determining whether said plans and specifications
will be approved, Landlord may take into consideration the general design
concept of the Shopping Center and the architectural compatibility and quality
of the building and
PAGE 2(a). Eastport Plaza Lease
<PAGE> 25
improvements to be constructed. Subject to the foregoing considerations,
Landlord's approval of said plans and specifications shall not be unreasonably
withheld. Landlord may request changes or modifications of said plans and
specifications as a condition to its approval, and Tenant shall not unreasonably
withhold its consent to modifications and amendments that may be requested. The
approval of both Landlord and Tenant shall be noted on the final plans and
specifications, and both parties shall sign said final plans and specifications.
(i) SEE ATTACHED EXHIBIT E
(b) Dayton-Hudson Corporation, a Minnesota corporation, approving this
lease within 60 days of the execution hereof.
(c) Landlord obtaining satisfactory financing of its reimbursement of the
construction costs within 60 days from the date of execution of this lease.
Landlord intends to secure a mortgage loan to finance the building and
improvements.
(d) The cost of the paving work provided for in the final plans and
specifications shall also be subject to Landlord's approval. Tenant shall submit
cost figures within 90 days of Landlord's approval of the final plans and
specifications, and Landlord shall approve or reject the cost figures within 20
days from the date of submission to Landlord. Landlord's approval shall not be
unreasonably withheld.
(e) Landlord and Tenant shall each use their best efforts and shall
cooperate with one another to meet all of the foregoing conditions. If any of
the foregoing conditions are not timely met, either party shall have the right
to terminate this lease upon written notice to the other party, and upon such
notice this lease shall terminate and be of no further force or effect, and all
rights and obligations hereunder shall cease. If this lease is terminated by
reason of failure to meet any of the foregoing conditions, and without fault on
the part of either party, each party shall pay its costs and fees incurred by it
in connection with this transaction.
ARTICLE II.
CONSTRUCTION OF PREMISES
SECTION 1. Tenant shall construct or cause to be constructed building and
other improvements in accordance with the final plans and specifications
provided by Tenant and approved by Landlord.
(a) Tenant, prior to the commencement of construction, shall obtain or
cause to be obtained, and maintained in full force and effect, at the expense of
Tenant, until the construction work is completed, the following policies of
insurance:
(i) Public liability insurance in an amount not less than $500,000.00
for personal
PAGE 3(a). Eastport Plaza Lease
<PAGE> 26
injuries, including death to any one person; not less than $1,000,000.00 for
personal injuries, including death, in any one accident; and not less than
$250,000.00 for property damage.
(ii) Workmen's compensation insurance.
The said policies of insurance shall name the Landlord and the Tenant as
insureds. Said policies of insurance may be obtained by Tenant's contractor or
subcontractors.
(b) The construction of the building and improvements by the Tenant shall
be in conformity with all applicable laws, ordinances, rules and regulations of
governmental authorities having jurisdiction. Without limiting the generality of
the foregoing, Tenant shall provide adequate safety precautions during the
period of construction for the protection of persons in the Shopping Center,
including other tenants and their employees, customers, and invitees. Prior to
the commencement of any construction, Tenant, at its expense, shall obtain from
such governmental authorities all necessary permits and authorizations for the
construction of the building and improvements.
(c) Tenant shall pay, as and when required by contract or law or otherwise,
all monies to all persons and firms entitled thereto in connection with
construction, so that the premises and the Shopping Center shall at all times be
free of liens for labor, services and materials supplied or claimed to have been
supplied in connection with Tenant's construction.
(d) Tenant shall hold harmless and indemnify Landlord and the premises from
any and all liens, claims, suits, judgments, penalties, expenses and damages
which the contractors of Tenant, their subcontractors, agents or employees or
materialmen may claim, assert, or obtain for work, labor and materials in
connection with any construction and the installation of any equipment therein.
If any lien, claim or encumbrance shall be filed or made against the Landlord or
the premises or the Shopping Center in connection with any such construction,
and/or installation of equipment therein, Tenant, at its expense, and within 30
days after notice of filing thereof, shall bond, discharge or satisfy the said
lien, claim or encumbrance.
(e) Tenant shall hold harmless and indemnify Landlord from any and all
other liability, expense, attorney's fees, causes of action, suits, claims or
judgments arising out of Tenant's construction of the building and improvements
as set forth in this lease.
(f) Upon the satisfaction of the conditions set forth in Section 6 above,
Tenant agrees to proceed promptly with the construction of the building and
improvements, and to diligently prosecute the construction to completion. All
work shall be done in a good and workmanlike manner, with good construction
practices, using first-class labor and materials.
(g) Tenant shall substantially complete construction of the building and
improvements within 180 days following the date upon which all of the conditions
set forth in Section 6 above have been satisfied. However, such period may be
extended by delays consented to in writing by Landlord and Tenant or delays
which may arise from strikes, lockouts, labor disputes, inability to obtain
labor or materials or reasonable substitutes
PAGE 4(a). Eastport Plaza Lease
<PAGE> 27
therefor, governmental restrictions, regulations or controls, acts of God, or
other causes beyond the reasonable control of Tenant or Tenant's contractors.
(h) During the period of construction, Landlord shall provide Tenant with
adequate access to the premises for purposes of such construction. The Tenant
shall not unreasonably interfere with the conduct of the operation of the
Shopping Center or the conduct of the business of the tenants of the Shopping
Center during such construction. To the extent consistent with good and
reasonable construction practices, Tenant shall keep the premises and the
surrounding areas free from unnecessary debris during the construction period.
The Landlord reserves the right to impose reasonable rules and regulations
during the construction period relating to Tenant's construction, for the
benefit of the Shopping Center, its tenants, and their employees, customers and
invitees.
SECTION 2. "Construction costs" shall mean the following costs incurred in
connection with the construction of the building and improvements:
(a) Construction contract price or prices for the construction of the
building and the improvements specified in the final plans and specifications,
including landscaping, paving, walkways and curbs as designated on said final
plans and specifications.
(b) Utility hook-up charges, exterior signs and outside lighting as
specified in said final plans and specifications.
(c) Building permits and other authorizations, cost of performance bond and
payment bond, cost of preparation of plans and specifications, architectural and
engineering fees.
(d) Builder's risk, fire and extended coverage insurance premiums and the
premiums on the insurance required by Section 1, subparagraph (a), above during
the construction period.
(e) Actual financing charges pertaining to the construction of the building
and improvements, such as points, construction interest and the like.
SECTION 3. Tenant shall cause any contractor or contractors selected by
Tenant to construct the building and improvements to be bonded with respect to
performance and payment.
SECTION 4. Upon completion of the building and improvements in accordance
with the final plans and specifications to Landlord's satisfaction and upon
expiration of the period within which any lien could be filed for labor,
materials and/or equipment, Landlord shall reimburse Tenant for the construction
costs to the extent of $825,000.00 plus the actual cost of the paving (which
shall not exceed the amount previously approved by Landlord pursuant to Article
I, Section 6(d)). The foregoing amount of $825,000.00 plus the cost of paving is
hereinafter referred to in this lease as the "maximum reimbursement".
Construction costs in excess of the maximum reimbursement, and any other costs
relative to construction of the
PAGE 5(a). Eastport Plaza Lease
<PAGE> 28
building and improvements, shall be promptly paid by Tenant without
reimbursement. Notwithstanding the construction of the building and improvements
by Tenant and notwithstanding any payment by Tenant on account of the
construction in excess of the maximum reimbursement, it is understood that
Tenant shall have no right, title or interest in said building and improvements
other than the leasehold interest as provided in this lease, and that title to
and ownership of the building and improvements shall be vested in Landlord. If
the construction costs reimbursed by Landlord to Tenant are less than the
maximum reimbursement, the rental hereunder shall be adjusted as set forth in
Article III.
SECTION 5. Landlord, at Landlord's expense, intends to construct an
extension of the existing Enclosed Mall to connect to Tenant's building. Tenant
shall give its full cooperation in connection with the construction work to be
performed by Landlord, subject to Landlord not unreasonably interfering with the
conduct of Tenant's business by reason of such construction. Landlord
contemplates completion of the extension of the Enclosed Mall within six months
of the completion of Tenant's building, and Landlord shall use reasonable
efforts and due diligence to construct such extension and to complete the
construction within the contemplated period. However, neither the construction
of such extension nor the completion of such construction within any fixed
period of time shall constitute conditions to the performance of this lease by
Tenant. Tenant shall not be liable for Enclosed Mall operation and maintenance
expense, as provided in Article XXIII, until such time as the Enclosed Mall is
connected to Tenant's building and is available for Tenant's use.
ARTICLE III.
RENT
SECTION 1. Tenant agrees to pay to Landlord, at such place or places as
Landlord shall designate from time to time in writing, rent for the premises for
each lease year as follows:
(a) Beginning upon the commencement date of the term of this lease and
continuing during the entire lease term, the greater of:
(i) "Fixed rent" as determined pursuant to subparagraph (b) below.
(ii) "Percentage rent" equal to certain perentages of the gross sales
(as hereinafter defined) for each lease year, with the percentage or percentages
to be determined pursuant to subparagraph (c) below.
(b) The fixed rent shall be $176,000.00 for the first lease year. The fixed
rent for the second lease year and for each succeeding lease year shall be
$198,000.00. Fixed rent shall be paid monthly in advance on or before the tenth
day of each calendar month during the lease term. If the final lease year of the
term of this lease is less than a full calendar year, the annual fixed rent for
that lease year shall be prorated on a monthly basis for each full calendar
month and on a daily basis for any partial month within the final lease year.
The monthly fixed
PAGE 6(a). Eastport Plaza Lease
<PAGE> 29
rent for the first lease year will therefore be $14,666.67, and the monthly
fixed rent for each succeeding lease year will be $16,500.00. If the term of
this lease commences on other than the first day of a calendar month, the fixed
rent for the initial partial month shall be prorated on a daily basis, and the
prorata amount thereof shall be paid by Tenant on or before the tenth day of the
first calendar month thereafter, together with the monthly fixed rent due for
that calendar month. The prorata amount payable for any such partial month shall
be in addition to the amount of the fixed rent provided in this Section 1 for
the first lease year.
(i) The annual fixed rent has been determined by multiplying 55,000
square feet by $3.60 per square foot, but with a reduction of $.40 per square
foot for the first lease year (i.e. 55,000 times $3.20). In the event the amount
of the construction costs reimbursed by Landlord to Tenant pursuant to Article
II, Section 4, above is less than the maximum reimbursement, the annual fixed
rent shall be adjusted and determined as set forth herein.
(ii) The annual fixed rent has been determined based on the assumption
that the mortgage loan to be obtained by Landlord to finance the construction of
the improvements will be for a term of 25 years at an interest rate of 9-1/2%
per annum. The "annual mortgage constant" referred to herein is the percentage
required to amortize the principal amount of the mortgage loan, including
interest, calculated on a monthly payment basis, and is determined by dividing
the sum of 12 monthly mortgage payments, principal and interest, by the
principal amount of the mortgage. The annual fixed rent is based upon an annual
mortgage constant of 10.49% (25 years at 9-1/2%). If the annual mortgage
constant on the permanent mortgage loan obtained by Landlord to finance the
building and improvements is less than 10.49%, the annual fixed rent shall be
adjusted as provided herein.
(iii) In determining the adjustment of the annual fixed rent, if any,
the first computation shall be to adjust on account of the amount of the
Landlord's reimbursement for construction costs being less than the maximum
reimbursement. If the reimbursement is the maximum reimbursement, this
computation will not be made. If the reimbursement is less than the maximum
reimbursement, the amount of the difference shall be multiplied by the annual
mortgage constant of 10.49%, and the amount so determined shall reduce the
annual fixed rent both for the first lease year and for each succeeding lease
year. For example, if the amount of the reimbursement is $100,000.00 less than
the maximum reimbursement, such reduction shall be multiplied by the annual
mortgage constant of 10.49%, which equals $10,490.00, and the annual fixed rent
shall be reduced by this amount. In this example, the annual fixed rent for the
first lease year would be adjusted to $165,510.00 and the annual fixed rent for
each succeeding lease year would be $187,510.00. If the actual annual mortgage
constant is less than 10.49%, the annual fixed rent will be further adjusted as
set forth in subparagraph (iv) below.
(iv) When the annual mortgage constant for Landlord's permanent
financing is determined, the annual fixed rent will be adjusted if the annual
mortgage constant is less than 10.49%. This adjustment, if applicable, will be
made in any event, whether the reimbursed construction costs are the maximum
PAGE 7(a). Eastport Plaza Lease
<PAGE> 30
reimbursement or less than the maximum reimbursement. The difference between the
actual annual mortgage constant and the assumed annual mortgage constant of
10.49% shall be multiplied by the amount of Landlord's actual reimbursement to
Tenant for construction costs, and the annual fixed rent shall be reduced by the
amount thereof. For example, if the actual mortgage loan obtained by Landlord is
for a term of 25 years and amortizes in equal monthly installments including
interest of 9%, the annual mortgage constant will be 10.08%. The difference
between the annual mortgage constants, that is .41%, will then be multiplied by
the amount of Landlord's reimbursement. For purposes of this example, assume
Landlord's reimbursement of construction costs is $825,000.00. The annual fixed
rent would therefore be reduced by $3,382.00; the annual fixed rent for the
first lease year would then be $172,618.00 and for each succeeding lease year
would be $194,618.00.
(c) The applicable percentage for percentage rent shall be three (3%)
percent of gross sales for each lease year to and including an amount computed
by dividing the annual fixed rent for each lease year by .03 (3%), and one and
one-half (1-1/2%) percent of the amount of gross sales in each lease year in
excess thereof. The point at which the percentage rent reduces from 3% to 1-1/2%
in each lease year is referred to herein as the "break point". In each lease
year, 3% of the break point will equal the annual fixed rent for that lease
year. For example, if the fixed rent is $176,000.00 for the first lease year,
the break point will be $5,866,667.00; and if the annual fixed rent during the
succeeding lease years is $198,000.00, the break point will be $6,600,000.00. In
the example set forth in (b)(iii) above, where the annual fixed rent is
determined to be $187,510.00, the break point will be $6,250,333.00. In the
example set forth in (b)(iv) above, where the annual fixed rent is determined to
be $194,618.00, the break point will be $6,487,267.00.
(d) Notwithstanding anything to the contrary set forth in this Section 1,
during the period from the commencement date of the term of this lease to the
date Landlord reimburses Tenant for the construction costs, Tenant shall be
entitled to a credit as against the monthly payments of the fixed rent. The
credit shall be computed by determining 1/12th of 10% of the amount required to
be reimbursed, and the amount so determined shall be applied as a credit each
month as against the monthly fixed rent. If a partial month should exist at the
commencement of the term and/or at the date of such reimbursement, the credit
for such partial month or months shall be prorated on a daily basis. This credit
shall have no effect upon the determination of the annual or monthly fixed rent
or the percentage rent or the determination of the break point for purposes of
percentage rent.
(e) Percentage rent, when applicable, shall be paid within 30 days after
the end of each lease year and shall be determined on the basis of the gross
sales transacted for each such lease year. Tenant shall be entitled to a credit
against such percentage rent in an amount equal to the aggregate amount of fixed
rent paid during such lease year.
PAGE 8(a). Eastport Plaza Lease
<PAGE> 31
EXHIBIT E TO EASTPORT PLAZA LEASE
ARTICLE I (PREMISES AND TERM), SECTION 2. (a) Tenant's occupancy prior to
the commencement date for the purposes of constructing the premises pursuant to
Article II of this lease shall not be deemed occupancy for the purposes of the
commencement of the term of this lease.
(b) For the purposes of the commencement of the term of this lease, the
building and improvements shall be deemed substantially complete and ready for
use and occupancy at such time as Tenant begins fixturing the premises.
(c) Notwithstanding anything to the contrary contained herein, if Tenant is
unable to substantially complete construction of the building and improvements
so as to open for business on or before October 15, 1978, because of inability
to timely obtain the necessary building or other governmental permits, labor
disputes, strikes, lockouts, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, regulations or
controls, acts of God or other causes beyond the reasonable control of Tenant,
the commencement date of this lease shall be such date as the Tenant actually
begins to transact business on the leased premises, or the date the building and
improvements are substantially complete and ready for use and occupancy,
whichever last occurs, but in no case later than March 1, 1979.
ARTICLE I (PREMISES AND TERM), SECTION 6(a). (i) In connection with the
construction of the premises by Tenant, Landlord will be constructing certain
improvements and performing certain work on the shopping center property
adjacent to, but not part of, the premises. Such work and improvements will be
shown on the final plans and specifications and designated as the responsibility
of Landlord. Such work and improvements shall be completed by Landlord in an
expeditious manner at Landlord's sole cost and expense and no portion thereof
shall be the responsibility of or chargeable to Tenant nor included in the
"construction costs" pursuant to Article II of this lease.
(ii) In the event traffic lights or other traffic control devices are
required to be installed in or near any of the public right of ways adjoining
the shopping center by any governmental authority, either as a condition for
granting a building permit for the construction of the premises or otherwise,
Landlord agrees to pay the cost thereof.
ARTICLE IV (TAXES), SECTION 2. Tenant shall pay before delinquency any and
all real property taxes and assessments of whatsoever kind or nature levied or
assessed against the land, building or other improvements constituting the
premises, as defined in Article I, Section l(b), or attributable thereto during
the term of this lease. Tenant shall deliver to Landlord copies of receipts
evidencing payment of all such real property taxes and assessments when due. All
real property taxes and assessments payable for a period, part of which shall be
within the lease term and part of which shall be either before or after the
lease
1 - EXHIBIT E
<PAGE> 32
term, shall be prorated between Landlord and Tenant. Tenant shall indemnify and
hold Landlord and the premises harmless from any and all claims, demands and
liabilities arising out of or in any way connected with all such taxes or
assessments.
(a) If the premises are a part of a larger parcel of real property which is
assessed as one property for real property tax purposes, Tenant shall pay only
that part of such tax or assessment which is attributable to the land, building
and other improvements constituting the premises. For the purpose of determining
the amount of any assessment payable by Tenant under this subparagraph (a), the
figures supplied by the Multnomah County Department of Assessment and Taxation
or other taxing authority as to the breakdown of said assessment shall be
conclusive.
(b) Tenant shall have the right, at its own cost and expense, to contest in
good faith in any proper proceeding, in the name of Landlord, if necessary, the
payment or satisfaction of any taxes, assessments, licenses, charges, liens,
penalties or claims agreed to be paid by Tenant, if the validity thereof or the
right to assess or levy the same against or collect the same from the premises
or improvements be disputed by Tenant; and Landlord agrees to cooperate with
Tenant in this regard.
ARTICLE VI (CARE AND USE OF PREMISES), SECTION 2. The premises shall be
used only for business and commercial purposes, and no industrial, manufacturing
or processing activities (except such manufacturing or processing activities as
are usual, customary and incidental to, and operated in connection with,
business and commercial enterprises selling at retail and are so conducted on
the said property) shall be conducted in the premises. Tenant shall not conduct
any auction, fire, closing out or bankruptcy sale in or about the premises, nor
obstruct the sidewalks or common areas or use the same for business or display
purposes without the prior consent of Landlord, provided, however, Tenant may
display merchandise on the common areas adjacent to the premises and may conduct
sidewalk or parking lot sales on the common areas adjacent to the premises in a
manner similar to that currently being conducted at Tenant's other stores.
Tenant shall not abuse walls, ceilings, partitions, floors, wood, stone, iron
work; nor use plumbing for any purpose other than that for which constructed;
nor make or permit any noise or odor objectionable to the public, to other
occupants of the building or to Landlord to emit from the premises; nor create,
maintain or permit a nuisance thereon; nor cause to exist, or permit to exist,
any fire hazards in the premises; nor do any act tending to injure the
reputation of the Shopping Center; nor, without Landlord's consent, place nor
permit any radio or television antenna, loud speaker or sound amplifier, or any
phonograph or other devices similar to any of the foregoing on the roof or
outside of the building or at any place where the same may be seen or heard
outside of the building without Landlord's consent; nor, where loading and
delivery services are provided, use or permit to be used front entrances for
truck delivery or pickup of merchandise or supplies to or from the premises, or
permit trucks or other delivery vehicles while being used for any such purpose
to be parked at any place within the Shopping Center except such facilities as
are specifically provided for such purpose.
2 - EXHIBIT E
<PAGE> 33
ARTICLE VI (CARE AND USE OF PREMISES), SECTION 3. Tenant agrees not to open
or operate, directly or indirectly any store substantially identical in
merchandise mix and operation to the store to be operated on the leased premises
within a radius of Two and One-half (2-1/2) miles of the Shopping Center.
ARTICLE VI (CARE AND USE OF PREMISES), SECTION 5. Tenant shall keep all
electric signs and lighted display windows on from sunset to 11:00 p.m., and
during any other hours when either the Shopping Center or the premises are open
for business. Tenant shall refer to the Shopping Center as Eastport Plaza
Shopping Center, or, such other name as may then be in use of the Shopping
Center, in designating the location of the premises in all newspaper or other
advertising, stationery, or other printed material and all other references to
the location of the premises, and shall not use the name of the Shopping Center
for any purpose other than Tenant's business address, without Landlord's written
consent. Tenant shall include the address and identity of its business
activities in the premises in all advertisements made by Tenant in which the
address and identity of any other local business activity of like character
conducted by Tenant shall be mentioned and shall not divert from the premises
any business which ordinarily would be transacted by Tenant therein. Provided,
however, Tenant may conduct, promote and advertise fire sales, discontinued,
damaged or distressed merchandise sales, closeout sales, grand opening sales,
sales and promotions of the type similar to "Crazy Days" sales and "Moonlight
Madness" sales, conducted by other shopping centers containing other stores of
Tenants, and similar types of sales and promotions at locations other than the
premises, without conducting, promoting and advertising similar sales at the
premises and may remove merchandise from the premises to such other locations
for such sales if, in the opinion of Tenant, the quality, quantity, type or
condition of such merchandise is such that it would be impractical or
uneconomical to sell, promote or advertise such merchandise on the premises.
ARTICLE VII (MERCHANT'S ASSOCIATION), SECTION 2(a). For the purposes of
SECTION 2, Tenant is a major department store.
ARTICLE IX (REPAIRS), SECTION 1. Landlord shall have no obligation
whatsoever to repair, alter, improve or maintain the premises, or any portion
thereof, during the lease term. During the lease term, at Tenant's own expense,
Tenant shall keep the entire premises and all buildings and improvements therein
and thereon in good order, condition and repair; and Tenant shall make all
repairs, alterations, restorations and/or improvements in, on or about the
premises which may be required from time to time by any legally constituted
governmental authority. Without limiting the generality of the foregoing,
Tenant's obligation to repair includes all exterior portions of the building and
fences constituting the premises. All such work shall be of a quality at least
equal to the original and shall be performed in accordance with plans and
specifications prepared by Tenant and promptly approved in writing by Landlord,
which approval shall not be unreasonably withheld. If Landlord reasonably deems
any such work necessary, Landlord may demand that Tenant perform the same
immediately; and if Tenant refuses or neglects to commence and complete same
with reasonable promptness, Landlord may cause such work to be performed of a
quality at least equal to the original, and the cost thereof shall be additional
rent payable by Tenant to
3 - EXHIBIT E
<PAGE> 34
Landlord upon demand, with interest at the rate of Ten percent (10%) per annum.
Except in an emergency creating an immediate risk of personal injury or property
damage, Landlord may not perform repairs or work which are the obligation of
Tenant unless at least thirty days before work is commenced the Tenant is given
written notice outlining with reasonable particularity the repairs or work
required, and Tenant fails within that time to initiate such repairs in good
faith.
ARTICLE X (INSTALLATIONS, SIGNS AND ALTERATIONS), SECTION 4. Landlord
hereby consents to the installation of a sign on the building similar in color,
style and size to the sign currently in place on Tenant's "G. I. Joe's" store in
Beaverton, Oregon.
ARTICLE XII (INSURANCE), SECTION 5. Tenant shall procure and maintain in
full force during the term of this lease a policy or policies of fire insurance
with standard extended coverage endorsement to the extent of the full
replacement cost of the buildings and improvements placed in or on the premises.
Each such policy shall be written by a responsible insurance company licensed to
do business in the State of Oregon and shall be subject to reasonable approval
by Landlord as to form and company. Tenant shall furnish Landlord with
satisfactory evidence of the payment of the premiums thereon at the commencement
of the term and at least Thirty (30) days prior to the expiration of each such
policy. At Landlord's option, Landlord may obtain such insurance, subject to
Tenant's reasonable approval as to form and company, and keep the same in force
and effect, and Tenant shall pay Landlord upon demand from time to time the
premium costs thereof.
ARTICLE XVII (DEFAULT), SECTION 4. Landlord agrees that its lien on
Tenant's property shall be subordinate and secondary to any lien or security
interest on said property which Tenant has heretofore or may hereafter give to
any bank or other financial or lending institution as security.
ARTICLE XXIV (GENERAL), SECTION 10. Landlord, at Landlord's expense, shall
demolish and remove what was formerly known as the Tradewell Building and
resurface the pad within Ninety (90) days from the completion of the building
and improvements by Tenant pursuant to the lease and the commencement date of
the term hereof.
ARTICLE XXIV (GENERAL) SECTION 11. Landlord intends to obtain an
appropriate zone change to permit expanded parking in the common areas
designated for parking, and landlord shall use its best efforts to obtain such
zone change. Landlord intends to cause the streets indicated in Exhibit A to be
vacated, and Landlord shall use its best efforts to vacate said streets.
However, and subject to Landlord's agreement to utilize its best efforts,
neither obtaining such zone change nor vacating said streets shall constitute
conditions to the performance of this lease by Tenant.
ARTICLE XXIV (GENERAL), SECTION 12. Tenant shall participate in at least
twelve (12) of the annual promotions of the Shopping Center by advertising in
the Eastport Plaza News owned by the Merchant's Association, with each
advertisement being not less than 100 inches in size. If, at the end of each
annual period during the term hereof, Tenant has not
4 - EXHIBIT E
<PAGE> 35
complied with this requirement, Tenant shall pay to the Promotional Fund, in
addition to the amounts required to be paid pursuant to Article VII, the
difference between the cost of 1,200 inches of such advertising and the actual
cost expended by Tenant during such period. The reference to "annual" or "annual
period" in this Section 12 shall mean a January 31st fiscal year, which is the
fiscal year of the Merchant's Association. Tenant's advertising requirement
shall be prorated for any partial "annual period" existing at the commencement
of the term or at the expiration of the term of this lease.
ARTICLE XXV.
OPTION TO RENEW
SECTION 1. If Tenant shall not then be in default of any term, condition or
covenant contained herein, Tenant shall have the option to renew this lease for
two (2) separate and successive periods, herein called "extended terms", of five
(5) years each by giving written notice of each renewal at least six (6) months
prior to the expiration of the then current lease term. The terms and conditions
for each extended term shall be identical with the original term of this lease
except for the fixed and percentage rent during such periods, which shall be
computed as provided below in this Article.
SECTION 2. Beginning upon the effective date of each of the extended terms
and continuing during each of the extended terms, the annual fixed rent shall be
the fair (i.e. market) rental value of the premises upon the effective date of
the extended term. The parties shall mutually agree as to the fair rental value
of the premises upon the effective date of each of the extended terms, and the
amount agreed upon shall constitute annual fixed rent. If the parties are unable
to mutually agree upon the fair rental value not less than ninety (90) days
prior to the effective date of each of the extended terms, then the fair rental
value shall be determined by arbitration as set forth in Section 3 below.
SECTION 3. If arbitration is required to determine the annual fixed rental
for either extended term, the arbitration procedure shall be as follows: The
parties shall attempt to mutually agree upon one arbitrator to make the
determination, and if they are unable to agree upon one arbitrator within 15
days after arbitration is called for by either party, each party shall appoint
one arbitrator forthwith and the two arbitrators shall appoint a third
arbitrator. The three arbitrators shall make a determination of the fair rental
value of the premises with all reasonable dispatch, and a decision of two of the
three arbitrators shall be final and binding upon the parties hereto. Any
arbitrator selected hereunder shall be independent and qualified in the
commercial real property field, and shall have had appraisal experience in the
Portland metropolitan area. The cost of arbitration shall be borne equally by
both parties. The determination of the fair rental value of the premises by the
arbitrators shall constitute the annual fixed rental, and shall be effective as
of the commencement of the applicable extended term.
SECTION 4. The annual fixed rent for an extended term shall be divided by
.03 (3%), and this amount shall constitute the "break point" during such
extended term. The applicable
5 - EXHIBIT E
<PAGE> 36
percentage for percentage rent during such extended term shall be Three percent
(3%) of gross sales for each lease year to and including the "break point", and
One and One-half percent (1-1/2%) of the amount of gross sales in each lease
year in excess thereof. Therefore, only the annual fixed rent for an extended
term will be redetermined as provided herein, the percentages to and from the
"break point" will remain the same as during the original term, and the "break
point" will be automatically adjusted when the annual fixed rent is determined
for such extended period.
SECTION 5. All other charges or additional rent provided for during the
original term of this lease shall remain in full force and effect during any
extended term.
6 - EXHIBIT E
<PAGE> 37
Exhibit A Map insert
<PAGE> 38
The following described real property in Section 9, Township 1 South, Range
2 East of the Willamette Meridian, in the County of Multnomah and State of
Oregon:
PARCEL I:
Beginning at a point on the east line of S.E. 82nd Avenue, which is North
0(degree) 32' 20" East 458.44 feet and South 89(degree) 55' 10" East 35.0 feet
from the southwest corner of Section 9, Township 1 South, Range 2 East of the
Willamette Meridian; thence North 0(degree) 32' 20" East along the east line of
S.E. 82nd Avenue, 173.39 feet; thence North 88(degree) 16' 20" West 5.00 feet;
thence North 0(degree) 23' 20" East, 568.23 feet; thence South 89(degree) 49'
20" East along a part of the Northerly boundary of the tract conveyed by deed of
Anlauf, recorded December 8, 1959 in Book 1987 page 271, Deed Records, 100.00
feet; thence North 0(degree) 32' 20" East along the western boundary of lands
conveyed by deed of Claunder, recorded January 25, 1960 in Book 1992 page 607,
Deed Records 186.09 feet to the south line of S.E. Francis Street; thence South
89(degree) 59' 20" East along said south line of S. E. Francis Street, 516.65
feet to the East line of S. E. 84th Avenue; thence North 0(degree) 05' 20" East
along the east line of S. E. 84th Avenue, 150.02 feet to the Northwest corner of
Lot 11, Block 8, Grand View Heights; thence South 89(degree) 59' 20" East,
410.00 feet; thence North 0(degree) 05' 20" East 99.99 feet to the South line of
S. E. Bush Street; thence South 89(degree) 59' 20", East along said South line
of S. E. Bush Street, 160.03 feet to a point which is South 89(degree) 59' 20"
East 35.00 feet from the northeast corner of Lot 1, Block 8, Grand View Heights;
thence South 0(degree) 09' 00" West 436.08 feet to a point which is the
northernmost point of the common Boundary between lands of Fligelman and Meltzer
acquired by deed from Norris, Beggs & Simpson, dated and recorded April 6, 1956
in Book 1777 page 427 Deed Records, and adjoining lands of Multnomah County
School District No. 1, as established by joint deed of Fligelman and Meltzer and
of said School District, dated November 14, 1958 recorded December 1, 1958, in
Book 1930 page 328, Deed Records; thence along said common boundary as
established by said joint deed and its extension South 0(degree) 09' 00" West,
124.07 feet; thence South 89(degree)44' 30" West 0.18 feet; thence South
0(degree) 32' 20" West 476.08 feet to the Northwest corner of Block 6, Arden
Park, as actually platted; thence South 88(degree) 15' 10" East along the north
line of Block 6, Arden Park, as actually platted, 173.45 feet to the west line
of S. E. 87th Avenue; thence South 0(degree) 04' 50" West along the West line of
S. E. 87th Avenue to the Southeast corner of Lot 4, Block 6, Arden Park, 159.55
feet; thence North 88(degree) 14' 10" West along the Southern Boundary of said
Lot 4, 99.99 feet; thence North 0(degree) 04' 50" east along the western
boundary of said Lot 4 to its intersection with the southern boundary of Lot 9,
Block 6, Arden Park, 20.00 feet; thence North 88(degree) 14' 10" West along the
southern boundary of Lot 9 and 10, Block 6, Arden Park, 73.43 feet; thence South
0(degree) 03' 20" West to the southeast corner of lands conveyed by deed from
Norris, Beggs & Simpson, dated and recorded April 6, 1956 in Book 1777 page 427,
Deed Records, 3.06 feet; thence North 89(degree) 55' 10" West along the southern
boundary of said lands as described in said deed, 1185.22 feet to the point of
beginning.
TOGETHER with the benefits of that certain Cross Easement Agreement and
Declaration Imposing Covenants recorded November 1, 1960 in Book 2035 page 320,
Deed Records; ALSO TOGETHER with the benefits of that certain Cross Easement
Agreement
EXHIBIT C
<PAGE> 39
recorded March 6, 1975 in Book 1030 page 1066, Deed Records, so long as the
parties shall not be in default under said Agreements and so long as said
Agreements have not expired or been terminated in accordance with their terms.
EXCEPT the following described tract:
Beginning at a point in the Southwest quarter of Section 9, Township 1
South, Range 2 East of the Willamette Meridian, said point being North 0(degree)
23' 20" East along the center line of S. E. 82nd Avenue, a distance of 742.17
feet and South 89(degree) 55' 10" East, 751.66 feet from the Southwest corner of
Section 9, Township 1 South, Range 2 East of the Willamette Meridian; thence
North 0(degree) 04' 50" East 458.89 feet to a point in the South line of Block 9
Grand View Heights, a duly platted addition; thence South 89(degree) 59' 20"
East along said line, being a common boundary between said Block 9 and that
certain tract conveyed by deed from Norris, Beggs & Simpson, dated and recorded
April 6, 1956 in Book 1777 page 427, deed Records, 470.36 feet; thence South
0(degree) 09' 00" West along the common boundary between the property conveyed
by deed from Norris, Beggs & Simpson, dated and recorded April 6, 1956 in 1777,
page 427, Deed Records, and adjoining lands of School District No. 1, Multnomah
County, as established by joint deed of said School District and Fligelman and
Meltzer, dated November 14, 1958, recorded December 1, 1958 in Book 1930 page
328, Deed Records, 124.07 feet, thence South 89(degree) 44' 30" West along said
common boundary, 0.18 feet; thence South 0(degree) 32' 20" West continuing along
said common boundary, 335.42 feet; thence North 89(degree) 55' 10" West 202.50
feet; thence South 0(degree) 04' 50" West 16.10 feet; thence North 89(degree)
55' 10" West 96.65 feet; thence North 0(degree) 04' 50" East 16.10 feet; thence
North 89(degree) 55' 10" West 168.22 feet to the point of beginning.
EXHIBIT C
<PAGE> 1
EXHIBIT 10.4
L E A S E
THIS AGREEMENT OF LEASE, Entered into this 10th day of May, 1973, by and
between CENTER DEVELOPMENTS OREG., LTD., an Oregon Limited Partnership,
hereinafter referred to as "Landlord," and G. I. JOE'S, INC., an Oregon
Corporation, hereinafter referred to as "Tenant."
W I T N E S S E T H :
ARTICLE I
Premises and Term
In consideration of the covenants and agreements herein contained to be
kept and performed by the Tenant, the Landlord does hereby lease, demise, and
let unto Tenant, for the term hereinafter specified, those certain premises
located in the City of Beaverton, County of Washington, State of Oregon,
described as follows:
That certain store premises known as Building No. 1,000, Bernard's
Beaverton Mall, containing approximately 55,000 square feet; the legal
description of the said Mall being attached hereto as Exhibit "B," and
the location of said building in relationship to the property lines of
said Exhibit "B" being attached hereto as Exhibit "A."
TO HAVE AND TO HOLD unto the said Tenant the above described premises,
together with all improvements, appurtenances, rights, privileges, and easements
thereunto belonging or in any wise appertaining, upon the conditions, covenants,
and agreements hereinafter set forth for a term commencing on the day that
Tenant opens for business to the public or fifteen (15) days after delivery of
the leased premises substantially completed by Landlord and ready for occupancy,
whichever is
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<PAGE> 2
earlier, and ending fifteen (15) years from the first day of the month following
the month in which the lease term commences. Landlord agrees that it will not
deliver the leased premises to Tenant prior to January 16, 1974. There is
attached hereto as Exhibit "D" an Acceptance Letter that Tenant shall execute
upon the commencement of the term commencing the date thereof.
ARTICLE II
Rent
Tenant shall pay to Landlord, as rental therefor, the following amounts,
determined and payable in the manner and at the times set forth below, to wit:
A. Receipt of Ten Thousand Five Hundred Forty-one and 67/100 Dollars
($10,541.67), first month's basic rent is acknowledged by Landlord.
B. Rental payments otherwise shall commence upon commencement of the term.
In the event that the time for such commencement falls on any other day than the
first day of the calendar month, coincident therewith Tenant shall pay to
Landlord pro-rata such of the basic rental hereinafter set forth as the days
remaining in such month bear to thirty (30) days.
C. Basic Rent. For the period commencing on the first day of the first
month after the commencement of the lease term and continuing to the end of the
lease term, Tenant shall pay to Landlord a basic monthly rental of Ten Thousand
Five Hundred Forty-one and 67/100 Dollars ($10,541.67) for each and every
calendar month, payable in advance and upon the first day of each month.
2 - LEASE
<PAGE> 3
D. Percentage Rent. In addition to the basic rent hereinabove set forth,
Tenant shall pay to Landlord as additional rental an amount equal to One and
One-half Percent (1-1/2%) of Tenant's annual gross sales for each of Tenant's
fiscal years during the term of this lease in excess of Four Million Two Hundred
Twenty Thousand and No/100 Dollars ($4,220,000.00). Tenant's fiscal year is from
March 1 through the last day in February. The annual exclusion for the first and
last years of the lease shall be prorated to the first day of the first full
month and the last day of the last full month of the lease term, respectively.
1. The term "gross sales" includes the sale price of all merchandise
sold or delivered or sums received for services performed from, in, or about the
leased premises. Excluded from the "gross sales" shall be any sums collected and
paid out for any sales tax or any other excise tax imposed upon the sale; the
exchange of merchandise between stores of Tenant; the amount of any cash or
credit refund made upon any sale; the amount of returns to suppliers or
settlement of claims received in settlement of losses; and the amount received
from the sale of motor oil and antifreeze (and such other promotional items as
Landlord may consent to exclude from "gross sales" because such items are being
sold at or near Tenant's cost, which consent will not be unreasonably withheld).
2. Payments of percentage rent shall be made on the 15th day of each
month for the immediately preceding calendar month, with an adjustment to an
annual basis at the end of each fiscal year of Tenant as provided below. Each
3 - LEASE
<PAGE> 4
monthly payment shall be determined by applying the above percentage to the
aggregate gross receipts for the portion of the fiscal year through the
preceding month in excess of the applicable portion of the annual exclusion
(pro-rated on a 12-month basis), and deducting the percentage rentals previously
paid in respect of that fiscal year. A statement setting forth how the
percentage rent for the preceding calendar months is computed and reconciled
with the payment shall be submitted to Landlord with each monthly payment.
3. On or before March 31st of each year, Tenant shall submit to
Landlord an unaudited statement for the preceding fiscal year showing Tenant's
total gross sales from the leased premises, the aggregate percentage rent
payable, and the amount actually paid. Any deficiency shall be paid upon
submission of this statement. Any excess shall be reimbursed to Tenant by
Landlord within thirty (30) days after receipt of this statement unless within
that time Landlord requests an audit as hereinafter provided.
E. Common Area Maintenance. As further additional rental, Tenant shall pay
to Landlord the following sums of money each and every calendar month during the
life of this lease for the maintenance of the common areas and the servicing of
their facilities, save snow removal as provided for hereinafter: The sum of Four
Hundred Fifty-eight and 33/100 Dollars ($458.33) per month for the first five
(5) years of said term, together with an increment of Ten Percent (10%), or
Forty-five and 83/100 Dollars ($45.83), per month thereafter for the second five
(5) years, and a like
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increment of Ten Percent (10%) to the sum thereof for the third five (5) years,
and at each succeeding five-year interval thereafter.
F. Tenant shall pay for the removal of snow from the common areas a
pro-rata share of the cost thereof in the ratio that the square footage of the
demised premises bears to the total square footage of all buildings located on
the real property described in Exhibit "B."
G. Unless otherwise directed by Landlord, the Tenant shall pay all rentals
due under this lease to the order of Center Developments, Oreg., Ltd., and
addressed as to be hereinafter designated.
ARTICLE III
Construction
A. Landlord shall, at its sole cost and expense, construct upon that area
designated by cross hatching on Exhibit "A," a building for occupancy by Tenant,
incorporating the list of Tenant's building requirements set forth in Exhibit
"C" hereto attached. Said building shall be built in
5 - LEASE
<PAGE> 6
accordance with complete architectural, mechanical, and electrical plans and
specifications to be prepared at Landlord's expense and thereafter to be
approved by Landlord and Tenant in writing; provided, however, that Tenant's
approval shall not relieve Landlord from constructing such building in
accordance with the requirements hereinafter specified in this Paragraph. Upon
final approval by the Tenant, the plans and specifications shall be, by this
reference, incorporated herein as part of this lease. The building shall be
built in accordance with all applicable building codes and regulations, and
up-to-date and safe building requirements. The workmanship and materials shall
be of first-class quality, and the building shall be complete in all respects
and suitable for occupancy by Tenant.
B. Tenant shall have the right to occupy the premises even before the same
are substantially completed for the purpose of performing fixturing and such
other work as it may desire to do, provided the same shall not interfere with
the work being performed by Landlord in completing the leased premises, but
Tenant's responsibility for the payment of utilities used by Tenant shall
commence upon such entry.
ARTICLE IV
Covenant to Pay Rents; Waste; Liens
Tenant covenants to pay said rental promptly at the times and in the manner
herein stipulated; not to commit or suffer any strip or waste of said premises;
to keep the leased property free from all liens of every kind and description
caused or incurred by any act or omission of the Tenant, including, but not
limited to, the work to be performed by Tenant pursuant to Article III hereof.
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ARTICLE V
Use of Premises
TENANT COVENANTS:
A. That it intends to operate under the trade name of G.I. JOE'S, INC., and
shall use the premises solely for the purpose of conducting the business of
operating a retail store.
B. That it will make no unlawful, improper, or offensive use of said
premises, or any portion thereof, and, during said term or any extension
thereof, will comply with all statutes of the United States and/or the State of
Oregon and with all ordinances, rules, regulations, and laws of other
governmental authorities applicable to said building and the general use
thereof, provided that Tenant shall not be required to pay for any capital
improvements to the leased premises required thereby.
C. That Tenant shall not use or permit the leased premises to be used for
any purpose other than provided in this lease. That Tenant will not use or
permit the use of the premises in any manner that will create a nuisance or a
danger to life or limb, or that will unnecessarily disturb other tenants or
occupants of the Shopping Center or tend to injure the reputation of the
Shopping Center, or increase any insurance rates upon the premises or other
portions of the Shopping Center. All deliveries to the leased premises shall be
made to the rear entrance, if any.
D. That Tenant shall occupy the leased premises on or before the
"commencement date," shall continuously and uninterruptedly conduct its business
7 - LEASE
<PAGE> 8
therein during all normal business days and hours, unless prevented from doing
so by causes beyond Tenant's control and except during reasonable periods for
repairing, cleaning, and decorating the leased premises.
E. Days and minimum business hours shall be set by Tenant at its
discretion, save that it shall not arbitrarily exercise the same, the intent
hereof to be to provide for like days and hours as observed by Tenant's other
stores in the Portland metropolitan area.
F. That Tenant shall carry at all times a stock of merchandise of such
size, character, and quality as shall be reasonably designed to produce the
maximum return to Landlord and Tenant.
G. That Tenant shall install and maintain at all times displays of
merchandise in the display windows (if any) of the leased premises, and may,
from time to time, display merchandise in and about the exterior of the leased
premises.
H. That Tenant shall use for office, clerical, and other nonselling
purposes only such space in the leased premises as is, from time to time,
reasonably required for Tenant's business.
ARTICLE VI
Utilities
Tenant covenants to pay promptly upon their due date all water, light,
power, and/or other utility service charges, including garbage, trash removal,
and sewage
8 - LEASE
<PAGE> 9
disposal, for all such services used by Tenant in or about the premises, whether
such bills be presented before or after the termination of Tenant's occupancy.
A. That Landlord shall not be liable for any interruption or failure in the
supply of any utility to the leased premises or to the Shopping Center.
B. That if Landlord purchases power in bulk for distribution to Tenant
through the meter located on the demised premises, Tenant will pay to Landlord
the separate user rate applicable to Tenant pursuant to the rules and
regulations of the Public Utility Commission of the State of Oregon were it
purchasing such power directly from Landlord's supplier.
ARTICLE VII
Surrender
Tenant covenants that at the end of said term, or upon any sooner
termination of this lease, to quit and deliver up said premises to the Landlord
peaceably and quietly and in as good order and condition, reasonable use and
wear thereof, fire, and other insured casualties excepted, as the same now are
or may be hereafter put into during the term of this lease.
ARTICLE VIII
Records and Audits
Tenant covenants that for the purpose of ascertaining the amount payable as
percentage rent, the Tenant agrees to maintain in its main office (presently
8900 N. Vancouver Avenue, Portland, Oregon), books of account which shall
clearly and
9 - LEASE
<PAGE> 10
accurately show gross sales made by the Tenant, its subtenants, licensees, and
concessionnaires at the leased premises, and to permit the Landlord or
Landlord's agent to inspect the same at all reasonable times.
A. In the event that Landlord causes an audit of Tenant's records to be
conducted by a Certified Public Accountant and said audit results in the
determination that there were two or more percent of gross sales as defined
herein more than reported by Tenant, the Tenant agrees to pay for the cost of
said audit.
ARTICLE IX
Merchants' Association
Tenant covenants to join a merchants' association comprised of Landlord and
other tenants of the Shopping Center engaged in commercial business and to
participate fully and to remain in good standing in such association.
A. Tenant covenants that coincident with the term of this lease it shall
pay a monthly dues to said association in the sum of not less than Two Hundred
Dollars ($200.00).
B. There is in existence at the time of the execution of this lease a
merchants' association incorporated as a non-profit Oregon corporation and known
as Beaverton Mall Merchants' Association and, as such, governed by Bylaws and a
duly constituted Board of Directors as provided for therein. Tenant acknowledges
that said corporation satisfies the terms of this Article hereinabove set forth
and covenants that
10 - LEASE
<PAGE> 11
it will join the same in fulfillment of this Article until Landlord shall
designate otherwise.
ARTICLE X
Insurance
Tenant covenants that it shall, during the entire lease term (and during
the period of any construction by Tenant pursuant to Article III), keep in full
force and effect a policy of public liability and property damage insurance with
respect to the leased premises, sidewalks in front of the leased premises, and
the business operated by Tenant and any subtenants of the Tenant. The policy
limits for public liability shall not be less than One Hundred Thousand Dollars
($100,000.00) per person and Three Hundred Thousand Dollars ($300,000.00) per
accident, and for property damage liability shall not be less than Fifty
Thousand Dollars ($50,000.00). The policy shall name the Landlord and any
persons designated by the Landlord, as well as the Tenant, as insured and shall
contain a clause that the insurer will not cancel or change the insurance
without giving the Landlord ten (10) days prior notice. The insurance shall be
in a reputable insurance company, and a certificate of insurance shall be
delivered to the Landlord.
A. Tenant covenants that it will not keep, have, or sell in or upon the
leased premises any article which may be prohibited by the standard form of fire
insurance policy. Tenant agrees to pay any increase in premiums for fire and
extended coverage insurance that may be charged during the term of this lease
resulting from the type of
11 - LEASE
<PAGE> 12
merchandise stocked, maintained, or sold by the Tenant in the leased premises
whether or not Landlord has consented to the same. A schedule issued by the
organization making the insurance rate on the Shopping Center shall be
conclusive evidence of the several items and charges which make up the fire
insurance rate. In the event any change in the nature of Tenant's occupancy
causes any increase of premiums for casualty or fire insurance policies carried
by Landlord on the leased premises, the Tenant shall reimburse Landlord, on
demand, for such additional premiums. Such additional premiums shall be payable
as additional rent hereunder.
ARTICLE XI
Signs
Tenant will maintain any signs installed by it in good condition and repair
at all times, remove the same at the expiration of the lease, and repair all
damage caused by such removal, and Tenant shall save Landlord harmless from any
damage caused by the erection, maintenance, and removal of such signs. Landlord
hereby consents to Tenant's placing, from time to time, advertising signs in its
windows and installing a free-standing sign on the Shopping Center premises
along Cedar Hills Boulevard, providing such sign complies with City and County
sign ordinances and overall design requirements of the Shopping Center.
12 - LEASE
<PAGE> 13
ARTICLE XII
Air Conditioning and Heat
Tenant covenants to maintain its air conditioning and heating systems at
appropriate temperatures for the convenience of its shopping public.
IT IS MUTUALLY COVENANTED:
ARTICLE XIII
Taxes and Assessments
A. The Landlord will pay in the first instance all real property taxes that
may be assessed against the land and improvements of which the leased premises
are a part. Tenant will pay promptly when due all taxes assessed upon Tenant's
fixtures, furnishings, equipment, and stock, leasehold interest, or other
personal property in or upon the leased premises.
B. If the amount of the real property taxes levied or assessed against some
or all of the land described in Exhibit "B," and the buildings located thereon,
shall, in any year during the term, exceed the amount of taxes on such land and
buildings paid in the first tax year in which the assessment included the value
of the improvements placed upon the leased premises by the Landlord pursuant to
this lease, then Tenant shall pay to the Landlord the proportion of such excess
that the square footage of the leased premises bears to the total square footage
of all buildings on the parcel of real property against which the taxes are
levied or assessed. Such excess amounts shall be ratably reduced if applicable
to periods of time prior to or subsequent to the term of
13 - LEASE
<PAGE> 14
this lease.
C. Landlord will pay all other public liens and assessments not otherwise
specifically provided for herein which may hereafter lawfully be imposed or
assessed against said premises, provided, however, that Tenant shall pay to
Landlord a pro-rata portion of such lien or assessment, and such pro-rata
portion shall be that fractional part of the total lien or assessment as the
total area of the herein leased premises bears to the total floor area of all
buildings then located on the real property described in Exhibit "B."
D. Payment required by Tenant pursuant to this Article shall be due and
payable as rent for the month next succeeding Landlord's presentation to Tenant
of proof of Tenant's obligation for the same.
ARTICLE XIV
Common Area
The Common Area shall consist of all portions of the Shopping Center except
where buildings are constructed. There shall be included therein a designated
parking area according to the standard of not less than Five and One-half
(5-1/2) car spaces per One Thousand (1,000) square feet of retail selling area
in the entire Shopping Center, of which the leased premises are a part.
A. Landlord shall operate and maintain such Common Area and parking area
and keep the same free of rubbish and shall institute reasonable snow removal
and shall keep said parking area and the driveway, sidewalks, and exterior
pedestrian
14 - LEASE
<PAGE> 15
malls lighted at such time during the hours of darkness as the Tenant's store in
the Shopping Center shall be open for business.
B. The Landlord shall place and maintain markings on the surface of the
parking area and driveways in such a manner as to provide for the orderly
parking of automobiles and shall provide adequate exits and entrances with signs
directing traffic in and out of said parking area.
C. Tenant shall keep sidewalks and service areas abutting the leased
premises safely free of rubbish, snow, and ice, and shall maintain and operate
adequate marquee lighting abutting the leased premises consistent with the
lighting hours of the Shopping Center.
D. Tenants and their employees will park their cars and/or trucks only in
areas designated, from time to time, by the Landlord for that purpose.
ARTICLE XV
Maintenance and Repair of Leased Premises
A. The Tenant shall at all times keep the leased premises in good order,
condition, and repair, including reasonably periodic painting of the interior of
the leased premises. Tenant's duty to maintain includes, but is not limited to,
maintaining exterior and interior entrances and fronts, interior walls, all
glass windows, doors, fixtures, equipment, lighting, heating, plumbing fixtures,
and air conditioning, and all interior portions of the leased premises.
15 - LEASE
<PAGE> 16
B. Landlord will maintain the exterior walls and the exterior roof,
including reasonably periodic painting of any exterior wall requiring painting.
C. If either party refuses or neglects to make repairs as required as soon
as reasonably possible after written demand, the other party may make such
repairs, without liability for interruption of the conduct of business on the
premises, and, upon completion of the repairs and the presentation of a bill,
the cost of such repairs shall be paid by the party required to make such
repairs. At the Landlord's election, such sums owed by Tenant may be deemed
additional rent.
ARTICLE XVI
Destruction of Premises
A. If the leased premises are damaged by fire or other casualty against
which the Landlord is insured but are not thereby rendered either partially or
wholly untenantable, Landlord shall, at its own expense, cause such damage to be
repaired, and the rent shall not be abated.
B. If by reason of such occurrence, the premises shall be rendered
partially untenantable, Landlord shall at its own expense cause the damage to be
repaired, and the fixed basic rental meanwhile shall be abated proportionately
as to the portion of the premises rendered untenantable.
C. If the premises shall be rendered wholly untenantable by reason of such
occurrence, the Landlord shall at its own expense cause such damage to be
repaired, and the fixed basic rent meanwhile shall be abated except that
Landlord shall have the
16 - LEASE
<PAGE> 17
right, which may be exercised by notice, in writing, delivered to Tenant within
Sixty (60) days from and after such occurrence, to elect not to reconstruct the
destroyed premises, and in such an event this lease and the tenancy hereby
created shall cease as of the date of that occurrence, the rent to be adjusted
as of that date.
D. Nothing in this section shall be construed to permit the abatement in
whole or in part of the rate of the percentage rent.
ARTICLE XVII
Waiver of Subrogation Rights
A. Landlord hereby releases Tenant from any and all liability and waives
Landlord's rights of recovery against Tenant, its agents and employees, for any
loss or damage to Landlord's property resulting from any hazard insurable under
a landlord's fire and extended coverage policy of insurance, including, but not
limited to, theft, fire, smoke, explosion, or water damage, and Landlord hereby
waives the subrogation rights of its insurance carriers under Landlord's
policies of insurance providing coverage against loss or damage by any such
hazard. Landlord shall take such steps as are necessary to inform its insurance
carriers of this provision and to have endorsements, if necessary, placed on
said insurance policies to carry into effect the provisions of this Paragraph.
B. Tenant hereby releases Landlord from any and all liability and waives
Tenant's rights of recovery against Landlord, its agents and employees, for any
loss or damage to Tenant's property resulting from any hazard insurable under a
merchant
17 - LEASE
<PAGE> 18
tenant's fire and extended coverage policy of insurance, including, but not
limited to, theft, fire, smoke, explosion, or water damage, and Tenant hereby
waives the subrogation rights of its insurance carriers under Tenant's policies
of insurance providing coverage against loss or damage by any such hazard.
Tenant shall take such steps as are necessary to inform its insurance carriers
of this provision and to have endorsements, if necessary, placed on said
insurance policies to carry into effect the provisions of this Paragraph.
C. In particular, Landlord shall not be liable for any damage to property
of Tenant or of others located on the leased premises, nor for the loss of or
damage to any property of Tenant or of others by theft or otherwise. Landlord
shall not be liable for injury or damage to property resulting from fire,
explosion, sprinklers, falling plaster, steam, gas, electricity, water, rain,
snow, or leaks from any other part of the leased premises or leaks from the
pipes, appliances, or plumbing works or leaks from the roof, street or
subsurface, or from any other place or by dampness. Landlord shall not be liable
for any latent defect in the leased premises or in the building of which they
are a part after One (1) year from the date Tenant takes possession of the
leased premises. Tenant assumes the risk of all property kept or stored in the
leased premises and shall hold Landlord harmless from any claims arising out of
damage to the same. Tenant shall give immediate notice to the Landlord in case
of fire or accidents in the leased premises or in the building of which the
premises are a part, or defects therein or in any fixture or equipment.
18 - LEASE
<PAGE> 19
ARTICLE XVIII
Indemnity
A. The Tenant agrees that it will at all times indemnify and hold the
Landlord harmless against all actions, claims, demands, costs, damages, or
expense of any kind on account thereof, including costs of defense, which may be
brought or made against the Landlord, or which the Landlord may pay or incur by
reason of the Tenant's negligent performance of or failure to perform any of its
obligations under this lease.
B. The Landlord agrees that it will at all times indemnify and hold the
Tenant harmless against all actions, claims, demands, costs, damages, or expense
of any kind on account thereof, including costs of defense, which may be brought
or made against the Tenant, or which the Tenant may pay or incur, by reason of
the Landlord's negligent performance of or failure to perform any of its
obligations under this lease.
ARTICLE XIX
Eminent Domain
If the demised premises be damaged by the exercise of the right of Eminent
Domain or by the change of grade of an adjacent street or other activity by a
public body irrespective of whether such damage involves a physical taking of
any portion of the property, this shall be considered a taking. If the extent of
the taking is such that the demised premises are no longer suitable for the
purpose for which the tenancy is
19 - LEASE
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created, this shall be considered a total taking. Any other taking shall be
considered a partial taking.
A. In the case of a total taking, the lease shall terminate at the date the
property is rendered unsuitable for the purposes of the tenancy, and all
compensation therefor, whether fixed by agreement or judicial award, shall be
paid Landlord, and Tenant shall have no claims against Landlord for the value of
any unexpired term of this lease.
B. If more than Twenty Percent (20%) of the store building, determined on a
square footage basis, or more than Fifty Percent (50%) of the designated parking
area, determined on a square footage basis, is taken, the Tenant, at its option,
to be exercised by written notice to Landlord within Sixty (60) days of such
taking, may elect to terminate this lease for all purposes, and rent shall be
abated as of the date specified in the notice, and Tenant shall have no claim
against Landlord for the value of any unexpired term of this lease. PROVIDED
HOWEVER:
1. In avoidance of Tenant's right to terminate for the lack of parking
as hereinabove set forth, Landlord shall have a reasonable time in which to
provide a new parking area that restores to not less than Eighty-five Percent
(85%) of the originally existing parking area parking which is continguous to
the real property described in Exhibit "B" and is freely available to the
buildings located thereon.
2. That for the purposes of this provision, and of the total
provisions of this Article, existing highway and/or sidewalk right-of-way lines
for public passage
20 - LEASE
<PAGE> 21
presently bordering the property described in Exhibit "B" can be altered by an
appropriate public body to extend said right-of-way Twenty (20) feet into the
same from their present location for the purpose of widening said highways
and/or sidewalks, and no such taking for such purpose within said Twenty (20)
feet that affects any parking area shall be considered a taking of any such
parking area for any of the purposes set forth herein.
C. In case of a partial taking and if this lease is not terminated, the
Landlord shall repair the demised premises to the original plan at its own
expense, but the Landlord shall not be obligated to expend for such repairs an
amount greater than the compensation due from the condemning authority.
D. In case of any partial taking, all compensation, whether fixed by
agreement or judicial award, shall be due the Landlord, and if the lease is not
terminated as above provided, the rent shall be reduced to the extent of
diminution of value of the premises save that no diminution shall be presumed
from the mere fact of taking.
ARTICLE XX
Options
The Tenant is hereby granted an option to renew this lease for a period of
Ten (10) years commencing from the expired date hereof. In the event the Tenant
has fully and faithfully performed all of the covenants and conditions of this
lease during the extended term, he shall have the option to extend this lease
for two (2) additional
21 - LEASE
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Ten (10) year periods and one additional four (4) year period, in that sequence.
Each of the renewal terms shall commence on the day following the date of
termination of the preceding term, and the terms and conditions of the lease for
each renewal term shall be identical with the original term. The option may be
exercised by written notice to the Landlord given not less than Ninety (90) days
prior to the last day of the expiring term. The giving of such notice shall be
sufficient to make the lease binding for the renewal term without further act of
the parties.
ARTICLE XXI
Alterations and Fixtures
No alterations can be made without written permission of Landlord. All
alterations or additions which cannot be removed from the leased premises
without irreparable damage thereto shall also constitute a part of the leased
premises and shall also remain thereon. Such other alterations, additions, or
improvements as are made and paid for by Tenant, and which are removable without
irreparable damage to the premises, may be removed by the Tenant at any time,
and Tenant shall repair any damage so incurred at the time of such removal. All
trade fixtures, and other fixtures not referred to above, and all machinery,
equipment, and/or other items of personal property placed in or upon the leased
premises by the Tenant and paid for by it, may be removed by it at any time.
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<PAGE> 23
ARTICLE XXII
Examination of Premises
The Landlord, or its agents or representatives, may at any or all
reasonable times enter into or upon said premises or any part thereof for the
purpose of examining the condition thereof, and for the purpose of making any
repairs which Landlord is either required to or may desire to make to said
premises.
ARTICLE XXIII
23 - LEASE
<PAGE> 24
Assignment and Subletting
The Tenant shall not assign this lease in whole or in part, nor sublet all
or any part of the leased premises, without prior written consent of the
Landlord in each instance. The Landlord reserves the right to impose such
conditions upon assignment or subletting as in the circumstances may be
reasonable and necessary. No assignment or sublease shall accomplish a novation,
and Tenant shall remain fully liable on this lease and shall not be released
from performing any of the terms, convenants, and conditions of the lease.
ARTICLE XXIV
Subordination
Upon request of the Landlord, Tenant will subordinate its rights hereunder
to the lien of any first mortgage now or hereafter in force against the land and
buildings of which the leased premises are a part or upon any building hereafter
placed upon the land of which the leased premises are a part, and to all
advances made or hereafter to be made upon the security thereof. This section
shall be self-operative, and no further instrument of subordination shall be
required by a mortgagee, at its option, and Tenant does hereby constitute
Landlord as its attorney in fact to execute such subordination on its behalf in
such instance and towards such end. Nothing contained in this paragraph shall
require Tenant to agree to any subsequent modification in the term of this
lease, nor shall any mortgagee succeeding to the Landlord's interest have any
greater rights hereunder than the Landlord.
24 - LEASE
<PAGE> 25
ARTICLE XXV
Successors and Assigns
All rights, remedies, liabilities, and obligations herein given to or
imposed upon either of the parties hereto shall inure to the benefit of and be
binding upon the respective heirs, executors, administrators, successors in
interest, and permitted assigns of the respective parties.
Wherever the word "Landlord" is used herein, it relates also to all of the
respective Landlords jointly and severally.
ARTICLE XXVI
Quiet Enjoyment
Landlord warrants and covenants that Tenant, discharging all of its
obligations hereunder, shall, and may peaceably and quietly, hold and enjoy the
demised premises for the term aforesaid.
ARTICLE XXVII
Default
A. The following events shall be deemed to be events of default by Tenant
under this lease.
1. If Tenant shall fail to pay any installments of the rent, or any
other charge designated herein to be paid as rent, on the date that same is due,
and such failure shall continue for a period of thirty (30) days.
25 - LEASE
<PAGE> 26
2. If Tenant shall fail to comply with any term, condition, or
covenant of this lease, other than the payment of rent, and shall not cure such
failure within thirty (30) days after written notice thereof to Tenant; or if
such failure cannot reasonably be cured within the said thirty (30) days and
Tenant shall not have commenced to cure such failure within thirty (30) days
after written notice thereof to Tenant; or if such failure cannot reasonably be
cured within the said thirty (30) days and Tenant shall not with reasonable
diligence and good faith proceed in the curing of such failure.
3. If Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of creditors, or if
any petition under any section or chapter of the National Bankruptcy Act shall
be filed to subject Tenant's affairs to the same, or if a receiver or trustee
shall be appointed for all or substantially all of the assets of Tenant, or if
any attempt shall be made by anyone other than Tenant to occupy the demised
premises with or without color of law.
B. Upon the occurrence of any of the foregoing events of default, Landlord
shall have the option to pursue any one or more of the following remedies
without any notice or demand whatsoever:
1. Terminate this lease, in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the demised premises and
expel or remove
26 - LEASE
<PAGE> 27
Tenant and any other person who may be occupying said premises or any part
thereof, and Tenant agrees to pay to Landlord on demand the amount of all loss
and damage which Landlord may suffer by reason of such termination, whether
through inability to relet the premises on satisfactory terms or otherwise.
2. Enter upon and take possession of the demised premises and expel or
remove Tenant and any other person who may be occupying said premises or any
part thereof, and relet the premises and receive rent therefor; and Tenant
agrees to pay to Landlord on demand any deficiency that may arise by reason of
such reletting.
3. Enter upon and take possession of the demised premises and expel or
remove Tenant and any other person who may be occupying said premises or any
part thereof, and demand and receive from Tenant in lump sum damages in the
amount by which the rent provided for herein for the entire remainder of the
term discounted to its present cash value at the time of such re-entry exceeds
the fair rental value of the leased premises for the remainder of the term as of
the time of said re-entry discounted to its present cash value.
4. Enter upon the demised premises and do whatever Tenant is obligated
to do under the terms of this lease, and Tenant agrees to reimburse Landlord on
demand for expenses which Landlord may incur in thus effecting compliance with
Tenant's obligation under this lease, and Tenant further agrees that Landlord
shall not be liable for any damages resulting to the Tenant from such action
caused by the negligence of Landlord.
27 - LEASE
<PAGE> 28
C. Landlord may pursue any of the foregoing remedies singly or cumulatively
and, in addition, any other remedies provided by law; nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, conditions, and covenants herein contained; nor
shall any termination and cancellation include a cancellation of Tenant's
obligation hereunder for any deficiency or damage upon reletting subsequent to
said termination or cancellation, such obligations being independent and
covenants surviving said termination or cancellations.
D. If Tenant shall default in his covenant to pay the monthly sum as rental
as provided for herein or the percentage rental provided for herein, and upon
the occasion of Tenant's liability and promise to pay damage upon the occasion
of the termination of this lease as hereinabove provided for, Landlord shall
have a lien for such sums upon the personal property of Tenant located upon the
demised premises and may enter the same and take possession of said personal
property and sell it at public or private sale, with or without notice to
Tenant, and apply the proceeds thereof after deducting the expenses of said sale
upon the monies due to Landlord prompting the same. Any public sale shall be
held by a Sheriff or Constable at the courthouse door, after written notice of
such sale giving the time and place thereof has been posted for ten (10)
consecutive days prior to the date of said sale in three (3) public places in
the county where such sale is held.
28 - LEASE
<PAGE> 29
ARTICLE XXVIII
Perfection of Landlord's Lien
The lien described hereinabove in Article XXVII, Section D, may be
perfected without legal process by Landlord by forcible detention upon the
demised premises of the goods subject thereto; no goods subject to the said lien
shall be removed from the demised premises so long as Tenant is in default of
any of its monetary obligations under this lease save in the ordinary course of
its retail trade; any vehicle in which such goods have been loaded for the
purpose of such removal under such circumstance shall be considered an extension
of the demised premises for the purposes of this Section, and Landlord shall
have the right to halt and detain and to direct its return to the demised
premises and to enter into and upon said vehicle for the purpose of its return
to the demised premises, and to enter into and upon the same to remove said
goods and restore them to the demised premises for the detention hereinabove
provided; all without legal process and all without being guilty of trespass to
person or property, and Tenant shall save Landlord harmless from any and all
such claims and demands of damage on account thereof.
ARTICLE XXIX
Condition Precedent to Liability
The parties agree that this is a presently valid, effective, and binding
agreement of lease of the mutual covenants and agreements as herein set forth as
of the date of the execution hereof. The parties further agree that, upon the
failure of the Landlord
29 - LEASE
<PAGE> 30
to deliver to Tenant the leased premises substantially completed by Landlord and
ready for occupancy by February 1, 1974, (or by June 1, 1974, if the failure to
complete and have ready for occupancy is caused by a strike, act of God, or
other cause completely beyond Landlord's control) Tenant may thereafter give
notice to the Landlord of a rescission of this agreement for a failure of its
mutual liabilities and obligations to have commenced within such time, the same
to be in writing, specifying the breach of condition as grounds therefor, and
granting twenty (20) days from the date thereof in which delivery of the
substantially completed premises can further occur and said failure to so
deliver be relieved in avoidance of said rescission. In the event that Landlord
is unable, for reasons completely beyond his control, to obtain, by February 1,
1974, the necessary building and other permits to enable him to construct the
store building for Tenant, either party may thereafter give notice to the other
of a rescission of this agreement for a failure of its mutual liabilities and
obligations to have commenced within such time, the same to be in writing and to
specify the grounds therefor.
ARTICLE XXX
Holding Over
Any holding over after the expiration of the term of the lease, with the
consent of the Landlord, shall be construed to be a tenancy from month to month
for the rents herein specified (pro-rated on a monthly basis) and on the other
terms and conditions herein specified, so far as applicable.
30 - LEASE
<PAGE> 31
ARTICLE XXXI
Waiver
The waiver by the Landlord of any breach of any term, covenant, or
condition of this lease shall not be deemed to be a waiver of any past, present,
or future breach of the same or any other term, covenant, or condition of the
lease. The acceptance of rent by the Landlord hereunder shall never be construed
to be a waiver of any term of this lease. No payment by Tenant or receipt by
Landlord of a lesser amount than shall be due according to the terms of this
lease shall be deemed or construed to be other than on account of the earliest
rent due, nor shall any endorsement or statement on any check or letter
accompanying any payment be deemed to create an accord and satisfaction.
ARTICLE XXXII
Amendments in Writing
This lease, including the exhibits and riders, if any, attached hereto and
forming a part hereof, are all of the covenants, promises, agreements,
conditions, and understandings, either oral or written, between the parties. No
subsequent alteration, change, or amendment to this lease shall be binding upon
the parties unless reduced to writing and signed by them.
31 - LEASE
<PAGE> 32
ARTICLE XXXIII
Notices
Any notice by Tenant to Landlord must be served by certified or registered
mail, postage prepaid, addressed to Landlord as follows, or at such other
address as Landlord may designate by written notice:
Center Developments Oreg., Ltd.
7601-C N. E. Hazel Dell
Vancouver, Washington 98665
Any notice by Landlord to Tenant must likewise be by certified or
registered mail, postage prepaid, addressed to Tenant at the leased premises.
ARTICLE XXXIV
Recording
This lease shall not be recorded except by agreement of both parties, but
upon request by either party, the parties will execute a short form of this
lease containing the description of the leased premises, the provisions relating
to the term of the lease, and a reference to this lease.
32 - LEASE
<PAGE> 33
ARTICLE XXXV
Time Essence
Time is of the essence of this Agreement.
WITNESSETH: Our hands and seals this day first above written.
CENTER DEVELOPMENTS OREG., LTD., G. I. JOE'S, INC.
By C. E. John Development Co.,
Inc., General Partner
By /s/ By /s/
------------------------------- -------------------------------
President President
By /s/ By /s/
------------------------------- -------------------------------
Secretary Secretary
LANDLORD TENANT
33 - LEASE
<PAGE> 34
LEASE ADDENDUM
THIS LEASE ADDENDUM, Entered into this 22nd day of March, 1977, by and
between CENTER DEVELOPMENTS OREG., LTD., hereinafter referred to as "Landlord,"
and G.I. JOE'S, INC., an Oregon corporation, hereinafter referred to as
"Tenant";
W I T N E S S E T H :
WHEREAS, The Landlord and the Tenant did, on the 10th day of May, 1973,
enter into a certain Lease agreement (hereinafter called "Lease") for those
certain premises located in the City of Beaverton, County of Washington, State
of Oregon, and known as Building No. 1000, and more fully described in said
Lease; and,
WHEREAS, Tenant desires to lease from Landlord additional area to
construct, operate, and maintain a garden shop enclosure on the south side of
the Leased Premises; and,
WHEREAS, Landlord and Tenant desire to execute this Lease Addendum so as to
permit Tenant to so construct, maintain, and operate said garden shop enclosure;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Tenant hereby leases from Landlord, and Landlord hereby leases to
Tenant, those premises, consisting of approximately Five Thousand Sixty-six
square feet (5,066 sq. ft.), on which the garden shop enclosure area is to be
constructed, as shown on the Exhibit "A" attached hereto and incorporated herein
by this reference, for a term commencing on the date the garden shop enclosure
is completed and opened for business by Tenant, and ending when tenant ceases to
use the garden shop enclosure as a part of its operations or on the date the
Lease terminates which ever first occurs.
2. At the end of the term, Tenant shall remove all improvements placed by
Tenant on the above described premises, and shall restore the premises as nearly
as is practicable to their presently existing condition.
3. Tenant, shall at its sole cost and expense, construct all improvements
required or desired by Tenant on the garden shop premises. Tenant shall hold
harmless and indemnify Landlord from and against any costs, expenses, and
liabilities, and from any mechanics', laborers', or materialmen's liens which
are caused or incurred by Tenant and which may be filed against the premises.
1 - LEASE ADDENDUM
<PAGE> 35
4. Tenant shall pay to Landlord an amount equal to all real property taxes
levied or assessed against the 20,150 square feet of land shown on Exhibit "B"
attached hereto, the presently existing improvements thereon, and the garden
shop enclosure improvements. Tenant's liability for such taxes shall be prorated
for the first and last years of the term.
5. In addition to the above taxes Tenant shall pay to Landlord, each month,
a common area maintenance charge of Fifty and 60/100 Dollars ($55.60).
6. The taxes and common area maintenance charge payable by Tenant to
Landlord pursuant to Paragraphs 4 and 5, above, shall be in addition to all
other charges, including base rentals, percentage rentals, common area
maintenance fees, and taxes payable to Landlord pursuant to the provisions of
the Lease.
7. The garden shop enclosure area shall not be deemed a building or a
portion of the premises leased pursuant to any provisions of the Lease, except
that sales made from or on the garden shop enclosure shall be deemed "Gross
Sales" pursuant to Article I, Section 1 of the Lease for the purposes of
computing percentage rent pursuant to Article II, Paragraph D of said Lease.
8. It is recognized by the parties that a lawsuit is presently pending in
the Circuit Court for Multnomah County between the parties for a determination
of certain provisions of the Lease heretofore entered into between the parties.
The parties expressly stipulate and agree that this Addendum is without
prejudice to the rights of either party in said lawsuit and shall not be used as
evidence in the trial of this action, for or against either party.
9. It is further agreed between the parties that, in all respects, other
than as hereinabove modified, amended, or changed, that the Lease dated May 10,
1973, between the parties shall remain in full force and effect, and all
provisions thereof, other than as herein changed, are incorporated herein as if
set out in full.
DATED This 22nd day of March, 1977.
CENTER DEVELOPMENTS G. I. JOE'S, INC.
OREG., LTD.
By /s/ By /s/
------------------------------- -------------------------------
LANDLORD TENANT
2 - LEASE ADDENDUM
<PAGE> 36
LEASE AMENDMENT #2
THIS LEASE AMENDMENT entered into as of the 31st day of May, 1989 by and between
Center Developments Oregon, Ltd., hereinafter referred to as "Landlord", and
G.I. Joe's, Inc., hereafter referred to as "Tenant", consisting of pages 3.
WITNESSETH:
WHEREAS, the Landlord and Tenant did, on the 10th day of May, 1973, enter into a
Lease and subsequent Lease Addendum number 1.
WHEREAS, said Lease is now in full force and effect, and
WHEREAS, the landlord and tenant wish to amend and add to such Lease to their
mutual benefit as herein provided.
NOW THEREFORE, in and for the consideration of the mutual promises and
undertaking herein stated, it is agreed between the parties as follows:
The following modifications and insertions, are hereby made and incorporated
into the Lease and the Exhibits thereto and shall be deemed made at the
respective places indicated throughout the Lease. In the event of any conflict
between this Amendment and the printed provisions of the Lease and Exhibits, the
provisions of this Amendment are intended to govern and control, and the Lease
and Exhibits shall be construed accordingly. Any reference to the Lease of the
following provisions of this Amendment shall be deemed to include this
Amendment, unless otherwise specified
<PAGE> 37
in such reference. Terms used in this Amendment which are defined in the Lease
and the Exhibits shall have the meaning given to them in the Lease and Exhibits.
1.) The term of the Lease is hereby extended for ten (10) years commencing on
May 1, 1989 and expiring April 30, 1999.
2.) That part of Article II, Rent, C. Basic Rent - that reads "a basic monthly
rental of TEN THOUSAND FIVE HUNDRED FORTY ONE AND 67/100 ----- ($10,541.67)" is
changed to read, "a basic monthly rental of TWELVE THOUSAND FIVE HUNDRED TWENTY
FIVE AND No/100 ----- ($12,525.00)".
3.) That part of Article II, Rent D. Percentage Rent - that reads "Tenant shall
pay to Landlord as additional rental an amount equal to one and one-half percent
(1 1/2%) of Tenant's annual gross sales for each of Tenant's fiscal years during
the term of this Lease in excess of FOUR MILLION TWO HUNDRED TWENTY THOUSAND AND
No/100 ----- ($4,220,000)" is changed to read, "Tenant shall pay to Landlord as
additional rental and amount equal to One and one-half percent (1 1/2%) of
Tenant's annual gross sales for each of Tenants's fiscal years during the term
of this Lease in excess of FIVE MILLION EIGHT HUNDRED SIX THOUSAND SIX HUNDRED
SIXTY SEVEN AND NO/100 ----- ($5,806,667)."
4.) The following paragraph shall be added to Article VI, Utilities: "C.
Commencing on July 1, 1989 and continuing through the entire term of this Lease
and any extensions or renewals thereof, Tenant shall promptly pay to Landlord,
upon billing, it metered charges for water usage. The parties hereto agree to
waive any and all claims against the other for any water charges prior to June
30, 1989."
5.) Article XX, Options - shall be deleted as it relates to the number of terms
and the appropriate years of each extension and the following shall be
substituted therefor:
"OPTIONS TO EXTEND:
Tenant shall have the option to extend this Lease for a first extended term of
TEN (10) years and a second extended term of eight (8) years on the following
terms and conditions:
a.) No default is existing or continuing on the performance of any of the terms
of this Lease.
b.) There shall be no option to extend the term of this Lease for any period of
time beyond the expiration of the second extended term.
<PAGE> 38
c.) The extended terms shall be on the same terms, covenants and conditions as
provided in this Lease.
d.) Exercise - Tenant shall exercise its option to extend in the following
manner: At least 365 day prior to the expiration of the initial term (April 30,
1999) and first extended term (April 30, 2009). Tenant shall notify Landlord in
writing of its election to exercise the option to extend the term of this Lease
for the extended term.
The above changes commence May 1, 1989.
IT IS FURTHER AGREED between the parties that in all other respects other than
the same as hereinabove modified, amended or changed that particular Lease dated
May 10, 1973 between these parties shall remain in full force and effect, and
all provisions thereof other than herein changed, are incorporated herein as if
set out in full.
DATED: June 19, 1989 DATED: 6/27/89
-------------------------- --------------------------
TENANT: G.I. JOE'S, INC. LANDLORD: CENTER DEVELOPMENTS
OREGON, LTD., BY: C.E.
JOHN DEVELOPMENT CO., INC.
BY: /s/ BY: /s/
------------------------------- -------------------------------
BY: BY:
------------------------------- -------------------------------
<PAGE> 39
STATE OF OREGON )
)
COUNTY OF CLACKAMAS )
On this 19 day of June, 1989, before me the undersigned a Notary Public in
and for the State of Oregon, duly commissioned and sworn, personally appeared
David E. Orkney and _______________, to me known to be the President and
________________ respectively of G.I. Joe's, Inc., the corporation that executed
the foregoing instrument and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned, and on oath stated that they were authorized to execute the said
instrument and that the seal affixed is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/
-----------------------------------------
Notary Public for Oregon
residing at Portland therein.
expires 3/30/91
STATE OF WASH )
)
COUNTY OF CLARK )
On this 27th day of June, 1989, before me the undersigned a Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared James E. John and _______________, to me known to be the Vice President
and ________________ respectively of C.E. John Development Co., Inc., the
corporation that executed the foregoing instrument and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute the said instrument and that the seal affixed is the
corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/
-----------------------------------------
Notary Public for Washington
residing at ________ therein.
<PAGE> 40
Amendment #3
Page 2
LEASE AMENDMENT #3
THIS LEASE AMENDMENT entered into this 31st day of October, 1990, by and
between Center Developments Oregon, Ltd., hereinafter referred to as "Landlord",
and G.I. Joe's, Inc., hereinafter referred to as "Tenant", consisting of pages 1
of 2.
WITNESSETH:
WHEREAS, the Landlord and Tenant did, on the 10th day of May, 1973, enter
into a lease and subsequent Lease Addendum dated 3/22/77 and Lease Amendment #2
dated 05/31/89 thereto.
WHEREAS, said Lease is now in full force and effect and,
WHEREAS, the Landlord and Tenant wish to amend and add to such Lease to
their mutual benefit as herein provided.
NOW THEREFORE, in and for the consideration of the mutual promises and
undertaking herein stated, it is agreed between the parties as follows:
1.) Landlord agrees to allow Tenant to construct a 7' x 31' storefront addition
which is to be located as outlined in red on Exhibit "A" attached hereto.
Tenant's premises shall accordingly be increased by 219 square feet to a
total of approximately 55,557 square feet (excluding garden shop).
2.) Tenant shall, at its sole cost and expense, construct all improvements
within the addition. Tenant shall hold harmless and indemnify Landlord from
and against any costs, expenses, and liabilities, and from any mechanics',
laborers', or materialmen's liens which are caused or incurred by Tenant
and which may be filed against the premises.
3.) It is agreed that Landlord, in the area outlined in green on Exhibit "A",
shall be allowed to make additions and changes which shall include but not
be limited
<PAGE> 41
to expansion of existing building areas and changes to the existing common
areas within this portion of the Shopping Center.
4.) That part of the Lease on Page 13, Article XIV, Common Area that reads,
"not less than Five and One-Half (5 1/2) car spaces per one thousand
(1,000) square feet within retail selling area" shall be changed to read,
"not less than Four and One-Half (4 1/2) car spaces per thousand (1,000)
square feet of retail selling area".
The above changes commence on the 10th day of November 1990.
IT IS FURTHER AGREED between the parties that in all other respects, other
than the same as hereinabove modified, amended or changed, that particular Lease
dated 5/10 1973, and any or all Lease Amendments thereto, between these parties
shall remain in full force and effect, and all provisions thereof, other than
herein changed, are incorporated herein as if set out in full.
DATED: 11/7/90 DATED: 11/9/90
--------------------------- ---------------------------
TENANT: G.I. JOE'S, INC. LANDLORD: Center Developments Oregon,
Ltd., By: C.E. John Development Co.,
Inc., General Partner
BY: /s/ BY: /s/
------------------------------- -------------------------------
BY: BY:
------------------------------- -------------------------------
<PAGE> 42
STATE OF OREGON )
)
COUNTY OF CLACKAMAS )
On this 7 day of November, 1990, before me the undersigned a Notary Public
in and for the State of Oregon, duly commissioned and sworn, personally appeared
Wayne T. Jackson, to me known to be the Secretary/Treasurer of G.I. Joe's, Inc.,
the corporation that executed the foregoing instrument and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute the said instrument and that the seal affixed is the
corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/
-----------------------------------------
Notary Public for
residing at Lake Oswego therein,
Com. exp. 3-12-91
STATE OF WASH )
)
COUNTY OF CLARK )
On this 9th day of November, 1990, before me the undersigned a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared James E. John and _______________, to me known to be the
President and ________________ respectively of C.E. John Development Co., Inc.,
the corporation that executed the foregoing instrument and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute the said instrument and that the seal affixed is the
corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/
-----------------------------------------
Notary Public for Washington
residing at Yacolt therein
<PAGE> 1
EXHIBIT 10.5
SUBLEASE
THIS AGREEMENT TO SUBLEASE, Entered into this 28th day of March, 1984, by
and between DONALD R. WYANT, SR. and MARTIN L. PETERSON, doing business as THE
WYANT-PETERSON COMPANY, hereinafter called "Landlord", and G.I. JOE'S, INC., an
Oregon corporation, hereinafter called "Tenant":
W I T N E S S E T H:
I
PREMISES AND TERM
Landlord is the "Ground Tenant" under that certain ground lease dated March
28, 1984 by and between KLEINSCHMIDT, WINNINGHAM & KLEINSCHMIDT, a partnership,
(Ground Landlord), and THE WYANT-PETERSON COMPANY, (Ground Tenant), attached
hereto and marked Exhibit "A", hereof which lease includes the Premises
described in this Building Lease.
In consideration of the covenants and agreements herein contained to be
kept and performed by Tenant, and the rentals hereinafter covenanted to be paid
by Tenant, Landlord does hereby sublease, demise and sublet unto Tenant for the
term hereinafter specified, those certain leased Premises located in Medford,
Jackson County, Oregon, described in Exhibit "B" attached hereto ("the
Premises"), to have and to hold unto
<PAGE> 2
said Tenant the above described leased Premises, together with all
appurtenances, rights, privileges, and easements thereto belonging upon the
terms and conditions, covenants, and agreements hereinafter set forth for a term
commencing on the commencement date as hereinafter defined and ending October
14, 2009, unless sooner terminated or extended as provided hereinafter.
This demise is subject to:
(a) Conditions, restrictions, and limitations, if any, now appearing
of record;
(b) Zoning ordinances of any municipality, Jackson County, Oregon,
Medford, Oregon, including the Land Conservation and Development Commission, and
any other governmental body now existing or which may hereafter exist by reason
of any legal authority during the life of this Lease;
(c) Any questions of survey, Tenant having satisfied itself as to the
boundary lines and contents of the lease Premises;
(d) Such declaration and establishment of Protective Covenants,
Conditions and Restructions, and Grants of Easements or Reciprocal Easement
Agreements affecting the lease Premises as may now or hereafter be filed of
record, and amendments thereto.
-2-
<PAGE> 3
II
RENT
1. From the commencement date (as hereinafter defined) of this Lease
through October 14, 2009, Tenant shall pay to Landlord, as basic monthly rent
for the lease Premises the following amounts under the following conditions:
(a) If Tenant elects to occupy the Premises on or before April 1,
1985, (which election shall be conveyed to the Landlord not later than July 15,
1984), the basic monthly rent shall be $24,840.
(b) If Tenant elects to occupy the Premises after April 1, 1985, but
before April 1, 1986, (which election shall be conveyed to the Landlord not
later than July 15, 1984) then the basic monthly rent shall be determined by:
(i) Adding the "actual building construction costs" as defined in
subparagraph (d), in excess of $974,000 to the actual construction loan
interest costs in excess of $39,000 and
(ii) Multiplying the total of (i) times .1584, and
(iii) Adding $313,920, and
(iv) Dividing the total of the foregoing computations by 12.
(b) Basic rent payments shall commence on the commencement date as
hereinafter defined. In the event the commencement date occurs on any date other
than the first day of a calendar month, the basic monthly rent for that month
shall be prorated on a daily basis.
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<PAGE> 4
(c) Thereafter, the basic monthly rent shall be payable in advance on
or before the first day of each and every calendar month.
(d) "Actual building construction costs," as used in this Article,
shall mean construction contract price, or prices for the construction of the
building described in Exhibit "C" attached to this Lease; provided that "actual
building construction costs", as used in this computation shall not be less than
the $974,000 above mentioned. "Actual construction loan interest costs," as used
in this Article, shall mean interest costs assessed by the construction lender
during the term of construction in the normal course of construction.
(e) After completion of the construction set forth in Article III,
Landlord shall submit to Tenant a statement setting forth the construction costs
and interest costs and the amount of the initial basic rent. Such statement
shall be itemized in reasonable detail and shall detail the basis of the
computation of the construction cost and initial basic rent.
2. In addition to the basic rent specified above, for each year or part
thereof of the lease term Tenant shall pay to Landlord, as percentage rent, an
amount equal to One and One-half Percent (1-1/2%) of Tenant's aggregate gross
receipts for that calendar year in excess of the annual exclusion. (I.e.,
Percentage Rent=(1-1/2% x Gross Receipts)-(Annual Exclusion)). The term "annual
exclusion" shall for the purpose of this Lease be defined as the amount which is
equal to the basic rent for the first full year divided by .03. The annual
exclusions for the first and last years of this
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Lease shall be prorated from the first day of the first full month and to the
last day of the last full month of the lease term, respectively. Payments of
percentage rent shall be made annually, on or before the Fifteenth (15th) day of
January of the following year. Percentage rent shall be determined by applying
the above percentage to the aggregate gross receipts for the calendar year in
excess of the annual exclusion. A statement setting forth how the percentage
rent is computed, and-reconciled with the payment actually made, shall be
submitted to the Landlord with said annual payment or by January 15, regardless
of whether any such percentage rent shall be payable hereunder. On or before
February 15th of each year, Tenant shall submit to Landlord an unaudited
statement for the preceding year showing Tenant's total gross receipts from the
leased Premises, the aggregate percentage rent payable, and the amount actually
paid, if any. Any deficiency shall be paid upon submission of the annual
statement. Any excess shall be reimbursed to Tenant by Landlord within Thirty
(30) days after receipt of the annual statement unless, within that time,
Landlord or Ground Landlord requests an audit, as hereafter provided.
3. The term "gross receipts" means the amount paid or payable for all goods
sold or services rendered upon or from any part of the leased Premises by Tenant
or by any other person, whether at retail or wholesale, and including credit
transactions. Goods transferred to Tenant's other places of business for bona
fide business reasons, and not to avoid percentage rent, are excluded. Amounts
paid by Tenant as a sales tax or other excise tax on account of sales, and
amounts refunded or
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cancelled on goods returned or on which adjustments have been made, are
excluded. Amounts deemed uncollectable on credit sales in accordance with
generally accepted accounting principles shall be deducted in the year in which
they are so shown on Tenant's books and records, provided, however, such amounts
shall be deducted only to the extent they have been included in an annual
statement of aggregate gross receipts pursuant to paragraph 2 above.
4. At any time after Tenant's statement of receipts is due, whether or not
it has been submitted and whether or not Landlord has accepted the payment shown
to be due thereon, either Landlord or Ground Landlord may request an audit of
Tenant's gross receipts by a certified public accountant selected by the party
requesting the audit. The accountant shall take such steps as the accountant
deems necessary to determine Tenant's gross receipts. The accountant's
determination of Tenant's gross receipts shall be final and binding upon all
parties, and payments required to make adjustments in rent to conform to the
accountant's determination shall be made within Ten (10) days after receipt of
the accountant's written determination by the party obligated to make the
payment. The cost of the accountant's determination shall be borne by either
Landlord or Tenant, depending upon the difference in percentage rent shown to be
due, as follows: Less than Five Percent (5%) additional due, by Landlord; Five
Percent (5%) additional or more due, by Tenant.
5. Tenant shall keep in the leased Premises or, upon Twenty-one (21) days'
notice, agrees to prepare and make available to Landlord or Ground Landlord, as
the
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case may be, at the leased Premises, a permanent, accurate set of books and
records pertaining to gross receipts derived from business conducted on or from
the leased Premises during each day of the term hereof, and all supporting
records and such pertinent records shall be kept, retained, and preserved for at
least Three (3) years after the expiration of each lease year. Tenant shall
keep, retain, and preserve for at lease Two (2) years after the expiration of
each lease year all original sales records and sales slips or sales checks and
any other pertinent, original sales records, including cash register tapes. All
such books and records shall be open to inspection and audit by Landlord, Ground
Landlord and/or their agents at all reasonable times during ordinary business
hours.
6. Tenant shall occupy the lease Premises continuously for the purpose
stated in this Lease and carry on business during the hours customary in
comparable businesses similarly situated. This shall not prevent Tenant from
closing for brief periods when reasonably necessary for inventory, repairs,
remodeling (when permitted), or other legitimate purposes related to the
business carried on, or when closure is the result of a labor dispute, or other
factors not within Tenant's control.
7. Landlord is not, by virtue of this Article, a partner or joint venturer
with Tenant in connection with the business carried on under this Lease, and
Landlord shall have no obligation with respect to Tenant's debts or other
liabilities, and no interest in Tenant's profits.
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8. It is the intent of Landlord and Tenant that the rent herein specified
and reserved shall be absolutely net to Landlord, so that this Lease shall,
except as hereinafter provided to the contrary, yield net to Landlord the basic
rent and percentage rent specified herein during the term of this Lease.
9. In the event any rent is not paid when due, interest at the rate of one
percent (1%) per month, but not to exceed the maximum legal rate then allowable
by law, shall accrue thereon until all unpaid rent and interest has been paid in
full. Any acceptance by Landlord of a partial payment of rent and interest shall
not constitute a waiver of any remaining unpaid rent and/or interest which may
have accrued at that time or which may accrue thereafter.
10. All rents described herein shall be paid to Landlord without deduction
or offset at the office of the Landlord in Salem, Oregon or at such other place
as the Landlord or its authorized agent may, from time to time, designate in
writing.
11. Tenant hereby agrees to directly reimburse the Ground Lessor,
Kleinschmidt Development, for the additional costs incurred in the relocation of
Tenant's Premises to the most northerly portion of Poplar Square, such
additional costs include redesign, replatting, additional site work other
relocation expenses; provided, however, that Tenant's liability for relocation
costs is limited to a maximum of Fifty Thousand Dollars ($50,000.00). Tenant
shall make payment directly to Ground Lessor within thirty (30) days of receipt
of a billing from Ground Lessor for such expenses.
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III
CONSTRUCTION
1. Landlord shall construct, at its sole cost and expense, upon the leased
Premises, a retail sales building in accordance with the plans and
specifications as described in Exhibit "C" attached hereto excepting nonmaterial
changes. In addition, Landlord shall construct parking areas and common area
improvements adjacent to the lease Premises substantially in-accordance with
plans and specifications, including the site plan attached hereto as Exhibit
"D."
2. Landlord shall forthwith apply for and obtain all necessary permits for
the construction of the building and improvements and shall hereupon cause said
construction to be commenced and pursued to completion in an expeditious manner.
Any material changes in the plans and specifications, or any material change
orders in the construction contract or contracts which may become necessary or
desirable during the course of construction shall be approved in writing by
Landlord and Tenant.
3. On completion, Landlord shall deliver to Tenant copies of the following:
(a) A certificate of completion by the architect who supervised the
construction stating that all work and construction has been substantially
completed in accordance with the approved plans and specifications, including
all approved changes or modifications, if any; and
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(b) Any certificate of occupancy, or equivalent permit or certificate,
which may be required by any governmental authority prior to issuance of any
business license required for Tenant's commencement of business on the lease
Premises.
4. All signs or symbols placed in the windows or doors of the leased
Premises, or upon any exterior part of the building by Tenant, shall be subject
to the approval of Landlord or Landlord's agents. Any signs placed on the leased
Premises shall be so placed upon the understanding and agreement that Tenant
will remove same at the termination of the tenancy herein created and repair any
damage or injury to the leased Premises caused thereby, and if not so removed by
Tenant then Landlord may have same so removed at Tenant's expense.
IV
COMMENCEMENT DATE
1. The commencement date of this Lease shall occur on the date Tenant opens
for business or Sixty (60) days after the delivery to Tenant of the certificates
described in Paragraph 3 of Article III above, which ever first occurs.
2. Tenant may enter the Premises prior to the commencement date for the
purposes of fixturing and stocking inventory, provided Tenant's fixturing and
stocking does not interfere with any construction work then remaining to be
done.
3. It is the intention of the parties that the commencement date of this
Lease, as defined in Paragraph 1 of this Article, shall occur on or before April
1,
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1986, and that Tenant shall be allowed access to the building for purposes of
fixturing and stocking, on or before February 1, 1986. If the commencement date
is delayed beyond April 1, 1986 because Landlord is unable to complete its work
(unless that inability results from Acts of God, delay by Tenant, matters beyond
the control of Landlord, or labor disputes) Landlord shall pay to Tenant, as a
penalty for such delay, the sum of One Thousand Dollars ($1,000) per day up to
the actual commencement date.
V
COMMON AREA
1. For the purposes of this Lease, "common area" shall mean all areas of
the real property described in Exhibit "D" outside the exterior walls of the
buildings located thereon which are not reserved for the exclusive use of Tenant
or Landlord. Common area shall include automobile parking areas, access roads,
driveways, sidewalks, pedestrian walkways and stairways, landscaped areas,
utility lines and systems. Common area shall not include the interior space of
any building located on Exhibit "D" nor any area immediately appurtenant to such
buildings which is reserved for the exclusive use of such building, such as
loading docks.
2. Landlord will, at all times during the term of this Lease, keep the
common area in good maintenance and repair, and shall:
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(a) Maintain suitable means or illumination sufficient to illuminate
the parking areas during all twilight and evening hours that the Tenant's store
is open for business and is in operation;
(b) Maintain and keep the parking areas, driveways, and access roads
in good condition and repair, with a hard surface pavement and properly striped;
(c) Clean and remove debris, ice, and snow from the parking areas,
driveways and access roads;
(d) Clean and maintain sidewalks and other pedestrian walkways and
stairways, and remove debris, ice and snow therefrom; provided, however, that
Tenant shall keep the sidewalk immediately in front of the leased Premises clean
and free from debris, ice, and snow;
(e) Maintain all other portions of the common area in good order and
repair; and
(f) Obtain and maintain liability insurance insuring both Landlord and
Tenant against all liability for personal injury, death, or property damage
arising on or about the operations of the common area, in an amount of not less
than Two Hundred Thousand Dollars ($200,000.00) for death or injury to one
person, not less than Five Hundred Thousand Dollars ($500,000.00) for death or
injury arising out of one accident, and not less than One Hundred Thousand
Dollars ($100,000.00) for property damage.
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3. (a) Tenant shall pay to Landlord, in the manner provided below, Tenant's
pro rata share of Landlord's actual costs of maintaining and operating the
common area during the lease term. "Actual costs of maintaining and operating
the common area shall include the following: All amounts paid by Landlord as
actual costs for maintaining and repairing the common area, including, without
limitation, cleaning; snow and ice removal; costs and expenses of planting,
replanting, and replacing flowers, shrubs, and landscaping; water and sewage
charges; maintenance, repair, and replacement of utility systems, electricity,
and other utility charges; repair, maintenance, and upkeep of the parking areas,
driveways, access roads, sidewalks, and pedestrian walkways, including the costs
of paving, repaving, surfacing, resurfacing, painting, and repainting the same;
installation, replacement, repair, and maintenance of traffic control and
directional signs and devices; premiums for liability and extended all-risks
insurance; real property taxes and assessments; personal property taxes on
equipment and materials used to maintain the common area; and policing the
common area and affording security and fire protection therefor. "Actual costs
of maintaining and operating the common area" shall also include a management
fee of ten percent (10%) of the above described costs; provided, that, in
computing said management fee, all capital items and all replacement items in
excess of One Thousand Dollars ($1,000), real estate taxes and insurance
premiums shall be excluded. Landlord agrees to expend only the monies reasonably
necessary for such
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operating and maintenance in order to keep the common area in good repair and
clean condition and to operate the same on a nonprofit basis to the end that the
expense in connection therewith shall be kept at a minimum. Costs attributable
to a contract between Landlord and an affiliated party shall not be included,
unless that contract is previously approved by Tenant. Tenant's approval shall
not be unreasonably withheld.
(b) Tenant's pro rata share of the actual costs of maintaining the
common area shall be a percentage equal to the gross leasable area of the
buildings on Tenant's Premises divided by the total gross leasable area of all
buildings (except the common area structures) located on the real property which
was jointly assessed. The gross leasable area of each building shall be
calculated by measuring the ground floor of such building from the outside
walls.
(c) The annual charge to the Tenant shall be paid in monthly
installments, in advance, at the time of the monthly rent payment, in an amount
estimated by Landlord. On or before April 1st of each calendar year (and within
ninety (90) days after the termination of this Lease), Landlord shall furnish
Tenant with a statement in reasonable detail of the actual common area costs and
expenses actually paid or incurred by Landlord during such period, and,
thereupon, there shall be an adjustment between Landlord and Tenant, with
payment to or repayment by Landlord, as required, so that Landlord shall receive
the entire amount of Tenant's pro rata share of such costs and expenses for such
period.
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4. Subject to the provisions of any declaration and establishment of
Protective Covenants, Conditions and Restrictions, and Grants of Easements which
may now or hereafter be filed of record with respect to the Premises and the
common area, the common area is maintained for the common use of all tenants,
subtenants and Landlord, their customers, visitors, employees, business
invitees, licensees and persons dealing with tenants, subtenants and Landlord.
Neither Tenant nor Landlord shall do any act to unreasonably prevent or obstruct
such common use and free ingress to and egress from the common area; provided,
however, that Landlord may make such rules and regulations governing the use of
the common area as may be reasonably necessary to regulate the use of such
common area, and may restrict the use of or access to any portion of the common
area when such restriction is necessary or advisable for purposes of security,
or safety, or for the construction, reconstruction, repair, maintenance or
preservation of the common area or any buildings located on the real property
described in Exhibit "B".
VI
REAL PROPERTY TAXES
1. Tenant shall pay promptly and before delinquency any and all real
property taxes and assessments, of whatsoever kind or nature, levied or assessed
against the land, buildings, or other improvements constituting the leased
Premises or attributable thereto during the term of this Lease. Tenant shall
deliver to Landlord copies of receipts or other evidences of payment evidencing
payment of all such real
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property taxes and assessments when due. All real property taxes and assessments
payable for a period part of which shall be within the lease term and part of
which shall be before or after the lease term shall be prorated on a daily
basis.
2. In the event the leased Premises are not taxed separately and are part
of a larger parcel which is assessed as one parcel for property tax purposes,
Tenant shall pay only that portion of such taxes and assessments which are
attributable to the land, buildings, and other improvements constituting the
leased Premises. For purposes of determining the portion of such taxes and
assessments attributable to the leased Premises, the figures supplied by the
Land County Department of Assessment and Taxation or other similar taxing
authority as to the breakdown of said taxes and assessments shall be conclusive.
3. If no breakdown of the assessment can, after reasonable effort, be
obtained from the taxing authority, then Tenant shall reimburse Landlord for
Tenant's pro rata share of the taxes so paid, said pro rata share being a
percentage equal to the gross leaseable area of the buildings on Tenant's
Premises divided by the gross leaseable area of all buildings located on the
real property described in Exhibit "D."
4. Tenant shall have the right at its own cost and expense to contest, in
good faith, in any proper proceeding and in the name of Landlord if necessary,
the assessed valuation of the leased Premises or the amount, payment or
satisfaction of any tax or assessment agreed to be paid by Tenant if the
validity, amount, or right to assess or collect the same is disputed by Tenant
and Landlord agrees to cooperate
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with Tenant in this regard; provided, however, that Landlord in its sole
discretion may require Tenant to deposit with a suitable escrow company, in
order to secure to Landlord Tenant's performance of its obligations hereunder
with respect to such tax or assessment, a bond or cash deposit (or other
securities satisfactory to Landlord) sufficient to cover not less than one
hundred percent (100%) of the amount of the contested tax or assessment together
with interest, costs and penalties for the period during which such contest is
reasonably expected to be maintained, or Tenant may pay such contested
imposition or charge under protest. Landlord agrees to give reasonable
cooperation to Tenant in any such proceeding; provided, however, Tenant shall
hold Landlord harmless from, and shall reimburse Landlord for, any and all loss,
costs and expenses, including attorneys' fees, incurred by Landlord in
connection with any such proceedings.
5. Should there be in effect during the lease term (or any extension
thereof) any law, statute or ordinance which levies, assesses or imposes any tax
(other than an income tax) upon rents, Tenant shall pay such tax as may be
attributed to the rents under this lease or shall reimburse Landlord for any
such taxes attributable to this Lease as are paid by Landlord.
VII
USE OF PREMISES
1. Landlord is leasing the leased Premises for use as a retail store, and
Tenant shall use the leased Premises for no other purpose during the term of
this
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Lease without the written consent of Landlord, which consent shall not be
unreasonably withheld.
2. Tenant shall neither make nor knowingly permit any unlawful, improper,
immoral, or offensive use of said Premises, or any portion thereof, which will,
in any way, tend to create a nuisance or to disturb any persons in the
neighborhood of the leased Premises, or to unduly create or cause a fire hazard,
or to increase the fire insurance on the leased Premises, or permit any nuisance
which shall in any way be a violation of the statutes and laws of the State of
Oregon or the laws and ordinances of any political subdivision thereof.
3. Tenant agrees to keep and maintain all of the leased Premises in a clean
and sanitary condition and not to suffer or permit any strip or waste thereof.
4. Tenant shall, at all times, avoid any act or omission that would cause
Landlord to be in default of its obligations under the provisions of the Ground
Lease attached hereto as Exhibit "A".
VIII
UTILITIES
1. Tenant shall pay for all heat, light, power, water, sewage, and other
services or utilities used by Tenant on the leased Premises, and shall pay the
charges therefor as the same become due.
2. Landlord shall not be liable for any interruption or failure in the
supply of any utility to the leased Premises unless caused by negligence of
Landlord.
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3. Tenant's obligation to pay for utilities used on or about the leased
Premises shall begin when the leased Premises are substantially complete and are
available to Tenant for tenant fixturing and stocking.
IX
REPAIRS AND MAINTENANCE
1. Tenant shall maintain the leased Premises in good order and repair
during the term of this Lease, at Tenant's cost and expense. Tenant's duty to
maintain and repair includes but is not limited to: Maintaining exterior and
interior walls, including painting, interior and exterior entrances and fronts;
the roof and ceilings; all glass windows; doors; fixtures; wiring; lighting;
heating; air conditioning; plumbing fixtures; and foundations; provided,
however, that Landlord warrants the foundation, footings, roof and structural
members of the building against patent defects for a period of 60 months
beginning with the commencement date as defined in Article IV hereof; and
provided further that Landlord warrants all such work against latent defects for
a period of one (1) year beginning at the time of substantial completion of
construction as evidenced by the architect's certificate of completion described
in Paragraph 3(a) of Article III above. Tenant's remedy under this warranty
shall be limited to repair or replacement, at Landlord's option. If Tenant
refuses to make repairs as required, as soon as reasonably possible after
written demand, Landlord may, at its option, make such repairs, without
liability for interruption of the conduct of the business on the Premises, and,
upon completion of the repairs and the
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presentation of a bill, the costs of such repairs plus Fifteen Percent (15%) for
Landlord's overhead shall be paid by Tenant. At Landlord's election, such sums
owed by Tenant may be deemed additional rent.
2. Tenant shall have the right, from time to time, to make such alterations
and improvements to and decoration of the interior of the leased Premises as
shall be reasonably necessary or appropriate in Tenant's judgment for the
conduct of Tenant's business, provided that (a) the structural integrity shall
not be affected or diminished; (b) the value of the building and/or leased
Premises is not thereby diminished; (c) Landlord's written approval of all
alterations exceeding the cost of Fifty Thousand Dollars ($50,000) be first
obtained, which approval will not be unreasonably withheld; and (d) all fees,
costs, taxes, assessments and expenses relating to any such alterations,
improvements or additions shall be borne by Tenant. Tenant shall promptly pay
when due all such fees, costs and expenses and Tenant shall defend and hold
Landlord harmless from all costs, damages, liens, and expenses related thereto.
3. Tenant shall make no alterations or changes in the exterior of the
leased Premises without the express written approval of Landlord, which approval
shall not be unreasonably withheld; provided, however, that any such alteration
or change shall be subject to the conditions set forth in Paragraphs 2(a)
through (d) above.
4. All alterations or additions which cannot be removed from the leased
Premises without irreparable damage thereto shall also constitute a part of the
leased Premises and shall also remain thereon. Such other alterations,
additions, or
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improvements as are made and paid for by Tenant, and which are removable without
irreparable damage to the Premises, may be removed by Tenant at any time, and
Tenant shall repair any damage so incurred at the time of such removal. All
trade fixtures and other fixtures not referred to above, and all machinery,
equipment, and/or other items of personal property placed in or upon the leased
Premises by Tenant and paid for by Tenant may be removed by Tenant at any time.
5. Tenant shall hold harmless and indemnify Landlord from and against any
costs, expenses, and liabilities from any mechanics', laborers', or
materialmen's liens which are caused or incurred by any act or omission of
Tenant or which may be filed against the Premises during the term of this Lease.
Whenever and as often as any mechanics', laborers', or materialmen's lien shall
have been filed against the leased Premises and/or building, based upon any act
or interest of Tenant or anyone claiming through Tenant, Tenant shall forthwith
take such action by bonding, deposit or payment as will remove or satisfy the
lien, and in default thereof after five (5) days' notice to Tenant, Landlord
without waiver of Landlord's rights may pay the amount of such lien or discharge
the same by deposit, and the amount so paid or deposited, with interest thereon,
shall be deemed additional rent reserved under this Lease, and shall be payable
with interest at the rate of one percent (1%) per month from the date of such
payment or deposit, and Landlord shall have the remedies herein provided for
default for Tenant's failure to pay such amount with interest thereon within
five (5) days after Landlord's written notice of the amount due.
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6. Tenant shall permit Landlord or Landlord's agents or lenders to inspect
or examine the leased Premises at such time and in such manner as to cause the
least possible interference with the conduct of Tenant's business.
X
SUBROGATION
1. Landlord hereby releases Tenant from any and all liability and waives
Landlord's right of recovery against Tenant, its agents and employees, for any
loss or damage to Landlord's property resulting from any hazard insurable under
a landlord's fire and extended coverage policy of insurance, including, but not
limited to, theft, fire, smoke, explosion, or water damage, and Landlord hereby
waives the subrogation rights of its insurance carriers under Landlord's
policies of insurance providing coverage against loss or damage by any such
hazard. Landlord shall take such steps as are necessary to inform its insurance
carriers of this provision and to have endorsements, if necessary, placed on
said insurance policies to carry into effect the provisions of this Paragraph.
2. Tenant hereby releases Landlord from any and all liability and waives
Tenant's rights of recovery against Landlord, its agents and employees, for any
loss or damage to Tenant's property resulting from any hazard insurable under a
tenant's fire and extended coverage policy of insurance, including, but not
limited to, theft, fire, smoke, explosion, or water damage, and Tenant hereby
waives the subrogation rights of its insurance carriers under Tenant's policies
of insurance providing coverage
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against loss or damage by any such hazard. Tenant shall take such steps as are
necessary to inform its insurance carriers of this provision and to have
endorsements, if necessary, placed on said insurance policies to carry into
effect the provisions of this Paragraph.
3. All of the above notwithstanding, the foregoing releases and waivers
shall be effective and applicable only if such releases and waivers are allowed
by the insurers of both Landlord and Tenant. Landlord and Tenant agree to make
their best efforts to obtain agreement to such releases and waivers.
XI
INSURANCE
1. (a) Tenant shall, at all times during the term of this Lease, keep all
buildings, improvements, and fixtures on the Premises insured to the extend of
One Hundred Percent (100%) of the full insurable value thereof, which for
purposes hereof shall be replacement cost, against loss or damage from fire, and
such policy or policies shall be New York standard form policies and shall
contain extended coverage provisions with loss of rents endorsement or such
other forms of coverage as may be approved by Landlord in writing. Tenant may
satisfy the foregoing loss of rents insurance requirement by maintaining
business interruption insurance in an amount satisfactory to Landlord and
assigning to Landlord the proceeds thereof which are attributable to the rents,
taxes, costs and other charges due hereunder. Such policies shall be taken out
with such reasonable and solvent insurance company or
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companies authorized to do business in Oregon as Tenant shall determine and as
Landlord shall reasonably approve. The proceeds of such policies shall be
payable to Landlord, Ground Landlord, Landlord's lender and Tenant as their
interests may appear.
(b) All such policies shall, to the extent obtainable, contain an
agreement by the insurers that such policies shall not be cancelled without at
least Ten (10) days' prior notice to Landlord. The original of such policy or
policies shall remain in possession of Tenant unless required by Landlord's
lender; provided, however, that Landlord shall have the right to receive from
Tenant, upon written demand, a duplicate policy or policies of any such
insurance.
2. Tenant covenants and agrees that it will at all times during the term of
this Lease indemnify, protect, defend and save Landlord harmless from and
against any and all claims, demands, losses, damages, costs, charges,
liabilities and attorneys' fees arising from damage or injury, actual or
claimed, of whatsoever kind or character, to persons or property occurring in,
on or about the leased Premises or other areas exclusively used by Tenant;
provided, however, nothing herein shall require Tenant to indemnify, protect,
defend or save Landlord harmless from the consequences of Landlord's sole
negligence or the sole negligence of any of Landlord's agents or employees. In
furtherance of said protection, Tenant agrees, at all times during the term of
this Lease, at Tenant's expense, to carry comprehensive general public liability
and property damage insurance with an insurer satisfactory to Landlord, insuring
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Landlord, its officers, employees and agents, Ground Landlord, and Tenant, and
any persons designated by Landlord, against all liability for personal injury,
disease or death or for injury to or damage to property occurring upon, in or
about the leased Premises or other areas exclusively used by Tenant, in an
amount of not less than Three Million Dollars ($3,000,000) for personal injury,
sickness, disease or death to one person, not less than Three Million Dollars
($3,000,000) for injuries arising out of any accident, and not less than one
Million Dollars ($1,000,000) for property damage; provided, however, the limits
hereinabove provided shall be the base and shall be increased as of January 1,
1986 and each succeeding fifth (5th) anniversary of each year of this Lease or
any extension thereof by a percentage equal to seventy-five percent (75%) of the
increase of the Average Index in the same manner as provided in Article XXVI.
The policy shall contain a clause that the insurer will not cancel or change the
insurance without giving Landlord Thirty (30) days' prior notice. A certificate
of such insurance shall be delivered to Landlord, and, if required by Landlord's
lender, the original of such policy shall be delivered to such lender.
XII
DESTRUCTION OF PREMISES
1. In the event of damage to or destruction of the leased Premises by
fire or other casualty, Tenant, at Tenant's sole expense, shall promptly restore
the leased Premises as nearly as possible to its condition prior to such damage
or destruction. All insurance proceeds received by Landlord pursuant to the
provisions of this Lease,
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less the cost, if any, of such recovery, shall be held in trust and applied by
Landlord to the payment of such restoration, as such restoration progresses.
2. If the proceeds of insurance are insufficient to pay the full cost of
repair or restoration, Tenant shall pay the deficiency. If the insurance
proceeds exceed such cost, the excess shall be paid to Tenant.
3. If any insurance proceeds are paid to a mortgagee, then any disbursement
of insurance proceeds by such mortgagee shall be deemed to have been made by
Landlord. If any such mortgagee shall refuse to disburse any portion of
insurance proceeds to which Tenant is entitled, Landlord shall provide an
equivalent sum from other sources.
4. If the leased Premises or any part thereof, or the furniture,
furnishings, and fixtures therein, shall be destroyed or damaged, Tenant's
obligations for the payment of basic rent and other charges hereinabove set
forth shall be abated to the extent the leased Premises are untenantable during
the period of repair, provided, however, Landlord shall be entitled to insurance
proceeds under the policy for loss of rents or business interruption.
5. Notwithstanding anything contained in subparagraphs 1 through 4 of this
Article, if the leased Premises are substantially destroyed during the final
five years of the lease term, Landlord shall not be required to rebuild unless
Tenant extends the remaining term of the lease for ten years from the date of
the destruction.
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XIII
CONDEMNATION
1. If a condemning authority takes all of the leased Premises, or a portion
sufficient to render the remaining Premises reasonably unsuitable for the use
which Tenant was making of the leased Premises, this Lease shall terminate as of
the date title vests in the condemning authority. Landlord, Tenant and Ground
Landlord shall be entitled to all of the proceeds from the condemnation, as
their interests may appear.
2. If a portion of the leased Premises is taken and the remaining Premises
are reasonably suitable for the use Tenant was making of the leased Premises,
this Lease shall continue, and Landlord shall immediately make such repairs and
alterations to the Premises as are necessary to restore the remaining Premises
to a condition as comparable as reasonably practicable to that existing at the
time of condemnation. Basic rent shall be abated to the extent the leased
Premises are untenantable during the period of alteration and repair. As of the
date title vests in the condemning authority, the basic rent due hereunder shall
be reduced in the proportion that the number of square feet taken by the
condemning authority bears to the original square footage leased hereunder.
3. For purposes of this Lease, a taking by a condemning authority shall
include any purchase or other acquisition in lieu of condemnation.
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XIV
SUBLEASE AND ASSIGNMENT
This Lease is personal to Tenant, and Tenant may not assign or sublet all
or any portion thereof or permit any other person or persons to occupy the
leased Premises or any portion thereof without the prior written consent of
Landlord, which consent shall not unreasonably be withheld. The interest of
Tenant or such assignee cannot be sold, assigned, transferred, seized, or taken
by operation of law or under or by virtue of any execution or other process,
attachment, or proceeding instituted against Tenant, or under or by virtue of
any bankruptcy or insolvency proceeding had in regard to Tenant, or in any other
manner, except as above specified; and any violation of the provisions thereof
by Tenant, whether voluntary or involuntary, shall constitute a breach of this
Lease. No assignment or sublease shall accomplish a novation, and Tenant shall
not be released from performing any of the terms, covenants, and conditions of
this Lease.
XV
SUBORDINATION
1. Upon request of Landlord, Tenant will subordinate its rights hereunder
to the lien of any first mortgage (which shall for purposes of this Lease be
deemed to include a Deed of Trust) now or hereafter in force against the land
and buildings of which the leased Premises are a part or upon any building
hereafter placed upon the land of which the leased Premises is a part, and to
all advances made or hereafter to
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be made upon the security thereof. This Article shall be self-operative, and no
further instrument of subordination shall be required from Tenant. Tenant hereby
constitutes Landlord as its attorney in fact to execute any subordination
agreement required by Landlord's mortgagee on Tenant's behalf. Nothing contained
in this Article shall require Tenant to agree to any subsequent modification in
the term of this Lease, nor shall any mortgagee succeeding to Landlord's
interest have any greater rights hereunder than Landlord.
2. Upon the request by Landlord, Tenant agrees to provide an Estoppel
Certificate to Landlord's mortgagee, in substantially similar form to Exhibit
"E", attached hereto, but amended, as necessary, to reflect the facts as of the
date each such Estoppel Certificate is requested.
3. If Landlord can obtain financing only upon the basis of amending this
Lease for lender's protection, Landlord and Tenant shall amend this Lease to the
extent necessary to protect lender; provided that all such amendments shall be
limited to lease provisions relating to protection of the lender, and further
provided that no amendment shall increase any obligation of the Tenant
(including, but not limited to Tenant's obligation for basic rent, percentage
rent or other payments hereunder) or restrict or limit any right of Tenant
hereunder.
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<PAGE> 30
XVI
DEFAULT
1. The following events shall be deemed to be events of default by Tenant
under this Lease:
(a) If Tenant shall fail to pay any installments of the rent, or any
other charge designated herein to be paid, on the date that same is due, and
such failure shall continue for a period of Ten (10) days after written notice
from Landlord.
(b) If Tenant shall fail to comply with any term, condition, or
covenant of this Lease, other than the payment of rent, and shall not cure such
failure within Thirty (30) days after written notice thereof to Tenant; or if
such failure cannot reasonably be cured within the said Thirty (30) days and
Tenant shall not have commenced to cure such failure within Thirty (30) days
after written notice thereof to Tenant; or if such failure cannot reasonably be
cured within the said Thirty (30) days and Tenant shall not with reasonable
diligence and good faith proceed in the curing of such failure.
(c) If Tenant shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of creditors, or
if any petition under any section or chapter of the National Bankruptcy Act
shall be filed to subject Tenant's affairs to the same, or if a receiver or
trustee shall be appointed for all or substantially all of the assets of Tenant.
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<PAGE> 31
2. Upon the occurrence of any of the foregoing events of default, Landlord
shall, without any notice or demand whatsoever, have the option to:
(a) Terminate this Lease upon written notice to Tenant, in which event
this Lease and the term thereby demised shall expire and terminate on the date
specified in such notice; and all rights of Tenant under this Lease shall on
such date expire and terminate. Upon such expiration Tenant shall immediately
quit and peacefully surrender the Premises and building to Landlord, and, if
Tenant fails to do so, Landlord may enter upon and take possession of the leased
Premises and building and expel or remove Tenant, and any other person who may
be occupying said Premises, or any part thereof, and Tenant agrees to pay to
Landlord, on demand, the amount of all loss and damage which Landlord may suffer
by reason of such termination, whether through inability to relet the Premises
on satisfactory terms or otherwise.
(b) Enter upon and take possession of the leased Premises and expel or
remove Tenant and any other person who may be occupying said Premises or any
part thereof, and relet the Premises and receive rent therefor; and Tenant
agrees to pay to Landlord, on demand, any deficiency that may arise by reason of
such reletting. No reentry by Landlord shall be deemed an acceptance of a
surrender of this Lease or shall absolve or discharge Tenant from any liability
under this Lease.
(c) Enter upon the leased Premises and do whatever Tenant is obligated
to do under the terms of this Lease, and Tenant agrees to reimburse
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Landlord, on demand, for expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease.
3. Landlord may pursue any of the foregoing remedies singly or cumulatively
and, in addition, any other remedies provided by law; nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder, nor shall any termination and cancellation include a
cancellation of Tenant's obligations hereunder for any deficiency upon reletting
subsequent to said termination or cancellation, such obligations being
independent covenants surviving said termination or cancellation. In the event
of any such expiration or termination, whether or not the leased Premises and
buildings, or any part thereof, shall have been relet, Tenant shall pay to
Landlord the entire rent and all other charges required to be paid by Tenant up
to the time of such expiration or termination of this Lease, and thereafter
Tenant, until the end of what would have been the term of this Lease in the
absence of such expiration or termination, shall be liable to Landlord, and
shall pay to Landlord, as and for liquidation and agreed current damages for
Tenant's default;
(a) The amount of fixed rent, percentage rent and other charges which
would be payable under this Lease by Tenant if this Lease were still in effect,
less:
(b) The net proceeds of any reletting, after deducting all of
Landlord's reasonable expenses in connection with such reletting, including,
without
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limitation, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees, alteration costs, and expenses of preparation for such
reletting.
4. For purposes of this Article, the amount of the percentage rent that
would be payable under this Lease by Tenant if this Lease were still in effect
shall be computed for the twelve (12) consecutive months which produced the
highest percentage rent of the twenty-four (24) month period (or any lesser
period if the termination requiring this computation takes place less than
twenty-four (24) months after the commencement date) next preceding the month in
which the occurrence requiring such computation takes place. Tenant shall pay
such current damages (hereinafter called "deficiency") to Landlord monthly on
the days on which rent would have been payable under this Lease if the term of
this Lease were still in effect, and Landlord shall be entitled to recover from
Tenant each monthly deficiency as the same shall arise.
5. At any time after such expiration or termination whether or not Landlord
shall have collected any deficiencies as aforesaid, Landlord, at its option,
shall be entitled to recover from Tenant, and Tenant shall pay to Landlord, on
demand, as and for liquidated and agreed final damages for Tenant's default, an
amount equal to the difference between the rent reserved hereunder (including
percentage rent determined as herein provided) for the unexpired portion of the
term demised (as of the date of such demand) and the then fair and reasonable
rental value of the leased Premises and building for the same period. In
computation of such final damages the difference
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<PAGE> 34
between any installment of rent becoming due hereunder after the date of
termination and the fair and reasonable rental value of the leased Premises and
building for the period for which such installment was payable shall be
discounted from the date of payment of such final damages at the rate of ten
percent (10%) per annum.
6. If Tenant shall default in its covenant to pay the rental as provided
for herein, Landlord shall have a lien for such sums upon the personal property
of Tenant located upon the leased Premises and may enter the same and take
possession of said personal property and sell it at a public or private sale,
and apply the proceeds thereof, after deducting the expenses of said sale, upon
the monies due to Landlord prompting the same. Any public or private sale shall
be held in a commercially reasonable manner.
XVII
QUIET ENJOYMENT
1. Conditioned upon Tenant's paying the rent herein provided and performing
and fulfilling all the covenants, agreements, conditions, and provisions herein
to be kept, observed, or performed by Tenant, and except as hereinafter provided
in this paragraph, the Tenant shall and may, at all times during the term hereby
granted, peaceably, quietly, and exclusively have, hold, and enjoy the leased
Premises; provided, however, Landlord shall not be responsible for the
compliance of Ground Landlord with the provisions of Section 20.2 of the Ground
Lease, attached hereto as Exhibit A, nor shall Landlord be responsible for any
dispossession resulting
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<PAGE> 35
therefrom. It is understood that the Premises are owned by the Ground Landlord
as above set forth. Prior to or at the time of the commencement of this Lease,
Ground Landlord, Landlord and Tenant shall enter into an attornment and
nondisturbance agreement, which agreement will provide in part as follows: (a)
that the rights of Tenant will be recognized and (b) that, in the event of
default by Landlord and/or foreclosure of the mortgage, this Sublease will
remain in effect according to its terms, with substitution of Ground Landlord or
the purchaser at the foreclosure sale as Landlord; in accordance with this
section, Landlord and Tenant shall execute the attornment and nondisturbance
agreement attached hereto as Exhibit F prior to the commencement of this Lease.
XVIII
COMPLIANCE WITH THE LAW
1. Tenant shall pay promptly when due and before delinquency all taxes
assessed upon Tenant's fixtures, furnishings, equipment, stock, inventory,
leasehold interest, or other personal property in or about the leased Premises.
2. Tenant shall comply with all applicable laws, orders, and regulations of
federal, state, or municipal authorities and with any direction of any public
officer, pursuant to law, which shall impose any duty upon Tenant with respect
to the leased Premises. Tenant, at Tenant's sole expense, shall obtain all
licenses or permits which may be required for the conduct of Tenant's business,
or for the making of repairs,
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<PAGE> 36
alterations, improvements, or additions. Landlord, when necessary, will join
with Tenant in applying for such permits and licenses.
XIX
SURRENDER
1. If Tenant shall hold over and remain in possession of the leased
Premises after the expiration of the term herein granted, Tenant shall remain
bound by all the terms, covenants, and agreements hereof, except that such
holding over shall be construed to be a tenancy from month to month which may be
terminated at any time by Landlord.
2. Upon the expiration of the term of this Lease or any sooner termination
thereof, Tenant covenants and agrees that Tenant shall, without notice, promptly
and peaceably surrender possession of the leased Premises to Landlord in as good
a condition as at the time of Tenant's entry thereon, reasonable wear and tear,
fire, and other insured or unavoidable causes excepted.
3. If Tenant is not then in default as to any of the terms of this Lease,
Tenant shall have the right to remove all trade fixtures erected or attached to
the Premises by Tenant upon the expiration or termination of this Lease or any
extension thereof, provided that Tenant shall repair any physical damage to the
leased Premises resulting from such removal.
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<PAGE> 37
XX
NONWAIVER
Any waiver of any breach of covenants herein contained to be kept and
performed by Tenant shall not be deemed or considered as a continuing waiver,
and shall not operate to bar or prevent Landlord from declaring a forfeiture for
any succeeding breach, either of the same condition or covenant or otherwise.
The acceptance of rent by Landlord hereunder shall never be construed to be a
waiver of any term of this Lease. No payment by Tenant or receipt by Landlord of
a lesser amount than shall be due according to the terms of this Lease shall be
deemed or construed to be other than on account of the earliest rent due.
XXI
NOTICES
All notices provided for in this Lease to be served upon the other party
shall be done in writing and by Certified Mail, return receipt requested,
postage prepaid, and, if served upon Landlord, shall be addressed to Landlord at
The Wyant-Peterson Company, 1582 Lancaster Drive N.E., Salem, Oregon 97303,
Attention: Donald R. Wyant, Sr., Partner, and, if served upon Tenant, shall be
addressed to Tenant at G.I. Joe's Inc., 9805 Boeckman Road, Wilsonville, Oregon
97070; provided, however, that either party may designate a different address by
giving the other party written notice thereof. Such notice shall be deemed to
have been served within Forty-Eight (48) hours after it has been deposited in
any United States Post Office in Washington or
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Oregon, postage prepaid, certified mail, return receipt requested, which shall
be valid and sufficient service of notice for all purposes; or if notice is
personally delivered or otherwise given, such notice shall be deemed to have
been served at the time of delivery thereof.
XXII
ATTORNEYS' FEES
1. In the event any action or suit or proceeding is brought to collect the
rent due or to become due hereunder, or any portion thereof, or to obtain
possession of the leased Premises, or to enforce compliance with this Lease, or
for failure to observe any of the covenants of this Lease, the prevailing party
in such suit, action, or proceeding may recover from the other party herein such
sum or sums as the trial and/or appellate court may adjudge reasonable as
attorneys' fees to be allowed in said suit, action, or proceeding, or appeal
therefrom, in addition to their costs and disbursements.
XXIII
MODIFICATION
1. The terms and conditions of this Lease shall be incapable of
modification, change, or amendment, except by endorsement, in writing, attached
hereto and bearing the separate signature in execution thereof by the parties
hereto, or their successors in interest.
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XXIV
RECORDATION
1. A memorandum of lease in the form attached hereto as Exhibit G shall be
recorded upon the commencement of this lease.
XXV
SUCCESSION
1. This Lease shall be binding upon the parties hereto, their legal
representatives, heirs, successors, and, as far as this Lease is assignable by
the terms hereof, to the assigns of such parties. The words "Landlord" and
"Tenant" wherever used in this Lease, shall apply equally and be binding jointly
and severally upon all Tenants and Landlords, whether one or more, and, together
with the accompanying verbs and pronouns, shall apply to all persons, firms or
corporations who may be or become parties as Landlords or Tenants hereto.
XXVI
RENEWAL OPTION
1. (a) At the expiration of the original term of this Lease, if Tenant is
not then in default under any of the provisions hereof, Landlord hereby grants
to Tenant the option to extend the term of this Lease for Two (2) consecutive
periods of Five (5) years each (each of such periods being hereafter referred to
as the "extended term"), upon condition that, at the time each such renewal
option is exercised, the Lease is then in effect and there is then no default in
the performance of any condition
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hereof. Such extension shall be upon the terms and conditions of this Lease in
effect during the original term hereof except as set forth below.
(b) (i) The rent during each extended term hereof shall include both
basic rent and percentage rent as provided in this Lease, except that the
basic monthly rent for the first extended term shall be the amount payable
as basic monthly rent in 1999 multiplied by a fraction the numerator of
which is the Average Index (as hereinafter defined) as published the month
during which such extended term shall commence and the denominator of which
is the Average Index as published for October 1999. "Average Index" as used
herein shall mean the average of (A) the "Consumer Price Index (United
States City Average for All Urban Consumers)--All Items (Reference Base:
1967 = 100)" and (B) the "Consumer Price Index (United States City Average
for Urban Wage Earners and Clerical Workers (Revised))--All Items
(Reference Base: 1967 = 100)," each published by the United States
Department of Labor, Bureau of Labor Statistics. In the event the Average
Index or any constituent index thereof shall hereafter be converted to a
different standard reference base or otherwise revised, the determination
of the percentage increase shall be made with the use of such conversion
factor, formula or table for converting such indexes as may be published by
the Bureau of Labor Statistics or, if such bureau shall not publish the
same, then with the use of such conversion factor, formula or table as may
be published by Prentice Hall, Inc. or any other
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<PAGE> 41
nationally recognized publisher of similar statistical information. In the
event any such index shall cease to be published, then for the purposes of
this Article XXVI, there shall be substituted such other index as Landlord
and Tenant shall agree upon and if they are unable to agree within ninety
(90) days after any such index ceases to be published, such matter shall be
determined by arbitration in accordance with the rules of the American
Arbitration Association for the purpose of establishing the most nearly
equitable alternative index to accomplish the purposes set forth herein.
(ii) The basic rent during each succeeding extended term shall be
the amount payable as basic monthly rent for the immediately preceding
extended term multiplied by a fraction the numerator of which is the
Average Index as published for the last month of the immediately preceding
extended term and the denominator of which is the Average Index as
published for the first month of the immediately preceding extended term.
(iii) All of the above notwithstanding, nothing herein to the
contrary shall be construed as at any time requiring Tenant to pay to
Landlord a sum less than the average annual rental for the last three (3)
years of the preceding term which has not recently expired. (It is the
intent of this proviso that Landlord shall receive the basic rent according
to the formula herein or an average of the last three (3) years' rent,
whichever is greater.)
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(c) Tenant shall exercise the option for each such extended term by
notifying Landlord in writing and not less than thirty (30) months prior to the
last day of the term of this Lease or each such renewal period.
(d) All of the above notwithstanding, the term of this Lease shall not
be renewable with respect to any period of time during which Landlord does not
hold a leasehold estate in the leased Premises.
XXVII
CONDITIONS PRECEDENT TO LIABILITY
1. If Landlord is unable, after using its best efforts, to obtain any
necessary zone changes, or the building permits, land use and design approvals,
or other similar governmental authorizations to commence construction of the
leased Premises by October 1, 1984, either party may thereafter give notice to
the other of the immediate rescission of this Lease.
XXVIII
PERSONAL PROPERTY
All personal property of every kind or description that may at any time be
in the leased Premises shall be at Tenant's sole risk or at the risk of those
claiming under Tenant, and Landlord shall not be liable for any damage to said
property or loss to the business or occupation of Tenant caused in any manner
whatsoever, except as may result from and be caused by the sole negligence of
Landlord or its agents or employees.
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XXIX
EFFECT OF INVALIDITY
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of the terms and provisions to
persons and circumstances other than those to which it had been held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
Landlord:
THE WYANT-PETERSON COMPANY
By /s/ DONALD R. WYANT, SR.
--------------------------------------
Donald R. Wyant, Sr.
By /s/ MARTIN L. PETERSON
--------------------------------------
Martin L. Peterson
Tenant:
G.I. JOE'S, INC., an Oregon corporation
By /s/ WAYNE T. JACKSON
--------------------------------------
Its Secretary/Treasurer
STATE OF OREGON )
) ss.
COUNTY OF CLACKAMAS )
On this 28th of March, 1984, before me, the undersigned, a Notary Public in
and for the State of Oregon, commissioned and sworn, personally appeared Wayne
T. Jackson and _______________________, to me known to be the persons who signed
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<PAGE> 44
as Secretary-Treasurer and ___________________, respectively, of G.I. Joe's,
Inc., the corporation that executed the within and foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes therein mentioned, and on oath stated that
they were duly elected, qualified and acting as said officers of the
corporation, that they were authorized to execute said instrument and that the
seal affixed, if any, is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/ BARBARA MALLERY
-----------------------------------------
NOTARY PUBLIC in and for the State
of Oregon, residing at Lake Oswego
My commission expires: 3-12-87
STATE OF OREGON )
) ss.
COUNTY OF CLACKAMAS )
On this 28th of March, 1983, before me, a Notary Public in and for the
State of Oregon, duly commissioned and sworn, personally appeared Donald R.
Wyant, Sr., to me known to be the individual who executed the within and
foregoing instrument, and acknowledged said instrument to be his free and
voluntary act and deed, for the uses and purposes therein mentioned.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/ BARBARA MALLERY
-----------------------------------------
NOTARY PUBLIC in and for the State
of Oregon, residing at Lake Oswego
My commission expires: 3-12-87
STATE OF OREGON )
) ss.
COUNTY OF CLACKAMAS )
On this 28th of March, 1983, before me, a Notary Public in and for the
State of Oregon, duly commissioned and sworn, personally appeared Martin L.
Peterson, to me known to be the individual who executed the within and foregoing
instrument, and
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<PAGE> 45
acknowledged said instrument to be his free and voluntary act and deed, for the
uses and purposes therein mentioned.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/ BARBARA MALLERY
-----------------------------------------
NOTARY PUBLIC in and for the State
of Oregon, residing at Lake Oswego
My commission expires: 3-12-87
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<PAGE> 1
EXHIBIT 10.6
STANDARD INSURANCE COMPANY Dated: January 20, 1983
P. 0. BOX 711
PORTLAND, OREGON 97207
RE: Lease dated: October 9, 1980
Landlord: Hayden Meadows
Tenant: G. 1. Joe's, Inc.
Premises: 1140 N. Hayden Meadows Drive, Portland, Oregon 97217
Minimum Rent: $26,490.86 per month
Percentage Rent: 1 1/2% of the gross receipts in excess of
$10,000,000.
Lease Term: 20 years with 2, 5-year options
Gentlemen:
The undersigned, Tenant in the above described lease, hereby confirms, as of the
date hereof, the following:
1. That it is in full and complete possession of the demised premises,
such possession having been delivered by the landlord and having been
accepted by the undersigned.
2. That the improvements and space required to be furnished by the terms
of the Lease have been completed in all respects to the satisfaction
of the undersigned and are open for the use of the undersigned, its
customers, employees and invitees.
3. That all duties of an inducement nature required of the Landlord in
said Lease have been fulfilled.
4. That said Lease is in full force and effect; that there is no existing
default on the part of the Landlord in the terms thereof; and that
said Lease has not been amended, modified, supplemented or superseded,
except as follows:
5. That no rents have been prepaid except as provided by said Lease; that
undersigned does not have or hold any claim against Landlord which
might be set off or credited against future accruing rents.
6. That undersigned has received no notice of a prior sale, transfer,
assignment, hypothecation, or pledge of the said Lease or of the rents
secured therein, except to you.
<PAGE> 2
7. That rents provided in said Lease commenced to accrue on the 21st day
of July, 1981.
8. That undersigned will give prompt written notice to Standard Insurance
Company at its address above, in the event of Lessor's default or
omission under the terms of any covenant contained in said Lease,
which notice shall apprise Lender of the nature of such default or
omission. Prior to terminating the Lease for any reason whatsoever
before expiration of the specified term, it shall allow lender thirty
(30) days after receipt of notice to rectify or cure the default,
omission or condition constituting the basis for such termination.
Very truly yours,
/s/
<PAGE> 3
HAYDEN MEADOWS
INDEX TO BUILDING LEASE
Page
ARTICLE 1 - PREMISES 1
ARTICLE 2 - CONSTRUCTION 1
ARTICLE 3 - TERM 2
ARTICLE 4 - OPTIONS 2
ARTICLE 5 - RENT 3
ARTICLE 6 - GROSS RECEIPTS DEFINED 6
ARTICLE 7 - RECORDS AND REPORTING 7
ARTICLE 8 - TAXES AND INSURANCE 9
ARTICLE 9 - USE OF PREMISES 10
ARTICLE 10 - OPERATION OF BUSINESS AND OBLIGATION TO OPERATE 10
ARTICLE 11 - STORAGE, OFFICE SPACE 10
ARTICLE 12 - PARKING AREAS 11
ARTICLE 13 - FIXTURES 11
ARTICLE 14 - SIGNS, AWNINGS AND CANOPIES 11
ARTICLE 15 - TENANT SHALL DISCHARGE ALL LIENS 11
ARTICLE 16 - MAINTENANCE BY TENANT 12
ARTICLE 17 - SURRENDER OF PREMISES 12
ARTICLE 18 - RULES AND REGULATIONS 12
ARTICLE 19 - INDEMNIFICATION AND LIABILITY INSURANCE 13
ARTICLE 20 - FIRE AND OTHER CASUALTY 14
ARTICLE 21 - PLATE GLASS 15
ARTICLE 22 - EMINENT DOMAIN 15
ARTICLE 23 - WORKMEN'S COMPENSATION 16
ARTICLE 24 - UTILITIES AND GARBAGE 16
ARTICLE 25 - SUBORDINATION 16
<PAGE> 4
Index continued ....
ARTICLE 26 - INVOLUNTARY ASSIGNMENT 17
ARTICLE 27 - CONSENT REQUIRED 18
ARTICLE 28 - WASTE OR NUISANCE 18
ARTICLE 29 - GOVERNMENTAL REGULATIONS 18
ARTICLE 30 - ADVERTISING 19
ARTICLE 31 - RIGHT OF ENTRY 19
ARTICLE 32 - TAXES ON LEASEHOLD 19
ARTICLE 33 - LOSS AND DAMAGES 20
ARTICLE 34 - HOLDING OVER 20
ARTICLE 35 - SUCCESSORS 21
ARTICLE 36 - WAIVER AND CONSENT 21
ARTICLE 37 - ACCORD AND SATISFACTION 21
ARTICLE 38 - ENTIRE AGREEMENT 21
ARTICLE 39 - NO PARTNERSHIP 22
ARTICLE 40 - NOTICES 22
ARTICLE 41 - USE WORDS 22
ARTICLE 42 - PARTIAL INVALIDITY 22
ARTICLE 43 - NO OPTION 23
ARTICLE 44 - RECORDING 23
ARTICLE 45 - ATTORNEY'S FEES 23
ARTICLE 46 - OWNER'S LIEN 23
ARTICLE 47 - DEFAULT 24
ARTICLE 48 - DEFINITIONS 25
<PAGE> 5
BUILDING LEASE
This lease is made October 9, 1980, between HAYDEN MEADOWS, a joint venture
("Owner"), whose address is 909 North Tomahawk Island Drive, Portland, Oregon
97217 and G.I. Joe's, Inc., ("Tenant"), whose address is P.O. Box 11037,
Portland, Oregon.
In consideration of the rents, covenants and conditions herein set forth,
Owner and Tenant agree as follows:
ARTICLE 1. PREMISES
1.1. Owner leases to Tenant and Tenant leases from Owner the premises
("Premises") located in the City of Portland, Multnomah County, State of Oregon,
in the Hayden Meadows Shopping Center, and further described in Exhibit "A",
which exhibit is attached to and made a part of this lease.
ARTICLE 2. CONSTRUCTION
2.1. The building and other improvements that are a part of the Premises
shall be constructed by Owner in accordance with mutually agreed upon plans and
specifications which shall be attached hereto, marked Exhibit "B" and made a
part of this lease.
2.2. Owner shall notify Tenant of the expected date for substantial
completion of Owner's construction obligations at least 30 days before that
date. After Owner notifies Tenant of the date, Tenant shall have the right to
enter the Premises to commence equiping and fixturing as long as such entry does
not interfere with Owner or Owner's contractor.
2.3. Tenant shall take possession of the Premises immediately upon notice
from Owner of substantial completion of Owner's construction obligations
required by this lease. When Tenant enters the Premises or takes possession as
provided in this Article, all the provisions of this lease shall be in full
force and effect except the rent provisions and except as otherwise expressly
provided in this lease, notwithstanding Article 3. Term below. Tenant will not
be required to take possession of the premises between September 1 and December
31 of any year.
2.4. Within thirty days after Owner has notified Tenant that the building
and other improvements that are a part of the Premises have been substantially
completed, Tenant shall give Owner a list of any contended defects or variances
from Owner's
Page 1 - BUILDING LEASE
<PAGE> 6
construction obligations. Owner will immediately commence to complete or correct
the items that it believes are justified. If Tenant does not deliver the list
within the thirty day period, Tenant shall be deemed to have accepted the
Premises. If Tenant gives Owner a list within the thirty day period, Tenant
shall be deemed to have accepted the Premises subject to such defects or
variances.
2.5. If Owner is unable to substantially complete the Premises by June 30,
1983 as a result of causes beyond Owner's reasonable control, Owner shall not be
liable for any damage caused for failing to deliver possession. If owner does
not substantially complete the Premises by June 30, 1983, Tenant can elect to
terminate this lease by giving notice to Owner at any time before the date Owner
delivers possession of the Premises to Tenant.
2.6. If Owner by June 1, 1981 can not gain governmental approvals for
construction of the premises according to plans and specifications of this lease
and approvals for construction of the Hayden Meadows development, either party
can elect to terminate this lease by giving the other party 30-day written
notice.
ARTICLE 3. TERM
3.1. The term of this lease shall commence 60 days following Owner's notice
to Tenant of substantial completion of Owner's construction obligations under
this lease, or upon opening of the Premises for business, whichever first
occurs, and shall expire on the last day of the 240 month following the date of
commencement. If the date of commencement is not the first day of a month, the
first partial month shall be excluded for the purpose of determining the
expiration date only.
3.2. Upon the request of either party following commencement of the term,
the parties shall immediately execute an amendment to this lease stating the
date of commencement of the term.
ARTICLE 4. OPTIONS
4.1. Tenant shall have the option to renew this lease for a period of 60
calendar months upon the same terms and conditions as provided herein. Tenant
will be required to give Owner 180 days written notice of such intention to
renew the lease.
4.2. Tenant shall have the option to renew this lease after the first
option renewal for a period of 60 calendar months upon the same terms and
conditions except for the rental. Tenant will be required to give Owner 180 days
notice of such intention to renew the lease. If the parties are unable to agree
upon the rent to be paid by Tenant during the renewal term prior to the 90th day
preceding the expiration of the then lease term, and the extended term, the rent
shall be determined by a qualified, independent
Page 2 - BUILDING LEASE
<PAGE> 7
real property manager in the Portland metropolitan area approved by the Portland
Realty Board chosen by Tenant from a list of not fewer than three such
individuals submitted by Owner. If Tenant does not make the choice within ten
days after submission of the list, Owner may do so. If Owner does not submit
such a list within ten days after written request from Tenant to do so, Tenant
may name as such appraiser any such real property manager approved by the
Portland Realty Board. Within 30 days after his appointment, the appraiser shall
return his decision which shall be final and binding upon both parties. The cost
of the appraisal shall be borne equally by both parties.
ARTICLE 5. RENT
5.1. Tenant shall pay to Owner as monthly minimum rent, without deduction
or setoff, sums determined in accordance with this Section 5.1. in advance on
the first day of each month during the term of this lease. Monthly minimum rent
for the first month or portion of it shall be paid on the date the term
commences and shall be prorated for a partial month. If this lease terminates
before the expiration date for reasons other than Tenant's default, monthly
minimum rent shall be prorated to the date of termination and Owner shall repay
to Tenant all monthly minimum rent then prepaid and unearned.
5.1.1. The initial monthly minimum rent shall be $27100.00,
5.1.2. Beginning the first day of the third full month of the term, minimum
monthly rent shall be adjusted up or down as necessary to equal a sum computed
by Owner to be one twelveth of the total of:
5.1.2.1. The product of eleven percent, three dollars and the square foot
area of the Premises (11% x $3.00 x area); and
5.1.2.2. The product of the Actual Cost of Construction and the sum of an
estimated Loan Constant and thirty-five one hundredth (Actual Cost of
Construction x [estimated Loan Constant + .35]).
5.1.3. Beginning the first day of the first full month in which documents
evidencing permanent financing of the Premises are recorded, minimum monthly
rent shall be adjusted up or down as necessary to equal a sum computed by Owner
to be one twelveth of the total of:
5.1.3.1. The product of eleven percent, three dollars and the square foot
area of the Premises (11% x $3.00 x area); and
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<PAGE> 8
5.1.3.2. The product of the Actual Cost of Construction and the sum of the
Loan Constant and thirty-five one-hundredth (Actual Cost of Construction x [Loan
Constant + .35]);
5.1.3.3. Owner will not use an affiliated interest for borrowing purposes.
5.1.4. If the permanent financing includes a variable interest rate, the
minimum monthly rent determined under paragraph 5.1.3. shall be adjusted up or
down as necessary to reflect the change in the loan constant occasioned by the
change in interest rate from time to time. Such adjustments shall be effective
on the first day of the first full month in which the new interest rate is in
effect.
5.2. Owner will give Tenant notice of the adjusted minimum monthly rent at
least 30 days in advance of the effective date of the adjustment. Tenant may
review any of Owner's records used by Owner to determine Actual Construction
Cost, bids by contractors, estimated Loan Constant or Loan Constant, including
subsequent adjustments to Loan Constant. Such review shall occur at Owner's
offices during normal business hours unless otherwise agreed by Owner.
5.3. The Actual Cost of Construction shall be the sum of the following:
5.3.1. Payments made to contractors and subcontractors performing
construction work in connection with the building and other improvements to be
constructed on the real property that is a part of the Premises. It is
understood that Owner may utilize contractors and subcontractors that are
affiliated with Owner;
5.3.2. Other costs of onsite and offsite improvements, which are only a
part of the premises.
5.3.3. Fees for building permits, licenses, and inspection;
5.3.4. Fees of engineers, surveyors, architects, attorneys, and others
providing professional or extra services in connection with the construction of
the building and other improvements that are a part of the Premises, or the
supervision of the construction;
5.3.5. Insurance premiums paid by Owner during the construction period that
are not payable by Tenant under this lease;
5.3.6. Premiums for contractor's faithful performance and for mechanics'
lien bonds;
5.3.7. Costs of bringing utilities to the Premises, including, without
limitation, connection service fees;
Page 4 - BUILDING LEASE
<PAGE> 9
5.3.8. Interest paid by Owner on interim financing for the construction.
The interest shall not exceed the prime lending rate plus 1%;
5.3.9. Lender's fees for interim and permanent financing, including,
without limitation, takeout and standby fees and points with respect to
permanent financing;
5.3.10. Costs to Owner for mortgage brokerage fees in connection with
interim and permanent financing;
5.3.11. Recording costs and filing fees;
5.3.12. Fees for foundation, topographic survey and engineering reports
reasonably necessary for construction on the real property that is a part of the
Premises.
5.3.13. Costs of grading and filling in connection with the Premises; and
5.3.14. Such other costs as reasonably may be incurred by Owner in
connection with the construction of the real property that is a part of the
Premises.
5.3.15. Tenant shall have the right to approve all bids and change orders
unless waived by Tenant prior to acceptance.
5.3.16. If Owner is the general contractor, Owner shall not charge fees for
Owner's personnel or overhead not directly affiliated with the construction.
Prior to the time the minimum monthly rent is adjusted under paragraph
5.1.3. (permanent financing), any of the items of cost that are not finally
ascertainable shall be based upon Owner's reasonable estimate and agreed to by
the Tenant. All other items shall be based upon actual costs.
5.4. The Loan Constant shall be the annual cost of each dollar financed by
permanent financing based upon the interest rate and amortization period of the
permanent financing as determined from standard loan constant tables. Permanent
and interim financing may include other property in the Hayden Meadows Shopping
Center in addition to a part or all of the real property that is a part of the
Premises. For the purpose of determining minimum monthly rent under paragraph
5.1.2. the Loan Constant shall be estimated by Owner based upon Owner's
judgement of the Loan Constant that would be realized if permanent financing
were obtained at that time, provided that if Owner has obtained a permanent
financing committment the terms of the committment shall establish the estimated
Loan Constant.
5.5. Tenant shall pay to Owner as percentage rent a sum equivalent to 1.5%
of the Gross Receipts as defined in Article 6 in excess of $10,000,000 for a
lease year.
Page 5 - BUILDING LEASE
<PAGE> 10
Percentage rent shall be paid annually commencing on the 45th day after the
conclusion of the first lease year and the 45th day of each lease year
thereafter. The last payment of percentage rent shall be made on the 45th day
after the expiration or termination of the term of this lease and shall be for a
rent period ending on the last day of the lease term.
5.6. For the purpose of computing the amounts payable as percentage rent
for the first lease year, the Gross Receipts received during the first partial
month, if any, shall be added to the Gross Receipts for the first lease year.
The amount of the last payment of percentage rent, if for less than a full lease
year, shall be a sum equivalent to the percentage designated above reduced
proportionate to the number of months remaining to complete a full lease year.
5.7. Rent shall not be paid more than 90 days in advance of the times
provided for payment in this lease.
5.8. All rent and other sums payable by Tenant to Owner under this lease
shall bear interest at the rate of 9% per annum from the date due until paid.
ARTICLE 6. GROSS RECEIPTS DEFINED
6.1. The term "Gross Receipts" as used in this lease means receipts from
gross sales of Tenant and of all licensees, concessionaires and tenants of
Tenant, from all business conducted upon or from the Premises by Tenant and by
all licensees, concessionaires and tenants of Tenant, and whether such sales be
evidenced by check, credit, charge account, exchange or otherwise, and shall
include, but not be limited to, the amounts received from the sale of goods,
wares and merchandise and for services performed on or at the Premises, together
with the amount of all orders taken or received at the Premises, whether such
orders be filled from the Premises or elsewhere, and whether such sales be made
by means of merchandise or other vending devices in the Premises.
6.2. Gross sales shall not include sales of tobacco products. Gross sales
shall not include sales of merchandise for which cash has been refunded, and
allowances made on merchandise claimed to be defective or unsatisfactory may be
deducted from gross sales to the extent they have been included in gross sales;
and there shall be deducted from gross sales the sales price of merchandise
returned by customers for exchange, provided that the sales price of merchandise
delivered to the customer in exchange shall be included in gross sales. Gross
Receipts shall not include the amount of any sales, use or excise tax imposed by
any federal, state, municipal or governmental authority directly on gross sales
and collected from customers, provided that the amount thereof is added to the
selling price or absorbed therein, and paid by the Tenant to such governmental
authority. Layaway sales shall be treated as a cash
Page 6 - BUILDING LEASE
<PAGE> 11
sale whenever cash is received. No franchise or capital stock tax and no income
or similar tax based upon income or profits as such shall be deducted from gross
receipts in any event whatever for purposes of this computation. Each charge or
sale upon installment or credit shall be treated as a sale for the full price in
the month during which such charge or sale shall be made, irrespective of the
time when Tenant shall receive payment (whether full or partial) therefor. Gross
Receipts shall include any discount paid or payable to any firm or person for
the use of any credit system.
ARTICLE 7. RECORDS AND REPORTING
7.1. For the purpose of ascertaining the amount payable as rent, Tenant
agrees to prepare and keep at its central office for a period of not less than
two years following the end of each lease year adequate records which shall
include a record of inventories and receipts of merchandise at the Premises, and
daily detailed tabulations of all Gross Receipts and other transactions on or
from the Premises by Tenant and any licensees, concessionaires and tenants of
Tenant conducting any business upon or from the Premises. Tenant shall record at
the time of sale, in the presence of the customer, all receipts from sales or
other transactions whether for cash or credit in a cash register or in cash
registers having a cumulative total which shall be sealed in a manner approved
by Owner, and having such other features as shall be reasonably required by
Owner to effectuate the accurate tabulation of Gross Receipts. Tenant further
agrees to keep at its central office for at least two years following the end of
each lease year the gross income, sales and occupation tax returns with respect
to said lease years and all pertinent original sales records. Pertinent original
sales records shall include: (a) cash register tapes, including tapes from
temporary registers; (b) serially numbered sales slips; (c) the originals of all
mail orders at and to the Premises; (d) the original records of all telephone
orders at and to the Premises; (e) settlement report sheets of transactions with
tenants, concessionaires and licensees of Tenant; (f) memorandum receipts or
other records of merchandise taken out on approval; (g) such other sales
records, if any, which would normally be examined by an independent accountant
pursuant to accepted auditing standards in performing an audit of Tenant's
sales; and (h) the records specified in (a) and (g) above of tenants,
concessionaires or licensees of Tenant. Owner and Owner's authorized
representative shall have the right to examine Tenant's records aforesaid during
regular business hours.
7.2. Tenant shall submit to Owner on or before the day specified in Section
5.5. for payment of percentage rent at the place then fixed for the payment of
rent, a written statement signed by Tenant, and certified by Tenant to be true
and correct showing in reasonably accurate detail, satisfactory in scope to
Owner, the amount of Gross Receipts during the preceding lease year, which
certification shall be one which is satisfactory to Owner in scope and
substance. The statements referred to
Page 7 - BUILDING LEASE
<PAGE> 12
herein shall be in such form and style and contain such details and breakdown as
the Owner may reasonably request.
7.3. The acceptance by the Owner of payments of percentage rent shall be
without prejudice to the Owner's right to an examination of the books and
records required to be kept by Tenant hereunder at the Premises in order to
verify the amount of Gross Receipts reported by Tenant.
7.4. At its option, owner may cause, at any reasonable time upon 15 days
prior written notice to Tenant, a complete audit to be made of Tenant's business
affairs and records relating to the Premises for the period covered by any
reporting period of the Tenant as above described. If such audit shall disclose
a liability for rent to the extent of five percent or more in excess of the
rentals theretofore reported and paid by Tenant for the period or periods in
question, Tenant shall promptly pay to Owner the cost of said audit in addition
to the deficiency, which deficiency shall be payable in any event. Any
information obtained by the Owner as a result of such audit shall be held in
strict confidence by Owner to the extent permitted by law.
ARTICLE 8. TAXES AND INSURANCE
8.1. Beginning on the date that monthly minimum rent begins and continuing
during the term of this lease, Tenant shall pay all real estate taxes and
assessments which may be levied or assessed against the leased premises. Taxes
and assessments for fractional calendar years of the lease term, being the first
and last years, shall be prorated between Owner and Tenant on a daily basis. The
amount of taxes payable by Tenant shall be determined as follows:
8.1.1. Owner shall make every reasonable effort to have the leased
premises, and the land thereunder, segregated and taxed separately, in which
case Tenant shall pay the real estate taxes and assessments directly to the
taxing authority when due and before delinquency. Tenant shall promptly furnish
Owner with copies of receipts evidencing such payments.
8.1.2. In the event the Owner is unable, after reasonable effort, to have
the leased premises segregated and taxed separately and the premises are a part
of a larger parcel of real property which is assessed as one property for real
property tax purposes, Owner shall pay the real estate taxes and assessments on
the leased premises and Tenant shall reimburse Owner for the proportionate share
of the taxes so paid within ten (10) days after Owner presents to Tenant
evidence of Owner's payment of the same and Owner's calculation of Tenant's
proportionate share of said taxes. Tenant's proportionate share of said taxes
and assessments shall be the taxes and assessments attributable to the leased
premises and the land thereunder, and shall be computed as follows:
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<PAGE> 13
8.1.2.1. If the taxing authority will supply a breakdown of the assessment,
providing an assessed valuation of the leased premises separately, then the
figures of the taxing authority shall be conclusive and Tenant's proportionate
share of the taxes and assessments shall be that portion of the total taxes and
assessments paid as the assessed valuation of the leased premises and the land
thereunder bears to the total assessed valuation of the larger parcel.
8.1.2.2. If no breakdown of the assessment can, after reasonable effort, be
obtained from the taxing authority, then Tenant shall reimburse Owner for a
portion of the taxes so paid, said portion being determined by the following
formula:
A x T x [C + E] = P
----- --- ---
B [D F]
where:
A equals the area of the leased premises
T equals the total taxes paid on the larger parcel B equals the
total assessed valuation of the larger parcel
C equals the total assessed valuation of all improvements on the
larger parcel
D equals the total area of all buildings and structures on the
larger parcel
E equals the total assessed valuation of all the land (without
improvements) on the larger parcel
F equals the total area of land on larger parcel
P equals Tenant's portion of the taxes attributable to the leased
premises
8.2. If local improvement district assessments or other special assessments
may be paid in annual installments, Tenant shall pay only such annual
installments as may be due and payable during the term of this lease, prorated
to the term of this lease on a daily basis.
8.3. Tenant shall pay to Owner the annual cost of any fire and extended
coverage insurance maintained by Owner on the Premises. Such payment shall be
made within thirty days of notice given by Owner to Tenant of the amount of such
insurance cost. If Tenant can insure for less than Owner's cost of insurance
Tenant will then use its own insurance carrier to insure the premises. The
insurance coverage will be the same as Owner's policy.
Page 9 - BUILDING LEASE
<PAGE> 14
8.4. If at any time during the term of this lease the State of Oregon or
any political subdivision of the state, including any county, city, city and
county, public corporation, district or any other political entity or public
corporation of this state levies or assesses against Owner a tax, fee or excise
on rents, on the square footage of the premises, on the act of entering into
this lease or on the occupancy of Tenant, or any other tax, fee, or excise,
however described, as a direct substitution in whole or in part for, or in
addition to, any real property taxes, Tenant shall pay before delinquency that
tax, fee or excise on rents. Tenant's share of any such tax, fee or excise shall
be substantially the same as Tenant's proportionate share of Real Property Taxes
as provided in this lease.
ARTICLE 9. USE OF PREMISES
9.1. Tenant shall use the Premises solely for the purpose of conducting the
business of general retail sales. Tenant will not use, or permit the use of, the
Premises for any other business or purpose.
ARTICLE 10. OPERATION OF BUSINESS AND OBLIGATION TO OPERATE
10.1. Tenant shall maintain and operate the business during the entire term
of this lease with due diligence and in a first-class, top-flight manner, so as
not only to produce the maximum rent to Owner under the percentage rent
provisions hereof from Tenant's operation and the operations of other tenants of
Owner at Hayden Meadows but also to maintain and enhance property values for all
property owned by Owner at Hayden Meadows. Subject to inability by reason of
strikes or labor disputes, Tenant shall carry at all times in the Premises a
stock of merchandise of such size, character and quality as is customary for
such type of business in the Portland Metropolitan area as shall be reasonably
designed to produce maximum sales.
ARTICLE 11. STORAGE, OFFICE SPACE
11.1. Tenant shall warehouse, store or stock in the Premises only such
goods, wares and merchandise as Tenant intends to offer for retail sale at, in,
from or upon the Premises. This shall not preclude occasional emergency
temporary transfer of merchandise from or to the other stores of Tenant, if any,
not located in the Hayden Meadows. Tenant shall use for office, clerical or
other non-selling purposes only such space in the Premises as is from time to
time reasonably required for Tenant's business in the Premises. No auction, fire
or bankruptcy sales may be conducted in the Premises without the previous
written consent of Owner.
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<PAGE> 15
ARTICLE 12. PARKING AREAS
12.1. The Owner reserves to itself and its other tenants and visitors to
Hayden Meadows, the right to use for parking purposes that portion of the
demised premises designated for parking provided that Tenant shall have priority
over the use thereof in the event of any conflicts of use. Tenant may utilize
parking areas of Owner or other tenants on other property on Hayden Meadows,
provided that Owner shall have priority over the use thereof in the event of any
conflicts of use.
ARTICLE 13. FIXTURES
13.1. Tenant shall not make nor cause to be made any alterations, additions
or improvements to the Premises, including the store front, nor install nor
cause to be installed on the demised premises any trade fixtures, exterior
signs, floor covering, interior or exterior lighting, plumbing fixtures, shades
or awnings or other fixtures without first obtaining Owner's written approval
and consent. Tenant shall present to the Owner plans and specifications for such
work at the time approval is sought. All alterations, additions and improvements
made by Tenant, or made by the Owner on the Tenant's behalf by agreement under
this lease and all fixtures, of whatever kind or type, (except moveable trade
fixtures) shall become and remain the property of Owner upon installation
thereof and shall be surrendered to Owner upon the expiration or termination of
this lease.
ARTICLE 14. SIGNS, AWNINGS AND CANOPIES
14.1. Tenant will neither place nor suffer to be placed or maintained on
any exterior door, wall or window of the Premises any sign, decoration, awning
or canopy, or advertising matter or other thing of any kind, or place or
maintain any decoration, lettering or advertising matter on the glass of any
window or door of the demised premises unless placed in a reasonable manner
consistent with its merchandising programs in other G.I. Joe's stores. Tenant
further agrees to maintain such sign, awning, canopy, decoration, lettering,
advertising matter or other thing as may be approved in good condition and
repair at all times.
ARTICLE 15. TENANT SHALL DISCHARGE ALL LIENS
15.1. Tenant shall pay all costs for construction done by it or caused to
be done by it on the Premises as permitted by this lease. Tenant shall keep the
premises free and clear of all construction liens resulting from construction
done by or for Tenant.
15.2. Tenant or Owner shall have the right to contest the correctness or
the validity of any such lien.
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<PAGE> 16
ARTICLE 16. MAINTENANCE BY TENANT
16.1. Tenant shall at all times keep the Premises (including maintenance of
exterior entrances, parking area, all glass and show window moldings), except
for structural portions thereof which Owner shall maintain, and all partitions,
doors, fixtures, trade fixtures, equipment and appurtenances thereof (including
lighting, heating and plumbing fixtures, and any heating, ventilating and air
conditioning system) in good order, condition and repair (including periodic
painting as reasonably determined by Owner), damage by fire or unavoidable
casualty alone excepted. If owner is required to make repairs to structural
portions by reason of Tenant's negligent acts or omission to act, Owner may add
the cost of such repairs to the rent which shall become due upon billing by
Owner therefor. Owner's obligation to maintain the structural portions of the
Premises is intended solely to fix financial responsiblity for structural repair
but Tenant shall be obligated to inspect and notify Owner of structural defects.
16.2. If Tenant refuses or neglects to repair property as required
hereunder to the reasonable satisfaction of Owner as soon as reasonably possible
after written demand, Owner may make such repairs without liability to Tenant
for any loss or damage that may accrue to Tenant's merchandise, fixtures, or
other property or to Tenant's business by reason thereof, and upon completion
thereof, Tenant shall pay Owner's costs for making such repairs, upon
presentation of a bill therefor. Tenant's obligation to repair is absolute and
not conditioned upon Owner's notice as above provided.
ARTICLE 17. SURRENDER OF PREMISES
17.1. At the expiration or termination of the lease Tenant shall surrender
the Premises in the same condition as Tenant is required to maintain same
hereunder broom clean, reasonable wear and tear and damage by fire and
unavoidable casualty alone excepted, and shall surrender all keys for the
Premises to Owner at the place then fixed for the payment of rent and shall
inform Owner of all combinations on locks, safes and vaults, if any, in the
Premises. Tenant shall remove all of its personal property and moveable trade
fixtures before surrendering the Premises as aforesaid and shall repair any
damage to the Premises caused thereby. Tenant's obligation to observe or perform
this condition shall survive the expiration or other termination of the term of
this lease.
ARTICLE 18. RULES AND REGULATIONS
18.1. The rules and regulations that are presently adopted by Owner as
described by Exhibit "C", are made a part of this lease. Tenant agrees to comply
with and observe the same. Tenant's failure to keep and observe said rules and
regulations
Page 12 - BUILDING LEASE
<PAGE> 17
shall constitute a breach of the terms of this lease in the same manner as if
they were contained herein as conditions. Owner reserves the right from time to
time to revoke, amend or supplement said rules and regulations and to adopt and
promulgate additional rules and regulations applicable to the Premises and the
Shopping Center.
ARTICLE 19. INDEMNIFICATION AND LIABILITY INSURANCE
19.1. Tenant agrees to indemnify and save Owner harmless from all claims
and demands of any and every character that may be made, presented, or allowed
against Owner by reason or on account of any injuries or damage received or
sustained from the date hereof by any person or property arising out of or
related to any activity of Tenant on the Premises, or any condition of the
Premises in the possession of or under the control of Tenant excluding any such
claim, loss or liability which may be solely caused by or attributed to by
Owner's negligence or failure to effect any repair or maintenance required by
this lease; and in the event that any suit or action for damages resulting
therefrom shall be brought against Owner by any person whomsoever, Tenant agrees
at Tenant's own cost and expense to defend owner against any such suit or action
and all appeals therefrom, to satisfy and discharge any judgment or decree that
may be awarded against Owner in any such proceeding, and to pay all costs,
expenses and reasonable attorney fees incurred on any appeal in such litigation.
19.2. Tenant shall, at its own cost and expense, procure and maintain in
effect during the entire term of this lease public liability and property damage
insurance against liability for injuries to persons and property with respect to
the Premises and the business operated by Tenant and by any Licensees,
concessionaires and tenants of Tenant, with a single limit of $1,000,000 for any
one occurrence. Such insurance policy or policies of Tenant shall also include
products liability coverage protecting Owner and Tenant against any and all
claims of patrons, employees, laborers, and any other person arising out of
merchandise, food, products, or other property sold, served or prepared by
Tenant or employees, licensees, concessionaires or tenants of Tenant.
19.3. The policy or policies shall name Owner and any persons, firms, or
corporations designated by Owner as additional insureds and shall contain a
clause that the insurer will not cancel or change the insurance without first
giving Owner ten days prior written notice. The insurance shall be in an
insurance company approved by Owner and Tenant shall file with Owner original or
certified copies of such insurance policies or certificates of insurance showing
that the required coverage conforming with the foregoing is afforded under
blanket policies. Owner may require Tenant to increase the aforesaid maximum
limit of coverage to keep pace with the trend in insurance coverage during the
term of this lease.
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ARTICLE 20. FIRE AND OTHER CASUALTY
20.1. If the Premises are less than fifty percent destroyed by fire or
other casualty, the property shall be repaired as follows:
20.1.1. If the damage is caused by a risk which would be covered by a
standard fire insurance policy with an endorsement for extended coverage, repair
shall be at the expense of the Owner whether or not the damage occurred as a
result of fault on the part of Tenant or the licensees, concessionaires or
tenants of Tenant.
20.1.2. If the damage occurred from a risk which would not be covered by
insurance of the kind described in paragraph 20.1.1. above, repairs shall be at
the expense of the Owner unless the damage was the result of the fault of Tenant
or the licensees, concessionaires or tenants of Tenant, in which case Tenant
shall have the obligation to repair.
20.1.3. The monthly minimum rent provided for under Section 5.1. shall be
partially abated in proportion to the extent of the Premises rendered
untenantable subsequent to the damage and during the period of repair except
when damage occurs because of the fault of Tenant or the licensees,
concessionaires or tenants of Tenant.
20.2. If the Premises are fifty percent or more destroyed by fire or other
casualty, the parties shall proceed as follows:
20.2.1. Owner may elect to terminate the lease as of the date of the damage
or destruction by notice given to Tenant in writing not more than 60 days
following the date of damage.
20.2.2. If Owner shall not elect to terminate as provided in said paragraph
20.2.1. above, Owner shall proceed to restore the Premises to substantially the
same form as prior to the damage or destruction so as to provide for Tenant
useable space similar in quantity and character to that before the damage.
20.2.3. In either event, the minimum monthly rent provided for in Section
5.1. shall be abated from the date of damage except when the damage occurs
because of the fault of the Tenant or the licensees, concessionaires or tenants
of Tenant and the Owner elects to rebuild.
20.3.1. Repairs required by either party under this Article shall be
accomplished with all reasonable dispatch and both parties shall cooperate with
each other to effectuate repair and restoration. The party charged with the duty
of rebuilding shall not be liable or responsible for any delays in rebuilding or
repairing due to strikes, riots, acts of God, national emergency, acts of public
enemy, governmental laws or regulations, inability to procure materials or labor
or both, or any causes beyond its control.
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20.3.2. Unless specifically stated, nothing in this Article shall be
construed to permit the abatement in whole or in part of any rent provided for
in this lease.
20.3.3. Tenant shall obtain broad form boiler insurance naming Owner as an
additional insured if the Premises contain improvements that are normally the
subject of such insurance.
20.3.4. The Tenant agrees that it will not keep, use, sell or offer for
sale in or upon the Premises any article which may be prohibited by the standard
form of fire insurance policy with extended coverage insurance. Tenant agrees to
pay any difference between the rate of premiums for fire and extended coverage
insurance which may be carried by Owner on the Premises resulting from the use
of the Premises made by Tenant, whether or not Owner has consented to the same,
and the rate charged for such insurance for the least hazardous type of
occupancy legally permitted in the Premises. In the determination of whether
increased premiums were the result of Tenant's use of the Premises, a schedule,
issued by the organization making the insurance rate of the Premises, showing
the various components of such rate, shall be conclusive evidence of the several
items and charges which make up the fire insurance rate on the Premises.
ARTICLE 21. PLATE GLASS
21.1. Tenant shall replace, at the expense of Tenant, any and all plate and
other glass damaged or broken from any cause whatsoever in and about the
Premises.
ARTICLE 22. EMINENT DOMAIN
22.1. The term "takes by (or taken or taking by) eminent domain" shall
include the exercise of any power of condemnation, whether by public authority
or private corporation and any purchase or other acquisition in lieu of
condemnation. The expression "date of taking" means the date the order
adjudicating public use becomes final or the date the authority exercising its
right of "eminent domain" shall agree to the purchase price in lieu of
condemnation.
22.2. If a condemning authority takes by eminent domain all of the Premises
or a portion thereof sufficient to render the remaining premises reasonably
unsuitable for the use which Tenant was then making of the Premises, the term of
the lease shall terminate as of the date of taking. Neither Tenant, nor the
licensees, concessionaires or tenants of Tenant shall have any claim against
Owner or the condemning authority for the value of any unexpired term of this
lease.
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22.3. If a portion of the Premises is taken by eminent domain which is not
extensive enough to render the Premises unsuitable for the business of Tenant,
then Owner shall promptly restore the Premises to a condition comparable to its
condition on the date of taking less the portion lost in the taking, and this
lease shall continue in full force and effect without any reduction or abatement
of rent.
22.4. Although all damages in the event of any condemnation are to belong
to the Owner whether such damages are awarded as compensation for diminution in
value of the leasehold or to the fee of the leased premises, tenant shall have
the right to claim and recover from the condemning authority, but not from
Owner, such compensation as may be separately awarded or recoverable by Tenant
in Tenant's separate right on account of any and all damage to Tenant's business
by reason of the condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's merchandise, furniture, fixtures,
leasehold improvements and equipment.
ARTICLE 23. WORKMEN'S COMPENSATION
23.1. Tenant shall procure such Workmen's Compensation Insurance as is
required by Oregon law and shall promptly pay the premiums therefor. If Owner is
required to remove any lien for Tenant's failure to pay such premiums, Owner, in
addition to its other remedies, may discharge such lien, and charge Tenant
therefor as additional rent.
ARTICLE 24. UTILITIES AND GARBAGE
24.1. Tenant shall be solely responsible for and promptly pay all charges
for garbage collection services, heat, water, sewer, gas, electricity or any
other utility used or consumed in the Premises. Owner has the right to supply
garbage collection services, heat, water, sewer, gas, electricity or any other
utility used or consumed in the Premises. Tenant agrees to purchase and pay for
the same at the rates charged other users on Hayden Meadows.
ARTICLE 25. SUBORDINATION
25.1. This lease shall be subject and subordinate to any mortgage and to
any extensions or renewals thereof that are now or hereafter may be placed upon
the whole or any part of the Shopping Center and which include the Premises. The
Tenant will execute and deliver any instrument which may be reasonably required
by the Owner in confirmation of such subordination promptly upon the Owner's
request, and without expense to the Tenant and if the Tenant shall fail at any
time to execute and deliver any such subordination, the Owner, in addition to
any other remedy available to it in consequence thereof, may execute and deliver
such instrument as the attorney-in-fact
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for that purpose; provided, however, that so long as the Tenant is not in
default in the payment of rent or additional rent or in the performance of any
of the terms of the Lease, Tenant's possession of the Premises and the Tenant's
rights and privileges under the lease or any renewal thereof shall not be
diminished or interfered with by the mortgagee. In the event the mortgage is
foreclosed for any reason and the mortgaged Premises is sold as upon execution
in the manner provided by law, the Tenant shall be bound to the purchaser at
such execution sale under all of the terms of the lease for the balance of the
term thereof remaining with the same force and effect as if such purchaser was
the Owner under the lease, and the Tenant hereby atorns to such purchaser as its
landlord, such atornment to be effective and self-operative without the
execution of any further instrument on the part of either of the parties hereto
immediately upon such purchaser succeeding to the interest of the Owner under
the lease. In the event the mortgage is foreclosed for any reason and during the
pendency of such foreclosure suit, there is appointed by the court a receiver
for the property of which the Premises is a part, Tenant hereby atorns to the
receiver as its landlord during the pendency of such foreclosure proceeding,
such atornment to be effective and self-operative without the execution of any
further instrument on the part of either of the parties hereto immediately upon
the appointment of the receiver and his qualification as such.
25.2. Tenant recognizes that the lease provisions must be approved by the
institutional lender that finances the construction of the building and other
improvements that are a part of the Premises. If, as a condition to financing,
the institutional lender requires modification of the lease provisions, Tenant
shall approve and execute the required modification, other than a modification
that substantially changes the size, dimensions, or location of the building and
other improvements that are a part of the Premises, increases the rent Tenant is
obligated to pay under the lease, or adversely changes any of Tenant's
obligations.
ARTICLE 26. INVOLUNTARY ASSIGNMENT
26.1. No interest of Tenant in this lease shall be assignable by operation
of law (including, without limitation, the transfer of this lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment:
26.1.1. If Tenant is or becomes bankrupt or insolvent, makes an assignment
for the benefit of creditors, or institutes a proceeding under the Bankruptcy
Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consists
of more than one person or entity, if any partner of the partnership or other
person or entity is or becomes bankrupt or insolvent, or makes an assignment for
the benefit of creditors:
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26.1.2. If the interest of Tenant in this lease is sold under execution or
other legal process.
26.1.3. If, in any proceeding or action to which Tenant is a party, a
receiver is appointed with authority to take possession of the Premises.
26.2. An involuntary assignment shall constitute a default by Tenant and
Owner shall have the right to elect to terminate this lease, in which case this
lease shall not be treated as an asset of Tenant.
ARTICLE 27. CONSENT REQUIRED
27.1. Tenant shall not voluntarily assign or encumber its interest in this
lease or in the Premises, or sublease all or any part of the premises, or allow
any other person or entity to occupy or use all or any part of the Premises,
without first obtaining Owner's written consent. Any assignment, encumbrance,
sublease, occupancy or use without consent shall be voidable and, at Owner's
election, shall constitute a default. No consent to any assignment, encumbrance,
sublease, occupancy or use shall constitute a further waiver of the provisions
of this Article.
27.2. Tenant immediately and irrevocably assigns to Owner as security for
Tenant's obligations under this lease, all rent from any assignment, subletting
of all or a part of the Premises, encumbrance, occupancy or use, and Owner, as
assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed
on Owner's application, may collect such rent and apply it toward Tenant's
obligations under this lease; except that, until Owner exercises its option to
declare Tenant in default, Tenant shall have the right to collect rent.
ARTICLE 28. WASTE OR NUISANCE
28.1. Tenant shall permit no damage to or defacement of the Premises nor
shall Tenant commit or suffer to be committed any waste upon the Premises or
permit any nuisance or other act or thing which may disturb the quiet enjoyment
of any other property in the Hayden Meadows Shopping Center, or which may
disturb the quiet enjoyment of any person outside of the boundaries of the
Hayden Meadows Shopping Center.
ARTICLE 29. GOVERNMENTAL REGULATIONS
29.1. Tenant shall, at Tenant's sole cost and expense, comply with and
faithfully observe, all of the requirements of all county, municipal, state,
federal and other applicable governmental authorities, now in force, or which
may hereafter be in force, pertaining to the Premises or the use thereof.
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ARTICLE 30. ADVERTISING
30.1. Tenant shall spend not less than one percent of Tenants's Gross
Receipts from the premises each lease year in advertising its merchandise or
services and the Premises location in newspapers, magazines, radio, television
or any other advertising media generally used to advertise Tenant's merchandise
or services at Tenant's other locations.
ARTICLE 31. RIGHT OF ENTRY
31.1. Owner or Owner's agents shall have the right to enter the Premises at
all times to examine the same, to make such repairs as Owner may deem necessary
or desirable and Owner shall be allowed to take all material into and upon the
Premises that maybe required therefor without the same constituting an eviction
of Tenant in whole or in part and Tenant specifically hereby waives any claim
for damages for loss of business or otherwise, resulting from such repairs.
Notwithstanding the foregoing, owner shall not materially interferes with
Tenant's operation during any repair of the Premises and if Owner materially
interferes with Tenant's operation during any repair, the minimum monthly rent
provided in Section 5.1. shall be partially abated in proportion to the extent
of the premises rendered untenable during the period of repair.
31.2. During the six months prior to the expiration of the term of this
lease Owner may place upon the Premises the usual "for rent" notices advertising
the availability of the Premises for lease which notices Tenant shall permit to
remain thereon without molestation.
31.3. If Tenant shall not be personally present to open and permit an entry
into the Premises, at any time, when for any reason an entry therein shall be
necessary Owner or Owner's agents may enter the same by a master key, or may
forcibly enter the same, without rendering Owner or such agents liable therefor,
and without in any manner affecting the obligations and covenants of this lease.
Nothing herein contained, however, shall be deemed or construed to impose upon
Owner any obligation, responsiblity or liability whatsoever, for the care,
maintenance or repair of the building or any part thereof, except as otherwise
herein specifically provided.
ARTICLE 32. TAXES ON LEASEHOLD
32.1. Tenant shall be responsible for and shall pay before delinquency all
municipal, county or state taxes assessed during the term of this lease against
any leasehold interest or personal property of any kind, owned by or placed in,
upon or about the Premises by the Tenant.
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32.2. If any taxes on Tenant's personal property are levied against Owner
or Owner's property, or if the assessed value of the building and other
improvements in which the Premises are located is increased by the inclusion of
a value placed on Tenant's personal property, and if Owner pays the taxes on any
of these items or the taxes based on the increased assessment of these items,
Tenant, on demand, shall immediately reimburse Owner for the sum of the taxes
levied against Owner or the proportion of the taxes resulting from the increase
in Owner's assessment.
ARTICLE 33. LOSS AND DAMAGES
33.1. Owner shall not be liable for any damage to property of Tenant or of
others located on the Premises, nor for the loss of or damage to any property of
Tenant or of others by theft or otherwise. Owner shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, or other
casualty, falling plaster, steam, gas, electricity, water, rain or snow or leaks
from any part of the Premises or from the pipes, appliances or plumbing works or
from the roof, street or sub-surface or from any other place or by dampness or
by any other cause of whatsoever nature. Owner shall not be liable for any such
damage caused by other tenants or persons in the Premises, caused by occupants
of adjacent property, caused by members of the public, or caused by operations
in construction of any private, public or quasi-public work. Owner shall not be
liable for any latent defect in the Premises or in the building of which they
form a part except for a period of twelve months from the date Tenant takes
possession of the Premises. All property of Tenant kept or stored on the
Premises shall be so kept or stored at the risk of Tenant only and Tenant shall
hold Owner harmless from any claims arising out of damage to the same.
33.2. Each of the parties hereto does hereby waive its entire right of
recovery against the other for any damages caused by an occurrence insured
against by such party, and the rights of any insurance carrier to be subrogated
to the rights of the insured under the applicable policy.
ARTICLE 34. HOLDING OVER
34.1. Any holding over after the expiration or termination of the term
hereof, with the written consent of Owner, shall be construed to be a tenancy
from month to month at the rents herein specified (prorated on a monthly basis)
and shall otherwise be on the terms and conditions herein specified, so far as
applicable, but no such holding over shall be deemed to vest any rights in
Tenant to a renewal of this lease unless specifically agreed to in writing by
Owner.
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ARTICLE 35. SUCCESSORS
35.1. This lease shall be binding on and inure to the benefit of the
parties and their successors, assignees, transferees, personal representatives,
heirs, or other persons or entities succeeding lawfully and pursuant to the
provisions of this lease to the rights or obligations of either party.
ARTICLE 36. WAIVER AND CONSENT
36.1. The waiver by Owner of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by Owner
shall not be deemed to be a waiver of any preceding breach by Tenant of any
term, covenant or condition of this lease, other than the failure of Tenant to
pay the particular rental so accepted, regardless of Owner's knowledge of such
preceding breach at the time of acceptance of such rent.
36.2. No covenant, term or condition of this lease shall be deemed to have
been waived by Owner, nor any consent by Owner given, unless such waiver of
consent be in writing by Owner. Owner agrees not to withhold its consent
unreasonably when consent is requested by Tenant pursuant to the terms of this
lease.
ARTICLE 37. ACCORD AND SATISFACTION
37.1. No payment by Tenant or receipt by Owner of a lesser amount than the
rent and other charges herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent and other charges, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Owner may accept such
check or payment without prejudice to Owner's right to recover the balance of
such rent or other charges or pursue any other remedy in this lease provided.
ARTICLE 38. ENTIRE AGREEMENT
38.0. This lease and the Exhibits attached hereto and forming a part hereof
set forth all the covenants, promises, agreements, conditions and understandings
between Owner and Tenant concerning the Premises and there are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them other than herein set forth. Except as herein otherwise provided,
no subsequent alteration, amendment, change or addition to this lease shall be
binding upon Owner or Tenant unless reduced to writing and signed by them.
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ARTICLE 39. NO PARTNERSHIP
39.1. Owner does not, in any way or for any purpose, become a partner of
Tenant in the conduct of its business, or otherwise, or joint venturer or a
member of a joint enterprise with Tenant. The provisions of this lease relating
to the percentage rent payable hereunder are included solely for the purpose of
providing a method whereby the rent is to be measured and ascertained.
ARTICLE 40. NOTICES
40.1. Any notice, demand, request or other instrument which may be or is
required to be given under this lease shall be sent by United States certified
mail, postage prepaid. Notice by mail may be addressed to Owner and to Tenant at
their addresses provided above or such other addresses as they may by written
notice to the other in the manner provided in this Article designate. Notice
sent by United States mail shall be deemed to have been received two days after
it has been deposited in the mails.
ARTICLE 41. USE OF WORDS
41.1. The word "Tenant" shall be deemed and taken to mean each and every
person or party mentioned as a Tenant herein, be the same one or more; and if
there shall be more than one Tenant, any notice required or permitted by the
terms of this lease may be given by or to any one thereof, and shall have the
same force and effect as if given by or to all thereof. The licensees,
concessionaires and tenants of Tenant shall be bound by the covenants and
restrictions imposed upon Tenant notwithstanding the absence of specific
reference to such persons. The titles to the Articles of this lease are not a
part hereof and shall have no effect upon the construction or interpretation of
any part of this lease. The use of the neuter gender or singular number is only
for simplicity in drafting and they shall be deemed a proper reference even
though Owner or Tenant may be an individual, a partnership, a corporation, or a
group of two or more individuals, or corporations.
ARTICLE 42. PARTIAL INVALIDITY
42.1. If any term, covenant or condition of this lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, neither the remainder of this lease, nor the application of such
term, covenant or condition to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall be affected thereby and each
term, covenant or condition of this lease shall be valid and be enforced to the
fullest extent permitted by law.
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ARTICLE 43. NO OPTION
43.1. The submission of this lease for examination does not constitute a
reservation of or option for the Premises and this lease becomes effective as a
lease only upon execution and delivery thereof by Owner and Tenant.
ARTICLE 44. RECORDING
44.1. Tenant shall not record this lease without the written consent of
Owner, however, upon the request of either party hereto the other party shall
join in the execution of a memorandum or so-called "short form" of this lease
for the purposes of recordation. Said memorandum or short form of this lease
shall describe the parties, the Premises and the duration of this lease and
shall incorporate this lease by reference.
ARTICLE 45. ATTORNEY'S FEES
45.1. In case suit or action shall be brought for an unlawful detainer of
the premises, for the recovery of any rent due under the provisions of this
lease or because of the breach of any other covenant or condition herein
contained on the part of Tenant or of the licensees, concessionaires or tenants
of Tenant to be kept and performed, or if either party shall bring legal
proceedings against the other based on or relating to the terms hereof, the
prevailing party shall be entitled to recover its reasonable attorney's fees in
any such action or proceeding including its reasonable attorney's fees on any
appeal therefrom. Tenant also agrees to pay and discharge all of Owner's costs
and expenses, including Owner's attorney fees, that shall arise from enforcing
any provisions or covenants of this lease, including collection of any rent due,
even though no suit or action is instituted.
ARTICLE 46. OWNER'S LIEN
46.1. If tenant shall default in the payment of rent or any other payment
to be made by Tenant hereunder, Owner shall thereupon have a lien upon the real
and personal property of Tenant located on the Premises for the amount unpaid
and may enter the Premises and take possession of said property and sell the
same at public or private sale in accordance with the Uniform Commercial Code of
Oregon and apply the proceeds of said sale upon indebtedness of Tenant. Any
aforesaid lien shall survive the termination or expiration of this lease. Owner
shall be entitled to all the rights of a secured party under the Uniform
Commercial Code of Oregon.
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ARTICLE 47. DEFAULT
47.1. If Tenant shall fail to pay any part of the rent or any other charges
required by it to be paid to Owner, for a period of ten days after notice after
such rent or other charges become due; or if default should be made in any of
the other covenants or conditions on Tenant's part herein contained and such
default is not cured within 30 days after written notice by Owner to Tenant
thereof (or if said default cannot be cured within 30 days, then, if Tenant does
not commence within said 30 day period to attempt to cure said default and
thereafter proceed with due diligence with the curing of the same), Owner shall
have the following rights and remedies, which are cumulative and in addition to
any other rights and remedies provided by law.
47.1.1. Owner shall have the immediate right of re-entry and may remove all
persons and property from the Premises, and such property may be removed and
stored in a public warehouse or elsewhere at the cost of, and for the account of
Tenant, and Owner may sell the same at public or private sale and apply the
proceeds of said sale upon unpaid rent, taxes, or insurance of Tenant owed to
Owner, all without service of notice or resort to legal process and without
being deemed guilty of trespass, or becoming liable for any loss or damage which
may be occasioned thereby. In the event of such resumption of possession under
this lease or by summary proceedings or any other means, the Owner may
dispossess and remove all persons and property from the Premises, without any
liability either in law or equity for any damage caused thereby.
47.1.2. Owner may from time to time, without terminating this lease, relet
for the account of Tenant the Premises or any part thereof to any person, firm
or corporation upon such term and for such length of time, whether lesser or
greater than the unexpired portion of the lease term, as Owner may reasonably
provide, with the right to the Owner to put the Premises in reasonably good
order and condition and to make alterations and repairs reasonably required for
said reletting at Tenant's expense. Owner shall receive such rentals for the
Premises applying them, first to the payment of the expense of recovering
possession of the Premises and the re-renting thereof, together with such
expenses as Owner may have incurred in putting the Premises in good condition or
in making alterations and repairs, and then to the payment of the rent due by
this lease and to the fulfillment of the covenants and conditions of Tenant; the
balance, if any, to be paid over to Tenant. If such rentals received from
reletting during any month be less than that to be paid during that month by
Tenant hereunder, Tenant shall pay any such deficiency to Owner. Such deficiency
shall be calculated and paid monthly. For the purposes of this paragraph 47.1.2.
and 47.1.3. the rent reserved in this lease shall be deemed to be monthly rent
arrived at by adding to the monthly minimum rent (Section 5.1.) an amount equal
to the monthly average of all the percentage rent (Sections 5.5. and 5.6.),
taxes and insurance (Article 8) received by
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or payable to Owner hereunder during the last preceding full lease year or if
the Tenant has not conducted business in the Premises for a full lease year,
then during the period that Tenant was conducting its business in the Premises.
Owner shall use its reasonable efforts to relet the Premises at the reasonable
rental value or as near thereto as is then reasonably possible under all the
circumstances then existing. No such re-entry or taking possession of the
Premises by Owner shall be construed as an election on its part to terminate
this lease unless a written notice of such intention be given to Tenant or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Owner may at any time
thereafter elect to terminate this lease for such previous breach.
47.1.3. Should Owner at any time terminate this lease for any breach, in
addition to any other remedies it may have, it may recover from Tenant all
damages it may incur by reason of such breach, including all sums then due from
Tenant pursuant to the provisions of this lease, the cost of recovering the
Premises, reasonable attorney's fees, and including the worth at the time of
such termination of the excess, if any, of the amount of rent reserved in this
lease for the remainder of the lease term over the then reasonable rental value
of the Premises for said period, all of which shall be immediately due and
payable from Tenant to Owner. "Worth at the time of such termination" shall mean
the sum of such net periodic payment after each payment is reduced by an amount
equal to six percent per annum simple interest to the due date of such payment
hereunder.
47.2. Owner shall not be deemed to be in default in the performance of any
of its obligations under this Lease until Owner shall have failed to perform an
obligation (except in the event of any emergency or material interference with
Tenant's business) within 30 days, or such additional time as is reasonably
required to correct such default, after notice in writing by Tenant to Owner
particularly specifying the nature of the default, provided, however, that if on
account of any breach by Owner of any of the provisions hereof, Tenant is
physically ejected from all or part of the Premises, or is restricted from the
use of all or any material part of the Premises, Owner shall not in any event
have more than five days within which to cause Tenant to be restored to
possession of the Premises or to the use of the Premises.
ARTICLE 48. DEFINITIONS
As used in this lease the following words and phrases shall have the
following meanings:
48.1. Expiration - the coming to the end of the time specified in Section
3.1. of this lease as its duration.
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48.2. Lease year - a consecutive twelve month period. The first lease year
shall commence on the date of commencement of the lease term unless such date is
not the first day of a month in which case the first lease year shall commence
on the first day of the month immediately following the month in which the lease
term commences. Succeeding lease years shall commence on the anniversary of the
first day of the first lease year. The last lease year shall end on the date the
term expires or terminates.
48.3. Month - a calendar month.
48.4. Term - the period of time during which Tenant has a right to occupy
the Premises.
48.5. Termination - the ending of the term for any reason before
expiration.
Executed by the Owner and Tenant on the date first above written.
OWNER TENANT
HAYDEN MEADOWS, a joint venture G.I. JOE'S, INC., an Oregon corporation
By: /s/ By: /s/
------------------------------- -------------------------------
vice-president
By: /s/ By: /s/
------------------------------- -------------------------------
Asst Sec sec/treas.
Page 26 - BUILDING LEASE
<PAGE> 31
HAYDEN ISLAND INC.
Highway 5 at Jantzen Beach
909 N. TOMAHAWK ISLAND DRIVE o PORTLAND, OREGON 97217 o PHONE 283-4111
January 5, 1981
Mr. David Orkney, President
G.I. Joe's, Inc.
8900 N. Vancouver
Portland, Oregon 97211
RE: FIRST MODIFICATION TO LEASE
Dear David:
With reference to the lease between HAYDEN MEADOWS and G.I. JOE'S, INC. dated
October 9, 1980, the following constitutes the proposed modifications to the
lease:
1. ARTICLE 3. - TERM
3.2. Upon the request of either party following commencement of the term,
the parties shall immediately execute an amendment to this lease stating
the date of commencement of the term.
The lease term shall commence on February 1, 1982.
If this modification meets with your understanding, please indicate your
acceptance with your signatures in the spaces provided below.
Accepted on the 20 day of January, 1982.
OWNER TENANT
HAYDEN MEADOWS G.I. JOE'S, INC.
By: /s/ By: /s/
------------------------------- -------------------------------
vice-pres sec/trea.
By: /s/ By: /s/
------------------------------- -------------------------------
asst corp. secretary
<PAGE> 32
HAYDEN ISLAND INC.
Highway 5 at Jantzen Beach
909 N. TOMAHAWK ISLAND DRIVE o PORTLAND, OREGON 97217 o PHONE 283-4111
February 9, 1983
Mr. David Orkney
G. I. Joe's, Inc.
8900 N. Vancouver
Portland, Oregon 97211
RE: SECOND MODIFICATION TO LEASE
Dear David:
With reference to the lease between HAYDEN MEADOWS and G. I. JOE'S, INC., dated
October 9, 1980, the following constitutes the proposed modifications to the
lease:
1. ARTICLE 25. SUBORDINATION:
Notwithstanding any other provision in this agreement, no modification or
cancellation of this lease shall be valid or enforceable, unless such
modification or cancellation has been approved in writing by the lender
providing the financing for the building and other improvements that are a
part of the Premises.
If the modification meets with your understanding, please indicate your
acceptance with your signature in the space provided below.
Accepted on this 9 day of February, 1983.
OWNER TENANT
HAYDEN MEADOWS G.I. JOE'S, INC.
By: /s/ By: /s/
------------------------------- -------------------------------
vice-pres
<PAGE> 33
LEASE AMENDMENT
Hayden Meadows, a joint venture, as "Owner" and G.I. Joe's, Inc., as
"Tenant" under that lease dated October 9, 1980 and modified on January 20, 1982
and February 9, 1983, of certain premises in Portland, Oregon, hereby agree to
amend the lease in consideration of the mutual promises herein, as follows:
1. Sections 5.1, 5.2, 5.3 and 5.4 are deleted in their entirety and
replaced with the following:
"5.1 Tenant shall pay to Owner as monthly minimum rent, without
deduction or setoff, in advance on the first day of each month during
the term of this lease, the sum of $26,118.52. If this lease
terminates before the expiration date for reasons other than Tenant's
default, monthly minimum rent shall be prorated to the date of
termination and Owner shall repay to Tenant all monthly minimum rent
then prepaid and unearned."
2. This lease amendment shall be effective beginning the first day of
December, 1987. Executed on the dates stated below.
HAYDEN MEADOWS, a G.I. JOE'S, INC., an
joint venture Oregon corporation
By: Hayden Corporation, partner By: /s/ WAYNE JACKSON
By: /s/ H. DEXTER GAREY --------------------------
--------------------------- Wayne Jackson
H. Dexter Garey Secretary-Treasurer
Senior Vice-President
Date: 11/18/87 Date: 11/17/87
----------------------------- ------------------------
<PAGE> 34
G. I. JOE RENT CALCULATION
Based on five year loan at 13% interest with 30 year amortization.
Current cost (subject to audit $1,600,000
(1) Known added cost due to permanent loan:
Loan fee @ 1 1/2% 24,000
ALTA Title Insurance 3,800
Survey 400
Filing & Legal 1,200
MAI Appraisal 2,525
----------
Total Cost used prior to Audit. $1,631.925
Debt Constant = 13.28 + .35 = 13.63
163.63 X $1,631,925 = $222,431.37
Land Rent 95,459.00
Annual Minimum Rent $317,890.37 / 12 = $26,490.86
(1) Loan amount is $3,200,000 and these charges are based on 50% of the
anticipated and/or agreed upon charges.
<PAGE> 35
HAYDEN MEADOWS
703 Broadway - Suite 605 Telephone
Vancouver, WA 98660 (206) 693-2886
(503) 285-3736 FAX
FOURTH LEASE AMENDMENT AND EXTENSION
HAYDEN MEADOWS, a joint venture, as "Owner" and GI JOE'S, INC., as "Tenant"
under that certain lease dated October 9, 1980 at Portland, Oregon and modified
by written agreement January 20, 1982, February 9, 1983 and December 1, 1987 do
hereby agree to further amend and extend said lease in consideration of the
mutual promises herein, as follows:
1. Article 46 is amended to allow placement by Tenant of a Security
Agreement with Bank of America in an amount not to exceed $23,500,000.00
2. The term of the lease is extended to expire at 12:01am August 1, 2008
All other terms and conditions of the lease as written and as previously
amended to remain as agreed.
This Fourth Lease Amendment and extension shall become effective as of this
date of execution, 22 day of July 1993.
Hayden Meadows, a joint venture GI Joe's, Inc., an Oregon
Meadows Land Partnership Corporation
By: /s/ THOMAS P. MOYER By: /s/ DAVID E. ORKNEY
-------------------------- --------------------------
Thomas P. Moyer, Pres. DAVID E. ORKNEY, CHRM.
D. Park Corp., Managing Partner
Date: July 22 1993 Date: July 23 1993
<PAGE> 36
HAYDEN MEADOWS
703 Broadway - Suite 605 Telephone
Vancouver, WA 98660 (206) 693-2886
(503) 285-3736 FAX
FIFTH LEASE AMENDMENT
IT IS HEREBY AGREED between Hayden Meadows, a joint venture "Owner" and GI
Joe's, Inc., "Tenant" under that certain lease dated October 9, 1980 as amended
January 20, 1982, February 9,1983 December 1,1987 and July 23, 1993, be further
amended as follows:
1. Article 5.5 Percentage Rent be amended for a period of 5 years
beginning February 1, 1994 and ending January 31, 1999 wherein percentage rent
due Owner on gross sales in excess of $15,000,000.00 to and including
$20,000,000.00 be excluded from payment to Owner. Gross sales less than
$15,000,000.00 and in excess of $20,000,000.00 shall be reported and paid in
accordance with the terms of said Article 5.5.
2 This amendment shall become effective following Owner written
approval of Tenant remodel plans for the Hayden Meadows store in which building
construction and/or fixture replacement are to be performed in the year 1994.
3. This amendment shall expire as of February 1,1999 without further
action on the part of either Owner or Tenant.
EXECUTED this 22 day of July 1993 at Portland, Oregon.
Hayden Meadows, a joint venture GI Joe's, Inc., an Oregon
Meadows Land Partnership Corporation
By: /s/ THOMAS P. MOYER By: /s/ DAVID E. ORKNEY
-------------------------- --------------------------
Thomas P. Moyer, Pres. DAVID E. ORKNEY, CHRM.
D. Park Corp., Managing Partner
Date: July 22 1993 Date: July 23 1993
<PAGE> 1
EXHIBIT 10.7
SOUTH SALEM
LEASE
Dated: April 17th, 1998
Lessor: PD PROPERTIES L.L.C.
an Oregon limited liability company
Suite 350
9725 S.W. Beaverton-Hillsdale Hwy.
Beaverton, Oregon 97005
Lessee: G. I. Joe's, Inc.,
an Oregon corporation
9805 Boeckman Dr.
Wilsonville, Oregon 97070
1. Premises. Lessor leases to Lessee and Lessee leases from Lessor for the
term, at the rental, and upon all of the conditions set forth herein, the real
property described in Exhibit "A" attached, including all improvements,
machinery, apparatus equipment and fixtures, located thereon (the "Premises"),
but excluding trade fixtures described in Exhibit "B" that are owned by Lessee,
and SUBJECT, HOWEVER, to all ground leases and other superior leases affecting
the Premises and all liens, charges, encumbrances, encroachments and other
matters of title existing on the commencement of the term of the Lease (all of
the aforesaid items shall be referred to in this Lease as "Permitted
Exceptions").
The parties acknowledge that Lessee is the present owner and occupant of
the Premises and is knowledgeable and familiar with all relevant aspects of its
condition, use and operation. Lessee expressly accepts, without recourse to
Lessor, all aspects of the title to the Premises, the rights of parties in
possession and any existing leases affecting the Premises (including, without
limitation, any underlying lease or ground lease of the Premises) and the
nature, physical condition, suitability and usability of the Premises.
2. Term; Option for Extension.
--------------------------
2.1 Initial Term. The term of this Lease shall be for 180 months commencing
5-1-98 ("Lease Commencement Date") and ending on April 30, 2013 ("Lease
Termination Date").
PAGE 1 - LEASE
<PAGE> 2
2.2 Option for Extension. Provided Lessee is not in default (at the time
the option is exercised and as of the last day of the then existing term),
Lessee shall have the option to renew this Lease (the "Option") for two
additional five (5) year-terms on the same terms and conditions except for rent
which shall be adjusted in accordance with paragraph 4 below. The Option must be
exercised in writing delivered to Lessor not less than one year prior to the
applicable termination date (e.g., the first option to extend must be exercised
no later than April 30, 2012.
3. Possession. Lessor has delivered possession of the Premises to Lessee.
4. Rent. Lessee shall pay to Lessor rent for the Premises as follows:
4.1 Base Rent; Adjustments. Lessee covenants and agrees to pay to
Lessor on a monthly basis, without notice or demand and without deduction or
setoff, a fixed monthly base rent ("Base Rent") in the sum of $32,153 per month,
commencing on the effective date of this Lease (the "Commencement Date"), which
will be the date on which Lessor acquires the fee title or a leasehold estate in
the Premises (which will be evidenced of record by a memorandum of lease
mutually acceptable to the parties, which will be recorded simultaneously with
the deed or assignment of lease to Lessor). Base Rent shall be absolutely net to
Lessor, so that this Lease shall yield to Lessor the Base Rent throughout the
term of this Lease. The Base Rent shall be adjusted every 60 months during the
term of this Lease, with the initial adjustment to be effective as of May 1,
2013. The amount of each adjustment shall be the percentage increase in the
United States Bureau of Labor Consumer Price Index for U.S. City Average, all
Items, all Urban Consumers ("CPI") (base year 1982-1984 equals 100 (or if such
designated index is discontinued or no longer publicly available, then a
substitute CPI index measuring the cost of living in the United States as Lessor
may select and Lessee reasonably approve, for purposes of making the
calculations required by this Lease) ("Index") during the preceding 60 month
period, provided no such increase for any one year shall be greater than 3% or
less than 2% and no rent adjustment shall result in a base rent less than the
base rent for the preceding 60 month period, times the Base Rent for the
preceding 60 month period. If the Index is discontinued or adjusted during the
Lease term, the adjustment computation shall be made by reference to any
comparable index or other formula which would produce substantially similar
results as intended by use of the Index. The Index published most recently
before the commencement date of this Lease and the last day of each 60 month
adjustment period, shall be the applicable index reference points.
4.2 Additional Rent. Lessee shall also pay, as additional rent, all
other amounts, costs, expenses, liabilities and obligations which Lessee assumes
or agrees to pay pursuant to this Lease, and will reimburse Lessor for any
payment
PAGE 2 - LEASE
<PAGE> 3
thereof made by Lessor in accordance with the provisions of this Lease
("Additional Rent"). Additional Rent shall include all sums other than Base
Rent, payable by Lessee under this Lease, either to Lessor directly or to a
third party. In the event of any failure by Lessee to pay any of the Additional
Rent, Lessor shall have all rights, powers and remedies provided for in this
Lease or by law as in the case of nonpayment of the Base Rent.
4.3 Time and Manner of Rent Payments. Unless otherwise provided in
this Lease, rent shall be payable in advance on the first day of each month,
commencing with the Commencement Date.
4.4 Method and Place of Rent Payments. Rent shall be payable in lawful
money of the United States to Lessor at the address stated below for the
delivery of notices or to such other persons or at such other places as Lessor
may designate in writing. Lessor will have the right and option to require that
payments of rent by Lessee shall be made by wire transfer of immediately
available federal funds to such account(s) and in such manner as Lessor may
designate from time to time by written notice to Lessee (which may include,
without limitation, payments to a lock box account at a financial institution
designated by Lessor).
4.5 Computation of Base Rent. For any portion of a calendar month,
included at the beginning or end of the lease term, Lessee shall pay 1/30th of
the applicable Base Rent for each day of such portion payable on the
Commencement Date or on the first day of the month at the end of the lease term.
4.6 Interest on Late Payments. If Lessee shall fail to make payment of
any installment of Base Rent or any payment of Additional Rent as provided in
this Lease within ten (10) days after such payment is due, Lessee shall pay to
Lessor, in addition to such installment of Base Rent or such Additional Rent,
interest thereon at the greater of four percent (4%) per annum above the
publicly announced prime or reference rate from time to time of Wells Fargo
Bank, N.A. (or the prime or reference rate of such other regional or national
bank as is selected by Lessor for this purpose, if the designated bank's prime
rate is no longer publicly available), or 18 percent per annum, but not in any
event at a rate higher than the maximum rate permitted under applicable law,
computed from the date such payment was due to and including the date of payment
in full.
4.7 Net Lease. This Lease is an absolute net lease. Except only as
otherwise expressly set forth herein, the Base Rent, Additional Rent and all
other sums payable hereunder to or on behalf of the Lessor shall be paid without
notice or demand and without offset, set-off, counterclaim, abatement,
suspension, deduction or defense of any kind.
PAGE 3 - LEASE
<PAGE> 4
4.8 Non-Terminability. Except as otherwise expressly set forth herein,
this Lease shall not terminate, nor shall the Lessee have any right to terminate
this Lease or be entitled to any abatement of any rent or any reduction thereof,
nor shall the obligations hereunder of the Lessee be otherwise affected, by
reason of (a) any damage to or the destruction of all or any part of the
Premises from whatever cause, (b) the condemnation or other taking of the
Premises or any portion thereof by condemnation or otherwise, (c) the
prohibition, limitation or restriction of the Lessee's use of the Premises as
the result of any legal requirement or the interference with such use by any
private person or corporation, (d) any eviction by paramount title or otherwise,
(e) any loss or termination of tax abatement or exemption of the Premises, (f)
any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to Lessor, or any
action taken with respect to this Lease by any trustee or receiver of Lessor, or
by any court, in any such proceeding, (g) any claim which Lessee has or might
have against Lessor, (h) any failure on the part of Lessor to perform or comply
with any of the terms hereof or of any other agreement with Lessee, or (i) any
other cause whether similar or dissimilar to the foregoing, any present or
future law to the contrary notwithstanding, it being the intention of the
parties hereto that the Base Rent and additional rent reserved hereunder shall
continue to be payable in all events, and the obligations of the Lessee
hereunder shall continue unaffected unless the requirement to pay or perform the
same shall be terminated pursuant to an express provision of this Lease.
4.9 Non-Terminability for Insolvency of Lessor. Lessee covenants and
agrees that it will remain obligated under this Lease in accordance with its
terms, and that the Lessee will not take any action to terminate, rescind or
avoid this Lease, notwithstanding the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceeding affecting the Lessor or any assignee of the Lessor in any such
proceeding and notwithstanding any action with respect to this Lease which may
be taken by any trustee or receiver of the Lessor or of any assignee of the
Lessor in any such proceeding or by any court in any such proceeding.
4.10 Waiver by Lessee. Lessee waives all rights now and hereafter
conferred by law (a) to quit, terminate or surrender this Lease or the Premises
or any part thereof or (b) to any abatement, suspension, deferment or reduction
of the Base Rent or Additional Rent or any other sums payable under this Lease,
regardless of whether such rights shall arise from any present or future
constitution, statute or rule of law, except as otherwise specifically set forth
herein.
PAGE 4 - LEASE
<PAGE> 5
5. Use/Condition of Premises.
-------------------------
5.1 Use. Tenant's initial use of the Premises (the "Initial Use")
shall be for the retail sale of sporting goods, including boats and boating
supplies, outdoor and active wear, footwear, automotive parts, supplies and
accessories and any product or service incidental to the foregoing. The Initial
Use and except as prohibited in Exhibit __ attached, any other lawful use of the
Premises shall for all purposes of this Lease be a Permitted Use; provide, that
Lessee will not use the Premises for a use that would violate any of the
Permitted Exceptions or Legal Requirements or Contractual Obligations (as
defined below). Lessee, at its expense, will also promptly comply with and
perform all obligations required under any covenants, conditions and
restrictions, easement agreements, operating agreements, equipment leases, or
other contractual obligations applicable to and binding upon the Premises (the
"Contractual Obligations"). Lessee shall not use nor permit the use of the
Premises in any manner which creates waste or a nuisance.
5.2 Compliance with Legal Requirements. Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, and requirements in effect during the term or any part of
the term hereof, regulating the premises including without limitation all
requirements regarding storm drains, fire protection, emissions or discharges
("Legal Requirements").
5.3 Condition of Premises. Lessee has thoroughly inspected the
Premises and accepts the Premises in their condition existing as of the Lease
Commencement Date AS IS, without warranty expressed or implied, subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and any covenants or
restrictions of record. Lessee acknowledges neither Lessor nor any of Lessor's
agents has made any representation or warranty as to the present or future
suitability of the Premises for the conduct of Lessee's business.
5.4 Use of Hazardous Material.
-------------------------
5.4.1 As used herein, the term "Hazardous Materials" is used in
its very broadest sense, and refers to materials which because of their
quantity, concentration, or physical, chemical, or infectious
characteristics may cause or pose a present or potential hazard to human
health or the environment when improperly handled, treated, stored,
transported, disposed of, or otherwise managed. The term shall include, but
is not limited to, all petroleum, petroleum products, explosives,
radioactive materials, hazardous wastes, hazardous or toxic substances, or
any material containing one percent or more asbestos by weight, and other
hazardous or toxic substance, material or waste
PAGE 5 - LEASE
<PAGE> 6
including but not limited to substances, materials and waste listed in the
United States Department of Transportation Hazardous Materials Tables or by
the United States Environmental Protection Agency as hazardous substances,
petroleum products or other substances, materials or waste which are or
become regulated under any applicable local state or federal law.
5.4.2 As a material inducement for Lessor to enter into this
Lease, Lessee represents and warrants that (a) throughout the Term (i) all
parts of the Premises which will be kept free (by Lessee and others) of
Hazardous Materials, and (ii) no part of the Premises will be used by
Lessee or others to generate, manufacture, refine, transport, treat, store,
handle, dispose of, transfer, produce, or process Hazardous Materials
(except for Permitted Products, as defined below), and (b) Lessee will not
suffer or permit any activity in, at or from all or any part of the
Premises will cause or contribute to the pollution (by petroleum or
petroleum products, or otherwise) of the Premises in whole or in part or
any other property. Lessee shall comply fully with all applicable laws
pertaining to the protection of human health and the environment, including
but not limited to employee and community right-to-know laws and all laws
regarding the use, generation, storage, transportation, treatment, disposal
or other handling of hazardous substances ("Environmental Requirements").
The only Hazardous Materials permitted on the Premises are items of
Lessee's inventory held for sale and cleaning products, landscape
fertilizer and other materials in ordinary quantities which are used in the
ordinary course of business and necessary for the conduct of Lessee's
business and which Lessee uses in strict compliance with all applicable
Environmental Requirements (the "Permitted Products").
If during the Term any Hazardous Materials are dumped, released,
discharged, spilled or leaked onto or into the Premises or found to be
contaminating the Premises (or if a party has reasonable cause to believe
that such dumping, releasing, discharge, spilling or leak may have occurred
or that such hazardous Materials may be contaminating the Premises), the
party will notify the other party, in writing (except in cases of an
emergency, in which event the party shall have the right to take action
without such notice) as to the matter in question. In such event, the
parties will cooperate in having reasonable examinations, tests or
investigations performed at Lessee's expense to determine the extent of the
problem and nature of appropriate corrective action (or if Lessee fails to
cause such examinations or investigations to be performed after notice of
the required action as provided in this Section, Lessor will have the right
to perform them on Lessee's behalf and at its expense). If such
examinations demonstrate that the Premises is contaminated by Hazardous
Materials at levels requiring remedial action under applicable laws,
PAGE 6 - LEASE
<PAGE> 7
Lessee will have thirty (30) days (or such longer time as may be reasonably
necessary under the circumstances or such lesser time as may be required by
emergency conditions, by law, regulation or judicial order, or by any
governmental entity, whichever is sooner) after written notice from Lessor
to eliminate same and (to the extent necessary) to restore the Premises to
prior condition but with new non-Hazardous Materials, failing which Lessor
may either terminate this Lease on written notice to Lessee or take all
action deemed desirable by lessor to effect such elimination and (to the
extent necessary) restoration. If Lessor elects the latter, upon request
and as additional rent Lessor will be entitled to receive from Lessee all
reasonable costs and expenses in any way associated therewith, plus
interest at the rate provided in Section 4.6.
5.4.3 Lessee shall indemnify defend and hold Lessor harmless from
any claims, judgments, demands, penalties, fines, costs, liabilities or
losses (including without limitation, diminution in value of the premises,
damages for the loss of or restriction on use of the Premises and sums paid
in settlement of claims, attorneys fees, consultant fees and expert fees)
which arise during or after the lease term related to or arising from
contamination by Hazardous Materials. This indemnification includes without
limitation costs incurred by Lessor in connection with any investigation,
clean up, remedial removal or restoration work required by any federal
state or local governmental agency or political subdivision because of
Hazardous Materials present in the soil or ground water on or under the
Premises. Lessee shall promptly take all actions at its sole expense as are
necessary to return the Premises to the condition existing prior to the
release of any Hazardous Material on the Premises provided that Landlord's
approval of such action shall be first obtained. This indemnity shall
survive the expiration or earlier termination of this Lease.
5.4.4 At the commencement of the Lease and on July 1 of each year
thereafter including July 1 of the year after the termination of this
Lease, Lessee shall disclose to Lessor the names and amounts of all
hazardous materials or any combination thereof stored, used, released or
disposed of on the premises on which Lessee intends to store, use, release
or dispose of on the premises.
6. Maintenance, Repairs and Alterations.
------------------------------------
6.1 Lessee's Obligations. Lessee shall put, maintain and keep the
Premises, and every part thereof, in good order, condition and repair, whether
or not such portion of the Premises requiring repair, or the means of repairing
the same are
PAGE 7 - LEASE
<PAGE> 8
reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of such portion of the Premises. Without limiting the generality of the
foregoing, Lessee's obligation to repair includes all plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities and equipment within
the Premises, fixtures, walls (interior and exterior), foundations, ceilings,
roofs (interior and exterior), floors, windows, doors, plate glass and skylights
located within the Premises, and all landscaping, driveways, parking lots,
fences and signs located on the Premises and sidewalks and parkways adjacent to
the Premises. Lessee's obligations will include, without limitation, the
necessary and appropriate, interior and exterior, ordinary and extraordinary,
and foreseen and unforeseen, repairs and replacements to the Premises. All such
repairs and replacements shall be of good quality sufficient for the proper
maintenance and operation of the Premises and shall be constructed and installed
in compliance with all Legal Requirements and applicable insurance requirements.
6.2 Surrender. On the last day of the lease term, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment.
6.3 Lessor's Rights. If Lessee fails to perform Lessee's obligations
under this paragraph, Lessor may at its option (but shall not be required to)
enter upon the Premises after 10 days' prior written notice to Lessee (except in
the case of an emergency, in which case no notice shall be required), perform
such obligations on Lessee's behalf and put the same in good order, condition
and repair, and the cost thereof together with interest thereon at the same rate
as provided in Section 4.6, shall become due and payable as Additional Rent to
Lessor payable with Lessee's next Base Rent installment.
6.4 Lessor's Obligations. It is intended by the parties hereto that
Lessor have no obligation, in any manner whatsoever to repair and maintain the
Premises. Lessee expressly waives the benefit of any statute now or hereinafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to keep
the Premises in good order, condition and repair.
6.5 Alterations and Additions.
6.5.1 For purposes of this paragraph, the term "structural
alterations" shall be interpreted consistent with the usual and customary
definition of that term in the construction industry and shall include
without
PAGE 8 - LEASE
<PAGE> 9
limitation, alteration to any exterior wall, load bearing wall, roof,
plumbing system, heating ventilation and air conditioning system, or
foundation.
6.5.2 Lessee shall not, without Lessor's prior written consent,
make any alteration, improvement or addition (collectively hereafter
"Alterations") in, or about the Premises, except for nonstructural
Alterations not exceeding $_________ in cumulative costs during any twelve
(12) month period.
6.5.3 Lessor may at its sole option require Lessee remove
Alterations at the expiration of the term, and restore the Premises to
their prior condition. Alterations which Lessor does not require to be
removed shall immediately become the property of Lessor upon completion of
the work.
6.5.4 Should Lessee make any Alterations, without the prior
approval of Lessor, Lessor may require Lessee remove any or all of same in
addition to any other remedy.
6.5.5 Any alterations, improvements, additions or utility
installations in, or about the Premises that Lessee shall desire to make
and which requires the consent of Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its
consent, the consent shall be deemed conditioned upon Lessee acquiring all
permits required by governmental agencies to do the work, the furnishing of
a copy of each such permit to Lessor prior to the commencement of the work,
and the compliance by Lessee of all conditions of each permit in a prompt
and expeditious manner.
6.5.6 Lessor's approval of Alterations, if required, shall not be
unreasonably withheld or delayed if such Alterations do not materially
adversely affect in the reasonable exercise of Lessor's judgment the
appearance of the Premises or the value of the Premises, the Lessor's
ability to release the Premises, the structural integrity of the building
or its systems and conforms to the requirements of all building codes and
other applicable laws, regulations and CC&R's, Legal Requirements and
Contractual Obligations.
6.5.7 All improvements, additions, installations and other
Alterations (whether or not Lessor's approval is required) shall be
expeditiously completed in a good and workmanlike manner and in compliance
with all applicable Legal Requirements and applicable insurance
requirements. Lessee shall pay the increased premium, if any, charged by
the insurance companies carrying insurance policies on the Premises, to
cover the additional risk during the course of such work. Lessee shall
provide Lessor upon request with evidence of payment for all work done
within ninety (90) days after completion thereof.
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6.5.8 If Lessor's approval of the Alteration is required, the
work shall be completed substantially in accordance with the plans and
specifications approved by Lessor. If Lessee proposes to demolish existing
improvements on the Premises that are part of the realty, or if the
estimated cost to complete the Alteration would exceed $250,000 (or such
other threshold as Lessor's first Mortgagee may require for this purpose),
Lessor may require that Lessee deposit with Lessor, or with an
institutional depository selected by Lessor and reasonably approved by
Lessee (the "Depository"), such funds or security as Lessor may reasonably
require to assure the performance and completion of the work and payment of
the costs of construction. Lessor will authorize release of the security or
funds in the same manner as draws on a construction loan are customarily
made.
6.5.9 Lessor and Lessor's first Mortgagee will be named as
additional insureds and as dual obligees on all insurance and bonds
obtained in connection with any Alteration.
6.5.10 Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at
or for use in the Premises, which claims are or may be secured by any
construction lien against the Premises or any interest therein. Lessee
shall give Lessor not less than 10 days' notice prior to the commencement
of any work in or on the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim
or demand, then Lessee shall, at its sole expense defend itself and Lessor
against the same and shall pay and satisfy any such adverse judgment that
may be rendered thereon before the enforcement thereof against Lessor or
the Premises. If Lessor shall require, Lessee shall post a surety bond and
comply with the other requirements of ORS 87.076 et seq. (or subsequent
corresponding provisions) so that the Premises shall be entirely free of
any such lien and shall in no way be involved in any subsequent
proceedings. If any claimant seeks a personal judgment against Lessor for
labor or materials provided at the request of Lessee, then Lessee shall pay
Lessor's attorney's fees and costs in participating in such action, if
Lessor shall decide it is in its best interest to do so.
6.5.11 Unless Lessor requires their removal, as set forth herein
above, all alterations, improvements, additions and utility installations
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the
term. Notwithstanding the provisions of this subparagraph, Lessee's
machinery and equipment, other than that which is affixed to the Premises
so that it cannot be
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removed without material damage to the Premises, shall remain the property
of Lessee and may be removed by Lessee subject to the provisions of this
paragraph.
6.5.12 In addition to the insurance requirements set forth in
Section 8.2 during the period of construction of any Alterations, Lessee
and Lessee's contractors shall maintain Worker's Compensation, Builders All
Risk and Public Liability Insurance and such other insurance as Lessor may
reasonably require in an amount satisfactory to Lessor. All policies shall
have coverage limits and be underwritten by such companies as Lessor shall
approval, such approval shall not be unreasonably withheld and shall name
Lessor as an additional insured thereunder. Before commencement of any
Alteration, Lessee and Lessee's general contractor shall deliver
certificates of all such insurance polices to Lessor.
6.6 No Adverse Possession. Lessee shall not suffer or permit the
Premises or any part or parts thereof to be used in such manner as might
reasonably tend to impair Lessor's title to the Premises or any portion thereof,
or in such manner as might reasonably make possible a claim or claims of adverse
usage or adverse possession, or of implied dedication of the Premises or any
portion thereof.
6.7 Lessee to Comply with Covenants, Etc. Lessee agrees that it will
not use the Premises, or any part thereof, nor suffer or permit the same to be
used in any manner which may violate any covenant, condition, reservation,
agreement, easement, restriction or other Contractual Obligations, and Lessee
agrees that it will observe and perform and will comply with and carry out the
provisions of all such Contractual Obligations during the term of this Lease.
6.8 Lessor's Cooperation Clause. Upon reasonable request from time to
time, Lessor shall join with Lessee in executing: (i) any conveyance,
dedication, grant of easement or license or other instrument as shall be
reasonably necessary or convenient to provide public utility service to the
Premises or in order to allow development or use of the Premises by Lessee, and
(ii) to the extent that the signature or approval of Lessor is required by any
governmental body, applications for permits or other governmental authorization
or approvals, provided that Lessee is not in violation of any of the provisions
of this Lease. Lessor will join in such applications or other documentation
without any cost or liability to Lessor in connection therewith, and Lessee
shall indemnify and hold Lessor harmless from any cost, liability or expense
arising therefrom.
6.9 Entry by Lessor. Lessor, the first Mortgagee and their authorized
representatives shall have the right to enter the Premises or any portion
thereof at all
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reasonable times upon reasonable prior notice (except in cases of emergency,
where no notice will be required) to Lessee: (a) for the purpose of inspecting
the same or for the purpose of doing any work under Section 6.1, and may take
all such action thereon as may be necessary or appropriate for any such purpose
(but nothing contained in this Lease or otherwise shall create or imply any duty
upon the part of Lessor to make any such inspection or do any such work), and
(b) for the purpose of showing the Premises to prospective purchasers and
mortgagees and, within twelve (12) months prior to the expiration of the Term of
this Lease, for the purpose of showing the same to prospective lessees. No such
entry shall constitute an eviction of Lessee.
7. Insurance and Indemnity.
-----------------------
7.1 Liability Insurance and Other Coverages. Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this Lease a policy of
bodily injury and property damage insurance insuring Lessor, Lessee and the
Mortgagees of the Premises against any liability arising out of the ownership,
use, occupancy or maintenance of the Premises and all areas appurtenant thereto.
Such insurance shall be a combined single limit policy in an amount not less
than $10,000,000. The policy shall insure performance by Lessee of the indemnity
provisions of this paragraph. The limits of said insurance shall not, however,
limit the liability of Lessee hereunder. Such insurance shall also cover the
Lessor under any ground lease or other lease to which the Premises is subject,
and such other parties as Lessor may specify by notice to Lessee. In the event
Lessee maintains blanket liability coverage, the total limits of liability
required hereunder must be available to the Premises.
During the term of this Lease, Lessee shall also maintain, at its
expense, the following insurance coverages, except as otherwise approved from
time to time by Lessor:
(a) Business interruption/loss of rents insurance covering all risks
referenced in Section 7.2.1, for the benefit of Lessor and, if Lessor so
directs, for the benefit of all Mortgagees, as their interests may appear,
covering risk of loss during the lesser of the first twelve (12) months of
reconstruction or the actual reconstruction period necessitated by the
occurrence of any of the covered hazards, in such amounts as may be customary
for comparable properties in the area and in an amount sufficient to prevent
Lessor or Lessee from becoming a co-insurer.
(b) Boiler and Machinery coverage covering loss or damage, on a
replacement cost basis, from explosion of any steam and pressure boilers, hot
water heaters, and similar apparatus located in, on or about the Premises with
limits of not less than the replacement cost of the Improvements. In the event
coverage hereunder
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is afforded by more than one insurance company, all such companies shall furnish
joint loss endorsement to the policies covering the risk set forth in this
Section 6.1(d).
(c) Flood (if the Premises is located in whole or in part within any
flood plain area as designated by any department or agency of the United States
Government having jurisdiction), earthquake insurance (if such insurance is
available at rates which are economically practical in relation to the risk
covered), and such other hazards and in such amounts as may be customary for
comparable properties in the area, provided the same is available at rates which
are economically practical in relation to the risks covered, as determined by
Lessee and reasonably approved by Lessor.
(d) Worker's compensation insurance coverage for all persons employed
by Lessee on the Premises with statutory limits and otherwise with limits of any
provisions in accordance with the requirements of applicable local, state and
federal law.
(e) During the course of any construction, Builder's Risk coverage for
the Premises written on an all risk or "special form" basis with privilege
granted to occupy in an amount not less than the full amount of the construction
cost, which shall include the value of building materials on the Premises,
covering loss or damage by fire, lightning, windstorm, hail, explosion, riot,
riot attending a strike, civil commotion, aircraft vehicles, smoke, earthquakes,
vandalism and malicious mischief, and flood insurance (if the Premises is in a
flood hazard area), and such other hazards as may be included in broad form of
extended coverage from time to time available.
7.2 Property Insurance.
------------------
7.2.1 Lessee shall also, at Lessee's expense, obtain and keep in
force during the term of this Lease a policy or policies of insurance
covering loss or damage to the Premises, in the amount of the full
replacement value thereof, as the same may exist from time to time, which
replacement value is presently agreed to be $__________, but in no event
less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood, earthquake and
special extended perils (an "all risk" or "special form" policy as such
term is used in the insurance industry). Said insurance shall provide for
payment of loss thereunder to Lessor or to the holders of mortgages or
deeds of trust on the Premises. In addition, Lessee shall obtain and keep
in force during the term of this Lease a policy of rental value insurance
covering a period of one year, with loss payable to Lessor, which insurance
shall also cover all real estate taxes and insurance costs for said
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period. If such insurance coverage has a defense clause, the deductible
amount shall not exceed $1,000 per occurrence, and Lessee shall be liable
for such deductible amount. Lessee shall be responsible for determining the
applicability of Demolition and Increased Costs of Construction
endorsements. If Lessee elects to provide blanket coverage over locations
in addition to the Premises, Lessor reserves the right to require a
specific endorsement or endorsements from the insurance companies affording
such coverage evidencing coverage over the Premises in a sufficient amount
to provide recovery on a Replacement Cost basis.
7.2.2 Lessee shall insure its fixtures, equipment and tenant
improvements.
7.3 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least A-VIII, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
deliver to Lessor and Mortgagees and landlords copies of policies of such
insurance or certificates evidencing the existence and amounts of such insurance
with loss payable clauses as required by this paragraph. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after 30 days' prior written notice to Lessor. Lessee shall, at least 30 days
prior to the expiration of such policies, furnish Lessor with renewals or
"binders" thereof, or Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee upon demand.
7.4 Payment of Casualty Insurance Proceeds. In case of any damage to
or destruction of the Premises or any part thereof where the insurance proceeds
to be collected are less than One Hundred Thousand Dollars ($100,000), the
proceeds of any such insurance shall be paid to, and may be adjusted by, Lessee
alone.
In case of any damage to or destruction of the Premises or any part
thereof where the insurance proceeds to be collected are One Hundred Thousand
Dollars ($100,000) or more, the proceeds of any such insurance shall, at
Lessor's election, be paid to the Depository to be disbursed in accordance with
Section 7.8 below, and will be adjusted by Lessee with the reasonable approval
of Lessor.
7.5 Separate Insurance Coverages. Without the prior written consent of
Lessor, Lessee shall not obtain or carry separate insurance concurrent in form
or contributing in the event of loss with that required by this Section 7 to be
furnished by Lessee unless Lessor and Lessee are included therein as additional
named insureds, with loss payable as in this Lease. Lessee shall immediately
notify Lessor whenever
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any such separate insurance is obtained and shall deliver to Lessor certificates
evidencing the same.
7.6 Compliance with Insurance Requirements. Lessee shall not violate
or permit to be violated any of the conditions or provisions of any of the
insurance policies, and Lessee shall so perform and satisfy the requirements of
the companies writing such policies. Lessee further agrees to reasonably
cooperate with lessor as and when requested to comply with loss prevention
programs.
7.7 Additional Coverages. On reasonable demand of Lessor or any
Mortgagee, Lessee shall provide such other forms of insurance in such amounts,
and/or the foregoing insurance in such additional amounts as the parties may
from time to time approve, as are customarily furnished by Lessees under
comparable leases in the case of property similar in use to the Premises and
located in the area in which the Premises is situated, provided the same is
available at rates which are economically practical in relation to the risk
covered.
7.8 Handling of Proceeds of Insurance. Insurance proceeds which are
payable to Lessee alone in accordance with the provisions of Section 7 of this
Lease shall be held by Lessee and used solely by Lessee to pay for the cost of
making repairs, alterations and improvements to the Premises and doing such work
as may be necessary to protect the Premises against further damage and for no
other purpose. If the proceeds of insurance payable to Lessee alone under
Section 7 shall exceed such costs, such excess shall be promptly paid by Lessee
to Lessor.
The insurance proceeds which are payable to the Depository in
accordance with the provisions of this Lease shall be held in trust for the
purpose of paying for the cost of the work required to be performed by Lessee
under Section 7 and the cost of making repairs, alterations and improvements to
the Premises and doing such work as may be necessary to protect the Premises
against further injury and shall be disbursed as provided in Section 7. The
Depository shall be entitled to reasonable compensation payable out of such
funds. If the insurance proceeds held by the Depository shall exceed such cost,
such excess shall belong to and be paid over to the Lessor upon the completion
of and payment for such work.
7.9 Procurement by Lessor. If premiums on any insurance policy shall
not be paid or if the memoranda of policies or certificates or evidence of
payment of the premiums thereon shall not be so delivered to Lessor as required
herein, or if Lessor learns of any cancellation of any policy required
hereunder, Lessor may procure and/or pay for any such insurance for Lessor's
benefit only and not for the benefit of Lessee after notice to Lessee and
Lessee's failure to procure the same. Lessee may restore such coverage effective
one year after the effective date of
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the insurance procured by Lessor provided Lessee furnishes evidence of such
coverage and payment therefor at least sixty (60) days prior to the expiration
of said one year in the form required. The amount so paid by Lessor with
interest thereon at the interest rate specified in Section 4.6 from the date of
payment shall become due and payable by Lessee as additional rent with the next
or any subsequent installment of Base Rent which shall become due after such
payment by Lessor; it being expressly covenanted that payment by Lessor of any
such premium shall not be deemed to waive or release the default in the payment
thereof by Lessee, or the right of Lessor to take such action as may be
permissible hereunder as in the case of default in the payment of Base Rent.
7.10 Subrogation Waiver Clause. Lessee agrees to include in each of
its policies insurance against loss, damage or destruction by fire or other
casualty, a waiver of the insurer's right of subrogation against the Lessor. If
such waiver shall not be, or shall cease to be, obtainable without additional
charge, Lessee shall pay such additional charge. Neither party shall be liable
to the other for any loss or damage caused by any of the risks covered by a
standard "all risk" or "special form" insurance policy, and there shall be no
subrogated claim by one party's insurance carrier against the other party
arising out of any such loss.
7.11 Indemnity. Lessee shall indemnify and hold harmless Lessor, its
agents and employees, and all present, future and successor mortgagees of
Lessor's interest ("Mortgagee") (collectively, all of the foregoing are the
"Indemnitees" and individually an "Indemnitee"), from and against any and all
liabilities, obligations, damages, penalties, claims, causes of action, costs,
charges and/or expenses, including attorneys' fees and expenses, which may be
imposed upon or incurred by or asserted against Lessor, its agents or employees
or any present, future or successor Mortgagee, by reason of (a) any accident,
injury to any person (including death) or damage to property occurring on or
about the Premises from all causes whatsoever (other than caused by any act of
sole negligence or willful misconduct of the Indemnitee), (b) any loss arising
out of any work performed on Premises by Lessee or any agent, employee or
contractor of Lessee or by any assignee or sublessee of Lessee or any agent,
employee or contractor of any such assignee or sublessee, (c) any default on the
part of Lessee to perform or comply with any term of this Lease, (d) any claim
for the performance of labor or the furnishing of materials or other property,
at Lessee's request or at the request of anyone claiming under Lessee, in
respect of the Premises or any part thereof, (e) any action or proceeding
pertaining to the Premises, to which any Indemnitee is made a party or in which
it becomes necessary in the judgment of Lessor, to defend or uphold the validity
of the interest of Lessor in the Premises, and (f) any acts, omissions, or
negligence of Lessee or the sublessees, contractors, agents, employees,
invitees, customers, concessionaires, or licensees of Lessee (other than caused
by any act of sole negligence or willful misconduct of the Indemnitee). In case
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any action or proceeding be brought against Lessor by reason of any such claim,
Lessee upon notice from Lessor shall defend the same at Lessee's expense by
counsel satisfactory to Lessor. Lessee, as a material part of the consideration
to Lessor, hereby assumes all risk of damage to property or injury to persons,
in, upon or about the Premises arising from any cause, and Lessee hereby waives
all claims in respect thereof against Lessor, except as may arise from the gross
negligence or intentional misconduct of Lessor.
7.12 Exemption of Lessor from Liability. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises, except as may arise from the gross negligence or intentional
misconduct of Lessor.
8. Damage or Destruction.
---------------------
8.1 Definitions. As used herein the terms shall be defined as follows:
8.1.1 "Partial Damage" shall mean if the Premises are damaged or
destroyed to the extent the cost of repair is less than fifty percent (50%)
of the market value at the date of loss, and Lessee's use of the Premises
for its business is not materially interrupted for more than 180 days as a
result of the damage.
8.1.2 "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent the cost for repairs is fifty percent
(50%) or more of the market value of the Premises at the date of loss or if
Lessee's use of the Premises for its business is materially interrupted for
more than 180 days as a result of such damage.
8.1.3 "Insured Loss" shall mean damage or destruction covered by
the insurance described in Section 8.2.1. The fact an insured loss has a
deductible amount shall not make the loss an uninsured loss.
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8.1.4 "Replacement Cost" shall mean the amount of money necessary
to repair the damaged area to the condition immediately existing prior to
the loss excluding all improvements made by Lessee.
8.2 Premises Partial Damage. In the event of Partial Damage to the
Premises:
8.2.1 If there is Partial Damage to the Premises which is an
Insured Loss, Lessee shall at Lessee's expense, repair the damage as soon
as reasonably possible and this Lease shall continue in full force and
effect.
8.2.2 If there is Partial Damage to the Premises which is not an
Insured Loss, unless caused by a negligent or willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense) Lessee may,
at Lessee's option, either (a) repair the damage as soon as reasonably
possible at Lessee's expense in which event this Lease shall continue or
(b) if the Partial Damage is material (for which purpose, it will be deemed
to be material if it would cost more than $1,000,000 to repair) give
written notice to Lessor within thirty (30) days after the date of loss, of
Lessee's cancellation and termination of this Lease which cancellation
shall be effective as of the date of loss. It Lessee give such notice to
cancel the Lease, Lessor shall have the right within ten (10) days after
receipt of the notice to give lessee written notice of Lessor's intent to
repair the damage at Lessor's expense, in which case this Lease shall
continue and Lessor shall proceed to make such repairs as soon as
reasonably possible.
8.3 Premises Total Destruction. If there is total destruction of the
Premises (unless it is not an Insured Loss and is caused by a negligent or
willful act of Lessee in which event, Lessee shall make all necessary repairs at
Lessee's expense) either party may elect by written notice given within thirty
(30) days of the date of loss, to terminate the Lease in which the Lease shall
be terminated as of the date of loss.
8.4 Damage Near End of Term. If the Premises are damaged during the
last six (6) months of the Lease term (unless caused by a negligent or willful
act of Lessee, in which case, Lessee shall make any required repairs at Lessee's
expense), Lessee may, at Lessee's option, cancel and terminate this Lease as of
the date of loss by written notice to Lessor given within thirty (30) days of
the date of loss.
8.5 Continuation of Rent. Rent payable for the period during which any
damage, repair or restoration continues shall not be abated, nor shall Lessee
have any claim against Lessor for any damage suffered by reason of such damage,
destruction, repair or restoration.
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8.6 Waiver. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
9. Property Taxes.
--------------
9.1 Definition of "Real Property Tax". As used herein, the term "Real
Property Tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Premises. The term "Real Property Tax"
shall also include any tax, fee, levy, assessment or charge (i) in substitution
of, partially or totally, any tax, fee, levy, assessment or charge herein above
included within the definition of "Real Property Tax," or (ii) the nature of
which was hereinbefore included within the definition of "Real Property Tax," or
(iii) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
9.2 Payment of Taxes. It shall be Lessee's responsibility to pay at
least fifteen (15) days before the due date the Real Property Tax assessed
against the Premises during the term of this Lease and contemporaneously provide
Lessor written evidence of payment. Real Property Taxes payable for any partial
lease year shall be prorated.
9.3 Right to Contest. Lessee may contest in good faith, Real Property
Taxes and for such purpose, Lessee at its expense may prosecute such appeals,
suits, actions or other proceedings in Lessee's name or in the name of Lessor or
both or defend such suits or Actions as Lessee deems appropriate. Lessee shall
hold harmless and indemnify Lessor from and against, any lost, cost, expense or
damage, including Lessor's reasonable attorneys fees incurred in connection with
any such action or proceeding. Lessor shall upon request of Lessee cooperate
with Lessee with respect to the filing and prosecuting of any such appeals,
suits, actions or other proceedings, subject to Lessee's obligations of
indemnity.
9.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Lessee contained in the Premises or
elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings,
equipment and all other
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personal property to be assessed and billed separately from the real property
of Lessor.
10. Utilities. Lessee shall pay during the term of this Lease for all
water, gas, heat, light, power, telephone and other utilities and services
supplied to the Premises, together with any taxes thereon.
11. Assignment and Subletting.
-------------------------
11.1 Lessor's Consent Required. Except as otherwise provided below,
Lessee shall not (voluntarily, involuntarily, by operation of law or otherwise)
assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any
part of Lessee's interest in this Lease or in the Premises ("Transfer"), without
Lessor' prior written consent. Lessor shall respond to Lessee's request for
consent hereunder in a timely manner and any attempted Transfer without such
consent shall be void, and shall constitute a breach of this Lease. In
connection with any Transfer, (a) rent and other obligation of Lessee or any
rights or powers of Lessor under this Lease will not be affected, and (b) if the
Transfer involves an assignment of this Lease, the assignee shall execute and
deliver to Lessor an agreement in form and substance in all respects reasonably
satisfactory to Lessor whereby such assignee assumes and agrees to be bound by
and perform all of the obligations of Lessee under this Lease.
11.2 Information About Proposed Transferee. Notwithstanding anything
contained in Section 11.1, in the event Lessee wishes to assign or otherwise
make a Transfer of this Lease, Lessee shall first notify lessor of the name of
the proposed transferee and of the material terms, provisions and conditions
contained in the proposed Transfer, and shall provide Lessor with such
information as to the proposed transferee financial condition, business
experience and standing as Lessor may reasonably require.
11.3 Terms Relating to Consent. As to any Transfer that requires
Lessor's consent, Lessor shall not unreasonably withhold, delay or condition its
consent to the proposed Transfer, provided:
(i) the proposed transferee is of a financial standing which in
Lessor's reasonable judgment will allow such proposed transferee to meet
its obligations under this Lease as they become due; and
(ii) the Premises will be used by such transferee for a use permitted
by this Lease;
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(iii) there shall be no material default by Lessee under any of the
terms, covenants and conditions of this Lease at the time that Lessor's
consent to any such Transfer is requested and on the effective date of the
Transfer;
(iv) Lessee shall reimburse Lessor for any reasonable expenses that
may be incurred by Lessor in connection with the proposed Transfer,
including, without limitation, the costs of making investigations as to the
acceptability of a proposed transferee and reasonable legal expenses (but
not to exceed $1,500) incurred in connection with the granting of any
requested consent to the Transfer; and
(v) any request for an assignment of this Lease shall be accompanied
by the proposed instrument of assignment and the assignment document will
provide that the assignee cannot further transfer its interest without
complying with the transfer requirements of this Lease.
11.4 No Release of Lessee. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee. Lessor may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12. Default, Remedies.
-----------------
12.1 Default. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
12.1.1 The vacating or abandonment of the Premises by Lessee for
a period of 10 days or more.
12.1.2 The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, within ten (10) days
after written notice is given to Lessee that such payment is due.
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<PAGE> 22
12.1.3 The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in paragraph (b) above, where
such failure shall continue for a period of 30 days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's default is such that more than 30 days are reasonably required for
its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said 30-day period and thereafter diligently
prosecutes such cure to completion.
12.1.4 (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined by federal bankruptcy law (unless, in the case of a petition filed
against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in
this Lease, where possession is not restored to Lessee within 30 days: or
(iv) the attachment, execution or other judicial seizure of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in
this Lease, where such seizure is not discharged within 30 days; provided,
however, in the event that any provision of this paragraph is contrary to
any applicable law, such provision shall be of no force or effect.
12.1.5 The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee, and any of them, was materially false.
12.2 Remedies. In the event of any such default or breach by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default or breach:
12.2.1 Termination of Possession. Terminate Lessee's right to
possession of the Premises by any lawful means, in which case Lessee shall
immediately surrender possession of the Premises to Lessor. Lessor may use
the Premises for Lessor's own purposes or relet it upon any reasonable
terms without prejudice to any other remedies that Lessor may have by
reason of Lessee's default. None of these actions will be deemed an
acceptance of surrender by Lessee. Lessor shall be entitled to recover from
Lessee all damages incurred by Lessor by reason of Lessee's default
including, but not limited to: the cost of recovering possession of the
Premises; expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorney's fees, and any real estate
commission actually paid; and the worth at the time of award by the court
having jurisdiction thereof of the
PAGE 22 - LEASE
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amount by which the unpaid rent for the balance of the term after the time
of such award exceeds the amount of such rental loss for the same period
that Lessee, not Lessor, proves could be reasonably avoided.
12.2.2 Damage Claims. As used in this Lease, the "worth at the
time of such award" will be computed by allowing interest on the damages
incurred or the date of the award at the interest rate provided in Section
4.6, and by discounting to the time of judgment the amount of rent and
other amounts payable under this Lease thereafter using a discount rate
equal to one percent (1%) per annum above the discount rate of the Federal
Reserve Bank of San Francisco at the time of judgment.
12.2.3 Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned
the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
12.2.4 Other Remedies for Lessee's Default. Lessor may sue
periodically to recover damages as they accrue during the remainder of the
lease term without barring a later action for further damages. Lessor may
declare a default and exercise its remedies as to a specific property to
which the event of default may relate, or against all properties that are
leased by Lessor to Lessee (and all such leases are hereby cross-defaulted
with each other).
12.2.5 Without prejudice to any other remedy for default, Lessor
may perform any obligation or make any payment required to cure a default
by Lessee. The cost of performance, including attorneys' fees and all
disbursements, shall immediately be repaid by Lessee upon demand, together
with interest from the date of expenditure until fully paid at the same
rate as provided in Section 4.6 (but not in any event at a rate greater
than the maximum rate of interest permitted by law).
12.2.6 Pursue any other remedy now or hereafter available to
Lessor under applicable law.
12.3 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises,
Accordingly, if any installment of rent
PAGE 23 - LEASE
<PAGE> 24
or any other sum due from Lessee shall not be received by Lessor or Lessor's
designee within 10 days after such amount shall be due, then, without any
requirement fox notice to Lessee, Lessee shall pay to Lessor a late charge equal
to five percent (5%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect to
such overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for 3 consecutive installments of rent,
then rent shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding any other provision of this Lease to the
contrary.
13. Condemnation.
------------
13.1 If the Premises or any portion thereof are taken under the power
of eminent domain, or sold under the threat of the exercise of said power
(hereafter collectively referred to as "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs.
13.2 If more than 10 percent of the floor area of the building on the
Premises, or more than 25 percent of the land area of the Premises which is not
occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing only within 30 days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within 30 days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession.
13.3 Continuation of Lease After Partial Taking. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect and the Base Rent thereafter payable shall be equitably
adjusted for the portion of the Premises no longer usable by Lessee. Such
equitable adjustment will be mutually determined by the parties. The percentage
reduction in Base Rent shall not exceed the same percentage reduction, if any,
in the fair market value of the Premises caused by the taking.
13.4 Any award for the taking of all or any part of the Premises under
the power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages. Provided, however, Lessee shall be entitled to any
award for
PAGE 24 - LEASE
<PAGE> 25
loss or damage to Lessee's trade fixtures and removable personal property,
moving and relocation expenses and to the extent permitted by applicable law for
the economic value to Lessee of the remaining Lease term. Lessee shall have the
right, if permitted by law, to bring a separate action against the condemning
body for any such items. If a separate action is not permitted, at Lessee's
request, and provided Lessee reasonably assists and cooperates with Lessor,
Lessor shall seek recovery and exercise reasonable efforts to obtain such value
from the condemning authority and shall pay to Lessee the portion of any award
or settlement designated in applicable settlement or decree as being paid with
respect to such interest.
13.5 Restoration; Handling of Condemnation Proceeds. Lessee shall
promptly after such Condemnation restore that part of the Premises which remains
to as nearly its former condition as circumstances will permit. Lessee shall not
be required to expend any monies in excess of the condemnation award that Lessor
made available to Lessee in the performance of such work. The award shall be
payable to the Depository, at Lessor's option, for disbursement in the same
manner as insurance proceeds. Any balance remaining after payment of all costs
of restoration shall be paid to and retained by Lessor.
13.6 Cooperation of Parties. Nothing herein contained shall be
construed or deemed to vest in Lessee any ownership or title of or to the
Premises. Lessor and Lessee shall cooperate with each other and Lessor shall
have the right to designate counsel to represent Lessor and Lessee to represent
the parties in any proceeding relating to a Taking.
13.7 Temporary Taking. In the event of a Taking of all or any portion
of the Premises for temporary use, the foregoing provisions of this Section 13
shall be inapplicable thereto, this Lease shall continue in full force and
effect without reduction or abatement of Base Rent or additional rent and
Lessee, alone, shall be entitled to make claim for, recover and retain any award
recoverable in respect of such temporary use whether in the form of rental or
otherwise. Any award paid for any period beyond the term of this Lease shall be
paid to Lessor. If the award is made in a lump sum covering a period beyond the
expiration of the term of this Lease, Lessor also shall be entitled to make
claim for and participate in the award proportionately. If the award is made in
a lump sum covering the entire period, or substantially the entire period of
such temporary use and if it includes the amount of Base Rent and additional
rent for such period, such portion of the lump sum as shall represent the Base
Rent and additional rent shall be paid to the Depository to be held and
disbursed for the payment of Base Rent and additional rent as they become due
and the balance thereof shall belong to and be paid to Lessee.
PAGE 25 - LEASE
<PAGE> 26
14. Estoppel Certificate.
--------------------
14.1 Lessor and Lessee agree at any time upon ten (10) business prior
written request by either party to the other, to execute, acknowledge and
deliver, to the requesting party, a written statement certifying this Lease is
unmodified and in full force and effect (or stating the modifications), the date
to which the Rent has been paid in advance and whether there are any events or
conditions which constitute a default under this Lease or which if not timely
remedied would constitute a default under this Lease. It is intended a
certificate delivered pursuant to this paragraph may be relied upon by any
prospective purchaser of the fee or leasehold interest or mortgagee or assignor
of any mortgage upon the fee or leasehold interest in the Premises or by any
assignee of Lessee.
14.2 Lessee's failure to deliver such statement within such time
shall be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there are
no uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance.
14.3 If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past 3
years' financial statements of Lessee. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
15. Waiver of Lessor's Lien. Lessor waives any statutory liens and rights
of distress with respect to the personal property (trade fixtures, equipment and
merchandise) of Lessee from time to time located on the Premises ("Lessee's
Property"). This Lease does not grant a contractual lien or security interest to
Lessor with respect to Lessee's Property. As to any lender of Lessee having a
security interest in Lessee's Property ("Lessee's Lender") Lessor agrees:
15.1 To provide Lessee's Lender, upon written request of Lessee, a
copy of any default notice given to Lessee under this Lease;
15.2 To allow Lessee's Lender prior to any termination of the Lease or
repossession of the Premises by Lessor the same period of time after receipt of
such notice of default to cure the default as is allowed Lessee under this
Lease) and
15.3 To permit Lessee's Lender to enter upon the Leased Premises for
the purpose of removing Lessee's Property any time within twenty (20) days after
the
PAGE 26 - LEASE
<PAGE> 27
effective date of any termination of this Lease or repossession of the Premises
by Lessor. Lessor further agrees to execute and deliver such documents
reasonably requested by Lessee's Lender, from time to time, to evidence or
effect such waiver and agreements. Notwithstanding the foregoing, Lessor may
condition its review and/or execution of any instrument required by Lessee or
Lessee's Lender's upon Lessee's reimbursing Lessor for the actual, reasonable
out-of-pocket costs in reviewing any such waiver, estoppel or other instrument.
Lessor will not be required to recognize from time to time more than two
Lessee's Lenders at any single time (for purposes of notice and cure rights or
execution of documents).
16. No Implied Covenant of Continuous Operation. Nothing in the Lease shall
be construed as an implied covenant of continuous operation on the party of
Lessee, and Lessor acknowledges there is no covenant of continuous operation on
the part of Lessee expressed or implied. In the event Lessee elects to cease
business operations at the Premises, such cessation shall not be deemed an event
or default, nor shall such cessation relieve Lessee of any of its liabilities or
obligations under this Lease. Lessee shall provide Lessor not less than fifteen
(15) days written notice of Lessee's intention to cease business operations at
the premises.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title of the Premises,
and in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any not-yet-earned funds
or deposits in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any amount due to Lessor not paid
when due shall bear interest at the rate specified in Section 4.6 from the date
due, whichever is less. Payment of such interest shall not excuse or cure any
default by Lessee under this Lease, provided, however, that interest shall not
be payable on late charges incurred by Lessee nor on any amounts upon which late
charges are paid by Lessee.
PAGE 27 - LEASE
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20. Time of Essence. Time is of the essence as to all provisions of this
Lease.
21. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Neither Lessor nor any employees or agents thereof
has made any oral or written warranties or representations to Lessee relative to
the condition or use by Lessee of the Premises and Lessee acknowledges that
Lessee assumes all responsibility regarding the legal use and adaptability of
the premises and the compliance thereof with all applicable federal, state and
local laws and regulations in effect during the term of this Lease, unless
otherwise specifically stated in this Lease.
22. Notice. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery, certified mail, facsimile or
any other means which results in actual notice. If given personally or by
certified mail, notice shall be deemed given if addressed to Lessee or Lessor at
the address noted above or delivered to such address by leaving the notice
during normal working hours with the person who is apparently in charge. Either
party may by notice to the other specify a different address. Notices are
effective on receipt. A copy of any notice delivered to Lessor shall be sent
simultaneously to any Mortgagee of Lessor which (by notice to Lessee) requests
copies of notices to Lessor and to the following: Stoel Rives LLP, 900 SW Fifth
Avenue, Suite 2300, Portland, OR 97204-1268 (fax: 503-220-2480).
For the purpose of this Lease, the term "receipt" shall mean the earlier of
any of the following: (i) the date of delivery of the Notice to the address
specified pursuant to this paragraph as shown on the return receipt or by the
records of the courier, (ii) the date of actual receipt of the Notice by the
office of the person or entity specified pursuant to this paragraph, or (iii) in
the case of refusal to accept delivery or inability to deliver the Notice, the
earlier of (A) the date of the attempted delivery or refusal to accept delivery,
(B) the date of the postmark on the return receipt, or (C) the date of receipt
by the sending party of notice that the Notice has been refused or cannot be
delivered.
23. Leasehold Mortgages.
23.1 Lessee may at anytime execute and deliver one or more mortgages
or Deeds of Trust ("Leasehold Mortgage") of Lessee's leasehold estate and rights
hereunder without the consent of Lessor. Provided however, Lessee shall at all
times remain liable for the payment of all rent and the performance of all of
the
PAGE 28 - LEASE
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covenants and conditions of this Lease. Lessee shall provide Lessor written
notice of a Leasehold Mortgage.
23.2 If an event of default under this Lease occurs, written notice
shall be sent by Lessor to any Leasehold Mortgagee and Lessor shall take no
action to terminate this Lease or interfere with the occupancy, use or enjoyment
of the Premises, subject to the following:
23.2.1 If such event of default shall be a default in the payment
of Rent, the Leasehold Mortgagee shall remedy such default with ten (10)
days after the giving of such notice.
23.2.2 If such event of default shall be a default in observing
or performing any other covenant or condition to be observed or performed
by Lessee, and such default can be remedied by the Leasehold Mortgage
without obtaining possession of the Premises, the default shall be remedied
not later than thirty (30) days after the giving of the notice as may be
reasonably necessary to remedy such default.
23.2.3 Leasehold Mortgagee Provisions. If the event of default
can be remedied by the Leasehold Mortgagee only by obtaining possession of
the Premises, the Leasehold Mortgagee shall obtain possession with
diligence and continuity through a receiver or otherwise and shall remedy
the default within thirty (30) days after obtaining possession or within
additional period as may be reasonably necessary to remedy the default.
Such limitations are solely for the benefit of the holder of the Leasehold
Mortgage and will not extend or "toll" or otherwise affect in any manner
the time periods in this Lease for default by Lessee or affect any right or
remedy that Lessor may have against Lessee (including, without limitation,
default interest, late charges, collection of damages, costs and other
remedies) so long as Lessor is not taking action to terminate the Lease or
dispossess Lessee. Lessor will not have a duty to recognize and give notice
and cure rights to more than one Leasehold Mortgagee at any time.
23.3 If this Lease terminates for any reason as a result of rejection
pursuant to bankruptcy law or any other law effecting creditors rights, a
Leasehold Mortgagee shall have the right within twenty (20) days after the
effective date of such termination to enter into a new lease of the Premises
with Lessor. The new Lease term shall begin on the termination date and shall
continue for the remainder of the term of this Lease, Provided however, the
Leasehold Mortgagee shall have remedied all defaults on the party of Lessee
which are capable by being remedied by the payment of money or other reasonable
performance obligations.
PAGE 29 - LEASE
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23.4 No Leasehold Mortgagee shall become liable for the performance or
observation of any covenant or condition by Lessee hereunder, unless the
Leasehold Mortgagee becomes the owner of the Lessee's interest upon the exercise
of any remedy provided above, or enters into a new lease with Lessor pursuant to
the preceding paragraph. Thereafter, the Leasehold Mortgagee shall be liable for
the full and complete performance of all obligations under this Lease.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, but all options granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenant and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding, Effect; Choice of Law. This Lease shall bind the parties,
their personal representatives, successors and assigns. This Lease shall be
governed by the laws of the State of Oregon.
30. Subordination, Non-Disturbance and Attornment.
---------------------------------------------
30.1 On thirty (30) days after written request, Lessor shall obtain
from any lender holding security for a loan encumbering Lessor's interest in the
Premises and deliver to Lessee an executed NonDisturbance Agreement assuring
Lessee,
PAGE 30 - LEASE
<PAGE> 31
notwithstanding any defaults by Lessor or any foreclosure or deed in lieu
thereof, this Lease shall continue in full force and effect and Lessee's
possession of the Premises shall remain undisturbed except in accordance with
the terms of this Lease, so long as Lessee is not in default hereunder.
30.2 Lessee shall upon Lessor's thirty (30) day written request
subordinate this Lease to any mortgage or Trust Deed placed on the Premises by
Lessor provided the lender executes and delivers to Lessee a Non-Disturbance
Agreement as provided above. Lessee shall, upon the request of the lender become
a party of any such agreement and will agree if the lender succeeds to the
interest of Lessor, Lessee shall recognize the lender (or any successor in
interest) as its Landlord under the terms of this Lease.
30.3 This Lease, at Lessor's option, shall be subordinate to any
mortgage, deed of trust, or any other hypothecation or security now or hereafter
placed upon the real property of which the Premises are a part and to any and
all advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. Notwithstanding such
subordination, Lessee's right to quiet possession of the Premises shall not be
disturbed if Lessee is not in default and so long as Lessee shall pay the rent
and observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee or trustee shall
elect to have this Lease prior to the lien of its mortgage or deed of trust, and
shall give written notice thereof to Lessee, this Lease shall be deemed prior to
such mortgage or deed of trust, whether this Lease is dated prior or subsequent
to the date of said mortgage or deed of trust or the date of recording thereof.
30.4 In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or trust deed
made by Lessor covering the Premises, Lessee shall attorn to the purchaser upon
any such foreclosure or sale and recognize such purchaser as Lessor under this
Lease.
30.5 Lessee agrees to execute any documents reasonably necessary or
proper to effectuate an attornment, a subordination or to make this Lease prior
to the lien of any mortgage, or deed of trust, as the case may be. Lessee's
failure to execute such documents within ten (10) days after written demand
shall constitute a material default by Lessee hereunder.
31. Attorney's Fees. If either party brings an action to interpret or
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. As used in
this Lease, the term "attorneys' fees" or
PAGE 31 - LEASE
<PAGE> 32
"expenses" (or similar references to attorneys' fees and costs or expenses of
Lender) shall mean all attorneys' and paralegals' fees and expenses, whether in
an action or proceeding, upon appeal therefrom, or in connection with any
petition for review or action for rescission, or in a case or proceeding under
the Bankruptcy Code or successor statute, including the adjudication of any
issues that particularly relate thereto, or in connection with any other action
to collect all or any portion of the Rent or Additional Rent or to enforce any
provision of this Lease or to cure any default thereunder (whether or not suit
is filed), and all costs of searching records, obtaining title reports, title
insurance, and other reasonable costs incurred by Lessor and any Mortgagee of
Lessor in connection with a default by Lessee, that are necessary or advisable
at any time in the opinion of any such person for the protection of its interest
or enforcement of its rights.
32. Lessor's Access. Upon 24 hours' advance oral or written notice, Lessor
and/or Lessor's agents shall have the right to enter the Premises during regular
business hours for the purpose of inspecting the same, and showing the same to
prospective purchasers, lenders, or lessees. Lessor may at any time place on or
about the Premises any ordinary "For Sale" signs, provided such signs clearly
indicate that the Premises, not Lessee's business, is for sale. Lessor may at
any time during the last 120 days of the term hereof place in reasonable
locations on or about the Premises a reasonable number of ordinary "For Lease"
signs, all without rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent.
34. Signs. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent. Provided, however, Lessee in hereby authorized
to place an ordinary sign announcing its business on the existing standard
located on the Premises.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Wherever in this Lease the consent of one party is required
to an act of the other party such consent shall not be unreasonably withheld.
37. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions, and provisions on
Lessee's
PAGE 32 - LEASE
<PAGE> 33
part to be observed and performed hereunder, Lessee shall have quiet possession
of the Premises for the entire term hereof, free from interference by Lessor or
those claiming through Lessor, subject however to the Permitted Exceptions and
all other terms of this Lease.
38. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
39. Easements. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned documents upon request of Lessor and failure to do so
shall constitute a material breach of this Lease.
40. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
41. Authority. Each individual executing this Lease on behalf of Lessee
represents and warrants that he or she is duly authorized to execute and deliver
this Lease.
42. General Provisions.
------------------
42.1 Holding Over. If Lessee remains in possession of the Premises or
any part thereof after the expiration or sooner termination of the term of the
Lease, such holding over, in the absence of a written agreement to the contrary,
shall be deemed, if Lessor so elects, to have created and be construed to be a
tenancy from month-to-month terminable on thirty (30) days' notice. Such
month-to-month tenancy will be at a monthly rental equal to one hundred
twenty-five percent (125%) of the sum of the monthly installment of Base Rent
payable during the last month of the Lease Term. Lessee will otherwise continue
to pay Additional Rent as provided in
PAGE 33 - LEASE
<PAGE> 34
this Lease and perform its other obligations hereunder, all subject to all the
other terms and obligations of this Lease insofar as the same are applicable to
a month-to-month tenancy.
42.2 Exculpation of Lessor. Notwithstanding anything contained in the
preceding paragraph or in any other provision hereof, Lessee shall look solely
to the estate and interest of Lessor, its successors and assigns, in the
Premises (and any condemnation, insurance or other proceeds thereof) for the
collection of any judgment recovered against Lessor based upon the breach by
Lessor of any of the terms, conditions of covenants of this Lease on the part of
Lessor to be performed, and no other property or assets of Lessor shall be
subject to levy, execution or other enforcement procedures for the satisfaction
of Lessee's remedies under or with respect to either this Lease, the
relationship of Lessor and Lessee hereunder, or Lessee's use and occupancy of
the Premises.
42.3 No Waiver, Etc., by Parties. No failure by a party to insist upon
the strict performance of any term of this Lease or to exercise any right, power
or remedy consequent upon a breach thereof, and no acceptance of full or partial
rent by Lessor during the continuance of any such breach, shall constitute a
waiver of any such breach or of any such term. No waiver of any breach shall
affect or alter this Lease, which shall continue in full force and effect with
respect to any other then existing or subsequent breach.
42.4 Separability. Each and every covenant and agreement contained in
this Lease is, and shall be construed to be, a separate and independent covenant
and agreement, and the breach of any such covenant or agreement by Lessor shall
not discharge or relieve Lessee from its obligation to perform the same. If any
term or provisions of this Lease or the application thereof to any person or
circumstances shall to any extent be invalid and unenforceable, the remainder of
this Lease, or the application of such term or provision to persons and
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each term and provision of this lease shall be
valid and shall be enforced to the extent permitted by law.
42.5 Headings. The headings to the various sections of this Lease have
been inserted for convenience of reference only and shall not limit or otherwise
affect the meaning thereof.
42.6 Exculpation. Any general manager or trustee executing this Lease
in such capacity shall be liable only in such capacity and not individually or
otherwise.
PAGE 34 - LEASE
<PAGE> 35
42.7 Consents and Approvals. Wherever a party's consent, approval,
decision or determination is required under this Lease, such consent or approval
shall be given or decision or determination shall be made promptly, in writing
and in a commercially reasonable manner. No approval or consent shall be valid
or binding upon Lessor unless the same is in writing and signed by Lessor. In
the event Lessee claims or asserts that Lessor has violated or failed to perform
a covenant of Lessor not to unreasonably withhold its consent or approval, or in
any case where Lessor's reasonableness in exercising its judgment is at issue,
the dispute will be subject to arbitration pursuant to the provisions of ORS
36.300 et seq. Any consent granted by a party under this Lease shall not
constitute a waiver of the requirement for consent in subsequent cases.
42.8 Relationship of Parties; Disclaimer. The relationship of the
parties to this Lease is Lessor and Lessee. Lessor is not a partner, joint
venturer, joint employer, principal or agent of or with Lessee in any respect or
for any purpose in the conduct of Lessee's business or otherwise. No provision
of this Lease or previous (or subsequent) conduct or activities of Lessee of
Lessor will be construed: (i) as making either party a partner, joint venturer,
joint employer, principal or agent of or with each other, or (ii) as making
Lessee or Lessor responsible for payment or reimbursement of any costs incurred
by each other (except as may be expressly set forth herein or as expressly set
forth in other written agreements executed by the parties).
42.9 Authorization of Lease. Each person executing this Lease on
behalf of Lessee or Lessor does hereby covenant and warrant that (a) the party
has and is duly qualified to do business in the state in which the Premises is
located, (b) the party has full right and authority to enter into this Lease and
to perform all such party's obligations hereunder, and (c) each person (and all
of the persons if more than one signs) signing this Lease on behalf of the party
is duly and validly authorized to do so.
42.10 Disclaimer. No provision of this Lease will be construed as a
limitation on Lessee's right to conduct business in other locations, whether or
not they might be deemed to be competitive with the Premises.
42.11 Miscellaneous. Neither this Lease nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom the enforcement of the change, waiver,
discharge or termination is sought. This Lease shall bind and inure to the
benefit of Lessor and its successors and assigns and Lessee and its successors
and, except as herein otherwise provided, its assigns. This Lease may be
executed in any number of counterparts, each of which shall be an original, but
all of which shall constitute one and the same instrument. All pronouns or any
variation thereof in this Lease shall be deemed to
PAGE 35 - LEASE
<PAGE> 36
refer to masculine, feminine, neuter, singular or plural as the identity of the
person or persons may require. All of the provisions of this Lease shall be
deemed and construed to be "conditions" as well as "covenants" as though the
words specifically expressing or importing covenants and conditions be used in
each separate provision hereof.
42.12 Acceptance of Surrender. No surrender to Lessor of this Lease or
of the Premises or any part thereof, or of any interest therein, shall be valid
or effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
42.13 No Merger of Fee and Leasehold Estates. There shall be no merger
of this Lease nor of the leasehold estate created by this Lease with the fee
estate in the Property or any part thereof by reason of the fact that the same
person, firm or corporation or other entity may acquire or own such estates
directly or indirectly; and no such merger shall occur until all persons, firms,
corporations and other entitled, including any Mortgagee, having any interest in
this Lease and the leasehold estate created thereby and the fee estate in the
Property or any party thereof shall join in a written instrument effecting such
merger and shall duly record it.
42.14 Mortgagee Requirements. This Lease will not be amended, nor will
Lessor or Lessee mutually agree to cancel, terminate or surrender the leasehold
estate of Lessee (other than exercise of any rights of cancellation or
termination expressly set forth in this Lease), without the prior written
consent of the first-lien Mortgagee of Lessor on the Premises.
43. Special Provisions Applicable If Lessor Is or Becomes a REIT.
------------------------------------------------------------
43.1 Application of Provisions. This Section 43 will be applicable if,
and only if, the Lessor's interest under this Lease is held by a real estate
investment income trust ("REIT") and will apply throughout the period such
interest is held by a REIT.
43.2 Real Estate Investment Trust Tax Provisions. If Lessor in good
faith determines that its status as a real estate investment trust under the
provisions of the Internal Revenue Code of 1986, as heretofore or hereafter
amended, will be jeopardized because of any provision of this Lease, Lessor may
request reasonable amendments to this Lease and Lessee will not unreasonably
withhold, delay or defer its consent thereto, provided that such amendments do
not (i) increase the monetary obligations of Lessee pursuant to this Lease or
(ii) in any other manner adversely affect Lessee's interest in the Premises.
PAGE 36 - LEASE
<PAGE> 37
44. Additional Provisions.
---------------------
44.1 Lessor's Option to Maintain Certain Insurance. Lessor may, from
time to time at its option, require that the so-called "all risk" or "special
form" insurance on the building and improvements on the Premises be insured
under insurance policies maintained by Lessor. In such event, Lessee will be
responsible for reimbursing Lessor the cost of the insurance premiums on such
policies; provided, that in the event Lessee believes that the cost of such
insurance is greater than the premium cost if Lessee had maintained the same
coverage (the "Competitive Rate"), then Lessee will provide to Lessor such
information on such insurance and Competitive Rate if maintained by Lessee and
the parties will mutually co-operate in steps to either re-place Lessor's
insurance (so that the premium cost will be equal to or less than the
Competitive Rate or to permit Lessee to maintain such coverage or otherwise
limit the cost to Lessee so that it does not exceed the then-prevailing
Competitive Rate.
44.2 Property Tax, Insurance and Other Reserves. Lessor's first-lien
Mortgagee of the Premises is, and/or may be in the future, requiring monthly
reserves to be paid in advance on a monthly basis to accumulate funds as
collateral for the performance of obligations with respect to the Premises,
including (without limitation) reserves for payment of property taxes and
assessments, insurance premiums, replacement and capital expenditure reserves,
tenant improvement and leasing commission reserves, and other matters (the
"Reserves"). Lessee agrees, in addition to and not as a credit against rent and
other obligations under this Lease, to make to Lessor or, at the option of the
first-lien Mortgagee, directly to the first-lien Mortgagee all payments of such
Reserves that the Mortgagee may require under its Trust Deed or Mortgage. The
parties will mutually co-operate on co-ordination of the handling of such
payments for Reserves and any draws or disbursements from the Reserves to pay
the expenses for which the Reserves were created.
44.3 Concurrent Leases. This Lease is one of a group of leases
("Concurrent Leases") which Lessee is executing contemporaneously with Lessor
pursuant to the terms of the sale-leaseback transaction described in the
Purchase and Sale Agreement, of even date with this Lease, to which reference is
hereby made (the "Sale Agreement"). Lessee specifically acknowledges and agrees
that (i) the execution and delivery by Lessee of the Sale Agreement and the
Concurrent Leases and this Lease are all part of a single sale-leaseback
transaction, (ii) Lessee's timely and complete performance of all of its
obligations under the Concurrent Leases is a material inducement to Lessor in
its entry into this Lease, (iii) an Event of Default under one or more of the
Concurrent Leases shall constitute a material breach by Lessee under this Lease,
and (iv) Lessor would not be willing to purchase the
PAGE 37 - LEASE
<PAGE> 38
Premises and enter into this Lease in the absence of the cross-default provision
contained in this Lease and the Concurrent Leases.
44.4 Cross-Default. Any event of default under this Lease or under any
of the Concurrent Leases shall, at Lessor's option, be an event of default under
this Lease and/or any one, more or all of the Concurrent Leases, collectively.
Any notice of default given under any of the Concurrent Leases (the "Defaulted
Lease") which, after expiration of any applicable grace period as provided in
such Defaulted Lease, would constitute an Event of Default under such Defaulted
Lease if not cured, and would thereupon constitute an Event of Default under
this Lease (pursuant to the foregoing sentence), will be deemed a notice of
default under all such leases, whether or not the other leases are specifically
mentioned in the notice of default, so that Lessor shall not be required to give
separate notices as to each lease or to "tack" time periods for performance and
cure. No additional notice of any kind, other than the above described notice,
shall be required to be given as a condition to the Lessor hereunder declaring
an Event of Default under this Lease (or under any one, more or all of the
Concurrent Leases) immediately upon the expiration without cure of the grace
period, if any, provided in the Defaulted Lease with respect to the breach
specified in the notice of default.
44.5 Clarifications or Changes to Lease Required by First-lien
Mortgage. The parties will promptly execute any clarification or amendment of
this Lease required by the first-lien Mortgagee with respect to the matters
stated in Section 30 (subordination, non-disturbance and attornment agreement),
or as to the form of estoppel certificate, required Reserves, insurance and
other matters. In addition, in the event the first-lien Mortgagee shall require
other reasonable modifications of this Lease which do not materially increase
the obligation of the Lessee hereunder, or interfere with or diminish Lessee's
rights, Lessee agrees to execute such modification(s) upon the reasonable
request of Lessor.
"LESSOR" "LESSEE"
PD PROPERTIES, L.L.C. G.I. JOE'S, INC.
By:______________________________ By:________________________________
Its:_____________________________ Its:_______________________________
Address: Address:
- ------- -------
Suite 350 9805 Boeckman Dr.
9725 SW Beaverton-Hillsdale Hwy. Wilsonville, Oregon 97070
Beaverton, Oregon 97005
PAGE 38 - LEASE
<PAGE> 39
EXHIBIT 10.7
Schedule of Leases
<TABLE>
<CAPTION>
Party Location Square Footage Base Rent Rent Per Square Foot
- ----- -------- -------------- --------- --------------------
<S> <C> <C> <C> <C>
WREP 1998-1 LLC Oak Grove 55,120 $38,818 $ .58/sq. ft.
WREP 1998-1 LLC Lancaster 67,100 $53,503 $ .78/sq. ft.
WREP 1998-1 LLC Wilsonville $63,315
WREP 1998-1 LLC Tualatin 55,120 $55,100 $1.00/sq. ft.
WREP 1998-1 LLC Gresham 55,120 $37,259 $ .68/sq. ft.
</TABLE>
<PAGE> 1
EXHIBIT 10.8
PURCHASE AND
SALE AGREEMENT
--------------
This PURCHASE AND SALE AGREEMENT (the "Agreement") is entered into as of
this 17 day of April, 1998, by and among WREP 1998-1 LLC, a Delaware limited
liability company (the "Purchaser"), G.I. JOE'S, INC., an Oregon corporation
(the "Seller"), and PD PROPERTIES, L.L.C., an Oregon limited liability company
("PD").
RECITALS
--------
A. Seller owns fee title or (as to the Gresham property) a ground leasehold
estate in certain real property, the legal descriptions of which are attached as
Exhibit A, which are currently improved with retail stores, warehouses and
offices operated by Seller (each such property, together with all improvements
located thereon, is hereinafter individually referred to as a "Property", and
all such properties collectively referred to as the "Properties").
B. PD and an affiliate of Purchaser previously entered into a letter
commitment dated February 10, 1998, concerning a prospective bridge financing
and option to acquire the Properties, which is being superseded by this
Agreement.
C. Purchaser desires to acquire all of the Property from Seller and
simultaneously lease the same to Seller, upon and subject to the terms of this
Agreement and a Lease Agreement ("Lease") in the form attached hereto as Exhibit
C, to be entered into by Purchaser as landlord/lessor and Seller as
tenant/lessee, with PD as one of the guarantors of such Lease.
D. Seller is willing to sell and convey all of the Properties to Purchaser
and to simultaneously lease the same from Purchaser, on and subject to the
terms, covenants and conditions of this Agreement and the Lease.
AGREEMENT
---------
1. PURCHASE AND SALE OF THE PROPERTY. Seller agrees to sell the Properties
to Purchaser, and Purchaser agrees to purchase the Properties from Seller, on
the terms and conditions set forth in this Agreement. The Properties consists
of:
(a) All of the land described in Exhibit A attached hereto (the
"Land") and all easements, rights and interests appurtenant thereto, if
any;
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<PAGE> 2
(b) All of the improvements and fixtures (which excludes the
inventory, display cases, equipment, furniture, fixtures and equipment
("FF&E") and other personal property of Seller, but includes, without
limitation, all fire and safety systems and other fixtures and equipment as
part of the improvements that are necessary to operate the improvements in
accordance with applicable law as building structures) currently situated
on the Land (the "Improvements"); and
(c) All of Seller's rights in all of the following intangible property
now or hereafter existing with respect to the Property (the "Intangible
Property"); provided, however, the Intangible Property and all payments and
proceeds derived therefrom may be retained and used by Seller so long as
the Lease (defined below) remains in effect:
(1) All plans and specifications, all building permits and other
permits required in connection with the construction of the
Improvements and all warranties, guaranties and sureties now or
hereafter received in connection with the construction of the
Improvements, if any, including, without limitation, all rights
of Seller under any plans, specifications, drawings and permits
and all architectural, engineering or construction contracts with
respect to the Improvements and all additions and alterations
thereto;
(2) All licenses, permits, approvals and certificates of occupancy
relating to the zoning, land use, ownership, operation,
occupancy, construction or maintenance of the Improvements
running to or in favor of the Seller or the Improvements, and all
deposits to governmental authorities relating to the Seller or
the Improvements;
(3) All service and maintenance contracts and equipment leases in
connection with or used by the Seller (if any) in the operation
of the Improvements for any lawful use (as opposed to Seller's
particular use in its business) and which are accepted by
Purchaser; and
(4) All accounts, books, records, studies, documents, tests, surveys,
assessments, audits, appraisals, contracts, contract rights,
claims and warranties related to the Property, but excluding any
of the foregoing which relate to Seller's
- 2 -
<PAGE> 3
business conducted from the Property and any insurance policies
and insurance policy proceeds.
2. PURCHASE PRICE. The total purchase price for. all of the Property (the
"Purchase Price") is Twenty-Eight Million Four Hundred Fifty Thousand Dollars
($28,450,000). Subject to the adjustments, credits and holdbacks set forth in
this Agreement, the entire purchase price shall be paid to the Seller on the
Closing Date (defined below). The parties have agreed on an allocation of the
total Purchase Price to the Properties, as shown on the schedule attached as
Exhibit D ("Allocation Schedule").
3. PURCHASER'S CONTINGENCIES.
-------------------------
3.1 Submission of Review Information. After the date of mutual execution of
this Agreement (said execution date being hereinafter referred to as the
"Effective Date"), Seller shall submit to Purchaser true and complete copies of
the following information ("Seller's Reports"), all of which shall be subject to
Purchaser's review and approval prior to the Closing Date provided below:
(a) Seller's Organizational Documents. The entity documents for
Seller. Such documents shall include Seller's articles of incorporation,
bylaws, an incumbency certificate certified by its secretary which
identifies its current directors and officers and a current certificate of
good standing issued by the Oregon Corporation Division/Secretary of State.
(b) Seller's Authorizations. Corporate resolutions adopted by Seller's
Board of Directors authorizing Seller's execution and delivery of this
Agreement and the Lease.
(c) Seller's Financial Statements. An updated financial statement or
confirmation in form and substance satisfactory to Purchaser that Seller's
financial statements provided to Purchaser in connection with the Loan
remain accurate in all material respects.
(d) Title Report. Current title report(s) (collectively, the "Title
Report") showing the status of and all exceptions to title and containing
the title company's commitment to issue the title insurance policy or
policies to be provided by Seller to Purchaser in connection with this
transaction and the related financing transaction by Purchaser as
borrower/grantor and Credit Suisse First Boston Mortgage Capital LLC or its
affiliates ("Lender") to be secured by the Property (the "Loan").
- 3 -
<PAGE> 4
(e) Environmental Questionnaire. An environmental questionnaire
relating to the Land and Improvements in a form provided by Purchaser or
Lender (if required), and completed by Seller.
(f) Environmental Assessment. Such environmental assessments or
updates of environmentals as Purchaser and Lender may require, which
reflect the current environmental status of the Land and Improvements and
the property adjacent thereto, including the current condition of the soils
and groundwater including, an assessment by one or more qualified
registered professional engineers, hydrologists, or other scientists that
there exists no evidence of past or ongoing release at, upon, under, or
within, or of past or ongoing migration from neighboring lands to, the
Property, of hazardous materials and there exists no evidence that asbestos
or asbestos-containing materials, polychlorinated biphenyl's (PCBs), radon
gas, or urea formaldehyde foam insulation is present (the "Assessments").
(g) Remediation Confirmation. Confirmation in form and substance
satisfactory to Purchaser that all monitoring and further assessments
recommended in the Assessments have been completed and that the results
thereof verify that no hazardous substances, wastes or materials regulated
by any federal or state environmental laws ("Environmental Laws") exist in
concentrations above the legal maximum limits and to the extent any
remediation of the Land or the Improvements have been undertaken the same
have been completed and accepted by the governing agency.
(h) Summary of Capital Repairs and Rights of Recoupment or Abatement.
A summary of all capital repairs, improvements and alterations made to the
Improvements within the ninety (90) day period immediately before the
closing date, and/or that are required of Purchaser as landlord/lessor
under the Lease or that are subject to rights of reimbursement, offset or
recoupment by Seller from Purchaser after the date of the closing of the
purchase (the "Closing Date"), and/or any "free rent" or reduced rent or
other rights of reimbursement, offset, abatement or recoupment under the
Lease that would be applicable after the Closing Date, together with
evidence satisfactory to Purchaser that all of the costs thereof have been
paid or that the parties have reserved from disbursement of proceeds to
Seller sufficient funds to pay for such work or to reimburse Seller for any
such rights of reimbursement, offset, recoupment or abatement.
- 4 -
<PAGE> 5
(i) Litigation Confirmation. If there is any current litigation or
claims made against or involving Seller or with respect to the Property
which are pending or threatened, a written disclosure by Seller summarizing
the nature of such litigation or claims, or, with respect to any claims
which have been filed or served, Seller will deliver (on Purchaser's
request) a complete copy of the complaints, answers and any amendments
thereof.
(j) Citations. All notices of violations and citations, including any
criminal citations or allegations of criminal activity on or about the
Property, currently pending or which have been received by Seller with
respect to any of the Properties prior to Closing Date.
(k) Additional Reports. Such other reports, tests, information and
data as Purchaser may reasonably request prior to the Closing Date, if any.
3.2 Purchaser's Reports. In addition to Seller's Reports, Purchaser shall
obtain and shall have the right to obtain and approve any other reports
regarding Seller or the Property (the "Purchaser's Reports"), including, without
limitation, the following, if and to the extent required by Purchaser:
(a) Appraisal. An appraisal confirming that the current fair market
value of the Property is not less than the Purchase Price.
(b) Survey. A survey or update to survey, certified to Purchaser and
Lender (to the extent such certification to Lender is required in
connection with the Loan), in form sufficient to satisfy Lender's
requirements and to obtain the issuance of the Title Policy.
(c) UCC Report. The UCC Report (defined below).
(d) Structural Inspection Report. A certification by an engineering
firm as to (a) the adequacy of the structural design and mechanical
specifications of the improvements, and (b) the adequacy and quality of the
improvements and the materials and workmanship employed therein.
(e) Disability Laws. Evidence or an updated certificate from an
engineer or the appropriate governmental agency, in form and substance
acceptable to Purchaser, that no work on the Property is presently required
to place them in compliance with The Americans with Disabilities Act of
1990.
- 5 -
<PAGE> 6
(f) Litigation Report. A report provided by commercial litigation
service, if required by Purchaser, which identifies any litigation or other
adversarial proceedings involving Seller or the Property.
3.3 Supplemental Information. Seller agrees that to the extent Seller
obtains any other information, reports, assessments or data, if any, which in
any manner relate to or amend any of the Seller's Reports, or if Seller becomes
aware that any information contained in any of Seller's or Purchaser's Reports
becomes incorrect in any material respect, Seller shall promptly furnish
Purchaser with such additional reports or amendments or contrary or conflicting
information.
3.4 Purchaser's Inspection Rights. In addition to reviewing the Seller's
and Purchaser's Reports (collectively, the "Due Diligence Reports"), Purchaser
shall have the right, prior to the Closing Date and at Purchaser's expense, to
inspect the Property and any other books and records related to the Property
from time to time; provided, however, any intrusive tests into the Land or
Improvements shall require Seller's prior written approval, which approval shall
not be unreasonably withheld, conditioned or delayed. Pursuant to Section 3.6,
Seller shall reimburse Purchaser for the reasonable out-of-pocket costs of such
inspections. Except for any damage caused by wrongful misconduct or negligence
by Purchaser or its contractors or agents, any restoration of the Property to
substantially the same condition immediately preceding such inspection shall be
undertaken and paid for by Seller. In no event shall Purchaser be liable or
responsible for the contents or results of any reports or the discovery of any
information resulting from its inspections.
3.5 Payments for Due Diligence Reports. All costs and expenses of all of
the Due Diligence Reports and other tests, inspections and studies of the
Property for which Seller is liable under this Agreement shall be paid by Seller
when due or reimbursed to Purchaser within five (5) days after written demand
therefor, regardless of whether this sale closes.
3.6 Seller's Expense Reimbursements. Seller agrees that Seller shall
reimburse Purchaser for up to $100,000 of its actual out-of-pocket expenses paid
to unrelated third parties in good faith in connection with this Agreement. Such
costs may include, but shall not be limited to, fees paid to Purchaser's
consultants, brokers, accountants, attorneys, assessors, appraisers, surveyors,
architects, title companies and planners (collectively, "Purchaser's Service
Providers"). Seller's obligations under this Section shall survive a
cancellation, forfeiture or termination of this Agreement.
- 6 -
<PAGE> 7
3.7 Other Holdbacks and Funded Reserves. The parties will holdback at
closing, or will place into a funded reserve, any additional amounts required by
Lender as holdbacks or reserves under the Loan (for property taxes, insurance,
tenant improvement and leasing commissions, seismic, capital expenditures, and
other matters), which will be in accordance with the schedule attached or to be
attached as Exhibit E (the "Expense Schedule").
3.8 Removal of Inspection Contingencies. The following procedure shall be
employed in connection with Purchaser's removal of its inspection contingencies:
(a) Purchaser shall have until the Closing Date (the "Review Period")
within which to accept the Property. If, by the end of the Review Period,
Purchaser has not notified Seller in writing that Purchaser accepts the
Property in its then current condition, this Agreement shall automatically
terminate. This Agreement thereafter shall be null and void and neither
party shall have any obligation to the other except as otherwise stated
herein.
(b) If Purchaser elects, Purchaser may offer Seller the opportunity to
correct any items Purchaser determines to be unacceptable at Seller's
expense by providing Seller with written notice prior to the end of the
Review Period of what must be corrected, by what dates and in what manner.
The foregoing includes any requirement to adjust the purchase price if the
appraisal obtained by Purchaser indicates that the current fair market
value of the Property is less than the purchase price stated herein.
(c) Within five (5) days after Seller is given such notice Seller
shall notify Purchaser in writing of whether and to the extent Seller will
effect and pay for such corrections or agree to such purchase price
adjustment. Unless otherwise stated in Purchaser's notice, any such items
which are in the nature of repairs, alterations, corrections or
remediations shall be completed prior to the Closing Date. If Seller fails
to give such notice within said five (5) days, Seller will be deemed to
have refused to agree to such corrections and purchase price adjustment.
(d) Within five (5) days after Seller gives such notice (or after the
last day of the period within which such notice is to be given if it is
not), Purchaser may elect to (i) cancel this Agreement, or (ii) agree to
waive its contingencies as provided in this Section. The failure of
Purchaser to give such notice within such five (5) day period shall be
deemed an election to cancel this Agreement. If this Agreement is not so
canceled Seller shall
- 7 -
<PAGE> 8
promptly commence and proceed with diligence to completion prior to the
Closing Date with the correction of the items which Seller agreed to
undertake in its notice to Purchaser.
4. SELLER'S TITLE TO THE PROPERTY.
------------------------------
4.1 Title Report. Seller shall, at Seller's expense, provide a Title Report
on each Property from a title insurance company approved by Purchaser (the
"Title Agent"). The Title Report shall include a commitment for an extended ALTA
form of owner's (or with respect to the Gresham Property ground leased by
Seller, a leasehold) policy of title insurance (collectively, the "Title
Policy"). The Title Report shall be accompanied by legible copies of all special
exceptions listed therein and shall confirm the willingness of the Title Agent
to issue such endorsements as Purchaser may require after review of the Title
Reports (the "Endorsements").
Purchaser shall have until the end of the Review Period in which to notify
Seller in writing of Purchaser's disapproval of any exceptions shown in the
Title Report, other than any liens to be satisfied by Seller by the Closing
Date.
4.2 UCC Search. Purchaser may, at Seller's expense, obtain from a
commercial search service a report disclosing the existence of any UCC financing
statements or liens recorded or filed against any portion of the Property (the
"UCC Report"). Purchaser shall notify Seller as to whether it objects to any
security interests or liens reflected in the UCC Report. Seller will cause any
security interests that are encumbrances against the buildings or Property to be
released (other than any security interests that encumber only the furniture,
fixtures and equipment of Seller and other assets that Seller is not selling to
Purchaser).
4.3 Title Defects. If Purchaser does not elect to cancel this Agreement,
Purchaser's objections to the disapproved exceptions Seller elects not to
eliminate shall be deemed waived and the Property shall be conveyed to the
Purchaser with such defects without credit against the purchase price. The
foregoing notwithstanding, Seller agrees that except for the lien for any
nondelinquent taxes and the lien for any nondelinquent special assessments
accepted by Purchaser, it shall cause all monetary liens against the Property
which are not accepted by Purchaser to be released of record by the Closing
Date.
5. SELLER'S REPRESENTATIONS.
------------------------
5.1 Content of Representations. Seller represents, warrants and covenants
to Purchaser as follows:
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<PAGE> 9
(a) Delivery of Seller's Reports. Except to the extent otherwise
expressly waived by Purchaser in writing, Seller shall deliver all of
Seller's Reports and any amendments or corrections thereof to Purchaser as
and when required by this Agreement.
(b) Accuracy of Seller's Reports. To the best of Seller's knowledge,
all of the Seller's Reports Seller has provided and hereafter provides to
Purchaser in connection with this Agreement are and shall be true and
accurate in all material respects.
(c) No Additional Title Defects. There are no title defects in or
encumbrances against the Property which will not be shown in the Title
Report, no person has any adverse, prescriptive rights or rights of
possession except as stated in this Agreement, and no encroachments exist
upon or from the Land.
(d) No Violation of Zoning and Other Laws. The existing use and
condition of the Property is not a nonconforming use and does not violate
any subdivision, zoning, building, health, environmental, personal
disabilities, fire or safety statute, ordinance, regulation or code in any
material respect. As of the date hereof, neither Seller nor, to the best of
Seller's knowledge, any of Seller's agents and employees have received any
written notice from any governmental agency alleging violations of any
building codes, building or use restrictions, zoning ordinances, rules and
regulations. All licenses, permits and other approvals required for the
construction and operation of the Improvements have been issued and are in
good standing. If, between the date of this Agreement and the Closing Date
Seller receives any written notice or written citation of any alleged
violation of any statute, code or ordinance with respect to the Property or
Seller's use thereof, it shall promptly provide Purchaser with a true and
correct copy thereof.
(e) No Litigation. There is no pending or threatened litigation or
administrative action with respect to Seller or, to the best of Seller's
knowledge, the Property.
(f) Eminent Domain. There is no pending or contemplated eminent
domain, condemnation or other governmental taking of the Property or any
portion thereof.
(g) Access to Property. The Property has vehicular and pedestrian
access to public rights-of-way.
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<PAGE> 10
(h) Separate Tax Parcel. The Land and Improvements constitute a
separate tax parcel or parcels which does or do not include any other
property.
(i) Assessments. To the best of Seller's knowledge, there are no
special or general assessments which are in addition to those which will be
disclosed in the Title Report which have been levied against or are
proposed for the Property.
(j) No Breach of Agreements. This Agreement and the consummation of
the transaction evidenced by this Agreement will not violate any other
agreement to which Seller is a party or their respective organizational
documents, or any law, statute or ordinance which is binding upon the
Property or Seller.
(k) Contract Default. Three exist no material defaults under any
management, maintenance or service contracts executed in connection with
the Property.
(l) Nonforeign Status. Seller warrants that it is not a "foreign
person" as defined in Section 1445 of the Internal Revenue Code of 1954, as
amended. Seller shall deliver to Purchaser at closing a Certificate of
Nonforeign Status setting forth Seller's address and United States taxpayer
identification number and certifying that it is not a foreign person as so
defined.
(m) Executory Agreements. Attached to this Agreement as Exhibit B is
the list of all management, service and maintenance and equipment leases
for the Property (the "Service Contracts"), together with their expiration
dates or the notice period which must precede their termination. To the
best of Seller's knowledge, no default exists under any of the Service
Contracts and all Service Contracts are currently in full force and effect.
(n) Government Obligations. There are no unperformed obligations which
are currently due relative to the Property to any governmental or
quasi-governmental body or authority. All water and sewer hook-up fees and
other fees payable in connection with the annexation, zoning or improvement
of the Land and which are now due have been paid.
(o) Utility Services. The Improvements are serviced by public
electric, gas, water, sewer and telephone utilities sufficient to operate
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<PAGE> 11
full-time, Seller's current business in and from the Improvements and there
exist no unpaid connection, hook-up or similar charges with respect
thereto. All utilities serving the Improvements are on meters which do not
monitor any other property.
(p) Environmental Matters. No portion of the Property lies within a
designated wetland or other environmentally sensitive area. Except as
stated in the Assessments, Seller has not caused nor, to the best of
Seller's knowledge, has any other person caused, any hazardous substance,
waste or material to be used, generated, stored or disposed of on or
transported to or from the Land or Improvements in violation of any
Environmental Laws, nor have any underground storage tanks or transformers
existed on or under the Land nor are there any asbestos-containing
materials present in the Improvements. Except as stated in the Assessments,
there are presently no hazardous waste, substance or material on, under or
within the Property. For the purposes of this Agreement, "hazardous
substance, waste or material" shall mean petroleum-based products,
asbestos, asbestos-containing material, lead paint, PCBs and all other
hazardous substances, wastes or substances which are so defined in any
Environmental Laws.
(q) Condition of Improvements. There are no material defects in any
portion of the Improvements and the Improvements are not infested with
termite or other insects or animals. Conditions caused by ordinary wear and
tear and depreciation and which ordinarily arise during the course of
owning and operating Seller's business at the Property shall not be
considered material defects for the purposes of this representation.
(r) Insurability of Property. Seller has not received any formal or
informal notice from any insurance company of any defect or inadequacies in
the Property which would adversely affect the insurability of the
Improvements or which would increase the cost of any insurance beyond that
which would ordinarily and customarily be charged for insuring comparable
property used for similar purposes in the vicinity of the Property.
(s) Soil Conditions. The surface and subsurface condition of the Land
is such that it will support the Improvements without present need for
additional subsurface excavation, fill, footing, caissons or other
installations, and the Improvements have been constructed in a manner which
is compatible with the soil conditions at the time of construction.
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<PAGE> 12
(t) No Other Adverse Conditions. There are no other facts,
circumstances or conditions which could have a material, adverse impact
upon the physical condition, value or permitted use of the Property or
Seller's ability to perform its obligations under this Agreement or which
would be likely to cause any other representation hereto to become
incorrect in any material respect.
5.2 Seller's Knowledge. To the extent that any of the foregoing
representations are limited "to the best of Seller's knowledge" (or words of
similar effect), such knowledge shall (i) include the knowledge of the
principals of Seller that have been involved in the negotiation of this
Agreement or that are regularly involved in the operation or management of real
estate of Seller, and (ii) will presume and assume familiarity by Seller with
Seller's records and files.
5.3 Survival of Warranties. All of Seller's warranties in this Agreement
shall be deemed given only as of the date of this Agreement, but shall be
updated in a certificate provided to Purchaser at and as of the Closing Date.
6. CONDITIONS TO CLOSING.
---------------------
6.1 Purchaser's Conditions. Purchaser's obligation to close this
transaction is subject to the satisfaction of all of the following conditions:
(a) Seller's Compliance. Seller's fulfillment of each of its
obligations under this Agreement in all material respects, including,
without limitation, the delivery of all of the Seller's Reports to
Purchaser within the Report Period.
(b) Seller's Representations. The continuing accuracy of all of
Seller's warranties and representations in this Agreement in all material
respects, including the lack of discovery of any fact or circumstance of
which Seller did not have knowledge on the date Seller executes this
Agreement (regardless of whether such fact or circumstance arose or was
discovered thereafter).
(c) Status of Title. The absence of any monetary lien or other
material defect in title to the Property which was not permitted by this
Agreement or approved in writing by Purchaser.
(d) Permitted Uses. The absence of any material violation of any
applicable statute, law or regulation regarding the physical condition of
the Property or Seller's use thereof for its current business purpose or of
any
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<PAGE> 13
change in any laws or statutes which materially affect the Seller's
ability to use the Property for its current business purposes.
(e) Hazardous Waste. The absence of Purchaser's discovery of any
hazardous material, waste or substance on or about the Property (i) which
was not reported to Purchaser in writing at least ten (10) days prior to
the end of the Review Period, (ii) which violates any applicable statute,
law or ordinance, and (iii) the cost of the abatement, removal or disposal
of which, to the full extent required by any applicable statute, law or
ordinance or which, in Purchaser's reasonable judgment, is needed to avoid
additional contamination or pollution of the Property or any adjoining
property, is likely to exceed Ten Thousand Dollars ($10,000).
(f) Material Condemnation. The absence of any condemnation or the
institution of condemnation proceedings which results in the taking of any
of the Improvements with a value of more than Ten Thousand Dollars
($10,000), or a reduction in the number of any parking spaces below the
minimum level required by law for the current use of the Property or the
Property becoming a nonconforming use under applicable law. If this
transaction closes, Seller shall assign to Purchaser on the Closing Date
all condemnation awards and rights to awards which were not used by Seller
to pay the costs of any restorations of the Land or Improvements
necessitated by any such condemnation.
(g) Material Casualty. The absence of any material damage by casualty
to the Improvements which has not been repaired by Seller by the Closing
Date. For the purposes hereof, a "material damage by casualty" shall be
deemed any damage by fire or other casualty which has not been repaired and
paid for by the Closing Date and for which the estimated cost of the
remaining repairs exceeds Ten Thousand Dollars ($10,000). If the
Improvements suffer any material damage by casualty Purchaser shall have
the right and option to terminate this Agreement within fifteen (15) days
after the date Purchaser is notified of the casualty in writing or by the
Closing Date, whichever first occurs. Seller shall also have the right to
cancel this Agreement if such material damage by casualty is not covered by
Seller's insurance policy unless Purchaser is willing to reduce the
purchase price by the amount estimated to be necessary to pay the labor and
material costs to restore the damage. If Purchaser does not elect to
terminate this Agreement by such date, this transaction shall close without
increase or decrease in the purchase price, Seller shall proceed to effect
such repairs to return the damaged portions of the Property to the
condition existing immediately prior to the casualty and shall complete the
same as
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<PAGE> 14
soon as reasonably possible prior to or after the Closing Date and shall
be entitled to all insurance proceeds which are paid because of the
casualty. If the estimated cost to repair any damage by casualty as of the
Closing Date is less than Ten Thousand Dollars ($10,000), Purchaser shall
not have the right to terminate this Agreement because of such casualty and
Seller shall promptly proceed to effect the repairs as stated above. All
repair cost estimates referred to in this paragraph shall be made by
reference to a fixed price construction contract which Seller shall obtain
as promptly as is reasonably possible after the date of the casualty.
(h) Seller's Financial Condition. If there occurs any material adverse
change in the financial condition of Seller, as indicated in the financial
statements approved by Purchaser, or if Seller generally becomes unable to
pay its debts as they become due, make any assignment for the benefit of
creditors or file or have filed against it any bankruptcy or other
insolvency proceeding. Any reduction in the net worth of Seller by more
than ten percent (10%) from that which is reflected in a financial
statement approved by Purchaser shall be deemed a material adverse change
for the purpose of this Section.
(i) Execution and Delivery of Lease. If the Lease is not executed or
delivered by Seller for any reason.
6.2 Seller's Conditions. Seller's obligation to close this transaction is
subject to Purchaser's fulfillment of each of its obligations under this
Agreement.
6.3 Failure of Closing Conditions. In the event any one or more of the
above conditions is not satisfied as of the Closing Date, or if the party whom
such condition is intended to benefit reasonably determines that the same are
not capable of being so satisfied by the Closing Date, such party may:
(a) waive such condition by so advising the other party in writing,
whereupon this sale shall close in accordance with the terms hereof and the
purchase price shall be adjusted if and to the extent the condition relates
to a misrepresentation by the other party to this Agreement and the waiving
party incurs or reasonably expects to incur any expense to remedy or
satisfy any of such conditions;
(b) extend the Closing Date for up to thirty (30) days and, to the
extent constituting a misrepresentation or default of the other party,
require the other party to satisfy the condition to the extent feasible or
if capable of being satisfied by monetary payment; or
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<PAGE> 15
(c) elect to cancel this Agreement, in which event, and except to the
extent the parties' remedies are otherwise limited by this Agreement, the
nonperforming party, if any, shall continue to be liable to the other party
hereto for its damages and expenses caused by such failure or inability to
close this transaction with all conditions satisfied.
7. CLOSING.
-------
7.1 Closing Date. This transaction will be closed on a date selected by
Purchaser and reasonably acceptable to Seller, after the execution and delivery
to the Escrow Agent of the Seller's deed and the Lease, the deposit of the
purchase price and the fulfillment of the other closing obligations (the
"Closing"). The date ton which the Closing occurs is referred to as the "Closing
Date."
7.2 Manner and Place of Closing. This transaction will be closed at the
offices of the Title Agent in Portland, Oregon, or in the office of the Seller's
counsel, or by such other person as the parties may mutually agree to in
writing. Closing shall take place in the manner and in accordance with the
provisions set forth in this Agreement.
7.3 Prorations, Adjustments.
-----------------------
(a) All ad valorem real property taxes and special assessments,
insurance premiums, utility expenses and obligations under all repair and
maintenance contracts shall be paid by Seller as and when due and shall
continue to be paid by Seller pursuant to the terms of the Lease. Any such
expense or rights of recoupment, abatement or offset will be prorated and
adjusted and adequate reserves or holdbacks set up to cover the expense, or
right of recoupment, abatement or offset, in a manner satisfactory to
Purchaser.
(b) Seller shall pay all documentary and conveyance excise and sales
taxes (including, without limitation, the entire Washington County
documentary tax) in connection with this sale and the Lease and the
recording fees for Seller's deed. Subject to the limits set forth in
Section 3.6, to the extent not previously paid by Seller, Seller shall pay
or reimburse Purchaser for all Seller's Reports, Purchaser's Reports,
Purchaser's Service Providers and all other third-party costs incurred by
Purchaser in connection with this Agreement. To the extent not paid at
Closing, Seller shall pay such costs or reimburse Purchaser therefor upon
demand after Closing.
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<PAGE> 16
(c) Seller shall pay the premium(s) for Purchaser's owner's title
insurance policy and all of the Endorsements.
(d) Subject to the limits set forth in Section 3.6, Seller shall pay
all other costs, expenses, fees and charges incurred in connection with the
Closing, including all of Purchaser's attorneys' fees and expenses for the
negotiation, documentation and closing of this transaction at such
attorneys' standard hourly rate.
(e) At closing, the Title Agent shall hold back an amount equal to
120% of estimates of costs for improvements that will be required for
seismic modifications and other repairs to the Property that have been
identified as of the Closing Date, if any, to be held and disbursed in
accordance with such escrow instructions as may be acceptable to Purchaser,
Seller and Title Agent.
7.4 Events of Closing. This transaction will be closed on the Closing Date
as follows:
(a) If there have been any changes in Seller's warranties under this
Agreement, Seller will provide a written disclosure of the matters that
have arisen that are inconsistent with the warranties of Seller in this
Agreement.
(b) Seller shall provide Purchaser with the Certificate of Nonforeign
Status as provided in I.R.C. ss. 1445.
(c) Seller shall provide Purchaser with the written opinion of legal
counsel(s) for Seller, in form and substance satisfactory to Purchaser and
its counsel, to the effect that: (i) Seller is a duly organized and validly
existing corporation, with full authority to enter into and perform this
Agreement and the Lease; (ii) this Agreement and the Lease have been duly
executed by a person properly authorized to do so on behalf of Seller;
(iii) to the best of such counsel's knowledge, this Agreement does not
violate the terms or provisions of any other contract or agreement to which
Seller is a party; (iv) such counsel has no knowledge of any pending or
threatened litigation or citations relating to the Seller or the Property;
(v) to the best of such counsel's knowledge, the Land and Improvements
comply with all applicable laws, ordinances and regulations, including all
environmental laws; and (vi) subject to such assumptions and exceptions as
may be approved by Purchaser's counsel, this Agreement and the Lease are
enforceable against Seller in accordance with their terms.
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<PAGE> 17
(d) Seller shall assign to Purchaser any insurance proceeds and
condemnation awards as and to the extent required by this Agreement.
(e) The Title Agent shall calculate the expenses to be paid at Closing
and the parties shall be charged and credited accordingly.
(f) Purchaser shall pay the entire purchase price to Seller in cash,
as adjusted the charges, credits and holdbacks set forth in this Agreement.
(g) Any liens to be paid by Seller at closing shall be paid and
satisfied of record at Seller's expense.
(h) The existing lease of the Gresham Property by Seller, as lessee,
shall be assigned to Purchaser, by warranty assignment of lease, and the
Lease will constitute a sublease under such underlying lease.
(i) Seller shall convey the real property to Purchaser or its
affiliated entity (as Purchaser direst) by statutory warranty deed, subject
only to the matters accepted by Purchaser in writing pursuant to this
Agreement.
(j) Seller shall convey the Intangible Property to Purchaser by good
and sufficient assignment.
(k) Purchaser and Seller shall execute and deliver the Lease.
(l) The Title Agent shall be committed to issuing the policy herein
described upon recordation of the closing documents.
(m) The Title Agent shall record the Seller's deed and assignment of
lease to Purchaser.
7.5 Title Insurance. As soon as possible after the Closing Date, Seller
shall furnish Purchaser an extended ALTA form of owner's (as to Gresham,
leasehold) policy of title insurance in the amount of the Purchase Price with
the Endorsements, subject only to the Title Agent's standard preprinted
exceptions for such form and except for the matters accepted by Purchaser in
writing pursuant to this Agreement.
7.6 Lease. Concurrently with the closing of this sale, Purchaser and Seller
shall execute one or more leases covering all of the Properties from Purchaser,
as landlord, to Seller, as tenant, on the terms and in the form of the Lease
attached hereto as Exhibit C. The rent under each such Lease will be in
accordance with the Allocation Schedule attached as Exhibit D. Each Lease will
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<PAGE> 18
be guaranteed by PD and the other guarantors shown on the Guaranty attached to
the Lease.
7.7 Commitment Fee. Seller agrees that a commitment fee in the amount set
forth on the Expense Schedule attached as Exhibit E will be owed to Purchaser at
Closing. Seller agrees to pay the commitment fee to Purchaser within 12 months
of the Closing Date, at the closing of an initial public offering by Seller, or
at the closing of a sale of 10% of the common or preferred stock of Seller,
whichever occurs first.
8. DEFAULTS AND FAILURE TO CLOSE.
-----------------------------
8.1 Seller's Remedies. If Purchaser fails to complete this purchase without
legal excuse, Seller shall have the right to recover the greater of the expense
reimbursements paid by Seller pursuant to Section 3 of this Agreement or Ten
Thousand Dollars ($10,000), either of such sums being hereby specifically agreed
to be liquidated damages; that such amount constitutes the parties' best
reasonable attempt to estimate Seller's actual and consequential damages that
would be incurred in the event of such default; that any such damages would be
extremely difficult and impractical to quantify; and that such damages are
expressly intended to and shall constitute Seller's sole and exclusive remedy
for such default.
8.2 Purchaser's Remedies. If this transaction fails to close because of
Seller's fault or Seller's inability to close, Purchaser shall be entitled to
such remedies for breach of contract as may be available under applicable law,
including (without limitation) the remedy of specific performance of this
Agreement and the Lease and the right to recover its actual and consequential
damages. Purchaser shall also have the right to enjoin any violations of
Seller's covenants herein.
8.3 Defaults. Except for Seller's obligation to provide Seller's Reports to
Purchaser within the Report Period or the parties' wrongful failure to close or
to satisfy any condition to closing by the required Closing Date, no party shall
be deemed in default under this Agreement unless such party is given written
notice of its failure to comply with this Agreement and such failure continues
for a period of ten (10) days following the date such notice is given.
8.4 Costs and Attorneys' Fees. In the event suit, action, arbitration or
mediation is instituted to interpret or enforce the terms of this Agreement, the
prevailing party shall be entitled to recover from the other party such sum as
the court, arbitrator or mediator may adjudge reasonable as costs and expert
witness
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and attorneys' fees at trial, on any appeal, and on any petition for review, in
addition to all other sums provided by law.
9. CONDUCT OF BUSINESS.
-------------------
9.1 Contracts. From the date of this Agreement until the Closing Date,
Seller shall perform all of its obligations as and when required by any
agreements or contracts with respect to the Property and shall continue to
operate the Property in accordance with customary and prudent management and
operating standards and practices and will take no steps or actions which it
knows would be detrimental to the value or future potential of the Property.
9.2 Insurance. Seller shall continue to maintain its current casualty and
liability insurance policies on the Property until the Closing Date.
9.3 Leases. Between the date of this Agreement and the Closing Date Seller
shall not enter into any leases of the Property or any portion thereof without
Purchaser's prior written consent.
9.4 Property Maintenance. Seller agrees to maintain and repair the Property
between the date of this Agreement and the Closing Date so as to cause the same
to be delivered to Purchaser in substantially the same condition existing as of
end of the Review Period, ordinary wear and tear excepted. Prior to the Closing
Date, Seller shall promptly notify Purchaser regarding any item of repair,
replacement or maintenance of which Seller becomes aware and which requires an
expenditure in excess of Five Thousand Dollars ($5,000).
9.5 Books and Records. Seller agrees to continue to maintain its current
books and records relating to the Property, plus such additional records as
Purchaser may reasonably require.
9.6 No Marketing. Seller shall not offer the Property for sale or solicit
or accept offers to purchase the Property or any portion thereof so long as this
Agreement is in effect.
10. INDEMNIFICATION.
---------------
10.1 Seller's Indemnification. Seller agrees to defend, indemnify and hold
Purchaser harmless from and against and reimburse Purchaser for all claims,
damages, losses and attorneys' fees which are caused by Seller's failure to
perform any obligation under any lease or contract for the Property prior to the
Closing Date or for which Seller is responsible in accordance with the terms of
this Agreement.
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<PAGE> 20
10.2 Survival of Indemnification. The indemnifications contained in this
Section shall survive the closing of this transaction.
11. LEGAL RELATIONSHIPS.
-------------------
11.1 Parties' Authority. The act, instruction, waiver, consent, knowledge
and giving and receipt of notices of or by _______________ and _______________
[indicate person(s) authorized to bind Seller] shall be deemed that of Seller,
and Purchaser shall have no duty to inquire into such person's authority.
11.2 Description of Transaction. This Agreement creates only the
relationship of seller and buyer and no joint venture, partnership or other
joint undertaking is intended hereby, and neither party hereto shall have any
rights to make any representations or incur any obligations on behalf of the
other. Neither Seller nor Purchaser has authorized any agent to make any
representations, admit any liability or undertake any obligation on its behalf.
No party is executing this Agreement on behalf of an undisclosed principal, and
no third party is intended to be benefitted by this contract. No entity or
person who controls, is controlled by or under the common control with Purchaser
shall be liable for Purchaser's acts, omissions or obligations hereunder unless
and to the extent such liability is expressly undertaken in a guaranty or other
agreement executed by the party to be charged. The parties agree that this
Agreement involves only the sale and lease of the Property, that Purchaser is
not acquiring any business or ongoing liability of Seller, and except to the
limited extent assumed by Purchaser in writing, Purchaser shall have no
successor liability to any employee, agent or other person with whom Seller has
contracted or to whom Seller is liable. The parties hereto specifically intend
that this Agreement and the Lease constitute a true sale and lease of the
Property and is not a financing transaction, and Seller shall convey and
Purchaser shall acquire fee simple absolute title to the Property on the Closing
Date and all residual interests therein which exist upon the termination or
expiration of the Lease.
11.3 Real Estate Commissions. Each party shall indemnify, defend and hold
the other harmless against all claims made for any commission or finder's fee in
connection herewith to which the indemnified party did not agree in writing.
11.4 Indemnified Parties. Any indemnification contained in this Agreement
for the benefit of Purchaser shall extend to Purchaser's officers, employees,
and agents.
11.5 Assignments and Successors. Seller shall not assign this Agreement or
Seller's right and obligation to execute the Lease without Purchaser's
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<PAGE> 21
prior written consent in each instance. Subject to the foregoing, this Agreement
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns.
12. CONSTRUCTION OF AGREEMENT.
-------------------------
12.1 Consideration. Seller and Purchaser agree that while Purchaser retains
the right to disapprove of any of the Due Diligence Reports or the results of
Property-related tests or inspections as stated in this Agreement and as a
result elect not to purchase the Property, Seller and Purchaser will each be
incurring certain nonreimbursable expenses and foregoing other transactional
opportunities and that such provides sufficient consideration for the
enforceability of this Agreement and each of the parties hereto waives any right
to claim or allege that there exists insufficient consideration therefor.
12.2 Tax and Accounting Consequences. Each of the parties hereto
acknowledges and agrees that neither party has made any representation as to how
this Agreement, the Lease or any given income, expense, liability, deduction, or
credit related thereto shall be treated or characterized for any federal, state
or local income or other tax or accounting purposes, and each party shall rely
solely upon its own tax advisors and accountants with respect thereto. Neither
this Agreement nor the Lease is or shall be conditioned upon how this
transaction or any portion thereof or any interests in the Property are treated
for any tax or accounting purposes under any past, existing or future tax
statute, ordinance, regulation or standard.
12.3 Notices. Notices under this Agreement shall be in writing and if
personally delivered or telefaxed shall be effective when received. If mailed, a
notice shall be deemed effective on the second day after deposited as registered
or certified mail, postage prepaid, directed to the other party. Notices shall
be delivered, mailed or telefaxed to the following address and telephone
numbers:
Seller: G. I. JOE'S, INC.
Attention: Norm Daniels
c/o 9725 SW Beaverton Hillsdale Hwy., Suite 350
Beaverton, Oregon 97005-3366
Telefax No.: (503) 350-0672
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<PAGE> 22
With a copy to:
Josselson, Potter & Roberts
53 SW Yamhill Street
Portland, Or 97204
Attention: Irving W. Potter
Telefax: (503) 227-0171
Purchaser: WREP 1998-1 LLC
1776 SW Madison Street
Portland, Oregon 97205
Attn: Peter O'Kane, Peter Menefee and William D. Schaub
Telefax No.: (503) 776-6599
with a copy to:
--------------
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, Oregon 97204-1268
Attn: David W. Green and Mark H. Peterman
Telefax No.: (503) 220-2480
Any person may change its address for notices by at least five (5) days' advance
written notice to the other.
12.4 Time of Essence. Except as otherwise specifically provided in this
Agreement, time is of the essence of each and every provision of this Agreement.
12.5 Invalidity of Provisions. If any provision of this Agreement, or any
instrument to be delivered by Purchaser at closing pursuant to this Agreement,
is declared invalid or is unenforceable for any reason, such provision shall be
deleted from such document and shall not invalidate any other provision
contained in the document.
12.6 Neutral Construction. This Agreement has been negotiated with each
party having the opportunity to consult with legal counsel and shall not be
construed against either party.
12.7 Captions. The captions of the Sections are used solely for convenience
and are not intended to alter or confine the provisions of this Agreement.
12.8 Waiver. The failure of any party at any time to require performance of
any provision of this Agreement shall not limit the party's right to enforce
such provision. Waiver of any breach of any provision shall not be a waiver of
any
- 22 -
<PAGE> 23
succeeding breach of the provision or a waiver of the provision itself or any
other provision.
12.9 Subsequent Modifications. This Agreement and any of its terms may only
be changed, waived, discharged or terminated by a written instrument signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
12.10 Saturday, Sunday and Legal Holidays. If the time for performance of
any of the terms, conditions and provisions hereof shall fall on a Saturday,
Sunday or legal holiday, then the time of such performance shall be extended to
the next business day thereafter.
12.11 Venue. In any action brought to interpret or enforce any of the
provisions of this Agreement, the venue of same shall be laid in any county in
which the Property is located or in Multnomah County, Oregon, at the option of
the person instituting the suit.
12.12 Applicable Law. This Agreement shall be construed, applied and
enforced in accordance with the laws of the State of Oregon. All sums referred
to in this Agreement shall be calculated by and payable in the lawful currency
of the United States.
12.13 No Offer. The presentation and negotiation of this Agreement shall
not be construed as an offer by Purchaser to acquire the Property or obligate
either party unless and until this Agreement has been executed by both parties.
12.14 Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to Seller's sale of the Property to Purchaser and
supersedes and replaces all written and oral agreements previously made or
existing between the parties.
12.15 Counterparts. This Agreement may be executed simultaneously or in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same contract.
[NO MORE TEXT ON THIS PAGE]
-23 -
<PAGE> 24
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
SELLER: PURCHASER:
G.I. JOE'S, INC., WREP 1998-1 LLC,
an Oregon corporation a Delaware limited liability company
By /s/ NORMAN DANIELS By /s/ PETER O'KANE
------------------------------- --------------------------------
Printed Name: Norman Daniels Printed Name: Peter O'Kane
----------------- ------------------
Its President Its SVP
--------------------------- ----------------------------
PD PROPERTIES, L.L.C.
By /s/ DANIEL J. ALDERMAN
-------------------------------
Printed Name: Daniel J. Alderman
------------------
Its Manager
----------------------------
- 24 -
<PAGE> 25
EXHIBIT A
Legal Description
-----------------
300 NW Eastman Avenue
Gresham, Oregon
A tract of land situate in the Northeast one-quarter of Section 9 and
Northwest one-quarter of Section 10, Township 1 South, Range 3 East, of the
Willamette Meridian, in the City of Gresham, County of Multnomah and State
of Oregon, being more particularly described as follows, to-wit:
Beginning at the Southwest corner of the plat of CLANAHAN'S ADDITION marked
by a one and one-quarter inch (1 1/4") iron pipe; thence North 89(0)44'39"
East along the South line of the plat of CLANAHAN'S ADDITION a distance of
66.65 feet to the most Easterly Northeast corner of a parcel conveyed to
Real Property Resources, Inc. (RPR) from the International Church of the
Foursquare Gospel, said corner is marked by a 5/8-inch iron rod; thence
South 0(0)08'04" East along the Easterly line of said (RPR) parcel a
distance of 15.67 feet to the true point of beginning of the herein
described tract, located on the centerline of a 30.00 feet wide driving
aisle; thence South 0(0)08'04" East along the Easterly line of said RPR
parcel a distance of 305.00 feet; thence South 89(0)51'56" West a distance
of 315.00 feet to the centerline of a 30.00 feet wide driving aisle; thence
South 0(0)08'04" East along the centerline of said driving aisle, parallel
with the East line of said RPR parcel, a distance of 131.00 feet; thence
South 89(0)51'56" West a distance of 196.80 feet to the center of a 30.00
feet wide driving aisle; thence North 0(0)08'04" West along the centerline
of said driving aisle, parallel with the East line of said RPR parcel a
distance of 421.00 feet; thence South 89(0)51'56" West a distance of 210.46
feet to a point on the Easterly right-of-way line of Northwest Eastman
Avenue; thence North 0(0)25'51" East along said Easterly right-of-way line
a distance of 15.00 feet to a point of intersection with the centerline of
a 30.00 feet wide driving aisle; thence North 89(0)51'56" East along said
driving aisle centerline a distance of 722.11 feet to the point of
beginning.
15600 SE McLoughlin Blvd.
Oak Grove, Oregon
A part of the S.H. Walker Donation Land Clayim, a part of Tract 1,
SPAULDING ACRES, a part of Tracts 17, 19 and all of Tract 18,
Exhibit A - Page 1
<PAGE> 26
CONCORD. in the County of Clackamas and State of Oregon, more particularly
described as follows:
BEGINNING at the intersection of the Easterly right of way line of Oregon
State Highway 99 E. (McLoughlin Blvd.) and the Northerly right of way line
of Concord Avenue; thence North 28(0)05' West, along the Easterly right of
way line of said Highway 1073.28 feet to a 5/8-inch iron rod in the
Southeasterly line of Risley Avenue; thence tracing said Southeasterly line
North 52(0)59'20" East 473.78 feet to a 5/8-inch iron rod in the
Southwesterly line of Olive Avenue, as it presently exists; thence tracing
the said Southwesterly line of Olive Avenue, as presently exists, South
40(0)07'39" East 410.24 feet to a 5/8-inch iron rod; thence South
37(0)00'37" East 291.92 feet; along the Southwesterly right of way line of
Olive Avenue, as it exists, to an iron rod at the most Northerly corner of
a tract conveyed to School District No. 28, by deed recorded in Book 36,
Page 311, Deed Records of Clackamas County; thence South 62(0)51'43" West
106.72 feet to the most Northerly corner of the said Walker Donation Land
Claim; thence South 27(0)19'14" East along the Northeasterly line of said
Donation Land Claim, 214.82 feet to an iron rod; thence South 66(0)26'22"
West 263.74 feet to an iron rod; thence South 27(0)19'14" East 250 feet to
the Northerly right of way line of Concord Avenue; thence South 66(0)26'38"
West 231 feet to the place of beginning.
TOGETHER WITH that portion of vacated Olive Avenue which attached thereto
pursuant to vacation thereof by Ordinance No. 77-879 of Clackamas County a
certified copy of which recorded June 20, 1977 as Recorder's Fee No. 77
23737.
EXCEPTING THEREFROM a tract of land in Lots 17 and 18, CONCORD, in the
County of Clackamas and State of Oregon, being more particularly described
as follows:
BEGINNING at the intersection of the Easterly right of way line of Oregon
State Highway 99 E. (McLoughlin Blvd.) and the Southeasterly line of Risley
Avenue; thence tracing said Southeasterly line North 52(0)59'20" East a
distance of 150 feet to a point; thence South 28(0)05' East parallel with
the Easterly line of said McLoughlin Blvd., a distance of 200 feet to a
point; thence South 52(0)59'20" West parallel with the Southeasterly line
of Risley Avenue 150 feet to a point on the Easterly line of McLoughlin
Blvd.; thence North 28(0)05' West along said Easterly line 200 feet to the
point of beginning.
Exhibit A - Page 2
<PAGE> 27
ALSO EXCEPTING THEREFROM a tract of land in the East one-half of Section
12, Township 2 South, Range 1 East, of the Willamette Meridian, in the
County of Clackamas and State of Oregon, further described as follows:
BEGINNING at a point in the Southeasterly line of Risley Avenue that is
150.00 feet Northeasterly from the intersection of said line with the
Northeasterly line of McLoughlin Blvd.; thence North 52(0)59'20" East along
the Southeasterly line of Risley Avenue 323.78 feet to an iron rod at the
intersection of said line with the Southwesterly line of Olive Avenue as it
presently exists; thence South 40(0)07'39" East along said Southwesterly
line of Olive Avenue as it presently exists, 410.24 feet to a 5/8-inch iron
rod; thence South 37(0)00'37" East along the Southwesterly line of Olive
Avenue, as it presently exists, 125.56 feet; thence South 63(0)55' West
574.96 feet to a point in the Northeasterly line of McLoughlin Blvd.;
thence North 28(0)05' West along said Northeasterly line 251.39 feet to a
point that is 200.00 feet Southeasterly from the intersection of said line
with the Southeasterly line of Risley Avenue; thence North 52(0)59'20"
East, parallel with the Risley Avenue, 150.00 feet; thence North 28(0)05'
West, parallel with McLoughlin Blvd., 200.00 feet to the place of
beginning.
17799 SW Boones Ferry Road
Lake Oswego, Oregon
A parcel of land in the Southwest quarter of the Northwest quarter of
Section 18, Township 2 South, Range 1 East, of the Willamette Meridian, in
the County of Clackamas and State of Oregon, said parcel being a portion of
Lots 26 and 27, ROSEWOOD Subdivision, said parcel being more particularly
described as follows:
BEGINNING at a point on the North line of Lot 27 which bears North
89(0)02'37" West a distance of 276.04 feet from a 1/2-inch iron rod at the
Northeast corner of said Lot 27; running thence South 0(0)04'27" East a
distance of 186.60 feet, parallel with the East line of Lot 27; thence
South 89(0)55'33" West a distance of 89.39 feet; thence South 0(0)04'27"
East a distance of 412.47 feet; thence South 89(0)55'33" West a distance of
292.08 feet to a point that is 40.00 feet Easterly from (when measured at
right angles) the West line of Section 18, as measured from the West
quarter corner and the Northwest corner of Section 18; thence North
0(0)03'38" West, parallel with the West line of said Section 18, a distance
of 605.93 feet to the North line of Lot 26, ROSEWOOD; thence South
89(0)02'37" East, along
Exhibit A - Page 3
<PAGE> 28
the North line of Lots 26 and 27, a distance of 381.39 feet to the point
of beginning.
9805 SW Boeckman Road
Wilsonville, Oregon
A tract of land in the South half of the Southwest quarter of Section 11,
Township 3 South, Range 1 West, of the Willamette Meridian, in the City of
Wilsonville, County of Clackamas and State of Oregon, said tract being a
portion of those tracts of land conveyed to Edward W. Boeckman as recorded
in Book 106, Page 316, Deed Records, and Ernst A. Boeckman, Jr. as recorded
in Book 106, Page 317, Deed Records; said tract is described as follows:
BEGINNING at a 5/8 inch iron rod on the North line of that 25.00 foot wide
tract of land conveyed to the City of Wilsonville, for road purposes, as
recorded as Recorder's Fee No. 72-33376, Film Records, said beginning point
bears South 89(0)34'52" West 1330.42 feet and North 00(0)27'08" West 25.00
feet from the quarter corner on the South line of Section 11, said
beginning point also being on the Easterly line of that Transmission Line
Easement conveyed to the United States of America as recorded in Book 522,
Page 49 and in Book 515, Page 231, Deed Records; thence North 00(0)27'08"
West 1292.97 feet along the East line of said easement to a 5/8 inch iron
rod on the South line of that tract of land conveyed to George F. Boeckman
as recorded in Book 105, Page 454, Deed Records; thence North 89(0)28'53"
East 556.25 feet along the said South line of George Boeckman tract to a
5/8 inch iron rod on the Westerly line of the Oregon Electric Railway
Company right of way; thence following the Westerly line thereof, South
32(0)07'22" East 337.01 feet to a 5/8 inch iron rod at a point of curve;
thence on a 2639.93 foot radius curve to the right 1083.79 feet along the
arc (the long chord bears South 21(0)11'24" East 1077.23 feet) to a 5/8
inch iron rod on the North line of the aforesaid City of Wilsonville tract;
thence South 89(0)34'52" West 1114.63 feet to the point of beginning.
EXCEPTING THEREFROM the Southerly 18 feet conveyed to the City of
Wilsonville for roadway purposes by instrument recorded February 27, 1979
as Fee No. 79-8026, Clackamas County Records.
ALSO EXCEPTING the Westery 31 feet dedicated to the City of Wilsonville for
road purposes, said dedication parcel being more particularly described as
follows:
Exhibit A - Page 4
<PAGE> 29
A tract of land in the South half of the Southwest quarter of Section 11,
Township 3 South, Range 1 West, of the Willamette Meridian, in the County
of Clackamas and State of Oregon, said tract being a portion of those
tracts of land conveyed to Edward W. Boeckman as recorded in Book 106, Page
316, Deed Records and Ernst A. Boeckman, Jr., as recorded in Book 106, Page
317, Deed Records; said tract is described as follows:
Beginning at a 5/8 inch iron rod on the North line of that 25.00 foot wide
tract of land conveyed to the City of Wilsonville, for road purposes, as
recorded as Recorder's Fee No. 72-33376, Film Records, said beginning point
bears South 89(0)34'52" West 1330.42 feet and North 00(0)27'08" West 25.00
feet from the quarter corner on the South line of Section 11, said
beginning point also being on the Easterly line of that Transmission Line
Easement conveyed to the United States of America as recorded in Book 522,
Page 49, and in Book 515, Page 231, Deed Records; thence North 00(0)27'08"
West 1292.97 feet along the East line of said easement to a 5/8 inch iron
rod on the South line of that tract of land conveyed to George F. Boeckman
as recorded in Book 105, Page 454, Deed Records; thence North 89(0)28'53"
East 31.00 feet along the said South line of the George Boeckman tract;
thence South 00(0)27'08" East 1293.02 feet to the North line of the
aforesaid City of Wilsonville tract; thence South 89(0)34'52" West 31.00
feet to the point of beginning.
255 Lancaster Drive NE
Salem, Oregon
Parcel 2 of PARTITION PLAT NO. 93-106, recorded November 3, 1993 in Reel 1117 at
Page 580, Marion County, Oregon.
275 Lancaster Drive NE
Salem, Oregon
Parcel 1 of PARTITION PLAT NO. 93-106, recorded November 3, 1993 in Reel 1117 at
Page 580, Marion County, Oregon.
Exhibit A - Page 5
<PAGE> 30
EXHIBIT B
LIST OF SERVICE CONTRACTS (IF ANY ARE BINDING ON PURCHASER)
-----------------------------------------------------------
NONE
B-1
<PAGE> 31
EXHIBIT C
FORM OF THE LEASE
-----------------
C-1
<PAGE> 32
EXHIBIT D
ALLOCATION SCHEDULE
-------------------
D-1
<PAGE> 33
EXHIBIT A
EXHIBIT "D" TO PURCHASE AND SALE AGREEMENT
GI JOES-AUTOMOTIVE AND SPORTING GOODS RETAIL
REAL ESTATE ACQUISITION/LEASE BACK
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GI Joes Purchase Square Lease Appraised WFSG
Location Appraised Value Price Footage Land SF Rate Gross Income Gross Cap Gross Cap Comments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tualatin 5,480,000.00 6,150,000 55,100 192,921 $12.00 $ 661,200.00 12.07% 10.75%
Gresham 3,870,000.00 4,160,000 55,888 - $ 8.00 $ 447,104.00 11.55% 10.75% 1
Oakgrove 4,580,000.00 4,340,000 66,545 238,709 $ 7.00 $ 465,815.00 10.17% 10.73%
Lancaster-GI Joes 4,500,000.00 4,300,000 66,046 179,467 $ 7.00 $ 462,322.00 10.27% 10.75%
Lancaster-Thriftway 2,185,000.00 1,675,000 29,952 170,000 $ 6.00 $ 179,712.00 8.22% 10.73% 2
Dist-Warehouse 7,085,000.00 7,075,000 146,006 614,196 $ 3.75 $ 547,522.50 10.72% 10.74%
Dist-Office inc above 25,728 inc above $ 8.25 $ 212,256.00 inc above inc above
27,700,000.00 27,700,000.00 445,265 1,395,293 $2,975,931.50 10.74% 10.74%
</TABLE>
Comments
1. Tenant pays the ground rent in addition to the lease rate = $92,500
annually.
2. Tenant Improvements to be completed and paid for by GI Joes prior to sale
to Wilshire or escrowed. Lease to be signed with Office Depot at $6 per SF
NNN prior to sale.
Lease Provisions
1. Fifteen year term. Full triple net leases including all tenant paid
maintenance and capital expenditures.
2. CPI increases at start of sixth and eleventh year. Annually CPI not to
exceed 4% per year.
<PAGE> 34
EXHIBIT E
EXPENSE SCHEDULE
----------------
D-2
<PAGE> 35
EXHIBIT "E"
GI Joes Reserves at Closing
<TABLE>
<CAPTION>
Total
Engineering Engineering Environmental Reserved
Property Immediate Needs Environmental @ 125% @ 125% @ 125%
- ---------------------------------------------------------------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Tualatin $79,000 $3,200 $98,750 $4,000 $102,750
Gresham (1) $61,500 $2,000 $76,875 $2,500 $79,375
Oak Grove (2) $264,200 $2,500 $330,250 $3,125 $333,375
Lancaster $83,000 $2,500 $103,750 $3,125 $106,875
Lancaster-Office Depot $44,000 $500 $55,000 $625 $55,625
build out obligations
for G.I. Joes
* Asbestos @ $28,000
* More roof @ $ 5,000
* HVAC @ $78,500
-------
$111,500 @ 125% = $139,375
Dist - Office/Warehouse $0 $4,000 $0 $5,000 $5,000
--------------------- -------------- ------------ ------------- --------
$531,700 $14,700 $664,625 $18,375 $683,000
--------
+ $139,375
----------
$822,357
Total Reserve
</TABLE>
1) Gresham immediate needs based on ENSR report ($1,500 mostly for new roof)
plus seismic bracing per Marx/Okubo at $60,000. Gresham on-going reserves
based on ENSR report (13.75 yr term).
2) Oak Grove immediate needs based on ENSR report ($184,200, mostly for new
roof) plus seismic bracing per Marx/Okubo a $80,000. Oak Grove on-going
reserves based on ENSR report (13.75 yr term).
<PAGE> 1
EXHIBIT 10.9
REAL ESTATE PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
BETWEEN : GI JOES, INC., an Oregon corporation "Seller",
AND : PD PROPERTIES, L.L.C. an Oregon limited liability company,
"Purchaser".
DATED : April 17, 1997
Seller is the owner of the real properties described on Exhibit A. Such
real property, together with all of the improvements and fixtures thereon, other
than trade fixtures, and all rights appurtenant to such real property are
referred to herein as the "Properties."
Purchaser agrees to purchase from Seller and Seller agrees to sell to
Purchaser the Properties upon the following terms and conditions:
1. Purchase Price.
--------------
1.1 The total purchase price for the Properties shall be One Million
Seven Hundred Seventy-Five Thousand Dollars ($1,775,000). The Purchase Price
shall be payable, in full, at closing.
1.2 The Purchase Price shall be allocated among the various properties
comprising the Properties in the manner set forth in Exhibit "B."
2. Closing.
-------
2.1 This sale shall be closed within five (5) business days after all
conditions precedent to closing have been satisfied or waived by the party
benefitted by such condition (the "Closing Date").
2.2 The closing shall occur in escrow through Pacific Northwest Title
of Oregon, Inc. ("Escrow Agent").
2.3 On or before the Closing Date, Seller shall deliver or cause to be
delivered to Escrow Agent the following documents or instruments, each of which
shall be in form and substance reasonably acceptable to Purchaser:
a. A statutory warranty deed or statutory warranty deeds, duly
executed and acknowledged, conveying the Properties to
1 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 2
Purchaser free and clear of all liens or encumbrances other
than those exceptions identified pursuant to Section 6.1 of this
Purchase and Sale Agreement as Approved Exceptions.
b. An Assignment, duly executed and acknowledged, in the form of
Exhibit "C", assigning to Purchaser all of Seller's interests in
plans, permits, licenses and intangible attributes of the
Properties.
c. A lease, duly executed, in the form of Exhibit "D" plus
memoranda thereof, duly executed and acknowledged, in the form of
Exhibits "E".
d. A duly executed Transferor's Certificate of Non-Foreign
Status.
2.4 On or before the Closing Date, Seller shall deliver to Purchaser,
outside of escrow, for each of the Properties or relating to any of such
properties, originals or legible copies of all architectural or engineering
plans or specifications, drawings, permits, studies, warranties, contracts,
agreements, licenses or similar writings relating to the operation of such
properties in the possession of Seller or reasonably accessible to Seller.
2.5 On or before the Closing Date, the Purchaser shall:
a. Cause to be deposited with the Escrow Agent, good, collected
funds equal to the Purchase Price plus all additional amounts to
be paid by Purchaser at closing.
b. Execute the Assignment delivered by Seller pursuant to
Sections 2.3(b) of this Purchase and Sale Agreement.
c. Execute the lease and memoranda delivered by Seller pursuant
to Section 2.3(c) of this Purchase and Sale Agreement.
2.6 At closing, Seller shall pay (a) all transfer charges or taxes,
(b) premiums for the title insurance policy or policies to be provided to
Purchaser (c) its share of all items to be pro-rated between Seller and
Purchaser, (d) one-half of all escrow fees and charges, and (e) recording fees
for the deeds and memorandum of lease.
2.7 At closing, Purchaser shall pay (a) one-half of all escrow fees
and charges and (b) its share of all items to be pro-rated between Seller and
Purchaser.
2 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 3
3. Items to Be Pro-Rated.
3.1 All taxes levied against the Properties shall be pro-rated between
Seller and Purchaser as of closing.
3.2 All rentals, revenues or other income from any of the Properties
and all charges, costs or expenses relating to ownership of the Properties shall
be pro-rated between Seller and Purchaser as of closing.
4. Conditions Precedent to Closing.
4.1 Purchaser's obligation to close the purchase described in this
Purchase and Sale Agreement is contingent upon the timely satisfaction of each
of the following conditions precedent. These conditions are for the sole benefit
of Purchaser. Any of these conditions may be waived by Purchaser but only if
such waiver is in a writing signed by Purchaser.
a. The Escrow Agent shall have delivered evidence, in form and
substance reasonably satisfactory to Purchaser, that, upon
delivery and recordation of documents provided to it by Seller,
it will be in position to issue to Purchaser the title insurance
described in Section 6 of this Purchase and Sale Agreement free
and clear of exceptions to which Purchaser has objected, pursuant
to Section 6.1 of this Purchase and Sale Agreement.
b. Purchaser shall have received a Level I Environmental
Assessment Report for each of the Properties together with the
items to be delivered to Purchaser pursuant to the terms of this
Purchase and Sale Agreement and, based upon its review thereof,
be satisfied, in its sole discretion, that the Properties is
contaminated or adversely affected by the presence of any
Hazardous Substances.
c. Purchaser shall have completed its investigation and
inspection of each of the Properties and be satisfied, in its
sole discretion, with the condition of each such property.
d. Each of the representations and warranties made by Seller in
this Purchase and Sale Agreement shall be true as of closing.
e. Seller shall have performed each material agreement to be
performed by Seller under the terms of this Purchase and Sale
Agreement.
3 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 4
f. At the Closing Date, there shall have been no material adverse
change in the physical condition of any of the Properties.
4.2 Seller's obligation to close the purchase describe in this
Purchase and Sale Agreement is contingent upon the timely satisfaction of each
of the following conditions precedent. These conditions are for the sole benefit
of Seller. Any of these conditions may be waived by Seller but only if such
waiver is in a writing signed by Seller.
a. Purchaser shall have duly performed each material agreement to
be performed by Purchaser under the terms of this Purchase and
Sale Agreement.
b. Each of the representations and warranties made by Purchaser
in this Purchase and Sale Agreement shall be true as of closing.
4.3 Both Purchaser's and Seller's obligation to close the purchase
described in this Purchase and Sale Agreement are contingent upon the timely
satisfaction of each of the following conditions precedent. These conditions are
for the mutual benefit of Purchaser and Seller. Any of these conditions may be
waived, but only if such waiver is in a writing signed by both Purchaser and
Seller.
a. Seller and David Orkney shall have entered into a binding
Stock Redemption Agreement, in form and substance satisfactory to
Purchaser in Purchaser's sole discretion
b. All of the conditions precedent to consummation of the
transaction described in the Stock Redemption Agreement, other
than conditions relating to the closing of the transaction
described in this Purchase and Sale Agreement shall have been
satisfied or waived by the party benefited by such condition.
c. The transaction described in this Purchase and Sale Agreement
and the transaction contemplated by the Stock Redemption
Agreement shall have been duly approved by the Board of Directors
of Seller and by all other parties whose approval would be
necessary to make the Stock Redemption Agreement binding upon all
parties thereto.
4.4 If any of the conditions set forth in this Section 4 are not
satisfied or waived by the party benefitted by such condition prior to April 24,
1998, this Purchase and Sale Agreement may be terminated by either party by
written notice to
4 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 5
the other party. Upon termination, Purchaser shall return to Seller all
documents delivered to Purchaser by Seller.
5. Seller's Representations and Warrantees. Seller makes the following
representations and warranties to Purchaser. Each representation and warranty is
made as of the date of this Purchase and Sale Agreement and, as of Closing,
shall constitute a representation or warranty made as of the date of closing.
5.1 Seller is a corporation duly organized, validly existing and in
good standing under the laws of Oregon. This Purchase and Sale Agreement and all
actions contemplated herein have been duly authorized by all requisite action
and is the legal, valid and binding obligation of Seller enforceable according
to its terms, except to the extent that the enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the rights of creditors
generally and subject to the exercise of judicial discretion in accordance with
general principles of equity. No consent of any party or entity, other than
consents which will be provided as part of the Closing, is required in
connection with Seller's execution and delivery of this Purchase and Sale
Agreement or its performance of its obligations hereunder.
5.2 There are no pending, threatened or, to Seller's best knowledge
after due inquiry, contemplated actions, suits, claims or other proceedings
affecting the Properties Property or in which Seller is, or to the best of
Seller's knowledge, will be a party by reason of Seller's ownership or operation
of the Properties.
5.3 To the best of Seller's knowledge, there is not any plan, study or
effort by any governmental authority having jurisdiction over any of the
Properties that would in any way materially affect the current use of such
properties or any public improvements that would result in any charge being
levied against or a lien assessed upon such properties.
5.4 Seller has not received any notice, nor is Seller aware of, any
violations of governmental regulations relating to the Properties or the use by
Seller thereof.
5.5 Other than the amounts disclosed by the Title Reports prepared by
the Escrow Agent, there are no real property taxes that have been or will be
assessed against the Properties for the current tax year. There are no special
assessments or charges that have been levied against such properties or that
will result from work, activities, or improvements done to such properties by
Seller.
5.6 Seller is the legal fee simple title holder of each of the
Properties and has good, marketable and insurable title to each of the
Properties, free and clear
5 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 6
of all liens, encumbrances, claims, covenants, conditions, restrictions,
easements, rights of way, option, or other matters except as disclosed by the
Title Reports.
5.7 There is no encroachment on any of the Properties by improvements
located on such properties not included with such properties. Purchaser will
have legal access to and from each of the Properties to a dedicated public
street. Each of the Properties constitutes one or more separate legal lots.
5.8 Each document, schedule or statement provided by Seller to
Purchaser relative to the Properties fairly represents the information set forth
in a manner that is not misleading and will be true, complete and correct in all
material respects on the date of delivery and upon the Closing Date except as
they may be qualified, updated, or supplemented in writing prior to the Closing
Date.
5.9 Seller is not a foreign person, foreign corporation, foreign
partnership, foreign trust or foreign estate within the meaning of Section 1445
of the Internal Revenue Code.
5.10 The Environmental Warranty contained in Section 7 of this
Purchase and Sale Agreement constitutes an additional Seller's warranty.
6. Title Insurance.
---------------
6.1 Escrow Agent has provided Purchaser with a Preliminary Commitment
for Title Insurance for each of the Properties (the "Title Reports"). All
financial exceptions shown as exceptions to the Title Reports are to be removed
prior to or as part of the Closing, unless Purchaser elects, in writing, to take
the Properties subject to such exceptions. Exceptions shown on the Title
Reports, other than financial exceptions, shall be Approved Exceptions.
6.2 As soon as possible after Closing, Seller shall cause the Escrow
Agent to deliver to Purchaser, at Seller's expense, an Owner's ALTA policy of
title insurance or policies of title insurance, with ALTA extended coverage
endorsements, access endorsements and such other endorsements as Purchaser, at
Purchaser's expense, may specify, in the amount of the purchase price, insuring
Purchaser against loss or damage sustained by Purchaser by reason of the
unmarketability of Purchaser's title, or liens or encumbrances thereon, except
matters contained in the usual printed exceptions in such title insurance
policies, and the Approved Exceptions.
7. Environmental Warranty.
----------------------
7.1 For purposes of this Purchase and Sale Agreement, the term
"Hazardous Substance" means any hazardous or toxic substance, material or waste
6 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 7
that is or becomes regulated by any governmental authority having jurisdiction
over any of the Fee Properties. The term "Hazardous Substances" includes but is
not limited to any material or substance that is (a) a "hazardous substance"
pursuant to the terms of the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") or the Federal Water Pollution Control Act, (b) a
"hazardous waste" pursuant to the terms of the Resource Conservation and
Recovery Act ("RCRA"), (c) a toxic pollutant pursuant to the Federal Water
Pollution Control Act, (d) a "hazardous air pollutant" pursuant to the Clean Air
Act, (e) a "hazardous material" under the Hazardous Materials Transportation
Uniform Safety Act of 1990, (f) toxic or hazardous pursuant to regulations
promulgated under any of the aforementioned laws, or (g) a risk to the
environment under other applicable federal, state or local laws, ordinances or
regulations. Hazardous Materials specifically includes, but is not limited to,
asbestos, polychlorinated biphenyls ("PCB's), petroleum and petroleum-based
derivatives and urea formaldehyde.
7.2 To the best of Seller's knowledge, after due investigation and
inquiry, all operations or activities upon, or use or occupancy of, the
Properties by Seller or by any prior or current tenant or occupant or prior
owner, is or was in all material respects in compliance with all applicable
federal, state and local laws, ordinances or regulations relating to the
generation, handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, discharge or disposal of any Hazardous Substance and
neither Seller nor any prior or current tenant or prior owner or occupant of the
Properties has engaged in or permitted any release, dumping, discharge,
disposal, spillage or leakage of a Hazardous Substance at, on in or about such
properties except in compliance with applicable laws, ordinances and
regulations.
7.3 There is not present upon any of the Properties any Hazardous
Substance in quantities or concentrations that exceed those permitted by
applicable laws, ordinances and regulations.
7.4 There is no proceeding or inquiring by any governmental authority
having jurisdiction over any of the Properties with respect to the presence of
any Hazardous Substance on or under any of the Properties.
8. Indemnification.
---------------
8.1 Seller shall indemnify Purchaser against and shall hold Purchaser
harmless from all claims, demands, liabilities, losses, damages, costs and
expenses, including but not limited to reasonable attorney fees and costs
incurred by Purchaser and relating to or arising out of any act, event or matter
the existence or occurrence of
7 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 8
which constitutes a breach by Seller of one or more representation, warranty or
covenant of Seller under the terms of this Purchase and Sale Agreement.
8.2 Purchaser shall indemnify Seller against and shall hold Seller
harmless from all claims, demands, liabilities, losses, damages, costs and
expenses, including but not limited to reasonable attorney fees and costs
incurred by Purchaser and relating to or arising out, of any act, event or
matter the existence or occurrence of which constitutes a breach by Purchaser of
one or more representation, warranty or covenant of Purchaser under the terms of
this Purchase and Sale Agreement.
9. Seller's Affirmative Pre-Closing Obligation. Prior to closing:
-------------------------------------------
9.1 Seller shall permit Purchaser and Purchaser's agents, at
reasonable times, upon reasonable notice to Purchaser and without undue
interference with the rights of tenants, to enter upon the Properties to inspect
such property.
9.2 Seller shall make available to Purchaser and Purchaser's agents
all of its books, records and files relating to the Properties at any time
during Seller's regular office hours upon reasonable notice from Purchaser.
9.3 Prior to closing, Seller will not make or permit others to make
any material alterations to the Properties.
9.4 Seller shall promptly notify Purchaser of any material change in
the physical condition of any of the Properties. Seller shall, prior to closing,
repair any damage to any of such properties. If such damage cannot reasonably be
repaired prior to closing, the Purchase Price shall be adjusted to reflect the
diminution in value, provided, however, if such damage is covered by insurance,
there shall be no adjustment in the Purchase Price upon assignment to Purchaser
of all rights to insurance proceeds relating to such damage.
9.5 Seller shall keep each of the Properties free and clear of all
liens or encumbrances other than Approved Encumbrances, and shall, prior to the
Closing date, obtain waivers of the right to assert any lien from anyone who
might be entitled to assert a lien against such properties for work performed or
materials supplied to such properties or obtain a surety bond protecting the
property from the imposition of such a lien.
10. Notice. Any notice under this Purchase and Sale Agreement shall be in
writing and shall be effective upon the earliest of (a) when actually received
by the party to whom the notice is directed, or (b) when deposited in the mail,
registered or certified, addressed to the parties at the address first set forth
above for the party to whom the notice is directed or such other addresses as
either party may designate by
8 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 9
written notice to the other or (c) when received on a facsimile machine in
operation at such address.
11. Assignment. This Purchase and Sale Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
12. Costs and Professional Fees. In the event suit or action is instituted
to enforce any of the terms of this Purchase and Sale Agreement, the prevailing
party shall be entitled to recover from the other party such sum as the court
may adjudge reasonable as attorneys' fees at trial, including any proceeding in
Bankruptcy Court or on appeal of such proceeding, suit or action, engineering
and accounting fees and cost plus all other sums provided by law.
13. Consulting Fee / Agents. Neither party has acted through any broker,
finder or consultant and neither party shall have any liability for any
commission or other fee based upon any claim arising out of any statement,
representation or agreement made by the other party.
14. Prior Agreements. This document and the other documents expressly
referred to herein is the entire, final and complete agreement of the parties
pertaining to the sale and purchase of the Fee Property and Seller's interest in
the Subleased Property, and supersedes and replaces all written and oral
agreements heretofore made or existing by and between the parties or their
agents concerning the Property. This Purchase and Sale Agreement may not be
modified nor may any obligation be waived except by a written instrument signed
by the duly authorized representative of the party to be charged.
15. Release and Indemnity of the Escrow Agent. Purchaser and Seller hereby
release and shall jointly and severally indemnify, defend and hold Escrow Agent
harmless from any loss or expense, including reasonable attorney fees, that it
may suffer by reason of any litigation or controversy involving the transaction
referred to in this Purchase and Sale Agreement, except for such losses or
expenses as may arise from Escrow Agent's negligent or willful conduct. If
conflicting demands are made upon Escrow Agent with respect to this Purchase and
Sale Agreement, the Escrow Agent shall be entitled to file a suit in
interpleader and obtain an order requiring the parties to interplead and
litigate their several claims and rights among themselves.
16. Statutory Notice.
----------------
THE PROPERTY DESCRIBED IN THIS INSTRUMENT MAY NOT BE WITHIN A FIRE
PROTECTION DISTRICT PROTECTING STRUCTURES. THE PROPERTY IS SUBJECT TO
LAND USE LAWS AND
9 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 10
REGULATIONS, WHICH, IN FARM OR FOREST ZONES, MAY NOT AUTHORIZE
CONSTRUCTION OR SITING OF A RESIDENCE AND WHICH LIMIT LAWSUITS AGAINST
FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930 IN ALL ZONES.
BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE
TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY
PLANNING DEPARTMENT TO VERIFY APPROVED USES AND EXISTENCE OF FIRE
PROTECTION FOR STRUCTURES.
This Purchase and Sale Agreement signed as of April 17, 1998.
G.I. JOES, INC. PD PROPERTIES L.L.C.
By /s/ By /s/
-------------------------------- --------------------------------
Its President Its manager
10 - PURCHASE AND SALE AGREEMENT (GI JOES, INC. & PD PROPERTIES LLC)
<PAGE> 11
EXHIBIT A
LEGAL DESCRIPTIONS
PARCEL I - SOUTH SALEM
- ----------------------
Beginning at an iron pipe marking the Southeast corner of Lot 9, SPRINGER
FRUIT TRACTS NO. 1, in Marion County, Oregon; thence South 89(0)43'56" West
along the South line of said Lot 9, a distance of 378.85 feet to an iron
rod marking the Southwest corner of that tract of land described in Volume
636, Page 628, Deed Records for Marion County, Oregon; thence North
00(0)37'15" East along the West line of said Tract, a distance of 310.70
feet; thence North 89(0)43'56" East parallel with the South line of said
Lot 9, a distance of 282.00 feet; thence South 0(0)16'04" East 15.67 feet;
thence North 89(0)43'56" East parallel with the South line of said Lot 9, a
distance of 271.94 feet to a point on the Westerly right of way line of
Commercial Street (Pacific Highway 99 East); thence Southeasterly along
said right of way line on the arc of a 11509.16 foot radius curve to the
left (the chord of which bears South 19(0)44'44" East 138.73 feet) a
distance of 138.73 feet to an iron pipe; thence South 11(0)56'15" East
continuing along said right of way line, a distance of 83.00 feet; thence
South 89(0)43'56" West a distance of 142.83 feet; thence South 00(0)16'04"
East a distance of 83.00 feet to a point on the South line of Lot 7, of
said Springer Fruit Tracts No. 1; thence South 89(0)46'32" West along the
South line of said Lot 7, a distance of 100.13 feet to the point of
beginning.
EXCEPTING THEREFROM the following: Beginning at an iron rod on the South
line of Lot 9, Springer Fruit Tracts No. 1, in Marion County, Oregon, which
is 53.85 feet South 89(0)43'56" West from the Southeast corner of said Lot
9; thence South 89(0)43'56" West along the South line of said Lot 9, a
distance of 325.00 feet to an iron rod marking the Southwest corner of that
tract of land described in Volume 636, Page 628, Deed Records; thence North
00(0)37'15" East along the West line of said Tract, a distance of 15.00
feet; thence North 89(0)43'56" East parallel with the South line of said
Lot 9, a distance of 325.00 feet; thence South 00(0)37'15" West 15.00 feet
to the point of beginning.
PARCEL II - FOREST GROVE
- ------------------------
A tract of land in the Northeast one-quarter of Section 5, Township 1
South, Range 3 West of the Willamette Meridian in the City of Forest Grove,
County of Washington and State of Oregon, more particularly described as
follows:
Beginning on the Ore. Baseline 1337.3 feet East of the 1/4 Section corner
on the North line of said Section 5, also being a point 654.0 feet East of
the West line of the
<PAGE> 12
East 1/2 of the Wm. W. Catching Donation Land Claim #38 and being on the
North line of that tract of land described in Warranty Deed to G.I. Joe's,
Inc., an Oregon corporation, recorded October 7, 1985 as Recorder's Fee No.
85039713; thence East along the North line of said G.I. Joe's, Inc. tract
to the Northeast corner thereof, thence South 01(0)00'13" West 30 feet more
or less, to the South right of way line of Tualatin Valley Highway (TV HWY)
and the true point of beginning; thence South 01(0)00'13" West a distance
of 200.03 feet to the to the most Northerly Northeast corner of that tract
of land described in Statutory Warranty Deed to Winkler Development
Company, an, Oregon corporation, recorded August 29, 1995 as Recorder's Fee
No. 95060747; thence West along the North line of said Winkler tract a
distance of 350.18 feet to the Northwest corner of said Winkler tract said
point also being the West line of the aforementioned G.I. Joe's tract;
thence North 00(0)12'33" East along the said West line of said G.I. Joe's
Tract to the South right of way line of said TV HWY; thence East along said
South right of way line to the point of beginning.
<PAGE> 13
REAL ESTATE PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
EXHIBIT "B"
ALLOCATION OF PURCHASE PRICE
<TABLE>
<CAPTION>
<S> <C>
PARCEL I - SOUTH SALEM $1,625,000
PARCEL II - FOREST GROVE $ 100,000
PARCEL III - GRANTS PASS $ 50,000
</TABLE>
<PAGE> 1
EXHIBIT 10.10
SUBLEASE
--------
THIS AGREEMENT TO SUBLEASE, Entered into this 8th day of October, 1981, by
and between PACIFIC CASCADE CORPORATION, a Washington corporation doing business
in Oregon as PCC ASSOCIATES, hereinafter called "Landlord," and G.I. JOE'S,
INC., an Oregon corporation, hereinafter called "Tenant":
W I T N E S S E T H:
-------------------
I
PREMISES AND TERM
-----------------
Landlord is the "Ground Tenant" under that certain ground lease dated
September 22, 1981 by and between KIVCO, a partnership, (Ground Landlord), and
Pacific Cascade Corporation (Ground Tenant), attached hereto and marked Exhibit
"A", hereof which lease includes the premises described in this Building Lease.
In consideration of the covenants and agreements herein contained to be
kept and performed by Tenant, and the rentals hereinafter covenanted to be paid
by Tenant, Landlord does hereby sublease, demise, and sublet unto Tenant, for
the term hereinafter specified, those certain leased premises located in Lane
County, Oregon, described in Exhibit "B" attached hereto (the "premises"), to
have and to hold unto said Tenant the above described leased premises, together
with all appurtenances, rights, privileges, and easements thereto belonging,
upon the terms, conditions, covenants, and agreements hereinafter set forth for
a term commencing on the commencement date as hereinafter
- 1 -
<PAGE> 2
defined and ending December 31, 2005 unless sooner terminated or extended as
provided hereinafter.
This demise is subject to:
(a) Conditions, restrictions, and limitations, if any, now appearing
of record;
(b) Zoning ordinances of any municipality, Lane County, Oregon,
including the Land Conservation and Development Commission, and any other
governmental body now existing or which may hereafter exist by reason of any
legal authority during the life of this Lease;
(c) Any questions of survey, Tenant having satisfied itself as to the
boundary lines and contents of the leased premises;
(d) Such declaration and establishment of Protective Covenants,
Conditions and Restrictions, and Grants of Easements affecting the leased
premises as may now or hereafter be filed of record, and amendments thereto.
II
RENT
----
1. (a) From the commencement date (as hereinafter defined) of this Lease
through December 31, 1985, Tenant shall pay to Landlord, as basic rent for the
leased premises, a monthly payment determined by:
(i) Adding $328,074 to "actual building construction costs" as defined
in subparagraph (d), and
(ii) Multiplying the total of (i) times .16248, and
- 2 -
<PAGE> 3
(iii) Adding $53,051, and
(iv) Dividing the total of the foregoing computations by 12.
For the five (5) year period commencing January 1, 1986, and for each
succeeding five (5) year period during the remainder of the initial term of this
lease the same formula shall be applied to determine the basic monthly rent for
the leased premises except that the following amounts (set next to the five year
period in question) shall be substituted for the figure $53,051 in (iii) above.
Years 1986 through 1990 $59,666
Years 1991 through 1995 $69,036
Years 1996 through 2000 $78,406
Years 2001 through 2005 $93,849
(b) Basic rent payments shall commence on the commencement date as
hereinafter defined. In the event the commencement date occurs on any date other
than the first day of a calendar month, the basic monthly rent for that month
shall be prorated on a daily basis.
(c) Thereafter, the basic monthly rent shall be payable in advance on
or before the first day of each and every calendar month.
(d) "Actual building construction costs," as used in this Article,
shall mean construction contract price, or prices, for the construction of the
building described in Exhibit "C" attached to this Lease; provided that "actual
building construction costs", as used in this computation, shall not be less
than $1,270,000 nor greater than $1,350,000.
- 3 -
<PAGE> 4
All other direct or indirect costs, in any way, related to construction of the
leased premises are included in the $328,074 referred to in subparagraph (a)(i)
above.
(e) After completion of the construction set forth in Article III,
Landlord shall submit to Tenant a statement setting forth the construction cost
and the amount of the initial basic rent. Such statement shall be itemized in
reasonable detail and shall detail the basis of the computation of the
construction cost and initial basic rent.
2. In addition to the basic rent specified above, for each year or part
thereof of the lease term Tenant shall pay to Landlord, as percentage rent, an
amount equal to One and one-half Percent (1-1/2%) of Tenant's aggregate gross
receipts for that calendar year in excess of the annual exclusion. The term
"annual exclusion" shall for the purpose of this Lease be defined as the amount
which is equal to the basic rent for the first full year divided by .03. The
annual exclusions for the first and last years of this Lease shall be prorated
from the first day of the first full month and to the last day of the last full
month of the lease term, respectively. Payments of percentage rent shall be made
annually, on or before the Fifteenth (15th) day of January of the following
year. Percentage rent shall be determined by applying the above percentage to
the aggregate gross receipts for the calendar year in excess of the annual
exclusion. A statement setting forth how the percentage rent is computed, and
reconciled with the payment actually made, shall be submitted to the Landlord
with said annual payment or by January 15, regardless of whether any such
percentage rent shall be payable hereunder. On or before February 15th of each
year, Tenant shall submit to Landlord an unaudited statement for the preceding
- 4 -
<PAGE> 5
year showing Tenant's total gross receipts from the leased premises, the
aggregate percentage rent payable, and the amount actually paid, if any. Any
deficiency shall be paid upon submission of the annual statement. Any excess
shall be reimbursed to Tenant by Landlord within Thirty (30) days after receipt
of the annual statement unless, within that time, Landlord or Ground Landlord
requests an audit, as hereafter provided.
3. The term "gross receipts" means the amount paid or payable for all goods
sold or services rendered upon or from any part of the leased premises by Tenant
or by any other person, whether at retail or wholesale, and including credit
transactions. Goods transferred to Tenant's other places of business for bona
fide business reasons, and not to avoid percentage rent, are excluded. Amounts
paid by Tenant as a sales tax or other excise tax on account of sales, and
amounts refunded or cancelled on goods returned or on which adjustments have
been made, are excluded. Amounts deemed uncollectable on credit sales in
accordance with generally accepted accounting principles shall be deducted in
the year in which they are so shown on Tenant's books and records, provided,
however, such amounts shall be deducted only to the extent they have been
included in an annual statement of aggregate gross receipts pursuant to
paragraph 2 above.
4. At any time after Tenant's statement of receipts is due, whether or not
it has been submitted and whether or not Landlord has accepted the payment shown
to be due thereon, either Landlord or Ground Landlord may request an audit of
Tenant's gross receipts by a certified public accountant selected by the party
requesting the audit. The accountant shall take such steps as the accountant
deems necessary to determine Tenant's
- 5 -
<PAGE> 6
gross receipts. The accountant's determination of Tenant's gross receipts shall
be final and binding upon all parties, and payments required to make adjustments
in rent to conform to the accountant's determination shall be made within Ten
(10) days after receipt of the accountant's written determination by the party
obligated to make the payment. The cost of the accountant's determination shall
be borne by either Landlord or Tenant, depending upon the difference in
percentage rent shown to be due, as follows: Less than Five Percent (5%)
additional due, by Landlord; Five Percent (5%) additional or more due, by
Tenant.
5. Tenant shall keep in the leased premises or, upon Twenty-one (21) days'
notice, agrees to prepare and make available to Landlord or Ground Landlord, as
the case may be, at the leased premises, a permanent, accurate set of books and
records pertaining to gross receipts derived from business conducted on or from
the leased premises during each day of the term hereof, and all supporting
records and such pertinent records shall be kept, retained, and preserved for at
least Three (3) years after the expiration of each lease year. Tenant shall
keep, retain, and preserve for at least Two (2) years after the expiration of
each lease year all original sales records and sales slips or sales checks and
any other pertinent, original sales records, including cash register tapes. All
such books and records shall be open to inspection and audit by Landlord, Ground
Landlord and/or their agents at all reasonable times during ordinary business
hours.
6. Tenant shall occupy the leased premises continuously for the purpose
stated in this Lease and carry on business during the hours customary in
comparable businesses
- 6 -
<PAGE> 7
similarly situated. This shall not prevent Tenant from closing for brief periods
when reasonably necessary for inventory, repairs, remodeling (when permitted),
or other legitimate purposes related to the business carried on, or when closure
is the result of a labor dispute, or other factors not within Tenant's control.
7. Landlord is not, by virtue of this Article, a partner or joint venturer
with Tenant in connection with the business carried on under this Lease, and
Landlord shall have no obligation with respect to Tenant's debts or other
liabilities, and no interest in Tenant's profits.
8. It is the intent of Landlord and Tenant that the rent herein specified
and reserved shall be absolutely net to Landlord, so that this Lease shall,
except as hereinafter provided to the contrary, yield net to Landlord the basic
rent and percentage rent specified herein during the term of this Lease.
9. In the event any rent is not paid when due, interest at the rate of one
percent (1%) per month, but not to exceed the maximum legal rate then allowable
by law, shall accrue thereon until all unpaid rent and interest has been paid in
full. Any acceptance by Landlord of a partial payment of rent and interest shall
not constitute a waiver of any remaining unpaid rent and/or interest which may
have accrued at that time or which may accrue thereafter.
10. All rents described herein shall be paid to Landlord without deduction
or offset at the office of the Landlord in Seattle, Washington, or at such other
place as the Landlord or its authorized agent may, from time to time, designate
in writing.
- 7 -
<PAGE> 8
III
CONSTRUCTION
------------
1. Landlord shall construct, at its sole cost and expense, upon the leased
premises, a retail sales building in accordance with the plans, specifications
and site plan described on Exhibit "D" attached hereto excepting nonmaterial
changes. In addition, Landlord shall construct parking areas and common area
improvements adjacent to the leased premises substantially in accordance with
plans and specifications, including the site plan marked Exhibit "D."
2. Landlord shall forthwith apply for and obtain all necessary permits for
the construction of the building and improvements and shall thereupon cause said
construction to be commenced and pursued to completion in an expeditious manner.
Any material changes in the plans and specifications, or any material change
orders in the construction contract or contracts which may become necessary or
desirable during the course of construction shall be approved in writing by
Landlord and Tenant.
3. On completion, Landlord shall deliver to Tenant copies of the following:
(a) A certificate of completion by the architect who supervised the
construction stating that all work and construction has been substantially
completed in accordance with the approved plans and specifications, including
all approved changes or modifications, if any; and
(b) Any certificate of occupancy, or equivalent permit or certificate,
which may be required by any governmental authority prior to issuance of any
business license required for Tenant's commencement of business on the leased
premises.
- 8 -
<PAGE> 9
4. All signs or symbols placed in the windows or doors of the leased
premises, or upon any exterior part of the building by Tenant, shall be subject
to the approval of Landlord or Landlord's agents. Any signs placed on the leased
premises shall be so placed upon the understanding and agreement that Tenant
will remove same at the termination of the tenancy herein created and repair any
damage or injury to the leased premises caused thereby, and if not so removed by
Tenant then Landlord may have same so removed at Tenant's expense.
IV
COMMENCEMENT DATE
-----------------
1. The commencement date of this Lease shall occur on the date Tenant opens
for business or Sixty (60) days after the delivery to Tenant of the certificates
described in Paragraph 3 of Article III above, whichever first occurs.
2. Tenant may enter the premises prior to the commencement date for the
purposes of fixturing and stocking inventory, provided Tenant's fixturing and
stocking does not interfere with any construction work then remaining to be
done.
3. It is the intention of the parties that the commencement date of this
Lease, as defined in Paragraph 1 of this Article, shall occur on or before May
5, 1982, and that Tenant shall be allowed access to the building for purposes of
fixturing and stocking, on or before March 13, 1982. If the commencement date is
delayed beyond May 5, 1982 because Landlord is unable to complete its work
(unless that inability results from Acts of God, delay by Tenant, matters beyond
the control of Landlord, or labor disputes) Landlord
- 9 -
<PAGE> 10
shall pay to Tenant, as a penalty for such delay, the sum of One Thousand
Dollars ($1,000.00) per day up to the actual commencement date.
V
COMMON AREA
-----------
1. For the purposes of this Lease, "common area" shall mean all areas of
the real property described in Exhibit "D" outside the exterior walls of the
buildings located thereon which are not reserved for the exclusive use of Tenant
or Landlord. Common area shall include automobile parking areas, access roads,
driveways, sidewalks, pedestrian walkways and stairways, landscaped areas,
utility lines and systems. Common area shall not include the interior space of
any building located on Exhibit "D" nor any area immediately appurtenant to such
buildings which is reserved for the exclusive use of such building, such as
loading docks.
2. Landlord will, at all times during the term of this Lease, keep the
common area in good maintenance and repair, and shall:
(a) Maintain suitable means or illumination sufficient to illuminate
the parking areas during all twilight and evening hours that the Tenant's store
is open for business and is in operation;
(b) Maintain and keep the parking areas, driveways, and access roads
in good condition and repair with a hard surface pavement and properly striped;
(c) Clean and remove debris, ice, and snow from the parking areas,
driveways and access roads;
- 10 -
<PAGE> 11
(d) Clean and maintain sidewalks and other pedestrian walkways and
stairways, and remove debris, ice and snow therefrom; provided, however, that
Tenant shall keep the sidewalk immediately in front of the leased premises clean
and free from debris, ice, and snow;
(e) Maintain all other portions of the common area in good order and
repair; and
(f) Obtain and maintain liability insurance insuring both Landlord and
Tenant against all liability for personal injury, death, or property damage
arising on or about the operations of the common area, in an amount of not less
than Two Hundred Thousand Dollars ($200,000.00) for death or injury to one
person, not less than Five Hundred Thousand Dollars ($500,000.00) for death or
injury arising out of one accident, and not less than One Hundred Thousand
Dollars ($100,000.00) for property damage.
3. (a) Tenant shall pay to Landlord, in the manner provided below, Tenant's
pro rata share of Landlord's actual costs of maintaining and operating the
common area during the lease term. "Actual costs of maintaining and operating
the common area" shall include the following: All amounts paid by Landlord as
actual costs for maintaining and repairing the common area, including, without
limitation, cleaning; snow and ice removal; costs and expenses of planting,
replanting, and replacing flowers, shrubs, and landscaping; water and sewage
charges; maintenance, repair, and replacement of utility systems, electricity,
and other utility charges; repair, maintenance, and upkeep of the parking areas,
driveways, access roads, sidewalks, and pedestrian walkways, including
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<PAGE> 12
the costs of paving, repaving, surfacing, resurfacing, painting, and repainting
the same; installation, replacement, repair, and maintenance of traffic control
and directional signs and devices; premiums for liability and extended all-risks
insurance; real property taxes and assessments; personal property taxes on
equipment and materials used to maintain the common area; and policing the
common area and affording security and fire protection therefor. "Actual costs
of maintaining and operating the common area" shall also include a management
fee of ten percent (10%) of the above described costs; provided that in
computing said management fee, all capital items and all replacement items in
excess of One Thousand Dollars ($1,000), real estate taxes and insurance
premiums shall be excluded. Landlord agrees to expend only the monies reasonably
necessary for such operating and maintenance in order to keep the common area in
good repair and clean condition and to operate the same on a nonprofit basis to
the end that the expense in connection therewith shall be kept at a minimum.
Costs attributable to a contract between Landlord and an affiliated party shall
not be included, unless that contract is previously approved by Tenant. Tenant's
approval shall not be unreasonably withheld.
(b) Tenant's pro rata share of the actual costs of maintaining the
common area shall be a percentage equal to the gross leasable area of the
buildings on Tenant's premises divided by the total gross leasable area of all
buildings (except the common area structures) located on the real property
described in Exhibit "D." The gross leasable area of each building shall be
calculated by measuring the ground floor of such building from the outside
walls.
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<PAGE> 13
(c) The annual charge to the Tenant shall be paid in monthly
installments, in advance, at the time of the monthly rent payment, in an amount
estimated by Landlord. On or before April 1st of each calendar year (and within
ninety (90) days after the termination of this Lease), Landlord shall furnish
Tenant with a statement in reasonable detail of the actual common area costs and
expenses actually paid or incurred by Landlord during such period, and,
thereupon, there shall be an adjustment between Landlord and Tenant, with
payment to or repayment by Landlord, as required, so that Landlord shall receive
the entire amount of Tenant's pro rata share of such costs and expenses for such
period.
4. Subject to the provisions of any declaration and establishment of
Protective Covenants, Conditions and Restrictions, and Grants of Easements which
may now or hereafter be filed of record with respect to the premises and the
common area, the common area is maintained for the common use of all tenants,
subtenants and Landlord, their customers, visitors, employees, business
invitees, licensees and persons dealing with tenants, subtenants and Landlord.
Neither Tenant nor Landlord shall do any act to unreasonably prevent or obstruct
such common use and free ingress to and egress from the common area; provided,
however, that Landlord may make such rules and regulations governing the use of
the common area as may be reasonably necessary to regulate the use of such
common area, and may restrict the use of or access to any portion of the common
area when such restriction is necessary or advisable for purposes of security,
or safety, or for the construction, reconstruction, repair, maintenance or
preservation of the common
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<PAGE> 14
area or any buildings located on the real property described in Exhibit "B;"
and, provided further, that Landlord shall have the right in its sole discretion
to construct other buildings in such locations on said real property as Landlord
may desire and construction and maintenance of such buildings shall not be
deemed to prevent or obstruct the common use and free ingress to and egress from
the common area or to violate any other term or provision of this Lease.
VI
REAL PROPERTY TAXES
-------------------
1. Tenant shall pay promptly and before delinquency any and all real
property taxes and assessments, of whatsoever kind or nature, levied or assessed
against the land, buildings, or other improvements constituting the leased
premises or attributable thereto during the term of this Lease. Tenant shall
deliver to Landlord copies of receipts or other evidences of payment evidencing
payment of all such real property taxes and assessments when due. All real
property taxes and assessments payable for a period part of which shall be
within the lease term and part of which shall be before or after the lease term
shall be prorated on a daily basis.
2. In the event the leased premises are not taxed separately and are part
of a larger parcel which is assessed as one parcel for property tax purposes,
Tenant shall pay only that portion of such taxes and assessments which are
attributable to the land, buildings, and other improvements constituting the
leased premises. For purposes of determining the portion of such taxes and
assessments attributable to the leased premises, the figures supplied by the
Lane County Department of Assessment and Taxation or other
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<PAGE> 15
similar taxing authority as to the breakdown of said taxes and assessments shall
be conclusive.
3. If no breakdown of the assessment can, after reasonable effort, be
obtained from the taxing authority, then Tenant shall reimburse Landlord for
Tenant's pro rata share of the taxes so paid, said pro rata share being a
percentage equal to the gross leaseable area of the buildings on Tenant's
premises divided by the gross leaseable area of all buildings located on the
real property described in Exhibit "D."
4. Tenant shall have the right at its own cost and expense to contest, in
good faith, in any proper proceeding and in the name of Landlord if necessary,
the assessed valuation of the leased premises or the amount, payment or
satisfaction of any tax or assessment agreed to be paid by Tenant if the
validity, amount, or right to assess or collect the same is disputed by Tenant
and Landlord agrees to cooperate with Tenant in this regard; provided, however,
that Landlord in its sole discretion may require Tenant to deposit with a
suitable escrow company, in order to secure to Landlord Tenant's performance of
its obligations hereunder with respect to such tax or assessment, a bond or cash
deposit (or other securities satisfactory to Landlord) sufficient to cover not
less than one hundred percent (100%) of the amount of the contested tax or
assessment together with interest, costs and penalties for the period during
which such contest is reasonably expected to be maintained, or Tenant may pay
such contested imposition or charge under protest. Landlord agrees to give
reasonable cooperation to Tenant in any such proceeding; provided, however,
Tenant shall hold Landlord harmless from, and shall reimburse
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<PAGE> 16
Landlord for, any and all loss, costs and expenses, including attorneys' fees,
incurred by Landlord in connection with any such proceedings.
5. Should there be in effect during the lease term (or any extension
thereof) any law, statute or ordinance which levies, assesses or imposes any tax
(other than an income tax) upon rents, Tenant shall pay such tax as may be
attributed to the rents under this lease or shall reimburse Landlord for any
such taxes attributable to this Lease as are paid by Landlord.
VII
USE OF PREMISES
---------------
1. Landlord is leasing the leased premises for use as a retail store, and
Tenant shall use the leased premises for no other purpose during the term of
this Lease without the written consent of Landlord, which consent shall not be
unreasonably withheld.
2. Tenant shall neither make nor knowingly permit any unlawful, improper,
immoral, or offensive use of said premises, or any portion thereof, which will,
in any way, tend to create a nuisance or to disturb any persons in the
neighborhood of the leased premises, or to unduly create or cause a fire hazard,
or to increase the fire insurance on the leased premises, or permit any nuisance
which shall in any way be a violation of the statutes and laws of the State of
Oregon or the laws and ordinances of any political subdivision thereof.
3. Tenant agrees to keep and maintain all of the leased premises in a clean
and sanitary condition and not to suffer or permit any strip or waste thereof.
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<PAGE> 17
4. Tenant shall, at all times, avoid any act or omission that would
cause Landlord to be in default of its obligations under the provisions of the
Ground Lease attached hereto as Exhibit "A."
VIII
UTILITIES
---------
1. Tenant shall pay for all heat, light, power, water, sewage, and other
services or utilities used by Tenant on the leased premises, and shall pay the
charges therefor as the same become due.
2. Landlord shall not be liable for any interruption or failure in the
supply of any utility to the leased premises unless caused by negligence of
Landlord.
3. Tenant's obligation to pay for utilities used on or about the leased
premises shall begin when the leased premises are substantially complete and are
available to Tenant for tenant fixturing and stocking.
IX
REPAIRS AND MAINTENANCE
-----------------------
1. Tenant shall maintain the leased premises in good order and repair
during the term of this Lease, at Tenant's cost and expense. Tenant's duty to
maintain and repair includes but is not limited to: Maintaining exterior and
interior walls, including painting, interior and exterior entrances and fronts;
the roof and ceilings; all glass windows; doors; fixtures; wiring; lighting;
heating; air conditioning; plumbing fixtures; and foundations; provided,
however, that Landlord warrants the foundation, footings, roof and structural
members of the building against latent defects for a period of 60 months
beginning with the commencement date as defined in Article IV hereof; and
provided further that
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<PAGE> 18
Landlord warrants all such work against latent defects for a period of one (1)
year beginning at the time of substantial completion of construction as
evidenced by the architect's certificate of completion described in Paragraph
3(a) of Article III above. Tenant's remedy under this warranty shall be limited
to repair or replacement, at Landlord's option. If Tenant refuses to make
repairs as required, as soon as reasonably possible after written demand,
Landlord may, at its option, make such repairs, without liability for
interruption of the conduct of the business on the premises, and, upon
completion of the repairs and the presentation of a bill, the costs of such
repairs plus Fifteen Percent (15%) for Landlord's overhead shall be paid by
Tenant. At Landlord's election, such sums owed by Tenant may be deemed
additional rent.
2. Tenant shall have the right, from time to time, to make such alterations
and improvements to and decoration of the interior of the leased premises as
shall be reasonably necessary or appropriate in Tenant's judgment for the
conduct of Tenant's business, provided that (a) the structural integrity shall
not be affected or diminished; (b) the value of the building and/or leased
premises is not thereby diminished; (c) Landlord's written approval of all
alterations exceeding the cost of Fifty Thousand Dollars ($50,000) be first
obtained, which approval will not be unreasonably withheld; and (d) all fees,
costs, taxes, assessments and expenses relating to any such alterations,
improvements or additions shall be borne by Tenant. Tenant shall promptly pay
when due all such fees, costs and expenses and Tenant shall defend and hold
Landlord harmless from all costs, damages, liens, and expenses related thereto.
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<PAGE> 19
3. Tenant shall make no alterations or changes in the exterior of the
leased premises without the express written approval of Landlord, which approval
shall not be unreasonably withheld; provided, however, that any such alteration
or change shall be subject to the conditions set forth in Paragraphs 2(a)
through (d) above.
4. All alterations or additions which cannot be removed from the leased
premises without irreparable damage thereto shall also constitute a part of the
leased premises and shall also remain thereon. Such other alterations,
additions, or improvements as are made and paid for by Tenant, and which are
removable without irreparable damage to the premises, may be removed by Tenant
at any time, and Tenant shall repair any damage so incurred at the time of such
removal. All trade fixtures and other fixtures not referred to above, and all
machinery, equipment, and/or other items of personal property placed in or upon
the leased premises by Tenant and paid for by Tenant may be removed by Tenant at
any time.
5. Tenant shall hold harmless and indemnify Landlord from and against any
costs, expenses, and liabilities from any mechanics', laborers', or
materialmen's liens which are caused or incurred by any act or omission of
Tenant or which may be filed against the premises during the term of this Lease.
Whenever and as often as any mechanics', laborers', or materialmen's lien shall
have been filed against the leased premises and/or building, based upon any act
or interest of Tenant or anyone claiming through Tenant, Tenant shall forthwith
take such action by bonding, deposit or payment as will remove or satisfy the
lien and in default thereof after five (5) days' notice to Tenant, Landlord
without
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<PAGE> 20
waiver of Landlord's rights may pay the amount of such lien or discharge the
same by deposit, and the amount so paid or deposited, with interest thereon,
shall be deemed additional rent reserved under this Lease, and shall be payable
with interest at the rate of one percent (1%) per month from the date of such
payment or deposit, and Landlord shall have the remedies herein provided for
default for Tenant's failure to pay such amount with interest thereon within
five (5) days after Landlord's written notice of the amount due.
6. Tenant shall permit Landlord or Landlord's agents or lenders to inspect
or examine the leased premises at such time and in such manner as to cause the
least possible interference with the conduct of Tenant's business.
X
SUBROGATION
-----------
1. Landlord hereby releases Tenant from any and all liability and waives
Landlord's right of recovery against Tenant, its agents and employees, for any
loss or damage to Landlord's property resulting from any hazard insurable under
a landlord's fire and extended coverage policy of insurance, including, but not
limited to, theft, fire, smoke, explosion, or water damage, and Landlord hereby
waives the subrogation rights of its insurance carriers under Landlord's
policies of insurance providing coverage against loss or damage by any such
hazard. Landlord shall take such steps as are necessary to inform its insurance
carriers of this provision and to have endorsements, if necessary, placed on
said insurance policies to carry into effect the provisions of this Paragraph.
2. Tenant hereby releases Landlord from any and all liability and waives
Tenant's rights of recovery against Landlord, its agents and employees, for any
loss or
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<PAGE> 21
damage to Tenant's property resulting from any hazard insurable under a tenant's
fire and extended coverage policy of insurance, including, but not limited to,
theft, fire, smoke, explosion, or water damage, and Tenant hereby waives the
subrogation rights of its insurance carriers under Tenant's policies of
insurance providing coverage against loss or damage by any such hazard. Tenant
shall take such steps as are necessary to inform its insurance carriers of this
provision and to have endorsements, if necessary, placed on said insurance
policies to carry into effect the provisions of this Paragraph.
3. All of the above notwithstanding, the foregoing releases and waivers
shall be effective and applicable only if such releases and waivers are allowed
by the insurers of both Landlord and Tenant. Landlord and Tenant agree to make
their best efforts to obtain agreement to such releases and waivers.
XI
INSURANCE
---------
1. (a) Tenant shall, at all times during the term of this Lease, keep all
buildings, improvements, and fixtures on the premises insured to the extent of
One Hundred Percent (100%) of the full insurable value thereof, which for
purposes hereof shall be replacement cost, against loss or damage from fire, and
such policy or policies shall be New York standard form policies and shall
contain extended coverage provisions with loss of rents endorsement or such
other forms of coverage as may be approved by Landlord in writing. Tenant may
satisfy the foregoing loss of rents insurance requirement by maintaining
business interruption insurance in an amount satisfactory to Landlord and
assigning to Landlord the proceeds thereof which are attributable to the rents,
taxes, costs
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<PAGE> 22
and other charges due hereunder. Such policies shall be taken out with such
reasonable and solvent insurance company or companies authorized to do business
in Oregon as Tenant shall determine and as Landlord shall reasonably approve.
The proceeds of such policies shall be payable to Landlord, Ground Landlord,
Landlord's lender and Tenant as their interests may appear.
(b) All such policies shall, to the extent obtainable, contain an
agreement by the insurers that such policies shall not be cancelled without at
least Ten (10) days' prior notice to Landlord. The original of such policy or
policies shall remain in possession of Tenant unless required by Landlord's
lender; provided, however, that Landlord shall have the right to receive from
Tenant, upon written demand, a duplicate policy or policies of any such
insurance.
2. Tenant covenants and agrees that it will at all times during the term of
this Lease indemnify, protect, defend and save Landlord harmless from and
against any and all claims, demands, losses, damages, costs, charges,
liabilities and attorneys' fees arising from damage or injury, actual or
claimed, of whatsoever kind or character, to persons or property occurring in,
on or about the leased premises or other areas exclusively used by Tenant;
provided, however, nothing herein shall require Tenant to indemnify, protect,
defend or save Landlord harmless from the consequences of Landlord's sole
negligence or the sole negligence of any of Landlord's agents or employees. In
furtherance of said protection, Tenant agrees, at all times during the term of
this Lease, at Tenant's expense, to carry comprehensive general public liability
and property damage insurance with an
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<PAGE> 23
insurer satisfactory to Landlord, insuring Landlord, its officers, employees and
agents, Ground Landlord, and Tenant, and any persons designated by Landlord,
against all liability for personal injury, disease or death or for injury to or
damage to property occurring upon, in or about the leased premises or other
areas exclusively used by Tenant, in an amount of not less than Three Million
Dollars ($3,000,000) for personal injury, sickness, disease or death to one
person, not less than Three Million Dollars ($3,000,000) for injuries arising
out of any accident, and not less than One Million Dollars ($1,000,000) for
property damage; provided, however, the limits hereinabove provided shall be the
base and shall be increased as of January 1, 1986 and each succeeding fifth
(5th) anniversary of each year of this Lease or any extension thereof by a
percentage equal to seventy-five percent (75%) of the increase of the Average
Index in the same manner as provided in Article XXVI. The policy shall contain a
clause that the insurer will not cancel or change the insurance without giving
Landlord Thirty (30) days' prior notice. A certificate of such insurance shall
be delivered to Landlord, and, if required by Landlord's lender, the original of
such policy shall be delivered to such lender.
XII
DESTRUCTION OF PREMISES
-----------------------
1. In the event of damage to or destruction of the leased premises by fire
or other casualty, Tenant, at Tenant's sole expense, shall promptly restore the
leased premises as nearly as possible to its condition prior to such damage or
destruction. All insurance proceeds received by Landlord pursuant to the
provisions of this Lease, less the cost, if
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<PAGE> 24
any, of such recovery, shall be held in trust and applied by Landlord to the
payment of such restoration, as such restoration progresses.
2. If the proceeds of insurance are insufficient to pay the full cost of
repair or restoration, Tenant shall pay the deficiency. If the insurance
proceeds exceed such cost, the excess shall be paid to Tenant.
3. If any insurance proceeds are paid to a mortgagee, then any disbursement
of insurance proceeds by such mortgagee shall be deemed to have been made by
Landlord. If any such mortgagee shall refuse to disburse any portion of
insurance proceeds to which Tenant is entitled, Landlord shall provide an
equivalent sum from other sources.
4. If the leased premises or any part thereof, or the furniture,
furnishings, and fixtures therein, shall be destroyed or damaged, Tenant's
obligations for the payment of basic rent and other charges hereinabove set
forth shall be abated to the extent the leased premises are untenantable during
the period of repair, provided, however, Landlord shall be entitled to insurance
proceeds under the policy for loss of rents or business interruption.
5. Notwithstanding anything contained in subparagraphs 1 through 4 of this
Article, if the leased premises are substantially destroyed during the final
five years of the lease term, Landlord shall not be required to rebuild unless
Tenant extends the remaining term of the lease for ten years from the date of
the destruction.
XIII
CONDEMNATION
------------
1. If a condemning authority takes all of the leased premises, or a portion
sufficient to render the remaining premises reasonably unsuitable for the use
which Tenant
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was making of the leased premises, this Lease shall terminate as of the date
title vests in the condemning authority. Landlord shall be entitled to all of
the proceeds from the condemnation.
2. If a portion of the leased premises is taken and the remaining premises
are reasonably suitable for the use Tenant was making of the leased premises,
this Lease shall continue, and Landlord shall immediately make such repairs and
alterations to the premises as are necessary to restore the remaining premises
to a condition as comparable as reasonably practicable to that existing at the
time of condemnation. Basic rent shall be abated to the extent the leased
premises are untenantable during the period of alteration and repair. As of the
date title vests in the condemning authority, the basic rent due hereunder shall
be reduced in the proportion that the number of square feet taken by the
condemning authority bears to the original square footage leased hereunder.
3. For purposes of this Lease, a taking by a condemning authority shall
include any purchase or other acquisition in lieu of condemnation.
XIV
SUBLEASE AND ASSIGNMENT
-----------------------
This Lease is personal to Tenant, and Tenant may not assign or sublet all
or any portion thereof or permit any other person or persons to occupy the
leased premises or any portion thereof without the prior written consent of
Landlord, which consent shall not unreasonably be withheld. The interest of
Tenant or such assignee cannot be sold, assigned, transferred, seized, or taken
by operation of law or under or by virtue of any execution or other process,
attachment, or proceeding instituted against Tenant, or under or by virtue of
any bankruptcy or insolvency proceeding had in regard to Tenant, or in any
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<PAGE> 26
other manner, except as above specified; and any violation of the provisions
thereof by Tenant, whether voluntary or involuntary, shall constitute a breach
of this Lease. No assignment or sublease shall accomplish a novation, and Tenant
shall not be released from performing any of the terms, covenants, and
conditions of this Lease.
XV
SUBORDINATION
-------------
1. Upon request of Landlord, Tenant will subordinate its rights hereunder
to the lien of any first mortgage (which shall for purposes of this Lease be
deemed to include a Deed of Trust) now or hereafter in force against the land
and buildings of which the leased premises are a part or upon any building
hereafter placed upon the land of which the leased premises is a part, and to
all advances made or hereafter to be made upon the security thereof. This
Article shall be self-operative, and no further instrument of subordination
shall be required from Tenant. Tenant hereby constitutes Landlord as its
attorney in fact to execute any subordination agreement required by Landlord's
mortgagee on Tenant's behalf. Nothing contained in this Article shall require
Tenant to agree to any subsequent modification in the term of this Lease, nor
shall any mortgagee succeeding to Landlord's interest have any greater rights
hereunder than Landlord.
2. Upon the request by Landlord, Tenant agrees to provide an Estoppel
Certificate to Landlord's mortgagee, in substantially similar form to Exhibit
"E", attached hereto, but amended, as necessary, to reflect the facts as of the
date each such Estoppel Certificate is requested.
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<PAGE> 27
3. If Landlord can obtain financing only upon the basis on amending this
Lease for lender's protection, Landlord and Tenant shall amend this Lease to the
extent necessary to protect lender; provided that all such amendments shall be
limited to lease provisions relating to protection of the lender, and further
provided that no amendment shall increase any obligation of the Tenant
(including, but not limited to Tenant's obligation for basic rent, percentage
rent or other payments hereunder) or restrict or limit any right of Tenant
hereunder.
XVI
DEFAULT
-------
1. The following events shall be deemed to be events of default by Tenant
under this Lease:
(a) If Tenant shall fail to pay any installments of the rent, or any
other charge designated herein to be paid, on the date that same is due, and
such failure shall continue for a period of Ten (10) days after written notice
from Landlord.
(b) If Tenant shall fail to comply with any term, condition, or
covenant of this Lease, other than the payment of rent, and shall not cure such
failure within Thirty (30) days after written notice thereof to Tenant; or if
such failure cannot reasonably be cured within the said Thirty (30) days and
Tenant shall not have commenced to cure such failure within Thirty (30) days
after written notice thereof to Tenant; or if such failure cannot reasonably be
cured within the said Thirty (30) days and Tenant shall not with reasonable
diligence and good faith proceed in the curing of such failure.
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<PAGE> 28
(c) If Tenant shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of creditors, or
if any petition under any section or chapter of the National Bankruptcy Act
shall be filed to subject Tenant's affairs to the same, or if a receiver or
trustee shall be appointed for all or substantially all of the assets of Tenant.
2. Upon the occurrence of any of the foregoing events of default, Landlord
shall, without any notice of demand whatsoever, have the option to:
(a) Terminate this Lease upon written notice to Tenant, in which event
this Lease and the term thereby demised shall expire and terminate on the date
specified in such notice; and all rights of Tenant under this Lease shall on
such date expire and terminate. Upon such expiration Tenant shall immediately
quit and peacefully surrender the premises and building to Landlord, and, if
Tenant fails to do so, Landlord may enter upon and take possession of the leased
premises and building and expel or remove Tenant, and any other person who may
be occupying said premises, or any part thereof, and Tenant agrees to pay to
Landlord, on demand, the amount of all loss and damage which Landlord may suffer
by reason of such termination, whether through inability to relet the premises
on satisfactory terms or otherwise.
(b) Enter upon and take possession of the leased premises and expel or
remove Tenant and any other person who may be occupying said premises or any
part thereof, and relet the premises and receive rent therefor; and Tenant
agrees to pay to Landlord, on demand, any deficiency that may arise by reason of
such reletting. No
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<PAGE> 29
reentry by Landlord shall be deemed an acceptance of a surrender of this Lease
or shall absolve or discharge Tenant from any liability under this Lease.
(c) Enter upon the leased premises and do whatever Tenant is obligated
to do under the terms of this Lease, and Tenant agrees to reimburse Landlord, on
demand, for expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease.
3. Landlord may pursue any of the foregoing remedies singly or cumulatively
and, in addition, any other remedies provided by law; nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder, nor shall any termination and cancellation include a
cancellation of Tenant's obligations hereunder for any deficiency upon reletting
subsequent to said termination or cancellation, such obligations being
independent covenants surviving said termination or cancellation. In the event
of any such expiration or termination, whether or not the leased premises or
buildings, or any part thereof, shall have been relet, Tenant shall pay to
Landlord the entire rent and all other charges required to be paid by Tenant up
to the time of such expiration or termination of this Lease, and thereafter
Tenant, until the end of what would have been the term of this Lease in the
absence of such expiration or termination, shall be liable to Landlord, and
shall pay to Landlord, as and for liquidation and agreed current damages for
Tenant's default:
(a) The amount of fixed rent, percentage rent and other charges which
would be payable under this Lease by Tenant if this Lease were still in effect,
less:
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<PAGE> 30
(b) The net proceeds of any reletting, after deducting all of
Landlord's reasonable expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, alteration costs, and expenses of preparation for
such reletting.
4. For purposes of this Article, the amount of the percentage rent that
would be payable under this Lease by Tenant if this Lease were still in effect
shall be computed for the twelve (12) consecutive months which produced the
highest percentage rent of the twenty-four (24) month period (or any lesser
period if the termination requiring this computation takes place less than
twenty-four (24) months after the commencement date) next preceding the month in
which the occurrence requiring such computation takes place. Tenant shall pay
such current damages (hereinafter called "deficiency") to Landlord monthly on
the days on which rent would have been payable under this Lease if the term of
this Lease were still in effect, and Landlord shall be entitled to recover from
Tenant each monthly deficiency as the same shall arise.
5. At any time after such expiration or termination whether or not Landlord
shall have collected any deficiencies as aforesaid, Landlord, at its option,
shall be entitled to recover from Tenant, and Tenant shall pay to Landlord, on
demand, as and for liquidated and agreed final damages for Tenant's default, an
amount equal to the difference between the rent reserved hereunder (including
percentage rent determined as herein provided) for the unexpired portion of the
term demised (as of the date of such demand) and the then fair and reasonable
rental value of the leased premises and building
- 30 -
<PAGE> 31
for the same period. In computation of such final damages the difference between
any installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the leased premises and building for the
period for which such installment was payable shall be discounted from the date
of payment of such final damages at the rate of ten percent (10%) per annum.
6. If Tenant shall default in its covenant to pay the rental as provided
for herein, Landlord shall have a lien for such sums upon the personal property
of Tenant located upon the leased premises and may enter the same and take
possession of said personal property and sell it at public or private sale, and
apply the proceeds thereof, after deducting the expenses of said sale, upon the
monies due to Landlord prompting the same. Any public or private sale shall be
held in a commercially reasonable manner.
XVII
QUIET ENJOYMENT
---------------
1. Conditioned upon Tenant's paying the rent herein provided and performing
and fulfilling all the covenants, agreements, conditions, and provisions herein
to be kept, observed, or performed by Tenant, and except as hereinafter provided
in this paragraph, the Tenant shall and may, at all times during the term hereby
granted, peaceably, quietly, and exclusively have, hold, and enjoy the leased
premises. It is understood that the premises are owned by the Ground Landlord as
above set forth. This Sublease is conditioned upon approval by the Ground
Landlord (a) that the rights of Tenant will be recognized and (b) that, in the
event of default by Landlord and/or foreclosure of the
- 31 -
<PAGE> 32
mortgage, this Sublease will remain in effect according to its terms, with
substitution of Ground Landlord or the purchaser at the foreclosure sale as
Landlord.
XVIII
COMPLIANCE WITH THE LAW
-----------------------
1. Tenant shall pay promptly when due and before delinquency all taxes
assessed upon Tenant's fixtures, furnishings, equipment, stock, inventory,
leasehold interest, or other personal property in or about the leased premises.
2. Tenant shall comply with all applicable laws, orders, and regulations of
federal, state, or municipal authorities and with any direction of any public
officer, pursuant to law, which shall impose any duty upon Tenant with respect
to the leased premises. Tenant, at Tenant's sole expense, shall obtain all
licenses or permits which may be required for the conduct of Tenant's business,
or for the making of repairs, alterations, improvements, or additions. Landlord,
when necessary, will join with Tenant in applying for such permits and licenses.
XIX
SURRENDER
---------
1. If Tenant shall hold over and remain in possession of the leased
premises after the expiration of the term herein granted, Tenant shall remain
bound by all the terms, covenants, and agreements hereof, except that such
holding over shall be construed to be a tenancy from month to month which may be
terminated at any time by Landlord.
2. Upon the expiration of the term of this Lease or any sooner termination
thereof, Tenant covenants and agrees that Tenant shall, without notice, promptly
and peaceably surrender possession of the leased premises to Landlord in as good
a condition
- 32 -
<PAGE> 33
as at the time of Tenant's entry thereon, reasonable wear and tear, fire, and
other insured or unavoidable causes excepted.
3. If Tenant is not then in default as to any of the terms of this Lease,
Tenant shall have the right to remove all trade fixtures erected or attached to
the premises by Tenant upon the expiration or termination of this Lease or any
extension thereof, provided that Tenant shall repair any physical damage to the
leased premises resulting from such removal.
XX
NONWAIVER
---------
Any waiver of any breach of covenants herein contained to be kept and
performed by Tenant shall not be deemed or considered as a continuing waiver,
and shall not operate to bar or prevent Landlord from declaring a forfeiture for
any succeeding breach, either of the same condition or covenant or otherwise.
The acceptance of rent by Landlord hereunder shall never be construed to be a
waiver of any term of this Lease. No payment by Tenant or receipt by Landlord of
a lesser amount than shall be due according to the terms of this Lease shall be
deemed or construed to be other than on account of the earliest rent due.
XXI
NOTICES
-------
All notices provided for in this Lease to be served upon the other party
shall be done in writing and by Certified Mail, return receipt requested,
postage prepaid, and, if served upon Landlord, shall be addressed to Landlord at
Pacific Cascade Corporation, 616 Plaza 600 Building, Seattle, Washington 98101,
and, if served upon Tenant, shall be
- 33 -
<PAGE> 34
addressed to Tenant at G.I. Joe's, Inc., P.O. Box 11037, Portland, Oregon 97211;
provided, however, that either party may designate a different address by giving
the other party written notice thereof. Such notice shall be deemed to have been
served within Forty-eight (48) hours after it has been deposited in any United
States Post Office in Washington or Oregon, postage prepaid, certified mail,
return receipt requested, which shall be valid and sufficient service of notice
for all purposes; or if notice is personally delivered or otherwise given, such
notice shall be deemed to have been served at the time of delivery thereof.
XXII
ATTORNEYS' FEES
---------------
1. In the event any action or suit or proceeding is brought to collect the
rent due or to become due hereunder, or any portion thereof, or to obtain
possession of the leased premises, or to enforce compliance with this Lease, or
for failure to observe any of the covenants of this Lease, the prevailing party
in such suit, action, or proceeding may recover from the other party herein such
sum or sums as the trial and/or appellate court may adjudge reasonable as
attorneys' fees to be allowed in said suit, action, or proceeding, or appeal
therefrom, in addition to their costs and disbursements.
XXIII
MODIFICATION
------------
1. The terms and conditions of this Lease shall be incapable of
modification, change, or amendment, except by endorsement, in writing, attached
hereto and bearing the separate signature in execution thereof by the parties
hereto, or their successors in interest.
- 34 -
<PAGE> 35
XXIV
RECORDATION
-----------
1. This Lease shall not be recorded except by agreement of both parties,
but, upon request by either party, the parties shall execute a short form of
this Lease containing the description of the leased premises, the provisions
relating to the term of the lease, and a reference to this Lease.
XXV
SUCCESSION
----------
1. This Lease shall be binding upon the parties hereto, their legal
representatives, heirs, successors, and, as far as this Lease is assignable by
the terms hereof, to the assigns of such parties. The words "Landlord" and
"Tenant," wherever used in this Lease, shall apply equally and be binding
jointly and severally upon all Tenants and Landlords, whether one or more, and,
together with the accompanying verbs and pronouns, shall apply to all persons,
firms or corporations who may be or become parties as Landlords or Tenants
hereto.
XXVI
RENEWAL OPTION
--------------
1. (a) At the expiration of the original term of this Lease, if Tenant is
not then in default under any of the provisions hereof, Landlord hereby grants
to Tenant the option to extend the term of this Lease for Three (3) consecutive
periods of Five (5) years each (each of such periods being hereafter referred to
as the "extended term"), upon condition that, at the time each such renewal
option is exercised, the Lease is then in effect and there is then no default in
the performance of any condition hereof. Such
- 35 -
<PAGE> 36
extension shall be upon the terms and conditions of this Lease in effect during
the original term hereof except as set forth below.
(b) (i) The rent during each extended term hereof shall include both
basic rent and percentage rent as provided in this Lease, except that
the basic monthly rent for the first extended term shall be the amount
payable as basic monthly rent in 1996 multiplied by a fraction the
numerator of which is the Average Index (as hereinafter defined) as
published the month during which such extended term shall commence and
the denominator of which is the Average Index as published for
February 1996. "Average Index" as used herein shall mean the average
of i) the "Consumer Price Index (United States City Average for All
Urban Consumers)--All Items (Reference Base: 1967 = 100)" and (ii) the
"Consumer Price Index (United States City Average for Urban Wage
Earners and Clerical Workers (Revised))--All Items (Reference Base:
1967 = 100)," each published by the United States Department of Labor,
Bureau of Labor Statistics. In the event the Average Index or any
constituent index thereof shall hereafter be converted to a different
standard reference base or otherwise revised, the determination of the
percentage increase shall be made with the use of such conversion
factor, formula or
- 36 -
<PAGE> 37
table for converting such indexes as may be published by the Bureau of
Labor Statistics or, if such bureau shall not publish the same, then
with the use of such conversion factor, formula or table as may be
published by Prentice Hall, Inc. or any other nationally recognized
publisher of similar statistical information. In the event any such
index shall cease to be published, then for the purposes of this
Article XXVI, there shall be substituted such other index as Landlord
and Tenant shall agree upon and if they are unable to agree within
ninety (90) days after any such index ceases to be published, such
matter shall be determined by arbitration in accordance with the rules
of the American Arbitration Association for the purpose of
establishing the most nearly equitable alternative index to accomplish
the purposes set forth herein.
(ii) The basic rent during each succeeding extended term shall be the
amount payable as basic monthly rent for the immediately preceding
extended term multiplied by a fraction the numerator of which is the
Average Index as published for the last month of the immediately
preceding extended term and the denominator of which is the Average
Index as published for the first month of the immediately preceding
extended term.
(iii) All of the above notwithstanding, nothing herein to the contrary
shall be construed as at any time requiring Tenant to pay to Landlord
a sum less than the average annual rental for the last three (3) years
of the preceding term which has not recently expired. (It is the
intent of this proviso that Landlord shall receive the basic rent
according to the formula herein or an average of the last three (3)
years' rent, whichever is greater.)
- 37 -
<PAGE> 38
(c) Tenant shall exercise the option for each such extended term by
notifying Landlord in writing and not less than thirty (30) months prior to the
last day of the term of this Lease or each such renewal period.
(d) All of the above notwithstanding, the term of this Lease shall not
be renewable with respect to any period of time during which Landlord does not
hold a leasehold estate in the leased premises.
XXVII
CONDITIONS PRECEDENT TO LIABILITY
---------------------------------
1. If Landlord is unable, after using its best efforts, to obtain any
necessary zone changes, or the building permits, land use and design approvals,
or other similar governmental authorizations to commence construction of the
leased premises by October 1, 1981, either party may thereafter give notice to
the other of the immediate rescission of this Lease.
XXVIII
PERSONAL PROPERTY
-----------------
All personal property of every kind or description that may at any time be
in the leased premises shall be at Tenant's sole risk or at the risk of those
claiming under Tenant, and Landlord shall not be liable for any damage to said
property or loss to the business or occupation of Tenant caused in any manner
whatsoever, except as may result from and be caused by the sole negligence of
Landlord or its agents or employees.
XXIX
EFFECT OF INVALIDITY
--------------------
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease,
- 38 -
<PAGE> 39
or the application of the terms and provisions to persons and circumstances
other than those to which it had been held invalid or unenforceable, shall not
be affected thereby, and each term and provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
Landlord:
PACIFIC CASCADE CORPORATION, a
Washington corporation, doing business
in Oregon as PCC Associates
By /s/ MARTIN L. PETERSON
-----------------------------------
Its President
-------------------------------
Tenant:
G.I. JOE'S, INC., an Oregon corporation
By /s/ DAVID E. ORKNEY
-----------------------------------
Its President
-------------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF )
On this 8 day of October, 1981, personally appeared Martin L. Peterson,
who, being duly sworn, did say that he is the President of PACIFIC CASCADE
CORPORATION, a Washington corporation, and that said instrument was signed in
behalf of said corporation by authority of its board of directors; and
acknowledged said instrument to be its voluntary act and deed.
Before Me:
/s/ ANTHONY J. BARKER
--------------------------------------
Notary Public for Oregon
My Commission Expires: 8-6-84
- 39 -
<PAGE> 40
STATE OF OREGON )
) ss.
COUNTY OF LANE )
On this 8 day of October, 1981, personally appeared David E. Orkney, who,
being duly sworn, did say that he is the President of G.I. JOE'S, INC., an
Oregon corporation, and that said instrument was signed in behalf of said
corporation by authority of its board of directors; and acknowledged said
instrument to be its voluntary act and deed.
Before Me:
/s/ ANTHONY J. BARKER
--------------------------------------
Notary Public for Oregon
My Commission Expires: 8-6-84
- 40 -
<PAGE> 41
EXHIBIT D
Plans and specifications as described in Exhibit C; Site Plan as shown on
Sheet No. 1 of Design Plans described on Exhibit C.
- 41 -
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE is entered into this 25th day of June, 1991,
by EUGENIE E. KEENE and PHILIP A. KEENE ("Landlord") and G.I. JOE'S, INC., an
Oregon corporation ("Tenant").
Landlord is the successor to the lessor and Tenant is the lessee under that
certain lease dated as of October 8, 1981 between Pacific Cascade Corporation, a
Washington corporation, and Tenant pertaining to a portion of the Delta Oaks
West Shopping Center located in the City of Eugene, Lane County, Oregon, as
modified by Lease Modification Agreement dated April 22, 1982 (the "Lease"). The
parties now wish to amend the Lease.
NOW, THEREFORE, the Lease is hereby amended as follows:
1. Exhibit B of the Lease is amended to read as follows:
"The Premises shall include (a) that parcel containing
approximately 55,120 square feet described in the attached
Exhibit B-2 (the "Building Area"), and (b) the remainder of that
parcel described in the attached Exhibit B-3, exclusive of the
Building Area (the "G.I. Joe's Common Area"), the use of which
shall be subject to the covenants, conditions, restrictions and
easements contained in the Amended Declaration of Establishment
of Protective Covenants, Conditions, and Restrictions and Grants
of Easements for Delta Oaks West attached hereto as Exhibit F
(the "Amended Declaration"), and (c) the right to use, in common
with others, the remaining common areas within Delta Oaks West as
provided in the Amended Declaration.
2. Article V of the Lease is hereby deleted. Tenant's use of the Premises
shall be subject to all of the terms, covenants, restrictions and easements
contained in the Amended Declaration, and Tenant shall pay by the Due Date
thereof all common expense assessments and charges allocable to the Premises
under the Amended Declaration during the term of the Lease.
3. Article XI of the Lease is hereby amended so that the insurance
requirements of that Article shall be applicable only to the Building Area, and
not to the G.I. Joe's Common Area, so long as the Managing Agent insures the
G.I. Joe's Common Area in accordance with the provisions of the Amended
Declaration.
1
<PAGE> 2
4. Except as expressly amended by this First Amendment, the terms and
provisions of the Lease, as previously modified, shall remain in full force and
effect.
LANDLORD: /s/ EUGENIE E. KEENE
----------------------------------------
Eugenie E. Keene
/s/ PHILIP A. KEENE
----------------------------------------
Philip A. Keene
TENANT: G.I. JOE'S, INC.
By /s/
-------------------------------------
Its sec treas
---------------------------------
STATE OF OREGON )
) ss.
County of Multnomah )
The foregoing instrument is acknowledged before me this 25 day of June,
1991, by EUGENIE E. KEENE and PHILIP A. KEENE.
/s/
----------------------------------------
Notary Public for Oregon
My commission expires: 5/4/95
STATE OF OREGON )
) ss.
County of Clackamas )
The foregoing instrument is acknowledged before me this 21st day of May,
1991, by Wayne T. Jackson, Secretary - Treasurer of G.I. Joe's, Inc., an Oregon
corporation, on its behalf.
/s/
----------------------------------------
Notary Public for Oregon
My commission expires: 3/12/95
2
<PAGE> 1
EHIBIT 10.12
LEASE
THIS LEASE is made this 12th day of May, 1997, by and between SOUTH HILL
VILLAGE LIMITED PARTNERSHIP, a Washington limited partnership ("Landlord"), and
G.I. JOE'S, INC., an Oregon corporation ("Tenant").
RECITALS
A. Landlord is the owner of good and marketable fee simple title in and to
certain real property situated in Puyallup, Pierce County, Washington, being
more particularly described on EXHIBIT A attached hereto and made a part hereof,
upon which real property Landlord currently operates a shopping center (the
"Shopping Center") substantially as shown on the site plan attached hereto as
EXHIBIT B and made a part hereof (the "Site Plan").
B. Landlord has constructed upon a certain portion of land within the
Shopping Center, as outlined in red on the Site Plan (the "Land"), a certain
building containing an agreed-upon floor area of fifty-two thousand three
hundred (52,300) square feet (the "Building").
C. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord, the Land and the Building, including the loading dock and trash
compactor areas adjacent to or used in connection with the Building (the "Leased
Premises"), in order to operate a G.I. Joe's store on the Leased Premises.
NOW, THEREFORE, in consideration of the aforementioned recitals which are
incorporated herein, and the mutual covenants, promises and agreements
hereinafter set forth, Landlord hereby grants, demises and leases to Tenant, and
Tenant hereby accepts, acquires and leases from Landlord, the Leased Premises,
together with a nonexclusive and perpetual easement in, through and over all
parking areas, all access areas and any Common Areas (as defined in Section 31.1
hereof) of the Shopping Center, as shown on the Site Plan, for parking and
pedestrian and vehicular ingress to and egress from the Leased Premises to the
public streets and/or highways adjacent to the Shopping Center, at all times,
for Tenant and its customers, invitees, guests and employees and for all trucks,
automobiles and other vehicles delivering merchandise to the Leased Premises, in
common with other occupants of the Shopping Center, in accordance with all the
terms, covenants and conditions hereinafter set forth, all as set forth in the
following documents (collectively, "Declaration of Covenants"): (i) the
Declaration of Covenants, Conditions and
LEASE PAGE 1
<PAGE> 2
Restrictions for South Hill Village dated December 14, 1994, and recorded under
Pierce County Auditor's File No. 9412150225 and (ii) the Construction, Operation
and Reciprocal Easement Agreement recorded under Pierce County Auditor's File
No. 9406200693 as amended by First Amendment to Construction, Operation and
Reciprocal Easement Agreement recorded under Pierce County Auditor's File No.
9505020021.
AGREEMENT
1. Term
1.1 Initial Term
The initial term of this Lease shall be twenty (20) years, beginning on the
Lease Commencement Date (as hereinafter defined) and ending twenty (20) years
thereafter; provided, however, if the Lease Commencement Date would otherwise be
a date other than the first day of the month, the Lease Commencement Date shall
be the first day of the following month.
1.2 Lease Commencement Date
The Lease Commencement Date of the initial term of this Lease shall be
October 1, 1997, and Tenant shall use reasonable efforts to open for business by
the Lease Commencement Date; provided, however, if the date on which the Leased
Premises are opened for business is delayed due to any act or omission of
Landlord, avoidable and unavoidable casualties (except those intentionally
caused by Tenant), severe weather, strikes, lockouts, unavailability of
materials, governmental restrictions or any other causes beyond Tenant's
control, then the Lease Commencement Date shall be extended by a period equal to
such delay. Notwithstanding the foregoing, the Lease Commencement Date shall be
postponed for a period not exceeding three (3) months at Tenant's option if the
Lease Commencement Date would otherwise occur in November, December or January,
in which event the Lease Commencement Date shall be a date not later than
February 1.
1.3 Option to Renew
Provided that Tenant is not then in default under the terms of this Lease,
Tenant shall have the option to renew this Lease for two (2) additional periods
of five (5) years each from and after the date of expiration of the initial term
hereof, or any renewal terms hereof, upon the same terms, covenants and
conditions herein set forth,
LEASE PAGE 2
<PAGE> 3
except for rent which shall be determined pursuant to the schedule hereinafter
set forth. Landlord shall endeavor to give written notice to Tenant not earlier
than one year in advance of expiration of the initial term or extended term, as
the case may be, and ask whether Tenant intends to exercise its renewal option.
If Landlord fails to provide this notice, the time period for Tenant's exercise
of the option to extend the term is not altered or extended. If Tenant elects to
exercise said option to renew, Tenant shall do so by giving Landlord written
notice thereof not less than one hundred eighty (180) days prior to the end of
the term or extended term, as the case may be. Tenant's written notice to
Landlord exercising the option to renew shall be sufficient to make this Lease
binding for the renewal term without further act of the parties.
2. Base Rent
Tenant shall pay to Landlord each month, as base rent for the Leased
Premises, the following:
<TABLE>
<CAPTION>
Lease Years Amount Per Month
----------- ----------------
<S> <C>
1 through 5 $48,750.00
6 through 10 $53,625.00
11 through 15 $60,328.17
16 through 20 $67,869.14
21 through 25 (Option Period 1) $76,352.78
26 through 30 (Option Period 2) $85,896.88
</TABLE>
The base rent shall be paid, in advance, on or before the first day of each
calendar month beginning on the Rent Commencement Date and on the first day of
each month thereafter during the term of this Lease. The Rent Commencement Date
shall be October 1, 1997 unless the Lease Commencement Date is postponed as
provided in Section 1.2 above, in which event the Rent Commencement Date shall
be the earlier of (i) the date on which Tenant opens for business or (ii) the
date which is five (5) months following the date of this Lease plus the period
of postponement described in Section 1.2 above. If Tenant postpones the Lease
Commencement Date because it would otherwise occur in November, December or
January, the Rent Commencement Date shall be the date Tenant opens for business
or February 1, whichever first occurs. If Tenant opens for business on a day
after October 1, 1997 other than the first day of the month, the base rent will
be prorated for the month in which the opening occurs and shall be due and
payable on opening.
LEASE PAGE 3
<PAGE> 4
3. Percentage Rent
3.1 Gross Sales
Tenant agrees, within thirty (30) days after the end of each fiscal year of
Tenant (February 1 through January 31), commencing at the end of Tenant's fiscal
year beginning on February 1 of the year immediately following the Rent
Commencement Date, to determine and report to Landlord Tenant's gross sales from
its use or occupancy of the Leased Premises ("Gross Sales"). The term "Gross
Sales" shall exclude any sales to employees under company plans, transfers of
merchandise between G.I. Joe's stores, receipts from the sale of event tickets
(except that portion of such sales representing commissions or fees received by
Tenant or its affiliates), the amount of returns and refunds, discounts actually
made or given in the ordinary course of business, carrying charges included in
the selling price on conditional sales contracts, financing charges on credit
card sales where the financing charge is not collected at the Leased Premises,
and the amount of any sales tax or other excise tax imposed upon said sales and
charges if such sales tax, excise tax or similar tax is billed to the purchaser
as a separate item, but, except as excluded above, shall include, among other
things, all gross income, fees or commissions from any other operations in, at
or upon the Leased Premises, all deposits received by Tenant at the Leased
Premises and not refunded, all orders received at the Leased Premises by
telephone or mail due to catalog or other canvassing methods, and the selling
price of all goods, wares and merchandise sold, leased or licensed or services
rendered in, on or from the Leased Premises or Tenant's activities in the
Shopping Center, directly by Tenant or through its sublessees, licensees and
concessionaires. The percentage rent shall be equal to one and one-half percent
(1.5%) of Gross Sales in excess of the Breakpoint (as hereinafter defined)
during each fiscal year of Tenant occurring during the term of this Lease,
including any renewal periods. The "Breakpoint" shall be as follows:
<TABLE>
<CAPTION>
Lease Years Breakpoint
----------- ----------
<S> <C>
1 - 5 $19,500,000
6 - 10 $21,450,000
11 - 15 $24,131,250
16 - 20 $27,147,656
21 - 25 $30,541,113
26 - 30 $34,358,753
</TABLE>
LEASE PAGE 4
<PAGE> 5
Tenant agrees to pay Landlord such percentage rent (if any is due), as
additional rent, April 1 of each lease year commencing at the end of the first
fiscal year of Tenant which starts after the Rent Commencement Date. Percentage
rent for any lease month occurring after the Rent Commencement Date but prior to
the start of Tenant's first fiscal year shall be prorated on the basis of, and
paid at the same time as, the percentage rent payable during such first fiscal
year. Furthermore, in the event the term of this Lease ends on a date other than
the ending date of Tenant's fiscal year, percentage rent for that fiscal year
shall be prorated on the basis of percentage rent paid by Tenant in the previous
fiscal year and shall be paid to Landlord within thirty (30) days of the end of
the term of this Lease.
3.2 Gross Sales Records
Tenant covenants for the purpose of ascertaining the amount of such Gross
Sales for any fiscal year as hereinabove provided that it and its sublessees,
licensees and concessionaires will keep accurate books of account that clearly
and accurately show all Gross Sales as aforesaid and maintain an accurate
accounting system in such manner that it can be checked and audited by a
competent accountant for a period of four (4) years. Landlord shall have
reasonable access to such books, accounts, records and reports of Tenant
pertaining to its business conducted at said location and the business of any of
its sublessees, licensees and concessionaires, and Tenant shall permit Landlord
or agents of Landlord to inspect the same at all reasonable times during normal
business hours. Upon ten (10) days' prior written notice to Tenant, Landlord
may, once in any lease year, during reasonable business hours, cause an audit of
the business of Tenant relating to sales from the Leased Premises during any of
the preceding three (3) years to be made by an independent certified public
accountant selected by Landlord and approved by Tenant, and if the statement of
Gross Sales previously made to Landlord for any of the previous three (3) years
shall be found to be understated or overstated, then and in that event there
shall be an adjustment, and one party shall pay to the other, on demand, such
sums as may be necessary to settle in full the accurate amount of said
percentage rent that should have been paid to Landlord for the period or periods
covered by such statement or statements. If said audit shall disclose an
understatement of greater than two percent (2%) of the amount of Gross Sales
reported by Tenant for the period of said audit, then Tenant shall immediately
pay to Landlord the reasonable cost of such audit; otherwise, the reasonable
cost of such audit shall be paid by Landlord.
3.3 No Joint Venture
Landlord is not, by virtue of this Section 3, a partner or joint venturer
with Tenant in connection with the business carried on under this Lease, and
Landlord
LEASE PAGE 5
<PAGE> 6
shall have no obligation with respect to Tenant's debts or other liabilities,
and no interest in Tenant's profits.
4. Payment of Rent
Except as expressly provided herein, all rental payments provided for
herein shall be made by check payable to Landlord in U.S. dollars, without
deduction or offset, and paid to Landlord's managing agent as follows:
Seattle Pacific Realty, Inc.
1914 Third Avenue, Suite 710
Seattle, WA 98101
or other such place as Landlord may designate by written notice to Tenant.
5. Taxes
Tenant shall pay, as additional rent, before any fine, penalty, interest or
cost may be added thereto for the nonpayment thereof, all ad valorem taxes,
assessments, and other governmental levies and charges of any kind which are
assessed or imposed upon the Leased Premises, including both the land and
improvements thereon, or any part thereof, or which become payable during the
term of this Lease and any extensions hereof. In the event the Leased Premises
are not assessed and taxed separately from the Shopping Center, then Tenant
shall pay its pro rata share of such taxes and assessments of the Shopping
Center as provided in Section 31.3 hereof. In the event that any assessments are
assessed, Landlord shall elect, if permitted to do so, to pay the amount of such
assessments in installments. In such event, Tenant shall pay when due only the
amount of such installments falling due during the term of this Lease. All taxes
and assessments that are assessed prior to but payable in whole or in
installments after the Lease Commencement Date and all taxes and assessments
that are assessed during the term but payable in whole or in installments after
the end of the term shall be adjusted and prorated so that Landlord shall pay
its prorated share for the periods prior and subsequent to the term of this
Lease, and Tenant shall pay its prorated share for the term of this Lease.
6. Use
Tenant may use the Leased Premises for the primary purposes of the sale of
sporting goods, outdoor and active apparel, footware, after-market automobile
and truck parts, supplies and accessories and merchandise incidental to the
foregoing and for the secondary purpose of the sale of unrelated merchandise,
provided the sale area
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of such unrelated merchandise does not exceed two thousand five hundred (2,500)
square feet for each category of such merchandise. Tenant shall use the Leased
Premises for no other primary purpose during the term of this Lease without the
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Landlord shall not permit any other Tenant in the Shopping Center to
use its premises for the sale of sporting goods or automobile or truck parts,
supplies and accessories unless the merchandise occupies no more than ten
percent (10%) of such tenant's sales area or two thousand five hundred (2,500)
square feet, whichever is less. Tenant's use shall at all times comply with the
Declaration of Covenants and with noncompete restrictions in leases of other
Shopping Center tenants which were recorded prior to March 26, 1997. Landlord
will not object to Tenant conducting sidewalk or parking lot sales and special
promotions.
7. Compliance With Laws
Tenant shall neither make nor knowingly permit any unlawful use of the
Leased Premises, or any portion thereof, which will, in any way, tend to create
a nuisance or to disturb any persons in the Shopping Center, or to unduly create
or cause a fire hazard, or to increase the fire insurance on the Leased
Premises, or to permit any nuisance which shall in any manner be a violation of
the statutes and laws of the United States, the State of Washington or the laws
and ordinances of any political subdivision thereof. Tenant covenants and agrees
to comply with all applicable rules, orders, notices and regulations of any
municipal, state or other authority respecting the Leased Premises.
8. Waste
Tenant agrees to keep and maintain all of the Leased Premises in a clean
and sanitary condition and not to suffer or permit any strip or waste thereof.
9. Utilities
Tenant shall pay for all heat, light, power, water, sewage, garbage and
other services or utilities used by Tenant on the Leased Premises and shall pay
the charges therefor as the same become due. Landlord shall not be liable for
the quality, quantity, failure or interruption of any utility service to the
Leased Premises.
10. Repairs
Landlord shall maintain, repair and replace when necessary the roof and
roof drainage systems, floor slab, exterior walls, foundation and structural
members of the
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Building, the utility lines to the point of connection to the Leased Premises
and the sidewalk. Except for the foregoing and repairs due to damage by fire or
other insured peril or condemnation, Landlord shall not be required to make any
repairs, alterations, or improvements to or upon the Leased Premises during the
term of this Lease. Except for repairs to be made by Landlord, Tenant shall
maintain the floor covering, ceiling, Building lighting, interior finish, doors,
windows, plumbing fixtures, sprinkler systems and alarms, plumbing, electrical
and utility services from the point of connection at the Leased Premises,
heating and cooling systems and other equipment or appliances used for the
exclusive benefit of Tenants, in good order and repair during the term of this
Lease at Tenant's own cost and expense, reasonable wear and tear, fire and other
causes beyond Tenant's reasonable control excepted. If either party refuses or
neglects to make repairs as required as soon as reasonably possible after
written notice describing the proposed repairs and the estimated cost thereof,
the other party, at its option, may make such repairs, and, upon completion of
the repairs and presentation of a bill therefor, the cost of such repairs shall
be deemed additional rent if paid by Landlord, or deducted from rent if paid by
Tenant.
11. Inspections
Tenant agrees to permit Landlord and Landlord's agents to enter upon the
Leased Premises or any part thereof at all reasonable times during normal
business hours upon advance notice to Tenant and for any reasonable purpose,
including examining the condition of the Leased Premises and making repairs
which Landlord is either required or may desire to make to the Leased Premises,
provided that such entry does not unreasonably interfere with Tenant's use and
enjoyment of the Leased Premises.
12. Alterations
Except as provided in Section 29.1 hereof, Tenant may make alterations to
the interior of the Leased Premises without Landlord's consent. Tenant may make
alterations to (but not demolish) the floor slab and penetrations of the roof
and exterior walls with the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed. Tenant shall make no other
structural alterations to the Leased Premises without the prior written consent
of Landlord, which consent shall be discretionary with Landlord. All trade
fixtures and other fixtures not referred to above, and all machinery, equipment
and/or other items of personal property placed in or upon the Leased Premises by
Tenant and paid for by Tenant may be removed by Tenant at any time. All other
improvements made to the Leased Premises during the term of this Lease shall
become the property of Landlord and surrendered with the Leased Premises at the
expiration or earlier termination of this Lease.
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13. Mechanics' Liens
Tenant shall not suffer or permit any mechanic's lien to be filed against
the fee of the Leased Premises or against Tenant's leasehold interest in said
premises by reason of work, labor, services or materials supplied or claimed to
have been supplied to Tenant or anyone holding the Leased Premises or any part
thereof through or under Tenant, and nothing contained in this Lease shall be
deemed or construed in any way as constituting the consent or request of
Landlord, express or implied, by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration or repair
of or to the Leased Premises or any part thereof, or as giving Tenant any right,
power or authority to contract for or permit the rendering of any services or
the furnishing of any materials that would give rise to the filing of any
mechanic's lien against the fee of the Leased Premises. If any such mechanic's
lien shall at any time be filed against the Leased Premises, Tenant shall cause
the same to be discharged of record or "bonded over" in a manner reasonably
satisfactory to Landlord within ninety (90) days after the date of filing the
same.
14. Insurance
14.1 Landlord's Policies
Landlord shall, at all times during the term of this Lease, maintain with
insurers authorized to issue insurance in the State of Washington, the following
policies of insurance in effect with respect to the Leased Premises and the
Shopping Center:
14.1.1 Property
Fire, lightning, hail, windstorm and such other normally insured perils
included under a policy of property/casualty insurance, with endorsements for
earthquake, earth movement and flood if in a flood hazard zone, in the amount of
one hundred percent (100%) of the full replacement cost of the Building (except
for Tenant's improvements) with a so-called "agreed value" endorsement, naming
Tenant, Landlord and any mortgagee or beneficiary under any first mortgage or
first deed of trust, as additional insureds or loss payees, as their interests
may appear.
14.1.2 Liability
Comprehensive general liability insurance, of no less than Five Million
Dollars ($5,000,000) combined single-limit coverage, naming Tenant as an
additional insured thereunder. The limits of such policy shall be reviewed each
five (5) years and
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increased as commercially reasonable, but no less than increases in the Consumer
Price Index.
14.2 Tenant's Policies
Tenant shall at all times during the term of this Lease maintain, with
insurers authorized to issue insurance in the State of Washington, comprehensive
general liability insurance of no less than Five Million Dollars ($5,000,000)
combined single-limit coverage for the Leased Premises, naming Landlord as an
additional insured. The limits of such policy shall be reviewed each five (5)
years and increased as commercially reasonable, but no less than increases in
the Consumer Price Index. Tenant shall be responsible for insuring or
self-insuring its improvements to the Leased Premises and its inventory and
equipment. Landlord shall have no liability for damage to Tenant's improvements
to the Leased Premises or Tenant's inventory or equipment from fire, lighting,
hail, windstorm and such other perils insured or normally insurable under a
policy of property/casualty insurance, including earthquake and earth movement,
flood and sprinkler damage.
14.3 Waiver of Subrogation/Certificates
All such policies, to the extent obtainable, shall provide for waiver of
subrogation against Landlord and Tenant and shall contain an agreement by the
insurers that such policies shall not be canceled without at least thirty (30)
days' prior written notice to Landlord and Tenant and to any such mortgagee or
beneficiary named as a loss payee or an additional insured thereunder. The
original of such policy or policies shall remain in possession of the primary
insured; provided, however, that the additional insured shall have the right to
receive a certificate evidencing such insurance or, upon written demand, a
duplicate policy or policies of any such insurance.
15. Damage or Destruction
15.1 Partial Damage
If the Leased Premises are partially damaged by fire or other peril against
which Tenant is insured and are rendered partially untenantable thereby, but
such damage does not unreasonably impair Tenant's use or occupancy of the Leased
Premises, then Landlord shall, at Landlord's own expense, using any proceeds of
insurance payable on account of such loss, promptly cause the damage to be
repaired, and the rent shall be abated in proportion to the portion of the
Premises rendered unusable for Tenant's business.
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15.2 Total Destruction
If the Leased Premises are destroyed or damaged by fire or other peril and
are rendered wholly untenantable thereby, or such damage unreasonably impairs
Tenant's use or occupancy thereof, Landlord shall, as promptly as possible after
the occurrence of such damages or destruction, repair or replace the damaged
improvements so as to be in the same condition as before such damage and
destruction, to the extent of available proceeds of insurance. If the damage and
destruction occurs within the last five years of the initial or any option term,
or if the available proceeds are insufficient to enable Landlord to repair or
replace the damaged improvements to the condition existing prior to such damage
or destruction and Landlord elects not to contribute its own funds for the
completion of the repairs, then Tenant may, at its option, terminate this Lease.
Rent and other sums payable by Tenant under this Lease shall be totally abated
until Landlord completes such repairs and Tenant reopens for business.
15.3 Tenant's Improvements
Tenant shall be responsible for repair or replacement of its improvements
in the event of partial destruction under Section 15.1 above or in the event
Landlord makes the repairs or replacements pursuant to Section 15.2 above,
unless Tenant terminates this Lease as therein provided.
16. Condemnation
16.1 Complete Taking
If a condemning authority takes all the Leased Premises, or a portion
thereof sufficient to render the remaining premises reasonably unsuitable for
the use which Tenant was making of the Leased Premises prior to such taking,
then this Lease shall terminate as of the date title vests in the condemning
authority, and the proceeds from the condemnation shall be apportioned (a)
first, to Tenant in an amount equal to the unamortized value of Tenant's
improvements to the Leased Premises and (b) any remaining balance to Landlord.
16.2 Partial Taking
If a portion of the Leased Premises is taken and the remaining premises are
reasonably suitable for the use Tenant was making of the Leased Premises prior
to such taking, then this Lease shall continue, and the value of all of Tenant's
improvements to the Leased Premises plus that portion of the proceeds of
condemnation reasonably required to make the premises suitable for Tenant's
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continued use in a condition as comparable as reasonably practicable to that
existing at the time of condemnation shall be allocated to Tenant and applied by
Tenant for such purpose. All the balance of the award shall be allocated to
Landlord. Rent shall be abated to the extent the Leased Premises are
untenantable during the period of alteration and repair. As of the date title
vests in the condemning authority, the base rent due hereunder shall be reduced
commensurately with the amount of the award allocated to Landlord.
16.3 Common Areas
In the event any of the Common Areas are taken such that parking for the
Leased Premises, or access or visibility to or from the Leased Premises to a
publicly dedicated street or highway, is materially impaired, then if such
taking (a) renders the Leased Premises reasonably unsuitable for the use which
Tenant was making thereof prior to such taking, then such taking shall be deemed
a complete taking, as described in Section 16.1 hereof, and administered in
accordance with the provisions thereof or (b) leaves the Leased Premises
reasonably suitable for the use which Tenant was making thereof prior to such
taking, then such taking shall be deemed a partial taking and any award payable
thereby shall be paid to Landlord, and Landlord shall be obligated to restore
the balance of the Common Areas to the same condition and utility, as reasonably
practicable, as existed immediately prior to such taking.
16.4 Sale in Lieu of Condemnation
For purposes of this Lease, a taking by a condemning authority shall
include any purchase or other acquisition in lieu of condemnation.
17. Indemnification of Landlord
Tenant shall indemnify, defend and hold Landlord harmless from liability
and claims for damages by reason of any injury to any person or persons,
including Tenant, or property, upon or in any way connected with the Leased
Premises during the term of this Lease, any renewal hereof or any occupancy
hereunder, except for the negligence or willful misconduct of Landlord or its
employees or agents. Tenant shall have the right, in the name of Landlord, to
contest the validity of any and all such claims, of any kind or character and by
whomsoever claimed, and, at Tenant's expense, to defend, settle and/or
compromise any and all such claims.
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18. Quiet Enjoyment
Provided that Tenant keeps, observes and performs all the covenants,
agreements, conditions and provisions herein to be kept, observed or performed
by Tenant, Tenant shall and may at all times during the term hereby granted
peaceably, quietly and exclusively have, hold and enjoy the Leased Premises.
19. Subordination, Nondisturbance and Attornment
Upon written request or notice by Landlord or any first mortgagee or
beneficiary under a first deed of trust of Landlord encumbering the Shopping
Center, the Leased Premises or the Common Areas, Tenant agrees to subordinate
its rights under this Lease to the lien of any such first mortgage or deed of
trust, and to any and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements and extensions thereof, provided the
mortgagee or beneficiary named in said mortgage or deed of trust shall agree to
recognize this Lease of Tenant and shall further agree not to disturb this Lease
or any rights of Tenant hereunder in the event of foreclosure or Trustee's sale,
if Tenant is not in default hereunder. Tenant also agrees that any such first
mortgagee or beneficiary may elect to have this Lease made prior to the lien of
its mortgage or deed of trust, and in the event of such election and upon
notification by such mortgagee or beneficiary to Tenant to that effect, this
Lease shall be deemed prior in lien to the said mortgage or deed of trust,
whether this Lease is dated prior to or subsequent to the date of said mortgage
or deed of trust. Tenant agrees that, upon the request of Landlord or any
mortgagee or any beneficiary named in such mortgage or deed of trust, Tenant
will execute and deliver an instrument confirming such purposes. Tenant, in the
event of the sale or assignment of Landlord's interest in the Shopping Center or
in the event of any proceedings brought for the foreclosure of such mortgage or
deed of trust, or in the event of the exercise of the power of sale under any
such deed of trust, shall attorn to and recognize such purchaser, mortgagee or
beneficiary as Landlord under this Lease. Landlord shall use its best efforts to
obtain nondisturbance and attornment agreements in which the holders of all
existing mortgages and deeds of trust on the Leased Premises agree not to
disturb this Lease or any rights of Tenant hereunder in the event of foreclosure
or Trustee's sale, if Tenant is not in default hereunder.
20. Defaults
20.1 Defaults Defined
The following events shall be deemed to be events of default by Tenant
under this Lease:
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(a) If Tenant shall fail to pay any installments of rent, or any other
charge designated herein to be paid as rent, on the date that same is due, and
such failure shall continue for a period of fifteen (15) days after Landlord
gives Tenant written notice thereof.
(b) If Tenant shall fail to comply with any term, condition or
covenant of this Lease, other than the payment of rent, and shall not cure such
failure within thirty (30) days after written notice thereof to Tenant; or if
such failure cannot reasonably be cured within the said thirty (30) days, Tenant
shall not have commenced to cure such failure within thirty (30) days after
written notice thereof by Landlord to Tenant and Tenant shall not with
reasonable diligence and good faith proceed in the curing of such failure.
(c) If Tenant shall become insolvent or shall make an assignment for
the benefit of creditors, or if Tenant files a petition under any chapter of the
U.S. Bankruptcy Code seeking to be adjudicated a bankrupt, or if any other party
files a petition under any section of the U.S. Bankruptcy Code seeking to have
Tenant adjudicated a bankrupt and Tenant fails to have such petition dismissed
within ninety (90) days of filing, or if a receiver or beneficiary shall be
appointed for all or substantially all the assets of Tenant. Tenant agrees that
the Leased Premises is part of a "shopping center" as that term is currently
used in Section 365(b)(3) of the Bankruptcy Code, 11 U.S.C. ss. 365(b)(3).
20.2 Remedies
Upon the occurrence of any of the foregoing events of default, Landlord
shall, without any notice or demand whatsoever, have the option to:
(a) Without terminating this Lease, enter upon and take possession of
the Leased Premises and expel or remove Tenant and any other person who may be
occupying said premises or any part thereof, and attempt to relet the premises
and receive rent therefor; and Tenant agrees to pay to Landlord, on demand, any
deficiency that may arise by reason of such reletting, and all other loss or
damage which Landlord may suffer, including, without limitation, reasonable
alterations to the Leased Premises, reasonable brokerage and marketing expenses,
reasonable attorneys' fees and any concessions granted a new tenant of the
Leased Premises.
(b) Terminate this Lease and enter upon and take possession of the
Leased Premises and expel or remove Tenant and any other person who may be
occupying said premises or any part thereof, and demand and receive from Tenant,
in lump sum, damages in the amount by which the rent provided for herein for the
entire
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remainder of the term discounted to its present cash value at the time of
such reentry exceeds the fair rental value of the Leased Premises for the
remainder of the term as of the time of said reentry discounted to its present
cash value, plus any and all other loss or damage which Landlord may suffer,
including, without limitation, reasonable alterations to the Leased Premises,
brokerage and marketing expenses, reasonable attorneys' fees and any concessions
granted a new tenant of the Leased Premises.
(c) Enter upon the Leased Premises and do whatever Tenant is obligated
to do under the terms of this Lease, and Tenant agrees to reimburse Landlord, on
demand, for expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease, and Tenant further agrees that Landlord
shall not be liable for any damage resulting to Tenant from such action caused
by Landlord, except for damage caused by Landlord's gross negligence or willful
misconduct.
20.3 Remedies Cumulative
Landlord may pursue any of the foregoing remedies singly or cumulatively
and in addition any other remedies provided by law; pursuit of any remedy herein
provided shall not constitute a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages accruing to Landlord by reason of the violation of
any of the terms, conditions and covenants herein contained; no termination or
cancellation shall include a cancellation of Tenant's obligations hereunder for
any deficiency or damage upon reletting subsequent to said termination or
cancellation, such obligations being independent and such covenants surviving
said termination or cancellation.
21. Surrender
Upon the expiration of the term of this Lease or any sooner termination
hereof, Tenant covenants and agrees that Tenant shall, without notice, promptly
and peaceably surrender possession of the Leased Premises to Landlord, broom
clean, in as good a condition as at the time of Tenant's entry thereon,
reasonable wear and tear, and damage from causes beyond Tenant's reasonable
control excepted.
22. Holdover
If Tenant shall hold over and remain in possession of the Leased Premises
after the expiration of the term or extended term herein granted, Tenant shall
remain bound by all the terms, covenants and agreements hereof, except that such
holding over shall be construed to be a tenancy from month to month which may be
terminated at any time by Landlord or Tenant upon thirty (30) days' written
notice. If the holding over
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is with Landlord's written consent, the base rent shall be increased by twelve
and one-half percent (12.5%). If the holding over is without the consent of
Landlord, then the base rent shall be increased to one hundred fifty percent
(150%) of the then current amount.
23. Waiver
Any waiver of any breach of covenants herein contained to be kept and
performed hereunder shall not be deemed or considered as a continuing waiver and
shall not operate to bar or prevent Landlord or Tenant from declaring a default
for any succeeding breach, either of the same condition or covenant or
otherwise. The acceptance of rent by Landlord hereunder shall never be construed
to be a waiver of any term of this Lease. No payment by Tenant or receipt by
Landlord of a lesser amount than shall be due according to the terms of this
Lease shall be deemed or construed to be other than on account of the earliest
rent due.
24. Notices
All notices required or permitted to be given hereunder shall be in writing
and shall be deemed given upon personal service or three (3) days after deposit
in the U.S. mail, postage prepaid, certified or registered, return receipt
requested and addressed as follows:
If to Landlord: South Hill Village Limited Partnership
ANKA Developments, Inc.
345 George Street, 5th Floor
Sydney, 2000, Australia
with a copy to: John T. John
Graham & Dunn
1410 Fifth Avenue, 33rd Floor
Seattle, WA 98101-2890
with a copy to: Seattle Pacific Realty, Inc.
1904 Third Avenue, Suite 710
Seattle, WA 98101
If to Tenant: G.I. Joe's, Inc.
9805 Boeckman Road
Wilsonville, Oregon 97070
Attn.: Norm Daniels, President
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with a copy to: Martin Peterson & Associates
1127 Pine Street, Suite 105
Seattle, Washington 98101
Attn.: Martin L. Peterson
with a copy to: Edward W. Kuhrau
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
with a copy to: Terry De Sylvia
Brownstein, Rask, Arenz, Sweeney, Kerr & Grim
1200 S.W. Main Building
Portland, Oregon 97205
The foregoing addresses may be changed by written notice given in accordance
with the terms of this Section 24.
25. Attorneys' Fees
In the event any action or suit or proceeding is brought to collect the
rent due or to become due hereunder, or any portion thereof, or any other
monetary obligation hereunder, or to obtain possession of the Leased Premises,
or to enforce compliance with this Lease, or for failure to observe any of the
covenants of this Lease, the prevailing party in such suit, action or proceeding
may recover from the other party herein such sum or sums as the trial and/or
appellate court may adjudge reasonable as attorneys' fees to be allowed in said
suit, action or proceeding, or appeal therefrom, in addition to their costs and
disbursements, excepting, however, attorneys' fees and costs in connection with
any arbitration provided for in this Lease.
26. Modification
The terms and conditions of this Lease shall be incapable of modification,
change or amendment, except in writing and bearing the separate signatures in
execution thereof by the parties hereto or their successors in interest.
27. Recordation/Supplement
This Lease shall not be recorded except by agreement of both parties, but,
upon request by either party, the parties shall execute a short form of this
Lease, in form suitable for recording, which shall contain the description of
the Leased Premises, the provisions relating to the term of this Lease,
including all renewals hereof, and a
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reference to this Lease. Landlord and Tenant shall execute a supplement to this
Lease setting forth the Lease Commencement Date and the Rent Commencement Date.
28. Binding Effect
This Lease shall be binding upon the parties hereto, their legal
representatives, heirs and successors and, as far as this Lease is assignable by
the terms hereof, the assigns of such parties. The words "Landlord" and
"Tenant," wherever used in this Lease, shall apply equally and be binding
jointly and severally upon all Landlords and Tenants, whether one or more, and,
together with the accompanying verbs and pronouns, shall apply to all persons,
firms or corporations who may be or become parties as Landlords or Tenants
hereto.
29. Tenant's Improvements
29.1 Plans and Specifications
Landlord shall use best efforts and due diligence to deliver possession of
the Leased Premises to Tenant on or before May 1, 1997 so that Tenant may
construct its improvements and remodel. Tenant shall have a licensed architect
prepare plans and specifications for remodeling the Building and constructing
Tenant's improvements therein. The plans and specifications, once complete,
shall be delivered to Landlord for review. Landlord shall, upon receipt thereof,
promptly review and comment upon the same to Tenant. Tenant shall cooperate with
Landlord and incorporate Landlord's reasonable comments into the final plans and
specifications (the "Plans and Specs"), which shall be completed by June 15,
1997. In the event Landlord and Tenant cannot agree on the Plans and Specs by
such date, then Tenant may terminate this Lease.
29.2 Signs
Tenant shall design, construct and install, at its own cost and in
compliance with all laws, exterior signage for the identification of its
business, subject to Landlord's prior approval, which approval shall not be
unreasonably withheld or delayed. Tenant shall have the right to place its sign
on the two existing Shopping Center pylons in the space formerly occupied by the
sign for BEST Products and on future pylon signs on the same basis as other
tenants in the Shopping Center. Tenant shall have the right to place its sign on
the third pylon now being built upon payment to Landlord of Two Thousand Eight
Hundred Dollars ($2,800).
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29.3 Construction of Tenant's Improvements
Upon approval of the Plans and Specs, Tenant shall apply for a building
permit and, upon issuance thereof, shall commence and complete construction, at
its own expense, of Tenant's improvements of the Building, substantially in
accordance with the Plans and Specs. Said construction will be prosecuted with
due diligence and Tenant will use due diligence and reasonable efforts to stock
the Leased Premises and open for business by a date not later than the Lease
Commencement Date.
30. Hazardous Substances
30.1 Landlord's Representation
Landlord represents and warrants to Tenant that, to the best of its
knowledge, hazardous substances have not been stored or disposed of on or in the
Leased Premises or the Shopping Center. Furthermore, Landlord covenants with
Tenant that it shall not generate, store or discharge any hazardous substances
in the Shopping Center, nor (by lease or by contract which Landlord shall
enforce) permit the same by any third party.
30.2 Tenant's Covenants
Tenant covenants with Landlord that hazardous substances shall not be
generated or disposed of in the Building or on the Leased Premises by Tenant,
nor shall the same be unlawfully transported to or over the Building or the
Leased Premises by Tenant. Tenant also covenants that any hazardous substances
sold by Tenant in lawful containers or used by Tenant in connection with its
business, such as cleaning agents and the like, shall be used and stored only in
accordance with applicable laws and regulations. Landlord has the right, from
time to time, during normal business hours upon advance notice, to enter the
Leased Premises at reasonable times to conduct tests so as to monitor Tenant's
compliance with the foregoing covenants.
30.3 Definition
"Hazardous substances" shall be interpreted broadly to mean any substance,
waste or material defined or designated as hazardous or toxic waste, hazardous
or toxic material, hazardous, toxic or radioactive substance or other similar
term by any federal, state or local environmental law, regulation or rule
presently in effect or promulgated in the future, as such laws, regulations or
rules may be amended from time to time, and it shall be interpreted to include,
but not be limited to, asbestos.
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30.4 Violations
In the event of any violation of law in regard to hazardous substances,
Landlord, in addition to all other remedies provided herein, shall have the
right to cure the violation and add all costs and expenses associated with such
cure (including reasonable attorneys' fees) as additional rent, which additional
rent will be due and payable by Tenant immediately after Tenant receives notice
thereof. Furthermore, in the event of an illegal and substantial release of
hazardous substances, Tenant shall immediately notify Landlord.
30.5 Mutual Indemnification
Landlord and Tenant shall indemnify, defend and hold harmless the other
from any breach of these representations, warranties or covenants for any
claims, judgments, damages, penalties, fines, costs (including cleanup costs,
environmental consultant's fees and reasonable attorneys' fees), liabilities or
losses (including, without limitation, the diminution in the value of the Leased
Premises, damages for the loss or restriction on the use, marketability or any
other amenity of the Building or the Leased Premises) which arise during or
after the term of this Lease as a result of release, discharge or contamination
of the Leased Premises by any hazardous substances.
31. Common Areas
31.1 Defined
For purposes of this Lease, "Common Areas" shall mean all areas of the
Shopping Center outside the exterior walls of the buildings located thereon
which are not reserved for the exclusive use of Landlord, Tenant or any other
tenant or occupant of the Shopping Center as described in the Declaration of
Covenants. Common Areas shall include automobile parking areas, access roads,
driveways, sidewalks, pedestrian walkways and stairways, landscaped areas and
utility lines and systems. Common Areas shall not include the interior space of
any building located in the Shopping Center or any area immediately appurtenant
to such building which is reserved for the exclusive use of such building, such
as loading docks.
31.2 Landlord's Obligations
Landlord shall, at all times during the term of this Lease, keep the Common
Areas in good maintenance and repair, and shall
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(a) maintain suitable means of illumination sufficient to illuminate
the parking areas during all twilight and night hours that Tenant's store is
open for business and is in operation;
(b) maintain and keep the parking areas, driveways, sidewalks and
access roads in good condition and repair, with a hard surface pavement and
properly striped;
(c) clean and remove debris and, where reasonably practicable, ice and
snow from the parking areas, driveways and access roads;
(d) clean and maintain sidewalks and other pedestrian walkways and
stairways and remove debris and, where reasonably practicable, ice and snow
therefrom; provided, however, that Tenant shall keep the sidewalk immediately in
front of the Leased Premises clean and free from debris, ice and snow;
(e) maintain and keep in good condition all landscaping and irrigation
systems;
(f) maintain all pylon signs;
(g) keep the exterior of all buildings in the Shopping Center in good
repair and paint as necessary;
(h) maintain all other portions of the Common Areas in good order and
repair; and
(i) obtain and maintain insurance insuring both Landlord and Tenant as
herein provided.
31.3 Tenant's Pro Rata Share
(a) Beginning on the Rent Commencement Date, Tenant shall pay to
Landlord, in the manner provided below, Tenant's pro rata share of Landlord's
actual costs of maintaining and operating the Common Areas during the term of
the Lease. "Actual costs of maintaining and operating the Common Areas" shall be
limited only to items of expense, and not capitalized, as determined under
generally accepted accounting principles and shall include, but not be limited
to, the following: all necessary amounts paid by Landlord as actual costs for
maintaining and repairing the Common Areas, including, without limitation,
cleaning; snow and ice removal; costs and expenses of planting, replanting and
replacing flowers, shrubs and landscaping; water and sewage charges;
maintenance, repair and replacement of lights, light
LEASE PAGE 11
<PAGE> 22
standards, utility systems, electricity, drainage systems and other utility
charges; repair, maintenance and upkeep of the parking areas, driveways, access
roads, sidewalks and pedestrian walkways, including the costs of paving,
repaving, surfacing, resurfacing, striping and restriping the same; operation
and maintenance of signs for the Shopping Center or rental for such signs if
leased; installation, replacement, repair and maintenance of traffic control and
directional signs and devices; premiums for insurance as herein provided;
existing and future real property taxes and assessments (in the event such
assessments are assessed, Landlord shall elect, if permitted to do so, to pay
the amount of such assessments in installments, and, thereafter, only the amount
of the installment paid shall be included in the actual costs of maintaining and
operating the Common Areas); personal property taxes on equipment and materials
used to maintain the Common Areas; and policing the Common Areas, including
controlling trespassing, picketing, demonstrations, assemblies, vandalism and
thefts and affording security and fire protection therefor. "Actual costs of
maintaining and operating the Common Areas" shall also include an administrative
fee of ten percent (10%) of the above-described costs; provided, that, in
computing said administrative fee, all capital items and all replacement items
in excess of Ten Thousand Dollars ($10,000) per annum, real estate taxes and
assessments and insurance premiums shall be excluded. Items of expense shall not
include management fees, depreciation, reserves for replacement or items of
capital improvements exceeding Ten Thousand Dollars ($10,000) per annum without
Tenant's prior written consent. Landlord agrees to expend only the monies
reasonably necessary for such operation and maintenance in order to keep the
Common Areas in good repair and clean condition and to operate the same on a
nonprofit basis. Costs attributable to a contract between Landlord and an
affiliated party shall not be included, unless that contract is previously
approved in writing by Tenant. Tenant's approval shall not be unreasonably
withheld.
(b) Tenant's pro rata share of the necessary actual costs of
maintaining and operating the Common Areas limited as provided above shall be a
percentage computed by dividing the interior floor area of the Leased Premises,
which is hereby agreed to be fifty-two thousand three hundred (52,300) square
feet at the Lease Commencement Date, by the total floor area of all buildings in
the Shopping Center. At the Lease Commencement Date, Tenant's pro rata share is
as follows: 32.5662% of the actual costs of maintaining and operating the Common
Areas as described in Section 31.1, except real estate taxes and assessments and
insurance premiums; 36.8318% of real estate taxes and assessments and
casualty/property insurance premiums including earthquake coverage; and 32.5662%
of liability insurance premiums. If Tenant approves a change in the Site Plan
which increases or decreases the floor area of the Building relative to the
aggregate floor area of the other
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<PAGE> 23
buildings to be constructed in the Shopping Center, then Tenant's pro rata share
shall be adjusted accordingly.
(c) The annual charge to Tenant shall be paid in monthly installments,
in advance, at the time of the base rent payment, in an amount estimated by
Landlord. On or before April 1 of each calendar year (and within ninety (90)
days after the termination of this Lease), Landlord shall furnish Tenant with a
statement in reasonable detail of the actual costs of maintaining and operating
the Common Areas actually paid or incurred by Landlord during such period, and,
thereupon, there shall be an adjustment between Landlord and Tenant, with
payment to or repayment by Landlord, as required, so that Landlord shall receive
the entire amount of Tenant's pro rata share of such costs for such period.
31.4 Rules and Regulations
Subject to the provisions of the Declaration of Covenants and grant of
easements which may now or hereafter (with Tenant's prior written consent) be
filed of record with respect to the Leased Premises and the Common Areas, the
Common Areas will be maintained for the common use of all lessees and sublessees
of Landlord, their customers, visitors, employees, business invitees and
licensees and persons dealing with lessees, sublessees and Landlord. Neither
Tenant nor Landlord shall do any act to unreasonably prevent or obstruct such
common use and free ingress to and egress from the Common Areas; provided,
however, that Landlord may make such rules and regulations governing the use of
the Common Areas as may be reasonably necessary to regulate the use of such
Common Areas, and may restrict the use of or access to any portion of the Common
Areas when such restriction is necessary or advisable for purposes of security
or safety, or for the construction, reconstruction, repair, maintenance or
preservation of the Common Areas or any buildings located in the Shopping
Center. Notwithstanding anything to the contrary herein contained, Tenant shall
have the right to use the sidewalk in front of the Building and/or certain
portions of the parking areas, from time to time, for sidewalk sales, parking
lot sales, special events, or product demonstrations, provided that such use
does not materially violate the Declaration of Covenants.
32. Protective Covenants
Landlord and Tenant agree that the Shopping Center shall be subject to the
Declaration of Covenants. Landlord covenants that the Leased Premises shall not
be denied access to, or have the view unreasonably obstructed from, any publicly
dedicated street or highway adjoining the Shopping Center, except as shown on
the Site Plan. Landlord shall have the right to convey portions of the Shopping
Center
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<PAGE> 24
to third parties, provided such third parties agree to be bound by the
Declaration of Covenants. Landlord shall not consent to any amendment of the
Declaration of Covenants without Tenant's prior written consent.
33. Assignment and Subletting
Tenant may, without the prior written consent of Landlord, license any
concession or sublet any portion at the Leased Premises not exceeding two
thousand five hundred (2,500) square feet to any single concessionaire or
subtenant, so long as the primary use of the Leased Premises is not changed.
Tenant may also assign all of its interest under this Lease, or sublet all or
any portion of the Leased Premises, if the proposed assignee or sublessee has a
net worth greater than or equal to Tenant on the date hereof and the use of the
Leased Premises by the proposed assignee or sublessee shall be for a primary
purpose or purposes then permitted under this Lease. Tenant may, in all other
cases, assign all of its interest under this Lease, or sublet all or any part of
the Leased Premises, only with the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.
34. Zoning; Permitted Uses
Landlord hereby represents and warrants to Tenant that the use of the
Leased Premises as a G.I. Joe's store does not breach any protective covenants,
agreements or exclusivity rights granted by Landlord to other tenants in the
Shopping Center or binding upon the Leased Premises, which were not recorded as
of March 26, 1997.
35. Structure
Landlord represents and warrants to Tenant that the structural elements of
the Building, including the roof and floor slab, are in good condition and
repair, ready for construction of Tenant's improvements, except as disclosed in
writing to Tenant prior to execution of this Lease.
36. Assessments
Landlord represents and warrants to Tenant that it has no actual knowledge
of any pending tax assessments or formation of special taxing districts
affecting the Shopping Center.
37. Brokerage
Landlord and Tenant agree that neither has dealt with any broker other than
Seattle Pacific Realty, Inc. and Martin Peterson & Associates with respect to
the
LEASE PAGE 24
<PAGE> 25
negotiation or execution of this Lease. Landlord covenants and agrees to pay
to Seattle Pacific Realty, Inc. the sum of Fifty-Two Thousand One Hundred
Twenty-Five Dollars ($52,125) commission, which will be paid in nine (9) equal
monthly installments of Five Thousand Seven Hundred Ninety-One and 67/100
Dollars ($5,791.67) beginning on the Rent Commencement Date. Landlord covenants
and agrees to pay Martin Peterson & Associates Seventy-Eight Thousand Two
Hundred Twenty-Five Dollars ($78,225) commission, which shall be paid in nine
(9) equal monthly installments of Eight Thousand Six Hundred Ninety-One and
67/100 Dollars ($8,691.67) beginning on the Rent Commencement Date. Furthermore,
Landlord shall indemnify, defend and hold harmless Tenant from and against any
loss, damage, claim, cost or expense which Tenant may incur as the result of a
failure by Landlord to pay such brokerage commissions.
38. Estoppels
Landlord or Tenant shall, at any time and from time to time, upon not less
than ten (10) business days' prior written notice from the other, execute,
acknowledge and deliver to Landlord or Tenant, as the case may be, a statement
in writing (a) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified is in full force and effect) and the date to
which the rental and other charges are paid in advance, if any; (b)
acknowledging that, to Landlord's or Tenant's knowledge, there are no uncured
defaults on the part of Landlord or Tenant, as the case may be, or specifying
such defaults if any are claimed; and (c) setting forth the date of commencement
of rents and expiration of the term hereof. Any such statement may be relied
upon by the prospective purchaser or encumbrancer of all or any part of the
Shopping Center.
39. Survey
Landlord promptly shall furnish to Tenant a copy of Landlord's as-built
survey of the Leased Premises.
40. Configuration of Shopping Center
Landlord shall at all times, and from time to time, have the right and
privilege of making changes to the configuration of the Shopping Center,
including the size and location of building pads, Common Areas and parking
areas, the location and relocation of driveways, entrances, exits and parking
spaces, the direction and flow of traffic, the installation of prohibited areas,
landscaped areas, and all other facilities thereof, so long as no such
reconfiguration (a) materially impairs access to or from, or
LEASE PAGE 25
<PAGE> 26
visibility of the Leased Premises from, any publicly dedicated street or
highway, (b) materially reduces the amount or location of parking available for
the Leased Premises, or (c) materially increases Tenant's pro rata share of the
actual costs of maintaining and operating the Common Areas.
41. Arbitration
All disputes between Landlord and Tenant under this Lease, other than
nonpayment of rent, shall be arbitrated and decided by a single arbitrator
mutually agreed to by the parties under such terms as the parties may agree
upon. If the parties cannot agree upon an arbitrator or the terms of
arbitration, either party may apply to the American Arbitration Association for
appointment of a qualified, disinterested arbitrator and the arbitration will be
conducted pursuant to the commercial rules of the American Arbitration
Association. All costs of the arbitrator shall be shared equally by Landlord and
Tenant.
42. Operating Covenant
Tenant covenants that it will not cease operation in the Leased Premises
for any period exceeding one hundred eighty (180) days in any one-year period,
excluding periods in which operations are discontinued for remodeling or repair
following damage from casualty loss or loss of utilities, parking or access to
the Shopping Center or Leased Premises. In the event one or more tenants
comprising fifty thousand (50,000) square feet or more of gross floor area in
the Shopping Center cease operating, then Tenant shall have the right to cease
operating until such tenant or tenants reopen for business.
43. Effective Date
Notwithstanding the references herein to the Lease Commencement Date and
the Rent Commencement Date, this Lease shall be binding upon Landlord and Tenant
upon execution and delivery hereof.
[Remainder of page intentionally left blank]
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this instrument on the date
first above written.
Landlord:
SOUTH HILL VILLAGE LIMITED PARTNERSHIP,
a Washington Limited Partnership
By ANKA Developments, Inc.
General Partner
By /s/ JOHN T. JOHN
----------------------------------
Name: John T. John
---------------------------
Title: Authorized Signator/Agent
--------------------------
Tenant:
G.I. JOE'S, INC., an Oregon corporation
By /s/ NORMAN DANIELS
--------------------------------------
Name: Norman Daniels
-------------------------------
Title: President
------------------------------
LEASE PAGE 27
<PAGE> 28
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 21st day of May, 1997, before me, the undersigned, a Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared John T. John, to me known to be the person who signed as authorized
signator/agent of ANKA DEVELOPMENTS, INC., the corporation acting as general
partner of South Hill Village Limited Partnership, the limited partnership that
executed the within and foregoing instrument, and acknowledged said instrument
to be the free and voluntary act and deed of ANKA Development, Inc. and South
Hill Village Limited Partnership for the uses and purposes therein mentioned;
and on oath stated that he/she was duly elected, qualified and acting as an
officer of the corporation, that he/she was authorized to execute said
instrument on behalf of the corporation and that the corporation was authorized
to execute said instrument on behalf of the limited partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day
and year first above written.
/s/ SCOTT B. OSBORNE
-----------------------------------------
(Signature of Notary)
Scott B. Osborne
-----------------------------------------
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State of
Washington, residing at Seattle. My
Appointment Expires: 8/29/98.
LEASE PAGE 28
<PAGE> 29
STATE OF OREGON )
) ss.
COUNTY OF CLACKAMAS )
On this 13th day of May, 1997, before me, the undersigned, a Notary Public
in and for the State of Oregon, commissioned and sworn, personally appeared Norm
Daniels, to me known to be the person who signed as President of G.I. JOE'S,
INC., the corporation that executed the within and foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes therein mentioned, and on oath stated that
he was duly elected, qualified and acting as said officer of the corporation,
that he was authorized to execute said instrument and that the seal affixed, if
any, is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day
and year first above written.
/s/ BARBARA MALLERY
-----------------------------------------
(Signature of Notary)
Barbara Mallery
-----------------------------------------
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State of
Oregon, residing at Tigard. My
Appointment Expires: 3-12-99.
LEASE PAGE 29
<PAGE> 30
EXHIBIT A
TO
LEASE
SOUTH HILL VILLAGE LIMITED PARTNERSHIP/
G.I. JOE'S, INC.
PARCEL #1:
Commencing at the Northeast corner of the Northwest quarter of the Southwest
quarter of SECTION 3, TOWNSHIP 19 NORTH, RANGE 4 EAST of the Willamette
Meridian;
Thence along the North line of said subdivision, North 88 degrees 34 minutes 04
seconds West, 769.89 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 27.00 feet to the Southerly
margin of 31st Avenue Southeast, as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692,
and the true point of beginning;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 442.03
feet;
Thence South 03 degrees 58 minutes 13 seconds East 0.22 feet to a point on a
non-tangent curve concave to the Southeast, the radius point of which bears
South 04 degrees 37 minutes 19 seconds East, 40.00 feet;
Thence Southwesterly, along said curve through a central angle of 85 degrees 17
minutes 17 seconds for an arc distance of 59.54 feet to the Easterly margin of
Meridian Street as established by City of Puyallup Vacation Ordinance No. 2406
and recorded under Auditor's Fee No. 9409130085;
Thence along said Easterly margin, South 00 degrees 05 minutes 24 seconds West
127.47 feet to the P.C. of a curve concave to the Northwest having a radius of
196.45 feet;
Thence Southwesterly, along said curve through a central angle of 18 degrees 31
minutes 51 seconds for an arc distance of 63.54 feet;
Thence South 18 degrees 37 minutes 15 seconds West, 48.83 feet to the P.C. of a
curve concave to the Northwest having a radius of 268.18;
Thence Southwesterly, along said curve through a central angle of 05 degrees 12
minutes 48 seconds for an arc distance of 24.40 feet;
Thence South 23 degrees 50 minutes 03 seconds West 159.49 feet;
Thence South 00 degrees 56 minutes 32 seconds West, 175.15 feet to the Northerly
margin of SR 512-5N;
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<PAGE> 31
Thence along said Northerly margin South 40 degrees 13 minutes 03 seconds East,
132.28 feet;
Thence South 25 degrees 14 minutes 05 seconds East 64.54 feet;
Thence South 14 degrees 48 minutes 43 seconds East 70.32 feet;
Thence South 12 degrees 43 minutes 50 seconds East 46.47 feet;
Thence South 06 degrees 40 minutes 55 seconds East 242.20 feet;
Thence leaving said margin South 89 degrees 03 minutes 24 seconds East 144.21
feet;
Thence South 00 degrees 54 minutes 36 seconds West 83.53 feet to a point of
curvature;
Thence Southwesterly, along a curve concave to the right with a radius of 35.00
feet, through a central angle of 94 degrees 31 minutes 35 seconds for an arc
distance of 57.74 feet;
Thence North 84 degrees 31 minutes 49 seconds West 79.17 feet to a point of
curvature;
Thence Northwesterly, through a curve concave to the right with a radius of
35.00 feet, through a central angle of 99 degrees 10 minutes 32 seconds for an
arc distance of 60.58 feet to the Easterly margin of SR 161;
Thence along said Easterly margin South 14 degrees 38 minutes 43 seconds West
53.94 feet to the Northerly margin of 35th Avenue Southeast as conveyed to the
City of Puyallup by deed recorded under A.F.N. 9406200691;
Thence South 69 degrees 55 minutes 13 seconds East, along said Northerly margin,
30.27 feet;
Thence South 84 degrees 31 minutes 49 seconds East, along said Northerly margin,
119.98 feet;
Thence South 89 degrees 03 minutes 24 seconds East, along said Northerly margin,
136.24 feet;
Thence North 00 degrees 56 minutes 36 seconds East 560.00 feet;
Thence, parallel with said Northerly margin, South 89 degrees 03 minutes 24
seconds East 125.09 feet;
Thence North 00 degrees 56 minutes 36 seconds East 709.56 feet to the Southerly
margin of 31st Avenue Southeast as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692, and the true point of beginning.
EXCEPT THEREFROM the following three parcels:
Commencing at a point 30 feet North and 30 feet West of the Southeast corner of
the Northwest quarter of the Southwest quarter of SECTION 3, TOWNSHIP 19 NORTH,
RANGE 4 EAST, W.M., Pierce County, Washington;
Thence parallel with the South line of said subdivision, North 89 degrees 03
minutes, 24 seconds West 904 feet;
Thence North 00 degrees 56 minutes 36 seconds East 549.78 feet;
PAGE 2
<PAGE> 32
Thence parallel with the South line of said subdivision, North 89 degrees 03
minutes 24 seconds West, 126.10 feet to the true point of beginning;
Thence continue North 89 degrees 03 minutes 24 seconds West, 179.81 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 89.84 feet;
Thence South 35 degrees 23 minutes 29 seconds East, 68.32 feet;
Thence parallel with the South line of said subdivision, south 89 degrees 03
minutes 24 seconds East 139.33 feet;
Thence North 00 degrees 56 minutes 36 seconds East, 144.88 feet to the true
point of beginning.
Commencing at the Northeast corner of the Northwest quarter of the Southwest
quarter of SECTION 3, TOWNSHIP 19 NORTH, RANGE 4 EAST of the Willamette
Meridian;
Thence along the North line of said subdivision, North 88 degrees 34
minutes 04 seconds West, 769.89 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 27.00 feet to the Southerly
margin of 31st Avenue Southeast, as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692;
Thence North 88 degrees 34 minutes 04 seconds West along said margin, 219.01
feet, and the true point of beginning;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 223.02
feet;
Thence South 03 degrees 58 minutes 13 seconds East, 0.22 feet to a point on a
non-tangent curve concave to the Southeast, the radius point of which bears
South 04 degrees 37 minutes 19 seconds East, 40.00 feet;
Thence Southwesterly, along said curve through a central angle of 85 degrees 17
minutes 17 seconds for an arc distance of 59.54 feet to the Easterly margin of
Meridian Street as established by City of Puyallup Vacation Ordinance No. 2406
and recorded under Auditor's Fee No. 9409130085;
Thence along said Easterly margin, South 00 degrees 05 minutes 24 seconds West
127.47 feet to the P.C. of a curve concave to the Northwest having a radius of
196.45 feet;
Thence Southwesterly, along said curve through a central angle of 18 degrees 31
minutes 51 seconds for an arc distance of 63.54 feet;
Thence South 18 degrees 37 minutes 15 seconds West, 48.83 feet to the P.C. of a
curve concave to the Northwest having a radius of 268.18;
Thence Southwesterly, along said curve through a central angle of 05 degrees 12
minutes 48 seconds for an arc distance of 24.40 feet;
Thence South 23 degrees 50 minutes 03 seconds West 159.49 feet;
Thence South 00 degrees 56 minutes 32 seconds West, 175.15 to the Northerly
margin of SR 512-5N;
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<PAGE> 33
Thence along said Northerly margin South 40 degrees 13 minutes 03 seconds East,
102.95 feet;
Thence, leaving said margin, South 89 degrees 03 minutes 24 seconds East 259.03
to a point of curvature;
Thence Northeasterly, along a 25.00 foot radius curve to the left, through a
central angle of 90 degrees for an arc distance of 39.27 feet;
Thence North 00 degrees 56 minutes 36 seconds East 672.76 feet to the Southerly
margin of 31st Avenue Southeast as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692, and the true point of beginning.
Commencing at a point 30.00 feet North and 30.00 feet West of the Southeast
corner of the Northwest quarter of the Southwest quarter of SECTION 3, TOWNSHIP
19 NORTH, RANGE 4 EAST of the Willamette Meridian;
Thence parallel with the South line of said subdivision, North 89 degrees 03
minutes 24 seconds West, 1027.74 feet;
Thence North 00 degrees 56 minutes 36 seconds East, 20.00 feet to the true point
of beginning;
Thence continuing North 00 degrees 56 minutes 36 seconds East 120.79 feet;
Thence South 89 degrees 03 minutes 24 seconds East, 110.58 feet;
Thence South 00 degrees 57 minutes 45 seconds West, 120.79 feet;
Thence North 89 degrees 03 minutes 24 seconds West, 110.54 feet to the true
point of beginning.
PARCEL #2:
Commencing at the Northeast corner of the Northwest quarter of the Southwest
quarter of SECTION 3, TOWNSHIP 19 NORTH, RANGE 4 EAST of the Willamette
Meridian;
Thence along the North line of said subdivision, North 88 degrees 34 minutes 04
seconds West, 769.89 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 27.00 feet to the Southerly
margin of 31st Avenue Southeast, as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 219.01
feet, and the true point of beginning;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 223.02
feet;
Thence South 03 degrees 58 minutes 13 seconds East, 0.22 feet to a point on a
non-tangent curve concave to the Southeast, the radius point of which bears
South 04 degrees 37 minutes 19 seconds East, 40.00 feet;
Thence Southwesterly, along said curve through a central angle of 85 degrees 17
minutes 17 seconds for an arc distance of 59.54 feet to the Easterly margin of
PAGE 4
<PAGE> 34
Meridian Street as established by City of Puyallup Vacation Ordinance No. 2406
and recorded under Auditor's Fee No. 9409130085;
Thence along said Easterly margin, South 00 degrees 05 minutes 24 seconds West,
127.47 feet to the P.C. of a curve concave to the Northwest having a radius of
196.45 feet;
Thence Southwesterly along said curve through a central angle of 18 degrees 31
minutes 51 seconds for an arc distance of 63.54 feet;
Thence South 18 degrees 37 minutes 15 seconds West, 48.83 feet to the P.C. of a
curve concave to the Northwest having a radius of 268.18;
Thence Southwesterly, along said curve through a central angle of 05 degrees 12
minutes 48 seconds for an arc distance of 24.40 feet;
Thence South 23 degrees 50 minutes 03 seconds West, 159.49 feet;
Thence South 00 degrees 56 minutes 32 seconds West, 175.15 feet to the Northerly
margin of SR 512-5N;
Thence along said Northerly margin South 40 degrees 13 minutes 03 seconds East,
102.95 feet;
Thence leaving said margin, South 89 degrees 03 minutes 24 seconds East 259.03
feet to a point of curvature;
Thence Northeasterly, along a 25.00 foot radius curve to the left, through a
central angle of 90 degrees for an arc distance of 39.27 feet;
Thence North 00 degrees 56 minutes 36 seconds East 672.76 feet to the Southerly
margin of 31st Avenue Southeast as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692, and the true point of beginning.
ALL Situate in the County of Pierce, State of Washington.
PAGE 5
<PAGE> 35
EXHIBIT B
[Site Plan]
PAGE 1
<PAGE> 1
EXHIBIT 10.13
L E A S E
THIS LEASE, Made this 23 day of June, 1989, by and between THE HENWAY
GROUP XII, (an Oregon Partnership) hereinafter called "Lessor," and G.I. JOE'S,
INC., an Oregon corporation, hereinafter called "Lessee":
W I T N E S S E T H :
In consideration of the rentals hereinafter covenanted to be paid by
the Lessee to the Lessor, and of the other terms and conditions of this Lease to
be performed by the Lessee, the Lessor does hereby lease unto Lessee the
following described premises:
A tract of land in the Northeast quarter of Section 34, Township 2
North, Range 2 East of the Willamette Meridian, and in the Northwest
quarter of Section 35, Township 2 North, Range 2 East of the
Willamette Meridian, Clark County, Washington, described as follows:
Commencing at the Southeast corner of Lot 4 of that certain short plat
recorded in Book 2 of Short Plats at page 168; thence North
89(degree)15'22" West along the South line of said Lot 4 a distance of
265.06 feet to the true point of beginning of the tract herein
described; thence North 89(degree)15'22" West, along the South line of
said Lot 4 a distance of 275.02 feet to the most Westerly corner of
said Lot 4; thence Northeasterly, 361.28 feet along the Westerly line
of said Lot 4 on the arc of a 230.00 foot radius curve concave
Northwesterly through a central angle of 90(degree)00'; thence North
0(degree)44'53" East, 329.04 feet along the Westerly line of said Lot
4; thence Northeasterly, 34.73 feet along the Northwesterly line of
said Lot 4 on the arc of a 20 foot radius curve concave Southeasterly
through a central angle of 99(degree)30'10"; thence South
10(degree)15'03" West, 20.00 feet to a point that is East 20.00 feet
from the West line of said Lot 4; thence South 0(degree)44'53" West,
140.02 feet; thence South 89(degree)15'22" East, 210.50 feet; thence
North 0(degree)44'53" East, 125.05 feet to the
PAGE 1 - LEASE
<PAGE> 2
North line of said Lot 4; thence South 79(degree)44'57" East, 190.29
feet to a point that is North 79(degree)44'57" West, 193.91 feet from
the Northeast corner of Lot 1 of that certain short plat recorded in
Book 2 of Short Plats at Page 164; thence South 10(degree)15'03" West,
64.98 feet; thence South 0(degree)44'38" West, 52.00 feet; thence
South 89(degree)15'22" East, 75.79 feet; thence South 0(degree)44'38"
West, 152.68 feet; thence North 65(degree)00' West, 83.13 feet; thence
South 0(degree)44'38" West, 40.00 feet; thence North 89(degree)15'22"
West, 12.47 feet; thence South 0(degree)44'38" West, 112.83 feet;
thence South 89(degree)15'22" East, 10.32 feet; thence South
53(degree)05'16" East, 65.56 feet; thence South 0(degree)44'38" West,
71.48 feet to a point that is 15.00 feet Northerly from when measured
perpendicular to, the Easterly extension of the South line of the
aforesaid Lot 4; thence North 89(degree)15'22" West, 358.24 feet
parallel with the South line of said Lot 4; thence North
0(degree)44'38" East, 238.00 feet; thence North 89(degree)15'22" West,
55.00 feet; thence South 0(degree)44'38" West, 253.00 feet to the
point of beginning.
upon the following terms, conditions, and covenants:
1. The term of this Lease shall be twenty-five (25) years, beginning
on June 23, 1989, and ending June 22, 2014.
2. At the expiration of the original term of this Lease, if Lessee is
not then in default under any of the provisions hereof, Lessor hereby grants to
Lessee the option to renew this Lease for an additional period of ten (10) years
from and after the date of expiration of the term hereof, upon the same terms,
covenants, and conditions herein set forth, except that the monthly rental for
the leased premises shall be negotiated by the parties prior to the time of
Lessee's exercise of such option, which rental shall be a reasonable rental for
the new term of the lease, considering real estate rental values in the
neighborhood of the leased premises at the time of the exercise of such option.
If Lessee elects to exercise said option to renew, Lessee shall
PAGE 2 - LEASE
<PAGE> 3
do so by giving Lessor written notice thereof not less than One hundred twenty
(120) days prior to the last day of the term of this Lease. The giving of such
notice shall be sufficient to make this Lease binding for the renewal term
without further act of the parties.
3. (a) Lessee shall pay to Lessor, as rental for the leased premises,
the sum of Thirty eight thousand two hundred sixty and 00/100 Dollars
($38,260.00) per month. The monthly rental shall be paid, in advance, on or
before the first day of each calendar month during the term of this Lease,
commencing on July 1, 1989. Rent for the first and last months of the lease term
shall be prorated on a daily basis if the Lease commences or terminates on a day
other than the first day of the month.
(b) The Lessee shall pay, as additional rental, before any fine,
penalty, interest, or cost may be added thereto for the nonpayment thereof, all
ad valorem taxes, assessments, water rates and water charges, and other
governmental levies and charges of any kind which are assessed or imposed upon
the leased property, including both the land and improvements thereon, or any
part thereof, or which become payable during the term of this Lease and any
extensions thereof. All taxes assessed prior to but payable in whole or in
installments after the commencement of the term, and all taxes assessed during
the term but payable in whole or in installments after the end of the term,
shall be adjusted and prorated so that Lessor shall pay its prorated share for
the period prior to and for the period
PAGE 3 - LEASE
<PAGE> 4
subsequent to the term of this Lease, and the Lessee shall pay its prorated
share for the term of this Lease.
(c) If rent is not paid within Ten (10) days after it is due Lessor
may, at its option, impose a late charge of One Thousand and no/100 Dollars
($1,000). Unpaid rent shall bear interest at the rate of Ten Percent (10%) per
annum from the date it is due until paid.
4. (a) In addition to the basic rent specified above, Lessee shall pay
to Lessor, as percentage rent, an amount equal to one and one-half Percent (1
1/2%) of Lessee's annual gross receipts during the preceding lease year (a lease
year to consist of Twelve [12] calendar months beginning February and ending the
following January) in excess of Fifteen million three hundred four thousand and
00/100 Dollars ($15,304,000.00). Payments of percentage rent shall be made on or
before the first day of each April following the end of each lease year,
commencing with the lease year ending January, 1990, and continuing through the
remainder of the term of this Lease to and including the first day of February
following the expiration or sooner termination of this Lease. The annual
exclusion for the first and last years of this Lease shall be prorated from the
first day of the first full month and to the last day of the last full month of
the lease term, respectively. A statement setting forth how the percentage rent
for the preceding lease year is computed, and reconciled with the payment
actually made, shall be submitted to Lessor on or before the date upon
PAGE 4 - LEASE
<PAGE> 5
which the percentage rent for the preceding lease year is due, regardless of
whether any such additional rent shall be payable hereunder.
(b) The term "gross receipts" means the amount paid or payable for all
goods sold or services rendered upon or from any part of the leased premises by
Lessee or by any other person, whether at retail or wholesale, and including
credit transactions. Sales made or services rendered by Lessee, directly or
indirectly from any other premises because of orders originating in or arising
out of business transacted on the leased premises are included. Goods
transferred to Lessee's other places of business for bona fide business reasons
and not to avoid percentage rent are excluded. Amounts paid by Lessee as a sales
tax or other excise tax on account of sales, and amounts refunded or cancelled
on goods returned or on which adjustments are made are excluded; amounts not
collected on credit sales shall not be excluded.
(c) At any time after Lessee's statement of annual receipts and
percentage rent is due, whether or not it has been submitted and whether or not
Lessor has accepted a deficiency payment or refunded an excess, Lessor may
request an audit of Lessee's gross receipts by a certified public accountant
selected by Lessor. The accountant shall have access to all of Lessee's records
and shall take such steps as the accountant deems necessary to determine
Lessee's gross receipts. The accountant's determination of Lessee's gross
receipts shall be final and binding upon both parties, and payments required to
make adjustments in rent to conform to the accountant's determination shall be
made within Ten (10) days after receipt of the accountant's
PAGE 5 - LEASE
<PAGE> 6
written determination by the party obligated to make the payment. The cost of
the accountant's determination shall be borne by either or both parties,
depending upon the difference in percentage rent shown to be due, as follows:
Less than One Percent (1%) additional due, by Lessor; from One Percent (1%) to
Three percent (3%) additional due, by Lessor and Lessee equally; over Three
percent (3%) additional due, by Lessee.
(d) Lessee shall keep in the premises, at its corporate headquarters
in Wilsonville, Oregon, a permanent, accurate set of books and records
pertaining to gross receipts derived from business conducted on or from the
leased premises during each day of the term hereof, and all supporting records
and such other pertinent records shall be kept, retained, and preserved for at
least Three (3) years after the expiration of each lease year. Lessee shall
keep, retain, and preserve for at least Two (2) years after the expiration of
each lease year all original sales records, including sales slips or sales
checks, cash register tapes, and any other pertinent, original sales record. All
such books and records, as well as copies of Lessee's federal and state income
tax returns for the relevant years, shall be open to inspection and audit by
Lessor and/or Lessor's agents at all reasonable times during ordinary business
hours.
(e) Lessee shall occupy the leased premises continuously for the
purpose stated in this Lease and carry on business during the hours customary in
comparable businesses similarly situated. This shall not prevent Lessee from
closing for brief periods when reasonably necessary for inventory, repairs,
remodeling (when
PAGE 6 - LEASE
<PAGE> 7
permitted), or other legitimate purposes related to the business carried on, or
when closure is the result of a labor dispute, however caused, or other factors
not within Lessee's control.
(f) Lessor is not, by virtue of this Paragraph, a partner or joint
venturer with Lessee in connection with the business carried on under this
Lease, and Lessor shall have no obligation with respect to Lessee's debts or
other liabilities, and no interest in Lessee's profits.
5. All rent shall be payable at the offices of the Lessor in
Wilsonville, Oregon, or at such other place as the Lessor or its authorized
agent may from time to time designate in writing.
6. Lessor is leasing the leased premises for use as general
merchandise store, and Lessee shall use the leased premises for no other purpose
during the term of this Lease without the written consent of Lessor.
7. Lessee shall neither make nor knowingly permit any unlawful,
improper, immoral, or offensive use of said premises, or any portion thereof,
which will, in any way, tend to create a nuisance or to disturb any persons in
the neighborhood of the leased premises, or to unduly create or cause a fire
hazard, or to increase the fire insurance on the leased premises, or to permit
any nuisance which shall in any way be a violation of the statutes and laws of
the State of Oregon or the laws and ordinances of any political subdivision
thereof. Lessee covenants and agrees to comply with all applicable rules,
orders, notices, and regulations of any municipal,
PAGE 7 - LEASE
<PAGE> 8
state, or other authority respecting the leased premises, provided that Lessee
shall not be required to pay for any capital improvements to the premises
required thereby.
8. Lessee agrees to keep and maintain all of the leased premises in a
clean and sanitary condition and not to suffer or permit any strip or waste
thereof.
9. Lessee shall pay for all heat, light, power, water, sewage, and
other services or utilities used by Lessee on the leased premises, and shall pay
the charges therefor as the same become due.
10. Lessor shall not be required to make any repairs, alterations, or
improvements to or upon the leased premises during the term of this Lease.
Lessee shall maintain the leased premises in good order and repair during the
term of this Lease at Lessee's own cost and expense, reasonable wear and tear
excepted. If Lessee refuses or neglects to make repairs as required as soon as
reasonably possible after written demand, the Lessor may, at Lessor's option,
make such repairs, without liability for interruption of the conduct of business
on the premises, and, upon completion of the repairs and presentation of a bill
therefor, the cost of such repairs shall be paid by Lessee. At the Lessor's
election, such sums owed by Lessee may be deemed additional rent.
11. Lessee agrees to permit Lessor and Lessor's agents to enter upon
the leased premises or any part thereof at all reasonable hours and for any
reasonable purpose, including examining the condition of the leased premises and
making repairs
PAGE 8 - LEASE
<PAGE> 9
which Lessor is either required or may desire to make to said premises, provided
that such entry does not interfere with Lessee's use and enjoyment of the leased
premises.
12. The Lessor and the Lessor's agents, janitors, workmen, and
engineers may retain and use a pass-key to the premises described herein to
enable them to examine said premises from time to time with reference to any
emergency or to the general maintenance of said premises, or for the purposes of
exhibiting the same.
13. No alterations to the premises may be made without written
permission of Lessor. All alterations or additions which cannot be removed from
the leased premises without irreparable damage thereto shall also constitute a
part of the leased premises and shall also remain thereon. Such other
alterations, additions, or improvements as are made and paid for by Lessee, and
which are removable without irreparable damage to the premises, may be removed
by Lessee at any time, and Lessee shall repair any damage so incurred at the
time of such removal. All trade fixtures and other fixtures not referred to
above, and all machinery, equipment, and/or other items of personal property
placed in or upon the leased premises by Lessee and paid for by Lessee may be
removed by Lessee at any time.
14. The Lessee shall not suffer or permit any mechanic's lien to be
filed against the fee of the leased premises nor against the Lessee's leasehold
interest in said premises by reason of work, labor, services, or materials
supplied or claimed to have been supplied to the Lessee or anyone holding the
leased premises or any part
PAGE 9 - LEASE
<PAGE> 10
thereof through or under the Lessee, and nothing in this Lease contained shall
be deemed or construed in any way as constituting the consent or request of the
Lessor, express or implied, by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration, or repair
of or to the leased premises or any part thereof, nor as giving the Lessee any
right, power, or authority to contract for or permit the rendering of any
services or the furnishing of any materials that would give rise to the filing
of any mechanic's lien against the fee of the leased premises. If any such
mechanic's lien shall at any time be filed against the leased premises, the
Lessee shall cause the same to be discharged of record within Twenty (20) days
after the date of filing the same.
15. (a) The Lessee shall, at all times during the term of this Lease,
keep all buildings, improvements, and fixtures on the premises insured to the
extent of One Hundred Percent (100%) of the insurable value thereof against loss
or damage from fire, and such policy or policies shall be standard policies and
shall contain extended coverage provisions. Such policy or policies shall be
taken out with such reasonable and solvent insurance company or companies as the
Lessee shall determine. The proceeds of such policies shall be payable to any
mortgagee, if required by the mortgage, and, if not so required, then to the
Lessor and the Lessee as their interests may appear.
PAGE 10 - LEASE
<PAGE> 11
(b) All such policies shall, to the extent obtainable, contain an
agreement by the insurers that such policies shall not be cancelled without at
least Ten (10) days' prior written notice to the Lessor and to the holder of any
mortgage to whom loss thereunder may be payable. The original of such policy or
policies shall remain in possession of the Lessee, provided, however, that the
Lessor shall have the right to receive, from the Lessee, upon written demand, a
duplicate policy or policies of any such insurance.
16. (a) If the leased premises is damaged by fire or other casualty
against which the Lessor is insured but the leased premises is not thereby
rendered either partially or wholly untenantable, Lessor shall, at Lessor's own
expense, cause such damage to be repaired, and the rent shall not be abated.
(b) If, by reason of such occurrence, the leased premises shall be
rendered partially untenantable, Lessor shall, at Lessor's own expense, cause
the damage to be repaired, and the fixed basic rental meanwhile shall be abated
proportionately as to the portion of the leased premises rendered untenantable.
(c) If the leased premises shall be rendered wholly untenantable by
reason of such occurrence, the Lessor shall, at Lessor's own expense, cause such
damage to be repaired, and the fixed basic rent meanwhile shall be abated,
except that Lessor shall have the right, which may be exercised by notice, in
writing, delivered to Lessee within Sixty (60) days from and after such
occurrence, to elect not to reconstruct the destroyed premises, and, in such an
event, this Lease and the tenancy
PAGE 11 - LEASE
<PAGE> 12
hereby created shall cease as of the date of that occurrence, the rent to be
adjusted as of that date.
17. (a) If a condemning authority takes all of the leased premises, or
a portion sufficient to render the remaining premises reasonably unsuitable for
the use which Lessee was making of the leased premises, this Lease shall
terminate as of the date title vests in the condemning authority, and the
proceeds from the condemnation shall be divided between Lessor and Lessee as
their interests may then appear.
(b) If a portion of the leased premises is taken and the remaining
premises is reasonably suitable for the use Lessee was making of the leased
premises, this Lease shall continue, and that portion of the proceeds of
condemnation reasonably required to make the premises suitable for Lessee's
continued use in a condition as comparable as reasonably practicable to that
existing at the time of condemnation shall be allocable to Lessee and applied by
Lessee for such purpose. All of the balance of the award shall be allocable to
Lessor. Rent shall be abated to the extent the leased premises are untenantable
during the period of alteration and repair. As of the date title vests in the
condemning authority, the monthly rent due hereunder shall be reduced
commensurately with the reduction in value of the leased premises as an economic
unit on account of the partial taking.
(c) For purposes of this Lease, a taking by a condemning authority
shall include any purchase or other acquisition in lieu of condemnation.
PAGE 12 - LEASE
<PAGE> 13
18. Lessee covenants that it has inspected the premises and hereby
accepts the safety and condition thereof. Lessee covenants that Lessor is to be
free from liability and claim for damages by reason of any injury to any person
or persons, including Lessee, or property of any kind whatsoever and to
whomsoever belonging, including Lessee, from any cause whatsoever, while in,
upon, or in any way connected with the premises during the term of this Lease or
any extension thereof, or any occupancy hereunder. Lessee shall indemnify and
save harmless Lessor from all liability, loss, costs, and obligations on account
of or arising out of any such injuries or losses, however occurring. Lessee
shall have the right, in the name of Lessor, to contest the validity of any and
all such claims, of any kind or character and by whomsoever claimed, and, at
Lessee's expense, to defend, settle, and/or compromise any and all such claims.
19. If Lessor desires to sell the premises during the term of this
Lease and receives from a prospective purchaser a bona fide offer to buy, Lessor
shall first offer the premises for sale to Lessee as follows:
(a) Lessor shall give written notice to Lessee stating the name of the
prospective purchaser and the price and terms of the proposed sale.
(b) Within Thirty (30) days after receipt of a notice of proposed
sale, if the Lease is then in good standing or is subject only to defaults which
are corrected within the time provided in the Lease so as to effect a
reinstatement of good standing as of that time, Lessee may elect to purchase the
property on terms equally or more
PAGE 13 - LEASE
<PAGE> 14
favorable to Lessor by so advising Lessor in writing. The price must equal the
net return to Lessor under the proposed sale after adjustment for the
difference, if any, in real estate commission and cost of closing payable in the
event of the proposed sale as opposed to a sale to Lessee.
(c) If Lessee elects to purchase, the sale shall be closed on the date
specified by Lessee in its notice of election not less than Ten (10) nor more
than Thirty (30) days after the notice, or, at Lessor's election, on that date,
if any, specified as a condition of the proposed sale and stated in the notice
of proposed sale.
(d) If Lessee does not elect to purchase, Lessor may, at any time
within One Hundred Twenty (120) days thereafter, sell to the named prospective
purchaser at the price and on the terms stated in the notice of proposed sale.
The purchaser shall take the property subject to all the terms of this Lease,
including Lessee's right of first refusal with respect to subsequent sales.
A transfer of the leased premises as a part of the reorganization of
Lessor's business in which Lessor retains a substantial financial interest shall
not constitute a sale to which Lessee's right of first refusal shall apply.
Lessee's right shall apply to any judicial sale or sale by trustee in
bankruptcy, in which case Lessee must give notice of election to purchase to the
officer conducting the sale within Fifteen (15) days after (a) the terms of
purchase by an outsider at such sale becomes a matter of public record or (b)
Lessee has received actual notice, in writing, of the terms, whichever first
occurs. Any purchaser at a
PAGE 14 - LEASE
<PAGE> 15
judicial or bankruptcy sale when Lessee does not elect to purchase shall take
the property subject to all of the provisions of this Lease, including Lessee's
right of first refusal with respect to subsequent sales.
20. Conditioned upon Lessee's paying the rent herein provided and
performing and fulfilling all the covenants, agreements, conditions, and
provisions herein to be kept, observed, or performed by Lessee, and except as
hereinafter provided in this Paragraph, Lessee shall and may at all times during
the term hereby granted peaceably, quietly, and exclusively have, hold, and
enjoy the leased premises. Lessee agrees that Lessor may subject the leased
premises to real estate mortgages or other like security instruments, having
priority over this lease, provided the mortgagee or mortgagees shall agree (a)
that the rights of Lessee will be recognized and (b) that, in the event of
foreclosure of the mortgage, this Lease shall remain in effect according to its
terms, with substitution of the purchaser at the foreclosure sale as Lessor.
21. Upon request of Lessor, Lessee will subordinate its rights
hereunder to the lien of any first mortgage now or hereafter in force against
the land and buildings of which the leased premises is a part or upon any
building hereafter placed upon the land of which the leased premises is a part,
and to all advances made or hereafter to be made upon the security thereof. This
Paragraph shall be self-operative, and no further instrument of subordination
shall be required by a mortgagee, at its option, and Lessee does hereby
constitute Lessor as its attorney in fact to execute such subordination on its
behalf in such instance and towards such
PAGE 15 - LEASE
<PAGE> 16
end. Nothing contained in this Paragraph shall require Lessee to agree to any
subsequent modification in the term of this Lease, nor shall any mortgagee
succeeding to Lessor's interest have any greater rights hereunder than Lessor.
22. (a) The following events shall be deemed to be events of default
by Lessee under this Lease:
i. If Lessee shall fail to pay any installments of the rent, or
any other charge designated herein to be paid as rent, on the date that
same is due, and such failure shall continue for a period of Ten (10) days.
ii. If Lessee shall fail to comply with any term, condition, or
covenant of this Lease, other than the payment of rent, and shall not cure
such failure within Thirty (30) days after written notice thereof to
Lessee; or if such failure cannot reasonably be cured within the said
Thirty (30) days and Lessee shall not have commenced to cure such failure
within Thirty (30) days after written notice thereof to Lessee; or if such
failure cannot reasonably be cured within the said Thirty (30) days and
Lessee shall not with reasonable diligence and good faith proceed in the
curing of such failure.
iii. If Lessee shall become insolvent, or shall make a transfer
in fraud of creditors, or shall make an assignment for the benefit of
creditors, or if any petition under any section or chapter of the National
Bankruptcy Act shall be filed to subject Lessee's affairs to the same, or
if a receiver or trustee shall be appointed for all or substantially all of
the assets of Lessee, or if any
PAGE 16 - LEASE
<PAGE> 17
attempt shall be made by anyone other than Lessee to occupy the leased
premises with or without color of law.
(b) Upon the occurrence of any of the foregoing events of default,
Lessor shall, without any notice or demand whatsoever, have the option to:
i. Terminate this Lease, in which event Lessee shall immediately
surrender the premises to Lessor, and, if Lessee fails to do so, 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 and expel or remove Lessee and any other person who may be
occupying said premises or any part thereof, and Lessee agrees to pay to
Lessor, on demand, the amount of all loss and damage which Lessor may
suffer by reason of such termination, whether through inability to relet
the premises on satisfactory terms or otherwise.
ii. Enter upon and take possession of the leased premises and
expel or remove Lessee and any other person who may be occupying said
premises or any part thereof, and relet the premises and receive rent
therefor; and Lessee agrees to pay to Lessor, on demand, any deficiency
that may arise by reason of such reletting.
iii. Enter upon and take possession of the leased premises and
expel or remove Lessee and any other person who may be occupying said
premises or any part thereof, and demand and receive from Lessee, in lump
PAGE 17 - LEASE
<PAGE> 18
sum, damages in the amount by which the rent provided for herein for the
entire remainder of the term discounted to its present cash value at the
time of such re-entry exceeds the fair rental value of the leased premises
for the remainder of the term as of the time of said reentry discounted to
its present cash value.
iv. Enter upon the leased premises and do whatever Lessee is
obligated to do under the terms of this Lease, and Lessee agrees to
reimburse Lessor, on demand, for expenses which Lessor may incur in thus
effecting compliance with Lessee's obligations under this Lease, and Lessee
further agrees that Lessor shall not be liable for any damage resulting to
Lessee from such action caused by the negligence of Lessor.
(c) Lessor may pursue any of the foregoing remedies singly or
cumulatively and, in addition, any other remedies provided by law; nor shall
pursuit of any remedy herein provided constitute a forfeiture or waiver of any
rent due to Lessor hereunder or of any damages accruing to Lessor by reason of
the violation of any of the terms, conditions, and covenants herein contained;
nor shall any termination and cancellation include a cancellation of Lessee's
obligations hereunder for any deficiency or damage upon reletting subsequent to
said termination or cancellation, such obligations being independent and
covenants surviving said termination or cancellation.
PAGE 18 - LEASE
<PAGE> 19
(d) If Lessee shall default in its covenant to pay the rental as
provided for herein, and, upon the occasion of Lessee's liability and promise to
pay damage upon the occasion of the termination of this Lease as hereinabove
provided for, Lessor shall have a lien for such sums upon the personal property
of Lessee located upon the leased premises and may enter the same and take
possession of said personal property and sell it at public or private sale, with
or without notice to Lessee, and apply the proceeds thereof after deducting the
expenses of said sale upon the monies due to Lessor prompting the same. Any
public or private sale shall be held in a commercially reasonable manner.
23. Upon the expiration of the term of this Lease or any sooner
termination thereof, Lessee covenants and agrees that Lessee shall, without
notice, promptly and peaceably surrender possession of the leased premises to
Lessor in as good a condition as at the time of Lessee's entry thereon,
reasonable wear and tear, fire, and other insured or unavoidable causes
excepted.
24. The Lessor shall not be liable for the consequences of admitting
by pass-key or refusing to admit to said premises the Lessee or any of the
Lessee's agents or employees or other persons claiming the right of admittance.
25. This Lease does not grant any right of access to light and air
over property.
26. If Lessee shall hold over and remain in possession of the leased
premises after the expiration of the term herein granted, Lessee shall remain
bound by
PAGE 19 - LEASE
<PAGE> 20
all the terms, covenants, and agreements hereof, except that such holding over
shall be construed to be a tenancy from month to month which may be terminated
at any time by Lessor.
27. Any waiver of any breach of covenants herein contained to be kept
and performed by Lessee shall not be deemed or considered as a continuing
waiver, and shall not operate to bar or prevent Lessor from declaring a
forfeiture for any succeeding breach, either of the same condition or covenant
or otherwise. The acceptance of rent by Lessor hereunder shall never be
construed to be a waiver of any term of this Lease. No payment by Lessee or
receipt by Lessor of a lesser amount than shall be due according to the terms of
this Lease shall be deemed or construed to be other than on account of the
earliest rent due, nor shall any endorsement or statement on any check or letter
accompanying any payment be deemed to create an accord and satisfaction.
28. All notices provided for in this Lease to be served upon the other
party shall be done in writing and by Certified Mail, postage prepaid, and, if
served upon Lessor, shall be addressed to Lessor at 9805 Boeckman Road,
Wilsonville, Oregon 97070 and if served upon by Lessee, shall be addressed to
Lessee at 9805 Boeckman Road, Wilsonville, Oregon 97070, provided, however, that
either party may designate a different address by giving the other party written
notice thereof as herein provided. Such notice shall be deemed to have been
served within Twenty-four (24) hours after
PAGE 20 - LEASE
<PAGE> 21
it has been deposited in the United States Post Office at Wilsonville, Oregon,
which shall be a valid and sufficient service of notice for all purposes.
29. In the event any action or suit or proceeding is brought to
collect the rent due or to become due hereunder, or any portion thereof, or to
obtain possession of the leased premises, or to enforce compliance with this
Lease, or for failure to observe any of the covenants of this Lease, the
prevailing party in such suit, action, or proceeding may recover from the other
party herein such sum or sums as the trial and/or appellate court may adjudge
reasonable as attorneys' fees to be allowed in said suit, action, or proceeding,
or appeal therefrom, in addition to their costs and disbursements.
30. The terms and conditions of this Lease shall be incapable of
modification, change, or amendment, except by endorsement, in writing, attached
hereto and bearing the separate signatures in execution thereof by the parties
hereto, or their successors in interest.
31. This Lease shall not be recorded except by agreement of both
parties, but, upon request by either party, the parties shall execute a short
form of this Lease, in form suitable for recording, which shall contain the
description of the leased premises, the provisions relating to the term of the
lease, and a reference to this Lease.
32. This Lease shall be binding upon the parties hereto, their legal
representatives, heirs, successors, and, as far as this Lease is assignable by
the terms hereof, to the assigns of such parties. The words "Lessor" and
"Lessee," wherever
PAGE 21 - LEASE
<PAGE> 22
used in this Lease, shall apply equally and be binding jointly and severally
upon all lessors and lessees, whether one or more, and, together with the
accompanying verbs and pronouns, shall apply to all persons, firms, or
corporations who may be or become parties as lessors or lessees hereto.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the day and year first above written.
THE HENWAY GROUP XII G.I. JOE'S, INC.
/s/ DAVID E. ORKNEY By /s/ DAVID E. ORKNEY
- ---------------------------------- ----------------------------------
David E. Orkney, Partner David E. Orkney, President
/s/ NORMAN P. DANIELS
- ----------------------------------
Norman P. Daniels, Partner
/s/ B. DUANE MELLEN
- ----------------------------------
B. Duane Mellen, Partner
/s/ WAYNE T. JACKSON
- ----------------------------------
Wayne T. Jackson, Partner
STATE OF OREGON )
) ss.
County of Clackamas )
On this 29th day of June, 1989, before me, the undersigned, a Notary
Public in and for said County and State, personally appeared the within named
DAVID E. ORKNEY, NORMAN P. DANIELS, B. DUANE MELLEN AND WAYNE T. JACKSON, each
of whom being known to me, acknowledged, for himself, that he is one of the
partners of THE HENWAY GROUP XII, and that the
PAGE 22 - LEASE
<PAGE> 23
other signatories are the remaining partners of THE HENWAY GROUP XII, and that
the said instrument was executed freely and voluntarily, on behalf of said
partnership.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year last above written.
/s/ BARBARA MALLERY
-----------------------------------------
Notary Public for Oregon
My Commission expires: 3-12-91
STATE OF OREGON )
) ss.
County of Clackamas )
On this 29th day of June, 1989, before me, the undersigned, a Notary
Public in and for said County and State, personally appeared the within named
DAVID E. ORKNEY, and, being duly sworn, for himself did say that he is President
of G.I. JOE'S, INC., an Oregon corporation; that the seal affixed to the
foregoing instrument is the corporate seal of said corporation; that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors; and he acknowledged said instrument to be its voluntary
act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year last above written.
/s/ BARBARA MALLERY
-----------------------------------------
Notary Public for Oregon
My Commission expires: 3-12-91
PAGE 23 - LEASE
<PAGE> 24
EXHIBIT 10.13
Schedule of Leases
<TABLE>
<CAPTION>
Party Location Square Footage Base Rent Percentage Rent
- ----- -------- -------------- --------- ---------------
<S> <C> <C> <C> <C>
The Henway Group XIII Linn County $29,747 1 1/2% annual gross
receipts in excess
of $11,898
</TABLE>
<PAGE> 1
EXHIBIT 10.14
LEASE
THIS LEASE is made this 23rd day of June, 1989, by and between WEST CAMPUS
SQUARE JOINT VENTURE ("Landlord") and G.I. JOE'S, INC., an Oregon corporation
("Tenant").
RECITALS
A. Landlord is the owner of good and marketable fee simple title in and to
certain real property situated in Federal Way, King County, Washington, being
more particularly described on EXHIBIT A attached hereto and made a part hereof,
upon which real property Landlord intends to develop a shopping center (the
"Shopping Center") substantially as described on the current site plan attached
hereto as EXHIBIT B and made a part hereof (the "Site Plan").
B. Landlord intends to construct upon a certain portion of land within the
Shopping Center, as outlined in red on the Site Plan (the "Land"), a certain
building containing a floor area of approximately 55,960 square feet (the
"Building").
C. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord, the Land and Building, including the immediately adjoining sidewalk in
front of the Building and the loading dock and trash compactor areas adjacent to
or used in connection with the Building, (the "Leased Premises") in order to
operate on the Leased Premises a G.I. Joe's general merchandising store.
NOW, THEREFORE, in consideration of the aforementioned recitals which are
incorporated herein, and the mutual covenants, promises and agreements
hereinafter set forth, Landlord hereby grants, demises and leases to Tenant, and
Tenant hereby accepts, acquires and leases from Landlord, the Leased Premises,
together with a nonexclusive and perpetual easement in, through and over all
parking areas, access areas and any common area of the Shopping Center, as shown
on the Site Plan attached hereto, for parking and pedestrian and vehicular
ingress and egress from and to the Leased Premises to the public streets and/or
highways adjacent to the Shopping Center, at all times, for Tenant, its
customers, invitees, guests and employees and for all trucks, automobiles and
other vehicles delivering merchandise to the Leased Premises, in common with
other occupants of the Shopping Center, in accordance with all of the terms,
covenants and conditions hereinafter set forth.
AGREEMENT
1. Term. The term of this Lease shall be thirty (30) years, beginning on
the Commencement Date (as hereinafter defined) and ending thirty (30) years
<PAGE> 2
thereafter. Landlord and Tenant agree to execute a writing which may be recorded
against the title to the Leased Premises in the land records of King County,
Washington which sets forth the Commencement Date of this Lease.
2. Option to Renew.
(a) Exercise of Option. Landlord hereby grants to Tenant the option to
renew this Lease for four (4) additional periods of ten (10) years each from and
after the date of expiration of the term hereof, or any renewal terms hereof,
upon the same terms, covenants and conditions herein set forth, except for base
rent which shall be determined as hereinafter set forth; provided, however, that
Tenant is not then in default under the terms of the Lease. If Tenant elects to
exercise said option to renew, Tenant shall do so by giving Landlord written
notice thereof not less than two hundred ten (210) days prior to the last day of
the term of this Lease or the then-current renewal term hereof. Such exercise
shall be conditional upon Landlord and Tenant determining a base rent for the
renewal term as hereinafter set forth which is satisfactory to Tenant. The
giving of such notice shall be sufficient to make this Lease binding for the
renewal term without further act of the parties.
(b) Renewal Term Base Rent. The base rent during any renewal term
shall be the then fair market rental value of the Land (valued as unimproved and
having a general retail use), as determined by mutual agreement of the parties
hereto, or, in the absence of such mutual agreement, the parties hereto agree
that such base rent shall be determined by an independent appraisal in the
manner hereinafter specified. In either case, base rent shall be determined
consistently with the formula for base rent used for the initial term of this
Lease and in no event shall the Land value as used in the formula be less than
$8 per square foot or the rate of return be less than 11 1/2%. If Landlord and
Tenant cannot, at least one hundred eighty (180) days prior to the expiration of
the term or any renewal term of this Lease (which date is hereinafter called the
"Expiration Date"), as the case may be, agree on the applicable fair market
rental value of the Land for that entire renewal term, Landlord and Tenant shall
each immediately appoint and pay for an independent appraiser to determine fair
market rental value for the Land for such entire renewal term. Any such
appraiser shall be an MAI with not less than five (5) years experience in the
appraisal of commercial property. In such event, if the appraisers agree on the
fair market rental value, such amount shall be deemed to be the base rent. If
such appraisers cannot agree on such fair market rental value at least one
hundred fifty (150) days prior to the Expiration Date, such appraisers shall
select a third independent appraiser of like qualifications (the cost of which
appraiser shall be equally divided between Landlord and Tenant), and the third
appraiser shall be instructed to determine fair market rental value of the Land
within one hundred twenty (120) days prior to the Expiration Date. In such event
the base rent for the Leased
-2-
<PAGE> 3
Premises for such renewal term shall be deemed to be the average of the three
appraisals. At such time, Tenant shall give written notice to Landlord either
exercising or not exercising the option to renew. If Tenant elects not to
exercise such option, then it shall pay the cost of the three (3) appraisals.
(c) Renewal Term Percentage Rent. The Percentage Rent for each year of
any renewal term shall be paid monthly as one-twelfth (1/12th) of the Percentage
Rent paid for the last full fiscal year prior to the commencement of that Lease
year. At the end of each of Tenant's fiscal years during such renewal term, the
actual Percentage Rent shall be calculated as provided herein and the
appropriate party shall reimburse the other in the event the Percentage Rate
paid during the Lease year exceeds or is less than the actual Percentage Rent
due.
3. Rent.
(a) Base Rent. Tenant shall pay to Landlord, as base rent for the
Leased Premises, an amount calculated in accordance with a formula consisting of
the product of the area of property utilized by Tenant (the square footage of
the ground floor of Tenant's Building multiplied by four or 223,840 square
feet), multiplied by the value of such property ($8/square foot), multiplied by
Landlord's rate of return (11 1/2%), which product is then divided by twelve
(12) months to equal the sum of Seventeen Thousand One Hundred Sixty-One Dollars
($17,161) per month. If the Building as constructed does not contain 55,960
square feet, the base rent shall be adjusted accordingly. The monthly rent shall
be paid, in advance, on or before the first day of each calendar month during
the term of this Lease, commencing on the Commencement Date (as hereinafter
defined). Rent for the first and last months of the lease term shall be prorated
on a daily basis if the Lease commences or terminates on a day other than the
first day of the month.
(b) Construction Rent. Tenant shall pay, as additional rent for the
Leased Premises ("Construction Rent"), a monthly payment in an amount sufficient
to fully amortize the Construction Cost (as hereinafter defined) over the
remaining initial term of the Lease at the Loan Interest Rate (as hereinafter
defined). Notwithstanding any financing or refinancing of the Construction Cost
by Landlord, Tenant shall fully amortize the Construction Cost by the expiration
of the initial term of this Lease. The term "Construction Cost" shall mean the
amount set forth in the Construction Budget (as hereinafter defined), plus
Tenant's pro rata share of the amount set forth in the Site Budget (as
hereinafter defined), as the same may be amended from time to time upon the
mutual agreement of Landlord and Tenant, plus any loan origination fees or other
loan fees or costs incurred by Landlord in connection with any interim or
permanent loan from an institutional investor which Landlord obtains in order to
finance or refinance the Construction Cost. The term "Loan Interest Rate" shall
mean the stated
-3-
<PAGE> 4
rate of interest from time to time applicable to any interim or permanent loan
which Landlord obtains in order to finance the Construction Cost. The
Construction Rent shall be payable in arrears beginning on the first day of the
second calendar month following the Commencement Date. If the Commencement Date
falls on a date other than the first day of a calendar month, or if the last day
of the term hereof falls on a date other than the last day of a calendar month,
then rent for such month shall be adjusted pro rata. In the event the Shopping
Center is sold to a cash buyer, then Tenant shall continue to pay, throughout
the initial term of the Lease, Construction Rent in the same amount as paid
immediately prior to such sale, provided that if such sale occurs prior to
Landlord's obtaining a permanent loan for the Construction Cost, the
Construction Rent shall be that rent which would have been paid by Tenant as
provided herein, assuming a fair market loan for the Construction Cost.
(c) Taxes. Tenant shall pay, as additional rent, before any fine,
penalty, interest, or cost may be added thereto for the nonpayment thereof, all
ad valorem taxes, assessments, and other governmental levies and charges of any
kind which are assessed or imposed upon the Leased Premises, including both the
land and improvements thereon, or any part thereof, or which become payable
during the term of this Lease and any extensions hereof. In the event the Leases
Premises are not assessed and taxed separately from the Shopping Center, then
Tenant shall pay its pro rata share of such taxes and assessments of the
Shopping Center as provided in paragraph 32(c)(ii) below; provided, however,
Landlord shall use its best efforts to have the Leased Premises assessed and
taxed separately from the Shopping Center. In the event that any assessments are
assessed, Landlord shall elect, if permitted to do so, to pay the amount of such
assessments in installments. In such event, Tenant shall pay when due only the
amount of such installments falling due during the term of this Lease. All taxes
and assessments which are assessed prior to but payable in whole or in
installments after the Commencement Date, and all taxes and assessments which
are assessed during the term but payable in whole or in installments after the
end of the term, shall be adjusted and prorated so that Landlord shall pay its
prorated share for the period prior to and for the period subsequent to the term
of this Lease, and Tenant shall pay its prorated share for the term of this
Lease.
(d) Late Charge. If rent is not paid within ten (10) days after it is
due, Landlord may, at its option, impose a late charge equal to One Thousand
Dollars ($1,000). Furthermore, any payments which remain in default after
Landlord gives written notice to Tenant regarding such default shall accrue
interest at the lower of fifteen percent (15%) per annum or the highest rate
permitted by applicable law.
-4-
<PAGE> 5
4. Percentage Rent.
(a) Gross Sales. Tenant agrees, within thirty (30) days after the end
of each fiscal year of Tenant (February 1 through January 31), commencing at the
end of Tenant's fiscal year beginning on February 1 of the year immediately
following the Commencement Date, to determine and report to Landlord Tenant's
Gross Sales from its use or occupancy of the Leased Premises and/or from the
business conducted on or in connection therewith ("Gross Sales"). The term
"Gross Sales" shall exclude any sales to employees under company plans which do
not exceed two percent (2%) of Gross Sales, transfers of merchandise between
G.I. Joe's stores, receipts from the sale of tickets (except that portion of
such sales representing commissions or fees received by Tenant or its
affiliates), the amount of returns and refunds, discounts actually made or given
in the ordinary course of business, carrying charges included in the selling
price on conditional sales contracts, financing charges on credit card sales
where the financing charge is not collected at the Leased Premises, and the
amount of any sales tax or other excise tax imposed upon said sales and charges
if such sales tax, excise tax or similar tax is billed to the purchaser as a
separate item, but, except as excluded above, shall include, among other things,
all gross income, fees or commissions from any other operations in, at or upon
the Leased Premises, all deposits received by Tenant at the Leased Premises and
not refunded, all orders received in the Leased Premises by telephone or mail
due to catalog or other canvassing methods, and the selling price of all goods,
wares and merchandise sold, leased or licensed or services rendered in, on or
from the Leased Premises or Tenant's activities in the Shopping Center, directly
by Tenant or through its sublessees, licensees and concessionaires. The
percentage rent shall be equal to three-quarters of one percent (3/4 of 1%) of
Gross Sales exceeding fifteen million dollars ($15,000,000) during each fiscal
year of Tenant occurring during the term of this Lease, including any renewal
periods. Tenant agrees to pay Landlord such percentage rent, as additional rent,
April 1 of each lease year commencing at the end of the first fiscal year of
Tenant which starts after the Commencement Date. Percentage rent for any lease
month occurring after the Commencement Date but prior to the start of Tenant's
first fiscal year shall be prorated on the basis of, and paid at the same time
as, the percentage rent payable during such first fiscal year. Furthermore, in
the event the term of this Lease ends on a date other than the ending date of
Tenant's fiscal year, percentage rent for that fiscal year shall be prorated on
the basis of percentage rent paid by Tenant in the previous fiscal year and
shall be paid to Landlord within thirty (30) days of the end of the term of this
Lease.
(b) Gross sales Records. Tenant covenants for that purpose of
ascertaining the amount of such Gross Sales for any fiscal year as hereinabove
provided that it and its sublessees, licensees and concessionaires will keep
accurate books of account which shall clearly and accurately show all Gross
Sales as aforesaid,
-5-
<PAGE> 6
and will keep an accurate accounting system in such manner that it can be
readily checked and audited by a competent accountant, and to give Landlord
reasonable access to such books, accounts, records and reports of Tenant
pertaining to its business conducted at said location and the business of any of
its sublessees, licensees and concessionaires and to permit Landlord or agents
of Landlord to inspect the same at all reasonable times. Landlord may once in
any lease year, during reasonable business hours, cause an audit of the business
of Tenant to be made by an independent certified public accountant selected by
Landlord and approved by Tenant, and if the statement of Gross Sales previously
made to Landlord for the previous year shall be found to be understated or
overstated, then and in that event there shall be an adjustment, and one party
shall pay to the other, on demand, such sums as may be necessary to settle in
full the accurate amount of said percentage rent that should have been paid to
Landlord for the period or periods covered by such statement or statements. If
said audit shall disclose an understatement of greater than three percent (3%)
of the amount of Gross Sales reported by Tenant for the period of said audit,
then Tenant shall immediately pay to Landlord the cost of such audit; otherwise,
the reasonable cost of such audit shall be paid by Landlord.
(c) Occupancy. Tenant shall occupy the Leased Premises continuously
for the purpose stated in this Lease and shall operate and carry on its business
on the Leased Premises during the hours customary for the majority of its other
G.I. Joe's stores located in Washington and Oregon. This shall not prevent
Tenant from closing for brief periods when reasonably necessary for inventory,
repairs, remodeling (when permitted), or other legitimate purposes related to
the business carried on, or when closure is the result of a labor dispute,
however caused, or other factors not within Tenant's control.
(d) No Joint Venture. Landlord is not, by virtue of this paragraph, a
partner or joint venturer with Tenant in connection with the business carried on
under this Lease, and Landlord shall have no obligation with respect to Tenant's
debts or other liabilities, and no interest in Tenant's profits.
5. Payments. All rental payments provided for herein shall be made by check
payable to Landlord in U.S. dollars, without deduction or offset, and delivered
to Landlord in the manner specified for notices hereunder.
6. Use. Landlord is leasing the Leased Premises for use as a G.I. Joe's
general merchandise store similar to the businesses operated by Tenant at its
other G.I. Joe's stores located in Washington and Oregon, and Tenant shall use
the Leased Premises for no other purpose during the term of this Lease without
the written consent of Landlord, which consent shall not be unreasonably
withheld or delayed.
-6-
<PAGE> 7
7. Compliance With Laws. Tenant shall neither make nor knowingly permit any
unlawful, improper, immoral, or offensive use of the Leased Premises, or any
portion thereof, which will, in any way, tend to create a nuisance or to disturb
any persons in the Shopping Center, or to unduly create or cause a fire hazard,
or to increase the fire insurance on the Leased Premises, or to permit any
nuisance which shall in any manner be a violation of the statutes and laws of
the United States, the State of Washington or the laws and ordinances of any
political subdivision thereof. Tenant covenants and agrees to comply with all
applicable rules, orders, notices, and regulations of any municipal, state, or
other authority respecting the Leased Premises
8. Waste. Tenant agrees to keep and maintain all of the Leased Premises in
a clean and sanitary condition and not to suffer or permit any strip or waste
thereof.
9. Utilities. Tenant shall pay for all heat, light, power, water, sewage,
garbage and other services or utilities used by Tenant on the Leased Premises,
and shall pay the charges therefor as the same become due. Landlord shall not be
liable for the quality, quantity, failure or interruption of any utility service
to the Leased Premises.
10. Repairs. Except for repairs due to damage by fire or other insured
peril or condemnation, Landlord shall not be required to make any repairs,
alterations, or improvements to or upon the Leased Premises during the term of
this Lease. Tenant shall maintain and keep the Leased Premises in good order and
repair during the term of this Lease at Tenant's own cost and expense,
reasonable wear and tear, fire and other insured losses, excepted. If Tenant
refuses or neglects to make repairs as required as soon as reasonably possible
after written demand, Landlord may, at Landlord's option, make such repairs,
without liability for interruption of the conduct of business on the Leased
Premises, and, upon completion of the repairs and presentation of a bill
therefor, the cost of such repairs shall be paid by Tenant. At Landlord's
election, such sums owed by Tenant may be deemed additional rent due immediately
upon Tenant's receipt of the bill therefor.
11. Inspections. Tenant agrees to permit Landlord and Landlord's agents to
enter upon the Leased Premises or any part thereof at all reasonable times
during normal business hours upon advance notice to Tenant and for any
reasonable purpose, including examining the condition of the Leased Premises and
making repairs which Landlord is either required or may desire to make to the
Leased Premises, provided that such entry does not interfere with Tenant's use
and enjoyment of the Leased Premises, except as provided in paragraph 10 above.
12. Alterations. Tenant may, without the prior written consent of Landlord,
make alterations to the interior of the Leased Premises which do not exceed
$20,000
-7-
<PAGE> 8
in cost. No structural alterations to the Leased Premises, including any
alterations to the footings and foundation, exterior and load-bearing walls and
roof, or any alteration which exceeds $20,000 in cost may be made without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. All trade fixtures and other fixtures not referred to
above, and all machinery, equipment, and/or other items of personal property
placed in or upon the Leased Premises by Tenant and paid for by Tenant may be
removed by Tenant at any time. All other improvements made to the Leased
Premises during the term of this Lease shall become the property of Landlord and
surrendered with the Leased Premises at the expiration or earlier termination of
this Lease.
13. Mechanics Liens. Tenant shall not suffer or permit any mechanic's lien
to be filed against the fee of the Leased Premises nor against Tenant's
leasehold interest in said premises by reason of work, labor, services, or
materials supplied or claimed to have been supplied to Tenant or anyone holding
the Leased Premises or any part thereof through or under Tenant, and nothing in
this Lease contained shall be deemed or construed in any way as constituting the
consent or request of Landlord, express or implied, by inference or otherwise,
to any contractor, subcontractor, laborer or materialman for the performance of
any labor or the furnishing of any materials for any specific improvement,
alteration, or repair of or to the Leased Premises or any part thereof, nor as
giving Tenant any right, power, or authority to contract for or permit the
rendering of any services or the furnishing of any materials that would give
rise to the filing of any mechanic's lien against the fee of the Leased
Premises. If any such mechanic's lien shall at any time be filed against the
Leased Premises, Tenant shall cause the same to be discharged of record or
"bonded over" in a manner reasonably satisfactory to Landlord within thirty (30)
days after the date of filing the same.
14. Insurance. Tenant shall, at all times during the term of this Lease,
maintain with insurers authorized to issue insurance in the State of Washington,
with an A. M. Best rating of A/XV or better, the following policies of insurance
in effect with respect to the Leased Premises:
(a) Property. Fire, lightning, hail, windstorm and such other perils
included under a so-called "all risk" policy of property/casualty insurance, in
the amount of one hundred percent (100%) of the full replacement cost of the
Building, with a so-called "agreed value" endorsement, naming Tenant, Landlord
and any mortgagee or beneficiary under any first mortgage or first deed of
trust, as additional insureds or loss payees, as their interests may appear.
(b) Liability. Comprehensive general liability insurance, in the
amount of Five Million Dollars ($5,000,000) combined single-limit coverage,
naming
-8-
<PAGE> 9
Tenant as the named insured and Landlord and any mortgagee or beneficiary as
additional insureds thereunder.
(c) Certificates. All such policies, to the extent obtainable, shall
provide for waiver of subrogation against Landlord and shall contain an
agreement by the insurers that such policies shall not be cancelled without at
least thirty (30) days' prior written notice to Landlord and to any such
mortgagee or beneficiary named as a loss payee or an additional insured
thereunder. The original of such policy or policies shall remain in possession
of Tenant; provided, however, that Landlord and any such mortgagee or
beneficiary shall have the right to receive from Tenant a certificate evidencing
such insurance or, upon written demand, a duplicate policy or policies of any
such insurance.
15. Damage or Destruction.
(a) Partial Damage. If the Leased Premises are damaged by fire or
other peril against which Tenant is insured and are rendered partially
untenantable thereby, but that such damage does not unreasonably impair Tenant's
use or occupancy of the Leased Premises, then Tenant shall, at Tenant's own
expense, using any proceeds of insurance payable on account of such loss, cause
the damage to be repaired.
(b) Total Destruction. If the Leased Premises are destroyed or damaged
by fire or other peril and are rendered wholly untenantable thereby, or such
damage unreasonably impairs Tenant's use or occupancy thereof during all but the
last five years of the initial term of the Lease or of any renewal term, Tenant
shall, as promptly as possible after the occurrence of such damages or
destruction, repair or replace the damaged improvements so as to be in the same
condition as before such damage and destruction, using any available proceeds of
insurance together with any funds provided by Landlord as hereinafter set forth,
If the damage and destruction occurs within the last five years of the original
or any option term, then Tenant shall, at its option, either (i) terminate this
Lease by assigning to Landlord all insurance proceeds payable on account of such
loss, or if no such insurance proceeds are payable, then paying to Landlord the
unamortized amount of the Construction Cost remaining at the time of such damage
or destruction, or (ii) at its own cost and expense, repair, replace and restore
the Leased Premises to their same condition as existed immediately prior to such
damage, using any available proceeds of insurance together with any funds
provided by Landlord as hereinafter set forth. In the event Tenant elects or is
required to repair, replace and restore the Leased Premises, the Tenant shall
deposit into an account held jointly by Landlord, Tenant and any first mortgagee
of Landlord or beneficiary under a first deed of trust of Landlord encumbering
the Leased Premises, with a local national banking institution mutually
-9-
<PAGE> 10
acceptable to the parties hereto, any proceeds of insurance payable on account
of such damage or destruction and from such account such mortgagee or
beneficiary may be paid the outstanding principal amount of indebtedness secured
by the lien of such mortgage or deed of trust, provided that, in such event,
Landlord shall make available to Tenant for the repair, replacement or
restoration of the Leased Premises, an amount equal to the amount of the
insurance proceeds paid to such mortgagee or beneficiary.
16. Condemnation.
(a) Complete Taking. If a condemning authority takes all of the Leased
Premises, or a portion thereof sufficient to render the remaining premises
reasonably unsuitable for the use which Tenant was making of the Leased Premises
prior to such taking, then this Lease shall terminate as of the date title vests
in the condemning authority, and the proceeds from the condemnation shall be
apportioned (i) first to pay principal and interest due on any indebtedness
secured by a first mortgage or first deed of trust on the Leased Premises, (ii)
then to Landlord in an amount equal to the fair market value of the Land, valued
with this Lease in place, (iii) then to Tenant in an amount equal to the
unamortized value of Tenant's improvements to the Leased Premises plus the
amortized portion of the Construction Cost and (iv) thereafter any remaining
balance to Landlord.
(b) Partial Taking. If a portion of the Leased Premises is taken and
the remaining premises are reasonably suitable for the use Tenant was making of
the Leased Premises prior to such taking, then this Lease shall continue, and
the value of all of Tenant's improvements to the Leased Premises plus that
portion of the proceeds of condemnation reasonably required to make the premises
suitable for Tenant's continued use in a condition as comparable as reasonably
practicable to that existing at the time of condemnation shall be allocated to
Tenant and applied by Tenant for such purpose. All of the balance of the award
shall be allocated to Landlord. Rent shall be abated to the extent the Leased
Premises are untenantable during the period of alteration and repair. As of the
date title vests in the condemning authority, the base rent due hereunder shall
be reduced commensurately with the amount of the award allocated to Landlord.
(c) Common Areas. In the event any of the Common Areas are taken such
that parking for the Leased Premises, or access or visibility to or from the
Leases Premises to a publicly dedicated street or highway, are materially
impaired, then if such taking (i) renders the Leased Premises reasonably
unsuitable for the use which Tenant was making thereof prior to such taking,
-10-
<PAGE> 11
then such taking shall be deemed a complete taking, as described in paragraph
16(a) hereof, and administered in accordance with the provisions thereof or (ii)
leaves the Leased Premises reasonably suitable for the use which Tenant was
making thereof prior to such taking, then such taking shall be deemed a partial
taking and any award payable thereby shall be paid to Landlord, and Landlord
shall be obligated to restore the balance of the Common Areas to the same
condition and utility, as reasonably practicable, as existed immediately prior
to such taking.
(d) Sale Included. For purposes of this Lease, a taking by a
condemning authority shall include any purchase or other acquisition in lieu of
condemnation.
17. Indemnification of Landlord. To the extent permitted by applicable law,
Tenant covenants that Landlord is to be free from liability and claim for
damages by reason of any injury to any person or persons, including Tenant, or
property of any kind whatsoever and to whomsoever belonging, including Tenant,
from any cause whatsoever, while in, upon or in any way connected with the
Leased Premises during the term of this Lease, any renewal hereof or any
occupancy hereunder, except for gross negligence or willful misconduct of
Landlord, its employees or agents. Tenant shall indemnify and save harmless
Landlord from all liability, loss, costs, and obligations on account of or
arising out of any such injuries or losses, however occurring, including
reasonable attorney's fees incurred by Landlord in connection with such claims.
Tenant shall have the right, in the name of Landlord, to contest the validity of
any and all such claims, of any kind or character and by whomsoever claimed,
and, at Tenant's expense, to defend, settle and/or compromise any and all such
claims
18. Quiet Enjoyment. Provided that Tenant keeps, observes and performs all
of the covenants, agreements, conditions, and provisions herein to be kept,
observed, or performed by Tenant, Tenant shall and may at all times during the
term hereby granted peaceably, quietly, and exclusively have, hold, and enjoy
the Leased Premises.
19. Subordination, Nondisturbance and Attornment. Upon written request or
notice by Landlord or any first mortgagee or beneficiary under a first deed of
trust of Landlord encumbering the Shopping Center, the Leased Premises or the
Common Areas, Tenant agrees to subordinate its rights under this Lease to the
lien of any such first mortgage or deed of trust, and to any and all advances to
be made thereunder, and to the interest thereon, and all renewals, replacements
and extensions thereof, provided the mortgagee or beneficiary named in said
mortgage or deed of trust shall agree to recognize this Lease of Tenant and
shall further agree not to disturb this Lease or any rights of Tenant hereunder
in the event of foreclosure or beneficiary's sale, if Tenant is not in default
hereunder. Tenant also agrees that any such first mortgagee or beneficiary may
elect to have this Lease made prior to the lien of its mortgage or deed of
trust, and in the event of such election and upon notification by
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such mortgagee or beneficiary to Tenant to that effect, this Lease shall be
deemed prior in lien to the said mortgage or deed of trust, whether this Lease
is dated prior to or subsequent to the date of said mortgage or deed of trust.
Tenant agrees that upon the request of Landlord, any mortgagee or any
beneficiary named in such mortgage or deed of trust, it will execute and deliver
whatever instruments may be required for such purposes. Tenant, in the event of
the sale or assignment of Landlord's interest in the Shopping Center or in the
event of any proceedings brought for the foreclosure of such mortgage or deed of
trust, or in the event of the exercise of the power of sale under any such deed
of trust, shall attorn to and recognize such purchaser, mortgagee or beneficiary
as Landlord under this Lease.
20. Defaults.
(a) Defaults Defined. The following events shall be deemed to be
events of default by Tenant under this Lease:
(i) If Tenant shall fail to pay any installments of the rent,
or any other charge designated herein to be paid as rent,
on the date that same is due, and such failure shall
continue for a period of ten (10) days after Landlord
gives Tenant written notice thereof.
(ii) If Tenant shall fail to comply with any term, condition,
or covenant of this Lease, other than the payment of rent,
and shall not cure such failure within thirty (30) days
after written notice thereof to Tenant; or if such failure
cannot reasonably be cured within the said thirty (30)
days, Tenant shall not have commenced to cure such failure
within thirty (30) days after written notice thereof to
Tenant and Tenant shall not with reasonable diligence and
good faith proceed in the curing of such failure.
(iii) If Tenant shall become insolvent or shall make an
assignment for the benefit of creditors, or if Tenant
files a petition under any chapter of the U. S. Bankruptcy
Act seeking to be adjudicated a bankrupt, or if any other
party files a petition under any section of the U. S.
Bankruptcy Act seeking to have Tenant adjudicated a
bankrupt and Tenant fails to have such petition dismissed
within ninety (90) days of filing, or if a receiver or
beneficiary shall be appointed for all or substantially
all of the assets of Tenant.
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(b) Remedies. Upon the occurrence of any of the foregoing events of
default, Landlord shall, without any notice or demand whatsoever, have the
option to:
(i) Without terminating this Lease, enter upon and take
possession of the Leased Premises and expel or remove
Tenant and any other person who may be occupying said
premises or any part thereof, and attempt to relet the
premises and receive rent therefor; and Tenant agrees to
pay to Landlord, on demand, any deficiency that may arise
by reason of such reletting, and all other loss or damage
which Landlord may suffer, including, without limitation,
reasonable alterations to the Leased Premises, reasonable
brokerage and marketing expenses, reasonable attorneys'
fees and any concessions granted a new tenant of the
Leased Premises.
(ii) Terminate this Lease and enter upon and take possession of
the Leased Premises and expel or remove Tenant and any
other person who may be occupying said premises or any
part thereof, and demand and receive from Tenant, in lump
sum, damages in the amount by which the rent provided for
herein for the entire remainder of the term discounted to
its present cash value at the time of such re-entry
exceeds the fair rental value of the Leased Premises for
the remainder of the term as of the time of said reentry
discounted to its present cash value, plus any and all
other loss or damage which Landlord may suffer including,
without limitation, reasonable alterations to the Leased
Premises, brokerage and marketing expenses, reasonable
attorneys' fees and any concessions granted a new tenant
of the Leased Premises.
(iii) Enter upon the Leased Premises and do whatever Tenant is
obligated to do under the terms of this Lease, and Tenant
agrees to reimburse Landlord, on demand, for expenses
which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease, and Tenant further
agrees that Landlord shall not be liable for any damage
resulting to Tenant from such action caused by Landlord,
except for damage caused by Landlord's gross negligence or
willful misconduct.
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(c) Remedies Cumulative. Landlord may pursue any of the foregoing
remedies singly or cumulatively and, in addition, any other remedies provided by
law; nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, conditions, and
covenants herein contained; nor shall any termination and cancellation include a
cancellation of Tenant's obligations hereunder for any deficiency or damage upon
reletting subsequent to said termination or cancellation, such obligations being
independent and covenants surviving said termination or cancellation.
(d) Landlord's Lien. If Tenant shall default in its covenant to pay
the rent as provided for herein, or for any other obligation on Tenant's part to
be kept, observed or performed hereunder, Landlord shall have a lien for such
sums upon the trade fixtures, equipment and personal property of Tenant located
upon the Leased Premises and may enter the same and take possession of said
personal property and sell it at public or private sale, with or without notice
to Tenant, and apply the proceeds thereof after deducting the expenses of said
sale upon the monies due to Landlord prompting the same. Any public or private
sale shall be held in a commercially reasonable manner.
21. Surrender. Upon the expiration of the term of this Lease or any
sooner termination hereof, Tenant covenants and agrees that Tenant shall,
without notice, promptly and peaceably surrender possession of the Leased
Premises to Landlord in as good a condition as at the time of Tenant's entry
thereon, reasonable wear and tear, fire and other insured losses excepted.
22. Holdover. If Tenant shall hold over and remain in possession of the
Leased Premises after the expiration of the term herein granted, Tenant shall
remain bound by all the terms, covenants, and agreements hereof, except that
such holding over shall be construed to be a tenancy from month to month which
may be terminated at any time by Landlord, and the base rent and, if applicable,
Construction Rent for the holdover period shall be 125% of the amount of such
rent for the immediately preceding period.
23. Waiver. Any waiver of any breach of covenants herein contained to
be kept and performed by Tenant shall not be deemed or considered as a
continuing waiver, and shall not operate to bar or prevent Landlord from
declaring a default for any succeeding breach, either of the same condition or
covenant or otherwise. The acceptance of rent by Landlord hereunder shall never
be construed to be a waiver of any term of this Lease. No payment by Tenant or
receipt by Landlord of a lesser amount than shall be due according to the terms
of this Lease shall be deemed or construed to be other than on account of the
earliest rent due, nor shall any
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endorsement or statement on any check or letter accompanying any payment be
deemed to create an accord and satisfaction.
24. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed given upon personal service or three (3)
days after deposit in the United States mail, postage prepaid, certified or
registered, return receipt requested and addressed as follows:
If to Landlord: West Campus Square Joint Venture
c/o Armada/Lagerquist Company
2001 Sixth Avenue, Suite 3202
Seattle, Washington 98121
Attn: James W. Lagerquist
with a copy to: Knutsen Construction Company
P.O. Box 596
Milton, Washington 98354
Attn: Robert J. Knutsen
with a copy to: Ryan, Swanson & Cleveland
1201 Third Avenue, Suite 3400
Seattle, Washington 98101-3034
Attn: David H. Oswald
If to Tenant: G.I. Joe's Inc.
9805 Boeckman Road
Wilsonville, Oregon 97070
Attn: Wayne Jackson
with a copy to: Martin Peterson & Associates
720 Olive Way, Suite 1627
Seattle, Washington 98101
Attn: Martin L. Peterson
with a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Attn: Edward W. Kuhrau
The foregoing addresses may be changed by written notice given in accordance
with the terms of this paragraph.
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25. Attorneys' Fees. In the event any action or suit or proceeding is
brought to collect the rent due or to become due hereunder, or any portion
thereof, or any other monetary obligation hereunder, or to obtain possession of
the Leased Premises, or to enforce compliance with this Lease, or for failure to
observe any of the covenants of this Lease, the prevailing party in such suit,
action, or proceeding may recover from the other party herein such sum or sums
as the trial and/or appellate court may adjudge reasonable as attorneys' fees to
be allowed in said suit, action, or proceeding, or appeal therefrom, in addition
to their costs and disbursements.
26. Modification. The terms and conditions of this Lease shall be
incapable of modification, change or amendment, except in writing and bearing
the separate signatures in execution thereof by the parties hereto or their
successors in interest.
27. Recordation. This Lease shall not be recorded except by agreement
of both parties, but, upon request by either party, the parties shall execute a
short form of this Lease, in form suitable for recording, which shall contain
the description of the Leased Premises, the provisions relating to the term of
the lease, including all renewals hereof, and a reference to this Lease.
28. Binding Effect. This Lease shall be binding upon the parties
hereto, their legal representatives, heirs, successors, and, as far as this
Lease is assignable by the terms hereof, to the assigns of such parties. The
words "Landlord" and "Tenant," wherever used in this Lease, shall apply equally
and be binding jointly and severally upon all Landlords and Tenants, whether one
or more, and, together with the accompanying verbs and pronouns, shall apply to
all persons, firms, or corporations who may be or become parties as Landlords or
Tenants hereto.
29. Building Construction.
(a) Plans and Specifications. Not later than thirty (30) days after
the execution of this Lease, Tenant, after consultation with Landlord, shall
have prepared by a licensed architect, plans and specifications for the
Building. The plans and specifications, once complete, shall be delivered to
Landlord for review. Landlord shall, upon receipt thereof, promptly review and
comment upon the same to Tenant. Tenant shall cooperate with Landlord and
attempt to incorporate Landlord's comments into the final plans and
specifications (the "Plans and Specs"), which shall be completed by August 15,
1989. In the event Landlord and Tenant cannot agree on final Plans and Specs by
such date, then either party may terminate this Lease.
(b) Construction Contract. Upon approval of final Plans and Specs,
Tenant shall select a general contractor (the "Contractor") to undertake and
perform the construction of the Building substantially in accordance with the
Plans and Specs. Tenant shall prepare and submit to Landlord the Construction
Budget (as hereinafter
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defined). Upon Landlord's approval of the Construction Budget, Tenant shall
enter into a construction contract with the Contractor on terms and conditions
acceptable to Landlord and Tenant, including, without limitation, a standard
retention provision and other provisions reasonably required by Landlord's
lender and a provision giving Tenant the right to appoint the "Tenant's
Development Representative" (as hereinafter defined), who shall, in addition to
Tenant, have the exclusive right to authorize the Contractor to make changes in
the work pursuant to written change orders, provided such changes in the work do
not, in any instance, exceed $20,000. Landlord shall pay all of Contractor's
applications for payment, which are approved by Tenant's Development
Representative and which are otherwise in accordance with the Construction
Budget, and shall reimburse Tenant for any costs or expenses which are incurred
by Tenant and which are contemplated under the Construction Budget. Tenant shall
submit to Landlord invoices for such amounts which have been approved by
Tenant's Development Representative. Landlord will promptly submit such invoices
to its construction Lender to be paid with the next monthly draw on a progress
basis, but in no event later than forty-five (45) days after submission by
Tenant. Landlord agrees that it shall commence and complete Site Improvements in
a timely manner so that Tenant, its employees, contractors and other agents have
access to the Building, and access over, and storage facilities on, the Common
Areas in order to construct the Building and to install such tenant improvements
which Tenant may desire.
(c) Construction Budget. The term "Construction Budget" shall mean the
budget prepared by Tenant, attached hereto as EXHIBIT C and made a part hereof,
as may be amended from time to time, which shall include all hard and soft costs
and expenses reasonably anticipated to be incurred in the course of construction
of the Building, including, without limitation, the contract price under the
construction contract, Washington State sales taxes, architectural and
engineering fees, loan fees and interest expenses on any construction and/or
permanent financing obtained, loan closing costs, permitting fees, insurance
premiums, title insurance premiums, surveying costs, legal and professional fees
of Tenant and the costs and expenses of the Tenant's Development Representative.
The Construction Budget shall in no event exceed $2,000,000, and any
expenditures by Tenant in the construction of the Building which exceed the
amount of the approved Construction Budget will be paid by Tenant.
(d) Substantial Completion. Upon approval of final Plans and Specs,
Tenant shall apply for a building permit and, upon issuance thereof, shall cause
the Contractor to commence and complete construction upon the Leased Premises of
the Building, substantially in accordance with the Plans and Specs. Said
construction will be prosecuted with due diligence so that the Building is
substantially complete, a
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certificate of occupancy issued, and the Leased Premises fully stocked and ready
for business on a date not later than the Commencement Date.
(e) Commencement Date. The term "Commencement Date" shall mean the
earlier of (i) the date the Leased Premises are opened, fully stocked and
serviced and ready for business or (ii) the date which is six (6) months after
the date on which the building permit for the Building is issued. If the date on
which the Leased Premises are opened for business is delayed by Landlord's
inability to complete the Site Improvements in a timely manner, Tenant's
inability to obtain a certificate of occupancy for the Leased Premises due to
any act or omission of Landlord, avoidable and unavoidable casualties, severe
weather, strikes, lockouts, unavailability of materials, governmental
restrictions or any other causes beyond Tenant's control, then the Commencement
Date shall be extended by a period equal to such delay.
(f) Tenant's Development Representative. Tenant shall appoint, in
writing to Landlord, its "Tenant Development Representative," which appointment
Tenant may change in writing from time to time. With respect to the development
and construction of the Building and the Site Improvements, Tenant's Development
Representative shall have and may exercise all authority vested in Tenant
hereunder, including the right to prepare and revise the Construction Budget, to
agree to changes in the Site Plan and to approve the Site Budget, changes to the
Site Plan, change orders for the construction of the Building and Site
Improvements, applications for payment submitted by all contractors and all
construction loan draw requests.
30. Site Improvements. Not later than August 1, 1989, Landlord, at
Landlord's expense, will commence the construction of certain on-site and
off-site work for the Shopping Center (the "Site Improvements") and will
substantially complete the same in a timely manner in order to permit Tenant to
commence and complete construction of the Building. Site Improvements shall
include, but shall not be limited to, the construction, on or before September
1, 1989, of a building pad for the Building to an elevation equal to plus or
minus one-tenth (1/10th) of one (1) foot of the Building's finished floor
subgrade and the installation of utilities to within five (5) feet of such
building pad, the construction of access roads from the existing highways and
roads to serve the Shopping Center, the construction of the Common Areas of the
Shopping Center, including utilities, sidewalks, access streets and parking
areas (including the surfacing of any access streets and parking areas which
Landlord is required to construct with a hard-surface pavement), the
construction of a suitable Shopping Center identification monument (at the
locations identified on the Site Plan, with Tenant having a right to be listed
on each such monument), which monument shall be paid for on a pro rata basis by
the users thereof, and the marking of all of the parking and access areas, and
the illumination and landscaping of all access streets,
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<PAGE> 19
parking areas and common areas. The scope of such Site Improvements will be
controlled by the estimated site budget attached hereto as EXHIBIT D and made a
part hereof (the "Site Budget"), and the schedule for such work shall be
controlled by the critical path schedule to be prepared by Landlord. The Site
Budget includes the actual costs to date expended by Landlord and Landlord's
estimate of the costs necessary to complete the Site Improvements. The Site
Budget shall be revised and submitted to Tenant's Development Representative
monthly by Landlord to reflect actual costs and expenses. Tenant's Development
Representative shall have the right to approve the Site Budget, as revised
monthly, all change orders which would change costs under the Site Budget, any
changes to the Site Plan and each application for payment submitted by the
contractor performing the Site Improvements. Tenant's Development Representative
shall not unreasonably withhold or delay its approval of changes to the Site
Plan provided such changes do not materially impair access to or visibility of
the Leased Premises from or to any publicly dedicated street or highway, the
amount or location of parking for the Leased Premises or increase Tenant's pro
rata share of the actual cost of maintaining and operating the Common Areas.
Tenant shall at all reasonable times, have access to Landlord's books and
records regarding the Site Budget and Site Improvements and may audit the same.
Tenant's pro rata share, which is equal to 19.61 percent (__%) of that portion
of the Site Improvements shall be added to the Construction Cost and be payable
as additional rent.
31. Hazardous Substances.
(a) Landlord's Representation. Landlord represents and warrants to
Tenant that, to the best of its knowledge, hazardous substances have not been
stored or disposed of on the Leased Premises. Furthermore, Landlord covenants
with Tenant that it shall not generate, store or discharge any hazardous
substances on the Leased Premises, nor, by Lease or by contract which Landlord
shall enforce, permit the same by any third party.
(b) Tenant's Covenants. Tenant covenants with Landlord that hazardous
substances shall not be generated or disposed of on the Building or the Leased
Premises by Tenant, nor shall the same be unlawfully transported to or over the
Building or the Leased Premises by Tenant. Tenant also covenants that any
hazardous substances sold by Tenant in lawful containers or used by Tenant in
connection with its business, such as cleaning agents and the like, shall be
used and stored only in accordance with applicable laws and regulations.
Landlord has the right, from time to time, during normal business hours upon
advance notice to enter the Leased Premises at reasonable times to conduct tests
so as to monitor Tenant's compliance with the foregoing covenants.
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<PAGE> 20
(c) Definition. "Hazardous substances" shall be interpreted broadly to
mean any substance, waste or material defined or designated as hazardous or
toxic waste, hazardous or toxic material, hazardous, toxic or radioactive
substance or other similar term by any federal, state or local environmental
law, regulation or rule presently in effect or promulgated in the future, as
such laws, regulations or rules may be amended from time to time, and it shall
be interpreted to include, but not be limited to, asbestos.
(d) Violations. In the event of any violation of law in regard to
hazardous substances, Landlord, in addition to all other remedies provided
herein, shall have the right to cure the violation and add all costs and
expenses associated with such cure (including reasonable attorneys' fees) as
additional rent, which additional rent will be due and payable by Tenant
immediately after Tenant receives notice thereof. Furthermore, in the event of
an illegal and substantial release of hazardous substances, Tenant shall
immediately notify Landlord.
(e) Mutual Indemnification. Landlord and Tenant shall indemnify,
defend and hold the other harmless from any breach of these representations,
warranties or covenants for any claims, judgments, damages, penalties, fines,
costs (including cleanup costs, environmental consultant's fees and reasonable
attorneys' fees), liabilities or losses (including, without limitation, the
diminution in the value of the Building or the Leased Premises, damages for the
loss or restriction on the use, marketability or any other amenity of the
Building or the Leased Premises) which arise during or after the Lease term as a
result of release, discharge or contamination of the Building or the Leased
Premises by any hazardous substances on the Building or the Leased Premises.
32. Common Areas.
(a) Defined. For purposes of this Lease, "Common Areas" shall mean all
areas of the Shopping Center outside the exterior walls of the buildings located
thereon which are not reserved for the exclusive use of Landlord, Tenant or any
other tenant or occupant of the Shopping Center. Common Areas shall include
automobile parking areas, access roads, driveways, sidewalks, pedestrian
walkways and stairways, landscaped areas and utility lines and systems. Common
Areas shall not include the interior space of any building located on the
Shopping Center nor any area immediately appurtenant to such building which is
reserved for the exclusive use of such building, such as loading docks.
(b) Landlord's Obligations. Landlord shall, at all times during the
term of this Lease, keep the Common Areas in good maintenance and repair, and
shall:
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(i) Maintain suitable means of illumination sufficient to
illuminate the parking areas during all twilight and night
hours that Tenant's store is open for business and is in
operation;
(ii) Maintain and keep the parking areas, driveways and access
roads in good condition and repair, with a hard surface
pavement and properly striped;
(iii) Clean and remove debris, and where reasonably practicable,
ice and snow from the parking areas, driveways and access
roads;
(iv) Clean and maintain sidewalks and other pedestrian walkways
and stairways and remove debris and, where reasonably
practicable, ice and snow therefrom; provided, however,
that Tenant shall keep the sidewalk immediately in front
of the Leased Premises clean and free from debris, ice and
snow;
(v) Maintain all other portions of the Common Areas in good
order and repair; and
(vi) Obtain and maintain liability insurance insuring both
Landlord and Tenant against all liability for personal
injury, death or property damage arising on or about the
operations of the Common Areas, in an amount of not less
than Five Million Dollars ($5,000,000) combined
single-limit coverage.
(c) Tenant's Pro Rata Share.
(i) Tenant shall pay to Landlord, in the manner provided
below, Tenant's pro rata share of Landlord's actual costs
of maintaining and operating the Common Areas during the
lease term. "Actual costs of maintaining and operating the
Common Areas" shall be limited only to items of an
expense, and not capitalized, nature as determined under
generally accepted accounting principles and shall
include, but not be limited to, the following: all amounts
paid by Landlord as actual costs for maintaining and
repairing the Common Areas, including, without limitation,
cleaning; snow and ice removal; costs and expenses of
planting,
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replanting and replacing flowers, shrubs and landscaping; water
and sewage charges; maintenance, repair and replacement of
lights, light standards, utility systems, electricity, drainage
systems and other utility charges; repair, maintenance and upkeep
of the parking areas, driveways, access roads, sidewalks and
pedestrian walkways, including the costs of paving, repaving,
surfacing, resurfacing, painting and repainting the same;
operation and maintenance of signs for the Shopping Center or
rental for such signs if leased; installation, replacement,
repair and maintenance of traffic control and directional signs
and devices; premiums for liability and extended all-risks
insurance; existing and future real property taxes and
assessments (in the event such assessments are assessed, Landlord
shall elect, if permitted to do so, to pay the amount of such
assessments in installments and thereafter only the amount of the
installment paid shall be included in the actual costs of
maintaining and operating the Common Areas); personal property
taxes on equipment and materials used to maintain the Common
Area; and policing the Common Areas, including controlling
trespassing, picketing, demonstrations, assemblies, vandalism and
thefts and affording security and fire protection therefor.
"Actual costs of maintaining and operating the Common Areas"
shall also include a management fee of ten percent (10%) of the
above-described costs; provided, that, in computing said
management fee, all capital items and all replacement items in
excess of One Thousand Dollars ($1,000), real estate taxes and
assessments and insurance premiums shall be excluded. Landlord
agrees to expend only the monies reasonably necessary for such
operating and maintenance in order to keep the Common Areas in
good repair and clean condition and to operate the same on a
nonprofit basis. Costs attributable to a contract between
Landlord and an affiliated party shall not be included, unless
that contract is previously approved by Tenant. Tenant's approval
shall not be unreasonably withheld.
(ii) Tenant's pro rata share of the actual costs of maintaining
the Common Areas shall be a percentage equal to
______________________________. If Tenant approves
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a change in the Site Plan which increases or decreases the
floor area of the Building relative to the aggregate floor
area of the other buildings to be constructed on the
Shopping Center, then Tenant's pro rata share shall be
adjusted accordingly.
(iii) The annual charge to Tenant shall be paid in monthly
installments, in advance, at the time of the monthly rent
payment, in an amount estimated by Landlord. On or before
April 1st of each calendar year (and within ninety (90)
days after the termination of this Lease), Landlord shall
furnish Tenant with a statement in reasonable detail of
the actual Common Areas costs and expenses actually paid
or incurred by Landlord during such period, and,
thereupon, there shall be an adjustment between Landlord
and Tenant, with payment to or repayment by Landlord, as
required, so that Landlord shall receive the entire amount
of Tenant's pro rata share of such costs and expenses for
such period.
(iv) Notwithstanding anything to the contrary herein contained,
Tenant's pro rata share of the actual costs of maintaining
the Common Areas shall not include any amount contained
within Construction Cost.
(d) Rules and Regulations. Subject to the provisions of any
declaration and establishment of protective covenants, conditions and
restrictions and grant of easements which may now or hereafter be filed of
record with respect to the Leased Premises and the Common Areas, the Common
Areas will be maintained for the common use of all lessees and sublessees of
Landlord, their customers, visitors, employees, business invitees, licensees and
persons dealing with lessees, sublessees and Landlord. Neither Tenant nor
Landlord shall do any act to unreasonably prevent or obstruct such common use
and free ingress to and egress from the Common Areas; provided, however, that
Landlord may make such rules and regulations governing the use of the Common
Areas as may be reasonably necessary to regulate the use of such Common Areas,
and may restrict the use of or access to any portion of the Common Areas when
such restriction is necessary or advisable for purposes of security, or safety,
or for the construction, reconstruction, repair, maintenance or preservation of
the Common Areas or any buildings located on the Shopping Center.
Notwithstanding anything to the contrary herein contained, Tenant shall have the
right, having first obtained the prior written consent of Landlord, such consent
not to be unreasonably withheld or delayed, to use certain portions of the
parking areas,
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from time to time, for parking lot sales, provided that such use does not
unreasonably interfere with the use and enjoyment of the remaining parking areas
by other occupants of the Shopping Center.
33. Protective Covenants. Landlord and Tenant agree that the Shopping
Center shall be subject to a certain declaration of protective covenants,
conditions and restrictions and grant of easements which shall be consistent
with the terms and provisions of this Lease and shall, among other things,
provide that the Leased Premises shall not be denied access to, or have the view
unreasonably obstructed from, any publicly dedicated street or highway adjoining
the Shopping Center, except as shown on the Site Plan. Landlord shall have the
right to convey portions of the Shopping Center to third parties, provided such
third parties agree to be bound by such protective covenants, conditions and
restrictions and grant of easements. Furthermore, Landlord agrees to file for
record with the County Recorder for King County, Washington, such declaration,
which shall in all respects be satisfactory to Tenant.
34. Assignment and Subletting. Tenant may, without the prior written
consent of Landlord, license any concession at the Leased Premises or assign all
of its interest under this Lease, or sublet all or any portion of the Leased
Premises, if the proposed assignee or sublessee has a net worth greater than or
equal to Tenant and the use of the Leased Premises by the proposed assignee or
sublessee shall be for a G.I. Joe's general merchandise retail store or such
other use then permitted under this Lease. Tenant may, in all other cases,
assign all of its interest under this Lease, or sublet all or any part of the
Leased Premises, only with the prior written consent of Landlord, which consent
Landlord shall not unreasonably withhold or delay.
35. Zoning. Landlord hereby represents and warrants to Tenant that the
use of the Leased Premises as a general merchandise retail store complies in all
respects with all zoning laws, codes and ordinances in effect and applicable to
the Leased Premises and that, upon completion of the Site Improvements described
above, sufficient parking shall exist for use by the Leased Premises to satisfy
all such zoning ordinances.
36. Brokerage. Landlord and Tenant agree that neither have dealt with
any broker other than Terranomics and Martin Peterson & Associates with respect
to the negotiation or execution of this Lease and that Landlord shall pay to
Terranomics any and all brokerage commissions incurred in connection therewith
and that Terranomics shall pay to Martin Peterson & Associates its portion of
such commission. Furthermore, Landlord shall indemnify, defend and hold Tenant
harmless from and against any loss, damage, claim, cost or expense which Tenant
may incur as the result of a failure by Landlord to pay such brokerage
commissions.
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<PAGE> 25
37. Estoppels. Landlord or Tenant shall, at any time and from time to
time, upon not less than ten (10) days' prior written notice from the other,
execute, acknowledge and deliver to Landlord or Tenant, as the case may be, a
statement in writing (a) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease as so modified is in full force and effect) and the
date to which the rental and other charges are paid in advance, if any; and (b)
acknowledging that, to Landlord's or Tenant's knowledge, there are no uncured
defaults on the part of the Landlord or Tenant, as the case may be, or
specifying such defaults if any are claimed; and (c) setting forth the date of
commencement of rents and expiration of the term hereof. Any such statement may
be relied upon by the prospective purchaser or encumbrancer of all or any part
of the Shopping Center.
38. Survey. Landlord agrees, as its own expense, to furnish to Tenant,
not later than thirty (30) days after the date hereof, a survey of the Leased
Premises made, and so certified by the surveyor as having been made, in
compliance with the ALTA/ACSM minimum standard detail requirements, and on or
before the Commencement Date, an "as-built" survey of the Leased Premises,
similarly certified, which survey shall show all buildings and improvements on
the Leased Premises to be within the lot lines and building lines, the location
of all easements, including references to recorded document numbers, that no
easements underlie the buildings or improvements and that no buildings or
improvements on adjoining properties encroach upon the Leased Premises.
39. Title Insurance. Landlord agrees to deliver to Tenant, not later
than thirty (30) days after the date hereof, a commitment for an ALTA extended
coverage leasehold title policy in the amount of the Construction Cost plus the
fair market value of the Land, issued by a title company reasonably acceptable
to Tenant, covering the Leased Premises and the easements granted to Tenant, as
hereinbefore provided, and subject only to those matters which Tenant shall
agree to in writing ("Permitted Exceptions"). The cost of the leasehold title
policy will be included in the Construction Budget and will be paid by Landlord
the same as any other Construction Cost. For purposes of this Lease, Permitted
Exceptions shall include usual and customary preprinted exceptions to title
contained in an ALTA extended coverage leasehold title insurance policy, any
declaration of protective covenants enacted pursuant to this Lease and the lien
of any first mortgage or deed of trust loan which Landlord obtains in order to
finance construction of the Building or the Site Improvements, provided such
lender agrees to execute and deliver to Tenant a satisfactory nondisturbance and
attornment agreement. If such commitment for title insurance contains any
exceptions to title other than Permitted Exceptions, then Landlord shall have
thirty (30) days from the date of delivery of such commitment to Tenant to cure
the same if it so elects. If Landlord elects not to cure such unpermitted
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<PAGE> 26
title exceptions, Tenant may accept title as it then is or may terminate this
Lease, in which event any sums expended by Tenant under the Construction Budget
shall be paid to Tenant by Landlord. On or before the Commencement Date,
Landlord shall deliver to Tenant an ALTA extended coverage leasehold title
policy, subject only to Permitted Exceptions.
40. Changes Requested by Lender. Tenant agrees to make such changes to
this Lease which are requested by any lender of Landlord who holds a mortgage,
or is the beneficiary under a deed of trust, on the Leased Premises that is
superior to this Lease and which do not materially affect the substance of any
terms, conditions or agreements which are contained herein. It is a condition of
the performance of Landlord's obligations under this Lease that Landlord must be
satisfied that it can finance the Lease, including the Construction Cost, on an
interim and permanent basis. If Landlord is unable to satisfy this condition
within twenty-one (21) days of the date of this Lease and so notifies Tenant
within such time, then Landlord may terminate this Lease. Otherwise, this Lease
shall remain in full force and effect. If changes are required in the Lease in
order for Landlord to obtain such financing, and such changes are not acceptable
to Tenant, then Landlord at its option, within the time for satisfaction
specified above, may terminate this Lease.
41. Configuration of Shopping Center. Landlord shall at all times, and
from time to time, have the right and privilege of making changes to the
configuration of the Shopping Center including the size and location of building
pads, common areas and parking areas, the location and relocation of driveways,
entrances, exists and parking spaces, the direction and flow of traffic, the
installation of prohibited areas, landscaped areas, and all other facilities
thereof, that any such reconfiguration does not materially impair (a) access to
or visibility of the Leased Premises from or to any publicly dedicated street or
highway, (b) the amount or location of off-street parking available for the
Leased Premises or (c) Tenant's pro rata share of the actual costs of
maintaining and operating the Common Areas.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this instrument on the
date first above written.
Lessor:
WEST CAMPUS SQUARE JOINT VENTURE
By Armada/West Campus Inc.
General Partner
By /s/
--------------------------------------
Its: President
Lessee:
G.I. JOE'S, an Oregon corporation
By /s/
--------------------------------------
It's: President
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 27th day of June, 1989, before me, the undersigned, a Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared James W. Lagerquist, to me known to be the person who signed on behalf
of the general partner of WEST CAMPUS SQUARE JOINT VENTURE, the general
partnership that executed the within and foregoing instrument and acknowledged
said instrument to be the free and voluntary act and deed of the general
partnership for the uses and purposes therein mentioned; and on oath stated that
he was authorized to execute the said instrument on behalf of said WEST CAMPUS
SQUARE JOINT VENTURE.
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<PAGE> 28
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
-----------------------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Seattle My
Appointment Expires: 6/1/91.
STATE OF OREGON )
) ss.
COUNTY OF CLACKAMAS )
On this 23rd day of June, 1989, before me, the undersigned, a Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared David E. Orkney to me known to be the person who signed as President of
G.I. JOE'S, the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath stated
that he was duly elected, qualified and acting as said officer of the
corporation, that he was authorized to execute said instrument and that the seal
affixed, if any, is the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
NOTARY PUBLIC in and for the State of
Oregon, residing at Portland, Oregon My
Appointment Expires: 3/30/91.
-28-
<PAGE> 29
EXHIBIT "A"
DESCRIPTION:
PARCEL A:
LOTS 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21 AND 22 IN
BLOCK 2;
LOTS 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21 AND 22 IN
BLOCK 5;
LOTS 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21 AND 22 IN
BLOCK 8;
LOTS 5, 6, 7, 8, 9, 10, 11, 12 AND 13 IN BLOCK 11;
TOGETHER WITH PORTIONS OF "K" STREET, "L" STREET, "M" STREET, "N" STREET, AND
PORTION OF THE NORTH 1/2 OF 3RD STREET AND OF ALLEYS IN SAID BLOCKS 2, 5 AND 8
AS HAVE REVERTED TO SAID LOTS BY OPERATION OF LAW;
ALL IN EAST TACOMA CENTRAL ADDITION "B", AS PER PLAT RECORDED IN VOLUME 4 OF
PLATS, PAGE 43, RECORDS OF KING COUNTY;
EXCEPT ANY PORTION THEREOF CONVEYED TO THE STATE OF WASHINGTON BY DEED RECORDED
JANUARY 28, 1959, UNDER RECORDING NO. 4990939;
SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.
AND
VACATED BLOCKS 3, 4, 9 AND 10 OF EAST TAC0MA CENTRAL ADDITION "B", AS PER PLAT
RECORDED IN VOLUME 4 OF PLATS, PAGE 43, RECORDS OF KING COUNTY;
TOGETHER WITH THE VACATED ALLEYS IN SAID BLOCKS 3, 4 AND 9;
AND TOGETHER WITH THAT PORTION OF VACATED K, L, M AND N STREETS LYING BETWEEN
THE NORTH AND SOUTH LINES OF SAID BLOCKS PRODUCED EAST WEST;
AND TOGETHER WITH THE SOUTH 1/2 OF VACATED 3RD STREET ADJOINING THE ABOVE
DESCRIBED PROPERTY;
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<PAGE> 30
AND TOGETHER WITH VACATED WESTLAKE AVENUE (SOUTH 352ND STREET) IN SAID ADDITION;
EXCEPT THE SOUTH 30 FEET CONVEYED TO KING COUNTY FOR STREET PURPOSES;
AND EXCEPT THAT PORTION CONVEYED TO THE STATE OF WASHINGTON BY DEED RECORDED
UNDER RECORDING NO. 4995246, FOR PRIMARY STATE HIGHWAY NUMBER 1;
SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.
-30-
<PAGE> 31
PARCEL B:
LOTS 1, 2, 3, 4, 23, 24, 25 AND 26 IN BLOCK 5;
LOTS 14, 15, 16, 17, 18 AND 19 IN BLOCK 6;
LOTS 14, 15, 16, 17, 18 AND 19 IN BLOCK 7;
LOTS 1, 2, 3, 4, 23, 24, 25 AND 26 IN BLOCK 8;
LOTS 1, 2, 3 AND 4 IN BLOCK 11 AND
LOTS 14, 15 AND 16 IN BLOCK 12;
ALL IN EAST TACOMA CENTRAL ADDITION "B", AS PER PLAT RECORDED IN VOLUME 4 OF
PLATS, PAGE 43, RECORDS OF KING COUNTY;
TOGETHER WITH THAT PORTION OF VACATED ALLEYS AND VACATED 2ND STREET (SOUTH 349TH
STREET) N STREET (17TH AVENUE SOUTH), M STREET (18TH AVENUE SOUTH) AND L STREET
(19TH AVENUE SOUTH) ADJOINING SAID LOTS WHICH WOULD ATTACH THERETO BY OPERATION
OF LAW;
EXCEPT THAT PORTION OF SAID VACATED 2ND STREET (SOUTH 349TH STREET) AND L STREET
(19TH AVENUE SOUTH) CONVEYED TO THE STATE OF WASHINGTON FOR PRIMARY STATE
HIGHWAY NO. 1, BY DEED RECORDED UNDER RECORDING NO. 4975993;
AND EXCEPT ANY PORTION OF VACATED L STREET (19TH AVENUE SOUTH) LYING WITHIN
PRIMARY STATE HIGHWAY NO. 1;
AND
LOTS 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 20, 21, 22, 23, 24, 25, 26, 27,
28, 29, 30, 31 AND 32 IN BLOCK 6;
LOTS 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 20, 21, 22, 23, 24, 25, 26, 27,
28, 29, 30, 31 AND 32 IN BLOCK 7;
LOTS 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 AND 13 IN BLOCK 12;
ALL IN EAST TACOMA CENTRAL ADDITION "B", AS PER PLAT RECORDED IN VOLUME 4 OF
PLATS, PAGE 43, RECORDS OF KING COUNTY;
TOGETHER WITH THAT PORTION OF VACATED ALLEYS AND VACATED N STREET (17TH AVENUE
SOUTH), M STREET (18TH AVENUE SOUTH) AND L STREET (19TH AVENUE SOUTH) ADJOINING
SAID LOTS WHICH WOULD ATTACH THERETO BY OPERATION OF LAW;
-31-
<PAGE> 32
EXCEPT THAT PORTION THEREOF CONVEYED TO THE STATE OF WASHINGTON FOR PRIMARY
STATE HIGHWAY NO. 2, BY DEED RECORDED UNDER RECORDING NO. 4748732;
AND EXCEPT THAT PORTION THEREOF CONVEYED TO THE STATE OF WASHINGTON FOR PRIMARY
STATE HIGHWAY NO. 1, BY DEED RECORDED UNDER RECORDING NO. 5009985;
SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.
-32-
<PAGE> 33
EXHIBIT B
[Site Plan]
-33-
<PAGE> 34
EXHIBIT "C"
CONSTRUCTION BUDGET
G.I. JOE'S
FEDERAL WAY, WASHINGTON
<TABLE>
<S> <C> <C>
Building (55,960 sq. ft. @ $23.50 $ 1,315,060
Washington State sales tax @ 8.1% 106,520
Architectural & Engineering @ 4% 52,602
Soils, borings and testing 7,500
Bonds & permits @ 2.5% 32,876
------------
$ 1,514,558
Interim interest $ 68,000
Loan origination fees $2.4 M 17,000
Insurance during construction 7,500
Legal/Accounting expense 10,000
Title insurance, leasehold building only 7,500
Development expense @ 4% 92,000
------------
$ 202,000
Contingency $ 283,442
-----------
TOTAL CONSTRUCTION COSTS $ 2,000,000
</TABLE>
-34 -
<PAGE> 1
EXHBIIT 10.15
CROSSROADS AT ORENCO STATION
Hillsboro, Oregon
LEASE
Between
PACIFIC REALTY ASSOCIATES, L.P.
a Delaware limited partnership,
as Landlord
and
G.I. JOE'S, INC.
an Oregon corporation,
as Tenant
Dated: 1/28, 1998
<PAGE> 2
LEASE SUMMARY
NOTE: This Lease Summary is provided solely as a convenience to Landlord to
summarize certain Lease provisions and is not to be given to or relied on by
Tenant. It is not a complete summary of all material terms and conditions of
this Lease. In the event of any inconsistency between any information shown on
this Lease Summary and the provisions of this Lease, the provisions of this
Lease govern.
Date of Lease: January 28, 1998
Landlord: PACIFIC REALTY ASSOCIATES, L.P., a Delaware limited partnership
Tenant: G.I. JOE'S, INC., an Oregon corporation
Tenant's Trade Name: G.I. Joe's
Type of Business: Retail sale of sporting goods, automobile parts and supplies
and related goods and products.
Gross Leasable Area of Premises: A building containing approximately 55,120
square feet plus an Seasonal Sales Area of approximately 2,400 square feet for a
total of 57,520 square feet
Minimum Business Hours: Monday to Saturday 10 a.m. to 7 p.m.
Sunday 12 p.m. to 6 p.m.
Address of Premises: Crossroads at Orenco Station
Unit COS-02
Hillsboro, Oregon
Term Commencement Date: See Section 1.27 hereof
Term: Twenty (20) years with four (4) five (5) year options.
Monthly Fixed Minimum Rent (estimated): not to exceed $48,963.00
Percentage Rent: $ -0-
Security Deposit: $ -0-
Notice Address of Landlord: PacTrust
Attn: General Counsel
15350 S.W. Sequoia Pkwy., Suite 300
Portland, OR 97224
PAGE 1
<PAGE> 3
Notice Address of Tenant: G.I. Joe's, Inc.
Attn: Norm Daniels, President
9805 Boeckman Road
Wilsonville, OR 97070
Tenant's Proportionate Share: Tenant's Share of Common Area Costs and other
charges allocable of the tenants of the Shopping Center, calculated as set forth
in Section 1.19 hereof.
PAGE 2
<PAGE> 4
LEASE
THIS LEASE (this "Lease") is made and entered into as of January 28, 1998,
by and between PACIFIC REALTY ASSOCIATES, L.P., a Delaware limited partnership
("Landlord"), and G.I. JOE'S, INC., an Oregon corporation ("Tenant").
IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS CONTAINED HEREIN,
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS.
The terms set forth in this Section 1 shall have the meanings set forth
below for each such term. Other terms used in this Lease and the Exhibits hereto
not defined in this Section 1 shall have the meanings set forth elsewhere in
this Lease and the Exhibits hereto.
1.1. Building. The Building designated "G.I. Joe's" which is a portion of
the Premises and is situated in the Shopping Center as shown on Exhibit A.
1.2. Common Area. All areas and facilities within the Shopping Center not
appropriated to the exclusive occupancy of tenants, including all Parking Area,
sidewalks, pedestrian ways, driveways, drive-through lanes, signs, service
delivery facilities, common storage areas, landscape areas, common utility
facilities, and all other areas in the Shopping Center established by Landlord
for non-exclusive use.
1.3. Common Area Maintenance Costs. The total of all costs and expenses
paid or incurred by Landlord in connection with the operation, maintenance,
ownership, repair, and replacement of the Common Area and Useable Open Space.
Without limiting the generality of the foregoing, Common Area Maintenance Costs
include the Management Fee and all costs of and expenses for:
(i) The maintenance of all paved surfaces and curbs in a smooth and
evenly covered condition which maintenance shall include, without
limitation, cleaning, sweeping, restriping, repairing, resealing and
resurfacing. For the purposes of this Section, any overlay of the drive and
parking area shall be considered a repair or maintenance item.
(ii) The periodic removal of all papers, debris, filth, refuse, ice
and snow, including sweeping as necessary to keep the Common Area and
Useable Open Space in a first-class, clean and orderly condition. All
sweeping shall be conducted at appropriate intervals and during such times
so as to minimize
PAGE 3
<PAGE> 5
interference with the conduct of business or use of the Common Area by
Tenant and other occupants of the Shopping Center.
(iii) The placing, cleaning, keeping in repair, replacing and
repainting any and all appropriate directional signs or markers, including
any handicapped parking signs.
(iv) The operation, repair, cleaning and replacing when necessary of
Common Area lighting facilities as may be reasonably required.
(v) The cleaning and maintaining of all landscaped areas, including
landscaping and planters adjacent to exterior walls of buildings; repairing
automatic sprinkler systems or water lines in the Common Area and Useable
Open Space; irrigating, weeding, pruning, fertilizing and replacing shrubs,
planting outside flowers and other landscaping as necessary.
(vi) The maintaining, cleaning, and repairing of any and all common
storm drains, utility lines, sewers and other utility systems and services
located in the Common Area and Useable Open Space which are necessary for
the operation of the Common Area and Useable Open Space, and the
maintenance and replacement of the trunk line portion of utility lines
serving the Building Areas in the Shopping Center.
(vii) The cleaning (including washing and/or steam cleaning),
maintenance and repair of all sidewalks, including those adjacent and
contiguous to buildings located within the Shopping Center and Useable Open
Space. Sidewalks shall be cleaned at appropriate intervals during such
times so to minimize interference with the conduct of business or use of
the Common Area and Useable Open Space by Tenant and other occupants of the
Shopping Center.
(viii) The obtaining of comprehensive general liability insurance
coverage for the Common Area in accordance with the requirements of Section
6.2.
(ix) The installation and maintenance of outside decorations.
1.3.1 For purposes of this Agreement, Common Area Maintenance Costs
shall not include: (i) any late charges or fees, provided Tenant has timely paid
its Proportionate Share of Common Area Maintenance Costs and Management Fee
pursuant to Section 12.1; (ii) any costs to clean up or repair the Common Area
resulting from construction, maintenance or replacement of buildings (which
shall be the sole obligation of the party owning such building(s); (iii)
Landlord's profit,
PAGE 4
<PAGE> 6
administrative and overhead costs (such as rent, legal, supplies, utilities and
wages or salaries paid to management or supervisory personnel), except for the
Management Fee, it being further agreed that if a person is involved with
matters in addition to Common Area operational maintenance at the Shopping
Center, then Landlord shall allocate such person's time to properly reflect the
various duties; (iv) entertainment, transportation, meals, and lodging of
anyone; (v) amounts paid to persons or entities affiliated with, controlled by,
controlling of, or under common control with the Landlord, except as
specifically approved in advance by Tenant after full disclosure of the nature
of the relationship, and then only in amounts not greater than those which would
have been changed by an unaffiliated party in an arms-length transaction; and
(vi) any debt service.
1.4. CPI. The Consumer Price Index, All Items, for the Portland,
Oregon/Vancouver, Washington Geographic Area, All Urban Consumers, published by
the Bureau of Labor Statistics of the United States Department of Labor
(1982-1984 equals 100). If the Base Year of the CPI is changed, then all
calculations pursuant to this Lease which require the use of the CPI shall be
made by using the appropriate conversion factor published by the Bureau of Labor
Statistics (or successor agency) to correlate to the Base Year of the CPI herein
specified. If no such conversion factor is published, then Landlord shall, if
possible, make the necessary calculation to achieve such conversion. If such
conversion is not in Landlord's judgment possible, or if publication of the CPI
is discontinued, or if the basis of calculating the CPI is materially changed,
then the term "CPI" shall mean (i) comparable statistics on the cost of living,
as computed by an agency of the United States Government performing a function
similar to the Bureau of Labor Statistics, or (ii) if none, by a substantial and
responsible periodical or publication of recognized authority most closely
approximating the result which would have been achieved by the CPI, as may be
determined by Landlord in the exercise of its reasonable good faith business
judgment.
1.5. Core Area. That portion of the Shopping Center outlined by dashed line
on the Site Plan attached hereto as Exhibit A and consisting of approximately
Seven Hundred Twenty Thousand Four Hundred Twenty-one (720,421) square feet of
land.
1.6. ECR. That certain Construction, Operation and Reciprocal Easement
Agreement affecting the Shopping Center, made and entered into as of November
26, 1997, by and between Landlord and Waremart, Inc., as amended from time to
time.
1.7. Environmental Laws. All statutes, ordinances, orders, rules, and
regulations of all federal, state, or local governmental agencies relating to
the use, generation, manufacture, installation, Release, discharge, storage, or
disposal of Hazardous Materials.
PAGE 5
<PAGE> 7
1.8. Event of Default. The occurrence of any of the following:
1.8.1. Vacation or Abandonment. Vacation or abandonment of the
Premises for a continuous period in excess of sixty (60) days.
1.8.2. Nonpayment of Money. Failure to pay when due Fixed Minimum
Rent, Common Area Maintenance Costs, Taxes, or any other charge or sum due and
payable by Tenant under this Lease.
1.8.3. Prohibited Assignment or Subletting. Any assignment or
subletting by Tenant in contravention of the terms and conditions of Section 13.
1.8.4. Insolvency. The admission by Tenant in writing of its inability
to pay its debts as they become due; the filing by Tenant of a petition seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law, or
regulation; the filing by Tenant of an answer admitting or failing timely to
contest a material allegation of a petition filed against Tenant in any such
proceedings or, if within thirty (30) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future statute, law, or regulation, such proceeding shall not have been
dismissed; the appointment of a receiver or trustee to take possession of all or
substantially all of the assets of Tenant; a general assignment by Tenant for
the benefit of creditors; any action or proceeding commenced by Tenant under any
insolvency or bankruptcy act or under any other statute or regulation having as
its purpose the protection of creditors, or any such action commenced against
Tenant and not discharged within thirty (30) days after the date of
commencement; or the attachment, execution, or other judicial seizure of all or
substantially all of Tenant's assets or the Premises, if such attachment or
other seizure remains undismissed or undischarged for a period of ten (10) days
after the levy thereof.
1.8.5. Failure to Perform Other Obligations. Failure to perform any
other term, obligation, covenant, or agreement under this Lease.
1.9. Exhibits. The following exhibits, which are attached hereto and made a
part of this Lease:
Exhibit A - Site Plan
Exhibit B - Legal Description of Shopping Center
Exhibit C - Scope of Landlord's Work and Tenant's Work
Exhibit D - Form of Certificate of Commencement of Term
Exhibit E - Rules and Regulations
Exhibit F - Rent Calculations
PAGE 6
<PAGE> 8
1.10. Gross Leasable Area. The number of square feet of all areas in the
Shopping Center appropriated to the exclusive use or occupancy of the respective
Shopping Center tenants or owner/occupants, including free-standing structures
and uses, whether or not such areas are actually leased or occupied, measured
from the exterior surface of exterior walls (and extensions thereof for
openings), and/or from the center line of party or common walls or demising
partitions. Notwithstanding the foregoing, Landlord may exclude from such Gross
Leasable Area any portion of the Shopping Center so as long as such exclusion
does not increase the costs of Tenant hereunder and such portions are owned and
maintained by a third party.
1.11. Gross Sales. The entire gross amount of the price, fee, commission,
charge, or other consideration charged or received, whether wholly or partly for
cash or on credit or otherwise, for all goods, wares, merchandise, services, or
other business activities sold, leased, licensed, delivered, performed, or made,
in, at, upon, or from any part of, or through any use of, the Premises by
Tenant, or by means of any mechanical or vending device, or from orders secured
or received in the Premises by telephone, mail, house to house, or other
canvassing by personnel operating from, reporting to, or under the supervision
of, any employee, agent, or representative of Tenant located at or operating out
of the Premises, or which Tenant, in the normal and customary course of its
operations, would credit or attribute to its business in the Premises, or by
other means, whether or not filled elsewhere.
1.12. Hazardous Materials. Petroleum, asbestos, polychlorinated biphenyls,
radioactive materials, radon gas, or any chemical, material, or substance
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous waste", "restricted
hazardous waste", "toxic substances", or words of similar import, under any
applicable laws, including but not limited to, Federal Water Pollution Act, as
amended (33 U.S.C. 1251 et seq.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. 6901 et seq.), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. 1801 et seq.), and
all similar statutes, rules, regulations, ordinances, and orders of the District
of Columbia.
1.13. Interest. The per annum rate equal to the greater of (i) eighteen
percent (18%) or (ii) the prime rate, reference rate, or succeeding similar
index, as published in the Wall Street Journal, in effect from time to time plus
two percent (2%), but not to exceed the maximum rate allowed by applicable usury
law.
1.14. Lease Year. Each period during the Term commencing on January 1 and
ending on December 31 next succeeding, except that the first Lease Year shall
PAGE 7
<PAGE> 9
commence on the first day of the Term and end on December 31 next succeeding,
and the last Lease Year shall end on the last day of the Term.
1.15. Management Fee. The management and administrative fee equal to ten
percent (10%) of the total Common Area Maintenance Costs (after deducting
therefrom all sums paid for taxes, insurance and capital expenditures exceeding
Ten Thousand Dollars [$10,000.00])for the Lease Year in question. The Management
Fee shall be paid to Landlord as reimbursement for its direct internal
administration and overhead costs incurred in the operation and management of
the Common Area hereunder (such as wages and salaries paid by Landlord to its
employees engaged in property management or accounting) and no such costs shall
be included in Common Area Maintenance Costs.
1.16. Month. Each full calendar month during the Term.
1.17. Seasonal Sales Area. That portion of the Premises designated
"Seasonal Sales Area" and shown as cross-hatched on Exhibit A hereto.
1.18. Parking Area. All Common Area (except sidewalks and service delivery
facilities) now or hereafter designated by Landlord for the parking or access of
motor vehicles, including roads, traffic lanes, drive-through lanes, vehicular
parking spaces, landscaped areas, and walkways.
1.19. Premises. The Building containing approximately fifty-five thousand
one hundred twenty (55,120) square feet of Gross Leasable Area, located in the
Shopping Center substantially where depicted as single-hatched on Exhibit A,
together with the exterior covered sales area containing approximately two
thousand four hundred (2,400) square feet substantially where depicted as
cross-hatched on Exhibit A and all other appurtenances specifically granted to
Tenant in this Lease. For purposes of calculating Tenant's Proportionate Share
as set forth in Section 1.19 below, the Premises shall be deemed to contain
fifty-seven thousand five hundred twenty (57,520) square feet of Gross Leasable
Area, plus an amount equal to five percent (5%) of such Gross Leasable Area to
reimburse Landlord for all costs incurred in connection with the installation of
the Useable Open Space requirement of the City of Hillsboro, Oregon, maintenance
and repair of the Useable Open Space requirement imposed by the City of
Hillsboro, Oregon.
1.20. Proportionate Share. Unless otherwise specified in this Lease,
whenever Tenant is required to pay its Proportionate Share, such Proportionate
Share shall be equal to the ratio (expressed as a percentage) which the number
of square feet of Gross Leasable Area in the Premises (including the five
percent (5%) Useable Open Space requirement) as defined in Section 1.18 above
bears to the total number of square feet of Gross Leasable Area in the Shopping
Center. If the Shopping Center
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is expanded or contracted, then as of the date of completion of such expansion
or contraction, Tenant's Proportionate Share shall be adjusted, pursuant to the
foregoing formula, to reflect any increased or decreased amount of Gross
Leasable Area contained in the Shopping Center. Within fifteen (15) days of the
Term Commencement Date, Landlord shall deliver to Tenant a letter establishing
the Tenant's Proportionate Share. In no event shall Tenant's Proportionate Share
of the Common Area Maintenance Costs be greater than forty two percent (42%).
1.21. Protective Covenants: That certain Protective Covenants Agreement
effecting the Shopping Center and certain adjacent property made and entered
into as of _______, 1998 by Landlord, as amended from time to time.
1.22. Release. As used in Section 25 ("Hazardous Materials"), disposal or
placement or existence of any Hazardous Materials in, on, about, or under the
Premises or Shopping Center in violation of any Environmental Laws.
1.23. Rent. Fixed Minimum Rent, Common Area Maintenance Costs, Taxes, and
all other sums and amounts payable by Tenant hereunder as additional rent.
1.24. Shopping Center. The real property described in Exhibit B, together
with all improvements from time to time or at any time located thereon.
1.25. Substantial Completion: The date that an architect employed by the
party performing any work hereunder certifies to that party in writing that all
work to be performed by such party pursuant to this Agreement is substantially
complete, except for punch list items and construction items to be completed as
part of the Initial Shopping Center and/or part of the Initial Premises that
would not prevent the other party from performing its work in the Premises or,
in the case of Tenant, opening for business in the Premises and except for any
of such parties work which cannot be feasibly performed prior to completion by
the other party of its work.
1.26. Taxes. The following: (i) all real estate taxes and assessments and
all other taxes relating to or levied, assessed, or imposed on the Shopping
Center or any portion thereof or interest therein (including, but not limited to
the Useable Open Space allocated to the Shopping Center, whether located within
the Shopping Center or on real property subject to the Protective Covenants) but
excluding that portion of the Shopping Center shown as shaded on Exhibit A,
attached hereto; (ii) all other taxes, assessments, charges, levies, fees, or
penalties, general or special, ordinary or extraordinary, unforeseen as well as
foreseen, of any kind and nature imposed, levied, assessed, charged, conformed,
or collected by any governmental authority or other entity either directly or
indirectly (A) for public improvements, user, maintenance, or development fees,
services, or benefits, (B) upon or with respect to the development, possession,
leasing, operation, management, maintenance, alteration, repair, use, or
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occupancy of, or business operations in, the Shopping Center, (C) upon, against,
or measured by the area of the Shopping Center or uses made thereof or leases
made to tenants thereof, and (D) for environmental matters or as a result of the
imposition of mitigation measures, including parking taxes, employer parking
regulations, or fees, charges, or assessments as a result of the treatment of
the Shopping Center, or any portion thereof or interest therein, as a source of
pollution or storm water runoff, (iii) any tax or excise, however described,
imposed in addition to, or in substitution partially or totally of, any or all
of the foregoing taxes, assessments, charges, or fees; and (iv) any and all
costs, expenses, and attorneys' fees paid or incurred by Landlord in connection
with any proceeding or action to contest in whole or in part, formally or
informally, the imposition, collection, or validity of any of the foregoing
taxes, assessments, charges, or fees. If by law any Tax may be paid in
installments at the option of the taxpayer, then Landlord shall include within
Taxes hereunder only those installments (including interest, if any) which would
become due by exercise of such option. Taxes shall not include any taxes,
assessment fees, or charges for which Tenant is directly responsible under
Section 7.2 or taxes payable by Landlord measured by Landlord's net income, or
as franchise or inheritance taxes.
1.27. Term. The period commencing on the Term Commencement Date and ending
(unless sooner terminated as provided in this Lease) on the Term Expiration Date
(the "Original Term"), including any "Extended Term," as defined in Section 3.6.
1.28. Term Commencement Date. The earlier of (i) the date forty-five (45)
calendar days after Landlord "substantially completes" "Landlord's Work"
pursuant to Exhibit C (or would have "substantially completed" Landlord's Work
had Landlord not been prevented from so doing due to delays caused by Tenant),
or (ii) the date on which Tenant first opens for business in the Premises.
1.29. Term Expiration Date. The last day of the Two Hundred Fortieth
(240th) Month after the Term Commencement Date, unless Tenant has timely
exercised an option to extend this Lease, in which event, the last day of the
Extended Term then in effect.
1.30. Useable Open Space. The City of Hillsboro, Oregon requires that five
percent (5%) of the total land area of the Shopping Center be designated and
established as "Useable Open Space" and that such Useable Open Space be
landscaped, developed and maintained in accordance with the administrative
requirements of the City of Hillsboro and the Protective Covenants. Landlord has
set aside and will develop certain real property as Useable Open Space in
conjunction with the development of the Shopping Center and other adjacent
property which may
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be located, in whole or in part, within the Shopping Center or on real property
adjacent to the Shopping Center, as Landlord reasonably determines.
2. LEASE OF PREMISES.
2.1. Lease and Hiring. Landlord leases to Tenant, and Tenant rents from
Landlord, the Premises for the Term, at the Rent, and upon the terms, covenants,
and conditions contained herein.
3. TERM.
3.1. Duration. This Lease, and the terms, covenants, and conditions
contained herein, shall be effective as of the date hereof.
3.2. Certificate. Within fifteen (15) days following the Term Commencement
Date, Tenant shall execute and deliver to Landlord a certificate in the form
attached hereto as Exhibit D and incorporated herein by reference setting forth
the Term Commencement Date and the Term Expiration Date. Tenant's failure to
deliver the certificate hereunder shall not affect the Term Commencement Date
nor the Term Expiration Date but, at Landlord's option, shall constitute an
Event of Default by Tenant hereunder.
3.3. Termination for Delay. Notwithstanding anything to the contrary
contained herein and subject to force majeure delay, in the event Landlord is
unable to substantially complete the construction of the Premises by September
15, 1998, Tenant may elect by written notice to Landlord to cause Tenant's
obligation to pay Fixed Minimum Monthly Rent as set forth herein to be abated
until the earlier of (a) the date Tenant accepts possession of the Premises or
(b) February 1, 1999 (the "Abatement Period"). During the Abatement Period,
Tenant shall pay Landlord monthly all Additional Rent required by this Lease
plus a sum equal to one twelfth (1/12) of the product obtained when nine percent
is multiplied by all construction costs then incurred by Landlord in performing
Landlord's Work as defined herein. Fixed Minimum Rent as calculated pursuant to
Exhibit F and hereunder shall, in any event, commence no later than February 1,
1999.
In the event Landlord is unable to complete construction of the Premises by
June 1, 1999, as its sole and exclusive remedy, Tenant shall have the right, by
written notice to Landlord to terminate this Lease.
Notwithstanding anything to the contrary contained herein, in the event
either (i) Tenant has not commenced "Tenant's Work" in the Premises pursuant to
Exhibit C within fifteen (15) days after substantial completion by Landlord of
Landlord's Work; or (ii) Tenant fails to prosecute diligently Tenant's Work to
substantial completion in
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accordance with Exhibit C, Landlord shall have the right, by written notice to
Tenant, to terminate this Lease.
Upon any Lease termination pursuant to this Section 3.3, neither party
shall have any further right, obligation or liability to the other party under
this Lease.
3.4. Holding Over. If Tenant should remain in possession of the Premises
after the expiration of the Term with the express written consent of Landlord
and without executing a new lease, then such holding over shall be deemed a
tenancy from month-to-month, subject to all conditions, provisions, and
obligations of this Lease, except that the Fixed Minimum Rent then in effect
shall be increased to an amount equal to one hundred ten percent (110%) of such
Fixed Minimum Rent.
3.5. Option to Extend this Lease. Provided there exists no Event of Default
on the date of Tenant's notice to Landlord, Tenant shall have the right to
extend this Lease for four (4) separate and additional consecutive periods of
five (5) years each ("Extended Term") by giving Landlord written notice of its
intention to so extend at least one hundred eighty (180) days before the end of
the Original Term or any Extended Term then in effect.
4. RENT.
4.1. Fixed Minimum Monthly Rent for the Original Term. Tenant shall pay to
Landlord "Fixed Minimum Monthly Rent" for the first sixty (60) months of the
Original Term, which shall be determined as set forth in Exhibit F, attached
hereto and incorporated herein by reference.
4.2. Adjustment in Fixed Minimum Monthly Rent During Original Term. The
Fixed Minimum Monthly Rent set forth in Section 4.1 shall be increased on the
first (1st) day of the fifth (5th) Lease Year, and thereafter on the first (1st)
day of the tenth (10th) and fifteenth (15th) Lease Year by an amount equal to
the product obtained when the Fixed Minimum Monthly Rent on the date of last
adjustment (the "Adjustment Date") is multiplied by ten percent (10%). For the
purpose of adjusting Fixed Minimum Monthly Rent on the first (1st) Adjustment
Date, the Fixed Minimum Monthly Rent as of the Term Commencement Date shall be
multiplied by ten percent (10%). On each Adjustment Date, the Fixed Minimum
Monthly Rent then in effect shall be increased, but not decreased, by
multiplying such Fixed Minimum Monthly Rent by ten percent (10%). Upon
Landlord's determination thereof, Landlord shall give written notice of the
amount of the Fixed Minimum Monthly Rent as so adjusted and the basis of
computation thereof.
4.3. Fixed Minimum Monthly Rent During Extended Term(s), If Any. In the
event Tenant has duly exercised its option to extend the Term hereof for a first
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Extended Term, the Fixed Minimum Monthly Rent for each month of such first
Extended Term shall be equal to the product obtained when the Fixed Minimum
Monthly Rent for the last month of the Original Term is multiplied by One
Hundred Ten percent (110%). If Tenant has duly exercised its option to extend
the Term hereof for the second Extended Term, the Fixed Minimum Monthly Rent for
the second Extended Term shall remain the same as the Fixed Minimum Monthly Rent
during the first Extended Term. If Tenant has duly exercised its option to
extend the Term hereof for the third Extended Term, the Fixed Minimum Rent for
each month of such third Extended Term shall be equal to the product obtained
when the Fixed Minimum Monthly Rent for the last month of the second Extended
Term is multiplied by One Hundred Ten percent (110%). If Tenant has exercised
its option to extend the Term hereof for the fourth Extended Term, the Fixed
Minimum Monthly Rent for the fourth Extended Term shall remain the same as the
Fixed Minimum Monthly Rent during the third Extended Term.
4.4. Payment and Proration of Fixed Minimum Monthly Rent. Fixed Minimum
Monthly Rent shall be paid without notice, deduction, or offset in advance on or
before the first day of each Month during the Term, unless the Term commences on
a day other than the first day of a Month, in which event Tenant shall pay to
Landlord on the first day of the Term, as Fixed Minimum Monthly Rent for such
first partial calendar month of the Term, a pro rata portion of the Fixed
Minimum Monthly Rent for the first month of the Original Term set forth in
Exhibit F equal to the product of (i) the quotient obtained when the Fixed
Minimum Monthly Rent for the first month of the Original Term set forth in
Exhibit F multiplied by twelve (12) is divided by three hundred sixty-five
(365), times (ii) the number of days of such first partial calendar month of the
Term.
4.5. Reports of Gross Sales. On or before the sixtieth (60th) day following
each Lease Year, Tenant shall furnish to Landlord a true and accurate statement
of all Gross Sales for such Lease Year, showing in detail all items, deductions,
exclusions, and additions included in the calculation of such Gross Sales. Such
statement shall otherwise be in such form as Landlord may from time to time
reasonably prescribe and shall be certified as correct by an authorized
representative of Tenant.
4.6. Additional Rent. For all purposes under this Lease, all sums and other
amounts payable by Tenant to Landlord or otherwise hereunder which are not
specifically denominated as "rent" shall be payable as and shall be deemed to be
additional rent. Such sums and amounts shall be payable as and when provided
under this Lease, unless no date is specified, in which case such sums shall be
payable together with each installment of Fixed Minimum Rent payable hereunder.
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4.7. Late Charge; Rent Notices; Address for Payment of Rent. Tenant hereby
acknowledges that late payment by Tenant to Landlord of Rent and other sums due
under this Lease will cause Landlord to incur additional costs not contemplated
by this Lease, the exact amount of which will be extremely difficult or
impossible to ascertain. Such additional costs include processing and accounting
charges and late charges which may be imposed upon Landlord by the terms of any
mortgage or deed of trust covering the Premises. Therefore, if any installment
of Rent or any other sum due from Tenant shall not be received by Landlord
within ten (10) days after the date that such amount is due, Tenant shall pay to
Landlord a late charge equal to five percent (5%) of the overdue amount. The
parties hereby acknowledge, warrant, and represent that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of an Event of Default with respect to
such overdue amount or prevent Landlord from exercising any or all of the other
rights and remedies granted under this Lease. Landlord may, as a matter of
convenience, provide to Tenant from time to time billings or invoices for Rent
or other sums due under this Lease, but Tenant's failure to receive any such
billing or invoice, or Landlord's omission or cessation of any such billing or
invoice shall not excuse Tenant's obligation for the timely payment of Rent and
other sums due in accordance with this Lease. Tenant shall pay the Rent by check
or draft payable to:
PacTrust
Attn: Accounting; Facility No. COS/02
15350 S.W. Sequoia Pkwy., #300
Portland, OR 97224
or as otherwise may be designated in writing by Landlord.
5. PERMISSIBLE USE; TENANT'S CONDUCT OF BUSINESS.
5.1. Use Restrictions.
5.1.1. Use; Trade Name. Tenant shall use the Premises solely for the
following purpose: the retail sale of sporting goods, including boats and
boating supplies, outdoor and activewear, footwear, after market automobile
parts, supplies and accessories and merchandise incidental to the foregoing
together with no more than twenty-five hundred (2,500) square feet of Gross
Leasable Area for sales and display of food for off-Premises consumption and for
such other retail uses as may be reasonably approved by Landlord in writing.
Tenant shall conduct its business in the Premises solely under the trade name of
GI Joe's. Tenant shall not use or permit the Premises to be used for any other
purpose or under any other trade name whatsoever.
5.1.2. Prohibited Uses. Tenant covenants and agrees that it shall not
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include or permit in the use of the Premises for any use which violates the ECR,
the Protective Covenants, any exclusive right of any other tenant of the
Shopping Center of which Landlord has provided written notice to Tenant and
which exclusive does not violate Tenant's use as set forth in Section 5.1.1
above, and/or any of the following uses, whether incidental to the use of the
Premises or otherwise: (i) the sale of food and/or beverages for on or
off-premises consumption (including consumption at outdoor seating) except as
permitted in Section 5.1.1 above; (ii) the sale of merchandise which, under the
laws of the State of Oregon, is required to be dispensed by or under the
supervision of a registered or licensed pharmacist; (iii) except as set forth
below, the sale of alcoholic beverages for on- or off-premises consumption; (iv)
the sale of lottery tickets or drug paraphernalia; (v) check cashing services;
(vi) self-service laundry or car wash; (vii) a beauty salon, barber shop, or wig
shop; (viii) an office, other than an administrative office necessary to the
operation of Tenant's retail business; (ix) veterinarian's services; (x) tax
preparation services; (xi) a church or other place of worship; (xii) a training
or educational facility; (xiii) an entertainment or recreational facility; (iv)
any coin or token-operated vending machines or similar device for the sale or
leasing to the public of any goods, wares, merchandise, food, beverages, and/or
service, including pay telephones, pay lockers, pay toilets, scales, video
games, or other amusement devices; or (xv) a thrift shop, flea market, or store
selling used products. As used in this Lease, a "training or educational
facility" includes, without limitation, a beauty school, barber college, place
of instruction, or any other operation catering to students or trainees rather
than to customers, and an "entertainment or recreational facility" includes,
without limitation, an amusement center; electronic or mechanical games arcade;
pool or billiard hall; betting parlor or bingo parlor; health or aerobic spa or
studio; gymnasium; massage parlor; pornographic shop; adult book store; or any
other place of public or private amusement. Notwithstanding the foregoing,
Tenant may utilize no more than five hundred (500) square feet of the Gross
Leasable Area of the Premises for sale of packaged alcoholic beverages for
off-Premises consumption and, subject to having obtained all governmental
permits for and Landlord's reasonable consent as to location, size, design and
method of attachment, may install two (2) telephone units each on the exterior
wall and on the interior walls of the Premises and may install two (2) vending
machines on the sidewalk immediately in front of the Premises. In no event shall
any such telephones or vending machines interfere with the safe ingress, egress
and passage of pedestrian in the Shopping Center.
5.2. Continuous And Full Operation. Tenant shall open for business in the
Premises within sixty (60) days after Landlord "substantially completes"
"Landlord's Work" pursuant to Exhibit C (or would have "substantially completed"
Landlord's Work had Landlord not been prevented from so doing due to delays
caused by Tenant) and shall remain open for business continuously and
uninterruptedly during
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the first three (3) years of the Term thereafter, during at least the following
minimum business hours:
Monday to Saturday 10 a.m. to 7 p.m.
Sunday 12 p.m. to 6 p.m.
In no event however shall such hours be fewer than the hours of the majority of
other businesses in the Shopping Center, or fewer than the hours of comparable
businesses in the Portland, Oregon, Metropolitan Area. Tenant shall occupy and
use the entire Premises for the purpose or purposes specified herein and shall
continuously fully merchandise the Premises (except during times when the
Premises may be untenable by reason of fire or other casualty), subject only to
the provisions of this Section 5. Tenant shall continue to operate its business
to the extent reasonably practicable during any period of reconstruction or
repair. Tenant shall not vacate or abandon the Premises at any time during the
Term.
5.2.1. Landlord's Right to Terminate Lease. In addition to any other
remedy of Landlord set forth herein, if Tenant fails to operate its business in
the Premises at any time during the Term for a period of more than six (6)
consecutive months for reasons other than force majeure matters as set forth in
Section 26.5 hereof, then Landlord may, by delivering ninety (90) days prior
written notice, elect to terminate the Lease, which termination shall be
effective on the ninety-first (91st) day following receipt of such notice by
Tenant; provided, however, that Tenant may nullify Landlord's right of
termination by reopening its store for business within the ninety (90) day
period. If Landlord terminates the Lease as set forth herein, neither party
shall have any further right or obligation hereunder.
5.3. Insurance Requirements; Compliance With Laws. Tenant shall not do or
permit anything to be done in or about the Premises, or bring or keep anything
therein, which will increase the rate of any insurance on the Shopping Center,
or any portion thereof or interest therein. Tenant shall, at its sole cost and
expense, comply with any and all orders and requirements imposed by any
insurance company providing casualty (including fire and extended coverage) or
public liability insurance to Tenant or Landlord and covering the Shopping
Center, or any portion thereof or interest therein. Tenant shall promptly comply
with any and all laws, ordinances, rules, regulations, and orders applicable to
the Premises. Tenant's obligations hereunder shall include the making of
alterations, additions, and improvements and the installation of additional
facilities required for the conduct or continuance of Tenant's business on the
Premises, including (without limitation) any alterations, additions, or
improvements to the Premises or the installation of additional facilities at the
Premises required by the Americans with Disabilities Act. Tenant shall not use,
or permit the use of, any portion of the Premises for any unlawful or immoral
purpose.
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Tenant may contest or review, by procedures permitted by applicable law or
insurance policies, at its own expense, any such order, requirement, law,
ordinance, rule, or regulation, and may delay compliance therewith if permitted
by such law or policy, provided that Landlord or any other tenant, occupant, or
owner of the Shopping Center is not subject to civil liability or criminal
prosecution as a result thereof and Landlord's title to or interest in, or such
tenant's, occupant's or owner's business in or title to, the Shopping Center, or
any portion thereof, is not subjected to forfeiture, involuntary sale, loss, or
closure as a result thereof. Tenant shall indemnify, defend, protect, and hold
Landlord and such other tenants, occupants, and owners harmless from and against
any and all liability, loss, cost, damage, or expense (including attorneys'
fees) resulting from or in connection with any contest hereunder. Any contest
shall be conducted with all due diligence. Tenant shall diligently comply with
any final, non-appealable decision in any such contest.
5.4. Use Limitations and Requirements. Tenant shall not conduct or allow
any auction, fire, going out of business, or bankruptcy sales in or from the
Premises. Tenant shall not perform any acts or conduct any practices which may
injure the Shopping Center, or any portion thereof, or which may injure the
reputation of the Shopping Center, or constitute a nuisance, annoyance, or
menace to other tenants of the Shopping Center, or disturb their quiet
enjoyment. Tenant shall keep the Premises, front and rear walkways adjacent to
the Premises, and any service delivery facilities allocated for the use of
Tenant (whether or not exclusive) clean and free from rubbish and dirt at all
times, shall store all trash and garbage within the Premises, and shall arrange
for the regular pickup of such trash and garbage at Tenant's expense, unless
garbage pick-up is included in Common Area Maintenance Costs pursuant to Section
12.2. Tenant shall not burn any trash or garbage of any kind in or about the
Premises or Shopping Center. All plumbing facilities within or serving the
Premises shall be used only for the purposes for which they are installed, and
no foreign substance of any kind shall be thrown therein; any and all costs and
expenses resulting from misuse of such plumbing facilities in violation of the
foregoing by Tenant or any other person shall be borne by Tenant. Neither Tenant
nor its employees, agents, or contractors shall mark or deface any walls,
ceilings, partitions, floors, wood, stone, or iron within or about the Premises.
Tenant: (i) shall warehouse, store, and/or stock in the Premises only such
goods, wares, and merchandise as Tenant intends to offer for retail sale in, on,
at, or from the Premises within a reasonable time after receipt thereat; (ii)
shall use for office, clerical, or other non-selling purposes only such space as
is from time to time reasonably required for Tenant's business therein; and
(iii) shall not perform therein any such functions for any other store or
business of Tenant, or any affiliate of Tenant.
5.5. ECR and Protective Covenants. Tenant acknowledges receipt of a copy of
the ECR and the Protective Covenants. During the Term, Tenant, and its permitted
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sublessees, concessionaires and licensees, shall not violate any of the
provisions of the ECR or the Protective Covenants. Tenant shall indemnify,
protect and hold Landlord harmless from and against any and all losses, costs,
actions, claims, expenses (including reasonable attorney's fees) and liabilities
arising out of or related to any act or omission by Tenant or its permitted
sublessees, concessionaires, licensees or invitees (whether or not said act or
omission is consented to by Tenant) which constitutes a violation of the ECR or
the Protective Covenants or puts Landlord in violation of the ECR or the
Protective Covenants. If requested by Landlord, Tenant shall, at its sole cost
and with counsel chosen by Landlord, undertake the defense of any action against
Landlord as a consequence of such violation.
5.6. Outside Merchandising. Notwithstanding anything to the contrary
contained herein, Tenant may conduct seasonal or promotional sales of
merchandise from a portion of the Common Area in front of the Premises at the
location described in the ECR (the "Seasonal Sales Area") subject to the
following restrictions: (i) any sale from the Seasonal Sale Area shall be
limited to not more than fourteen (14) days per calendar year during the month
of July of any year; (ii) all sales activities shall be limited to the greater
of no more than twenty-two (22) parking spaces or an area not to exceed a total
of 7,200 square feet within the Seasonal Sales Area; (iii) all booths, stands,
displays or other structures erected in connection therewith shall be promptly
removed by Tenant upon the termination of such sales activity; and (iv) the use
of the Seasonal Sales Area shall not unreasonably interfere with the free
movement of vehicular or pedestrian traffic within the Shopping Center or with
access to or from the Shopping Center.
5.7. Enforcement of Rules and Regulations. Landlord shall use its such
efforts to enforce the rules and regulations attached hereto as Exhibit E as
Landlord deems reasonable in its sole discretion. In the event Tenant provides
Landlord with written notice specifying a breach of such rules and regulations
by another tenant of the Shopping Center and Landlord fails or refuses to
enforce such rules and regulations, Landlord shall be deemed to have assigned to
Tenant the right to enforce such rules and regulations against such other
breaching tenant and Tenant shall indemnify and hold Landlord harmless from and
against any and all damage, claim, loss or expense incurred by Landlord as the
result of such enforcement by Tenant.
6. INSURANCE.
6.1. Tenant's Insurance. At its sole cost and expense, Tenant shall
maintain in full force and effect as of the date of this Lease and continuing
throughout the Term, the following policies of insurance:
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6.1.1. Liability Insurance. Comprehensive General Liability Insurance
or Commercial General Liability Insurance, insuring against liability for bodily
injury or death to persons, property damage and personal injury, covering the
Premises and the business of Tenant, with a combined single limit of liability
not less than Two Million Dollars ($2,000,000.00) per occurrence per location,
such coverage to be in a commercial general liability form with at least the
following endorsements: (i) deleting any employee exclusion on personal injury
coverage; (ii) including coverage for injuries to or caused by employees; (iii)
providing for blanket contractual liability coverage (including Tenant's
indemnity obligations contained in this Lease), broad form property damage
coverage and products completed operations, owner's protective and personal
injury coverage; (iv) providing for coverage of employers automobile
non-ownership liability; and (v) if required by Landlord, providing liquor
liability coverage. All such insurance: (i) shall be primary and
non-contributory; (ii) shall provide for severability of interests; (iii) shall
provide that an act or omission of one of the named insureds shall not reduce or
avoid coverage to the other named insureds; and (iv) shall afford coverage for
all claims based on acts, omissions, injury or damage which occurred or arose
(or the onset of which occurred or arose) in whole or in part during the policy
period. If, in the opinion of Landlord's insurance advisor, the amount or scope
of such coverage is deemed inadequate at any time during the Term, Tenant shall
increase such coverage to such reasonable amounts or scope as Landlord's advisor
deems adequate.
6.1.2. Plate Glass Insurance. Tenant shall be required to carry plate
glass insurance at such time as plate glass insurance becomes available in the
State of Oregon at commercially reasonable rates.
6.1.3. Tenant's Insurance on Fixtures. Fire insurance, with standard
extended coverage, sprinkler leakage, vandalism, and malicious mischief
endorsements on all of Tenant's fixtures and equipment in the Premises, in an
amount not less than one hundred percent (100%) of their full insurable value,
the proceeds of which shall, so long as this Lease is in effect, be used for the
repair or replacement of the fixtures and equipment so insured.
6.1.4. Tenant's Worker's Compensation Insurance. Worker's Compensation
Insurance in the manner and to the extent required by applicable law and with
limits of liability not less than the minimum required under applicable law,
covering all employees of Tenant having any duties or responsibilities in or
about the Premises.
6.2. Landlord's Insurance. Landlord shall, as of the date of this Lease and
continuing throughout the Term, maintain in full force and effect a policy or
policies of fire insurance covering the buildings within the Shopping Center,
including the
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Building with standard extended coverage, vandalism, malicious mischief, and
sprinkler leakage endorsements, and such other insurance in such amounts and
covering such other liability or hazards as deemed appropriate by Landlord. The
amount and scope of coverage of Landlord's insurance hereunder shall be
determined by Landlord from time to time in its sole discretion and shall be
subject to such deductible amounts as Landlord may elect. Landlord shall have
the right to reduce or terminate any insurance or coverage called for by this
Section 6.2. to the extent that any such coverage is not reasonably available in
the commercial insurance industry from recognized carriers. Tenant shall
reimburse Landlord, as additional rent, the full amount of the costs of all
insurance maintained by Landlord hereunder, or otherwise on all or any portion
of the Building. The amount of such costs which Tenant is required to reimburse
shall be prorated on the basis of a 365-day year to account for any fractional
portion of the period for which said costs are paid which is included in the
Term at its commencement or expiration (or sooner termination). Tenant shall so
pay Landlord within thirty (30) days after receipt of notice from Landlord of
the amount due. The cost of all insurance maintained by Landlord hereunder, or
otherwise on all or any portion of the Shopping Center other than the Building,
shall be included in Common Area Maintenance Costs. All insurance proceeds
payable under Landlord's casualty insurance carried hereunder shall be payable
solely to Landlord, and Tenant shall have no interest therein.
6.3. Policy Requirements. All insurance policies required to be carried
under this Lease shall be issued by financially sound qualified insurers,
approved to do business in the State of Oregon. All Tenant's insurance (other
than Worker's Compensation) shall name Landlord, Landlord's managing agent, and
such other persons or entities as Landlord may from time to time designate, as
additional insureds and shall not contain deductibles in excess of Five Thousand
Dollars ($5,000.00). Tenant's Worker's Compensation Insurance shall contain an
employer's contingent liability endorsement. Prior to the Term Commencement Date
and thereafter not less frequently than annually, Tenant shall deliver to
Landlord certificates of all insurance required to be carried by Tenant
hereunder, showing that such policies are in full force and effect in accordance
with this Section 6. Tenant shall obtain written undertakings from each insurer
under policies maintained by Tenant hereunder to notify Landlord, and any other
additional insured thereunder, at least thirty (30) days prior to cancellation,
amendment or reduction in coverage under any such policy.
6.4. Blanket Coverage. Any policy required to be maintained hereunder by
either party may be maintained under a so-called "blanket policy", insuring
other parties and other locations, so long as the amount of insurance required
to be provided hereunder is not thereby diminished.
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6.5. Waiver of Subrogation. To the extent permitted by law and without
affecting the coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to recover against the other
on account of any and all claims Landlord or Tenant may have against the other
with respect to any risk insured against by insurance actually carried, or
required to be carried hereunder, to the extent of the proceeds realized from
such insurance coverage. Each casualty insurance policy carried by Landlord or
Tenant hereunder, or which either may obtain with respect to the Premises or the
Shopping Center independent of obligations hereunder, shall provide that the
insurer waives all rights of recovery by way of subrogation against Landlord or
Tenant in connection with all matters included within the scope of the waiver of
recovery contained in this Section 6.5.
7. TAXES.
7.1. Tenant's Payment of Taxes. Commencing on the Term Commencement Date
and thereafter throughout the Term, Tenant shall pay to Landlord, as part of
Common Area Maintenance Costs, Tenant's Proportionate Share of Taxes.
7.2. Tenant's Payment of Taxes Relating to the Premises. In addition to
payment by Tenant of its Proportionate Share of Taxes, Tenant shall pay any and
all taxes, assessments, levies, license fees, business taxes, impositions,
in-lieu taxes or fees, excises, or charges, of any kind or character, general or
special, ordinary or extraordinary, unforeseen as well as foreseen, which are:
(i) levied against, upon, measured by, or attributable to any and all leasehold
improvements to the Premises over and above the base Building shell, whether
installed or paid for by Landlord or Tenant, and upon any and all fixtures,
equipment, and personal property installed or located in the Premises, or levied
upon, measured by, or reasonably attributable to the cost or value of any of the
foregoing; (ii) levied upon or measured by the Fixed Minimum Rent, Percentage
Rent, or any other amounts payable by Tenant hereunder, including any gross
income taxes, excise tax, or value-added tax levied by any governmental
authority or other entity with respect to the receipt or making of such
payments; (iii) levied upon or with respect to the development, possession,
leasing, operation, management, maintenance, alteration, repair, use, or
occupancy by Tenant of, or business operations of Tenant in, the Premises or any
portion thereof; (iv) levied upon or with respect to the transaction under this
Lease, any document to which Tenant is a party creating or transferring any
interest or an estate in the Premises, or any leases, subleases, licenses, or
concessions made to Tenant, any subtenant, or other occupant of the Premises; or
(v) enacted by way of substitution for or in addition to all or any part of the
foregoing. Tenant shall make payment of all amounts hereunder before delinquency
directly to the levying authority and shall provide Landlord receipts evidencing
such payments. If any of the foregoing taxes, assessments, fees, or charges are
included in tax bills to Landlord for Taxes, then Tenant shall pay to
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Landlord the amount attributable to the taxes, fees, assessments, or charges so
included immediately upon demand by Landlord and prior to the payment date
required with respect to such tax bill.
8. CONSTRUCTION.
8.1. Initial Shopping Center Construction; Landlord's and Tenant's Work.
The design, construction, and development of the Shopping Center and/or the
design and construction of the Building, and the design and construction of the
Premises and "Landlord's Work" and "Tenant's Work" therein, shall be undertaken
in accordance with this Section 8 and the provisions of Exhibit C.
8.2. Landlord's Work. Landlord shall, prior to the commencement of the
Term, at Landlord's sole cost and expense, construct the Building and all Common
Area improvements in the Core Area in accordance with such design and
construction criteria and methods as Landlord and Tenant shall mutually
determine as necessary or appropriate. The Premises shall be constructed in
substantial accordance with the outline specifications set forth under
"Landlord's Work" on Exhibit C and with Landlord's Plans (as defined below).
8.3. Governmental Approval. Promptly after the date this Lease is executed
by Landlord and Tenant, or such other date as Landlord and Tenant shall mutually
agree, Landlord shall, at Landlord's sole cost and expense, commence preparation
of Landlord's Plans (as defined below) necessary to apply for all permits and
approvals required by appropriate governmental authorities to permit the
construction of Landlord's Work ("Governmental Approvals"), and once Landlord's
Plans have been prepared, to apply for all necessary Governmental Approvals. If
Landlord, despite Landlord's use of commercially reasonable efforts, is unable
to obtain all necessary Governmental Approvals within two hundred seventy (270)
days after Landlord and Tenant have approved Landlord's Plans pursuant to
Section 8.3, subject to extension for delays due to events or causes over which
Landlord has no control (including, without limitation, governmental delays),
either party may terminate this Lease upon ten (10) days written notice to the
other party, which notice shall be given no later than thirty (30) days after
the end of such two hundred seventy (270) day period. In the event both parties
fail to provide the written notice required hereunder, the parties shall be
deemed to have waived their right to terminate this Lease in accordance with
this Section 8.2 and the Lease shall continue in full force and effect.
8.4. Landlord's Plans.
8.4.1. The Building and all Common Area improvements in the Core Area
will be constructed in accordance with plans and specifications (the "Landlord's
Plans") which have been prepared by an architect selected and employed by
Landlord
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("Architect") and have been approved by Tenant. Tenant's architect has provided
Landlord with prototype plans and specifications which have been used for the
design of the interior of the Building and the Seasonal Sales Area.
8.4.2. The architects have prepared Landlord's Plans based upon the
description of Landlord's Work as set forth in part A of Exhibit C and Tenant's
Work in part B of Exhibit C. The completed plans have been submitted to and
approved by Landlord and Tenant. The parties agree that such completed plans
shall be subject to such minor revisions.
8.4.3. If Landlord has not approved Tenant's Plans within fifteen (15)
days after they have been submitted to Landlord for approval, Landlord and
Tenant shall meet and confer in good faith for a period of thirty (30) days in
the attempt to resolve any dispute concerning Tenant's Plans. If the parties are
unable to reasonably resolve any such dispute within such thirty (30) day
period, Tenant or Landlord may terminate this Lease upon ten (10) days written
notice to the other party which notice shall be given no later than thirty (30)
days after the end of such forty-five (45) day period or such right of
termination shall be deemed waived and this Lease shall remain in full force and
effect.
8.5. Performance of Landlord's Work.
8.5.1. Promptly after the execution of this Lease by Landlord and
Tenant, Landlord and Tenant shall agree upon a construction schedule. Landlord
will commence performance of Landlord's Work in accordance with such schedule at
such time as Landlord deems appropriate taking into account weather and other
factors beyond Landlord's reasonable control. Landlord shall cause Landlord's
Work to be diligently prosecuted to completion and performed in a good and
workmanlike manner in accordance with all applicable legal requirements and good
construction practices. Not less than ninety (90) days prior to the date
Landlord anticipates delivering the Premises to Tenant in the condition required
under Section 1.25, Landlord shall notify Tenant of such anticipated delivery
date (the "Anticipated Delivery Date").
8.5.2. Landlord will give Tenant at least seven (7) days prior written
notice of the completion of Landlord's Work (the "Work Notice") and will deliver
vacant possession of the Building and the Premises to Tenant with Landlord's
Work substantially complete subject only to minor punch list items. The date
which is fifteen (15) days after Landlord delivers possession of the Building
and the Premises to Tenant as required herein is the Term Commencement Date.
Landlord shall use Landlord's reasonable efforts to deliver possession of the
Building and the Premises to Tenant on or before October 15, 1998. In no event
shall Landlord deliver possession of the Building to Tenant between the period
commencing on October 16, 1998 and
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ending on January 31, 1999 without Tenant's prior written consent, which consent
may be withheld by Tenant in Tenant's sole discretion.
8.5.3. Notwithstanding acceptance of possession of the Premises by
Tenant, Landlord must fully complete all of Landlord's Work. By accepting
possession of the Premises, Tenant does not waive any failure of Landlord to
fully complete all of Landlord's Work. Upon opening for business in the
Premises, Tenant shall be deemed to have accepted the Premises with Landlord's
Work completed.
8.6. Tenant's Plans and Construction. Tenant shall prepare, furnish to
Landlord, and obtain Landlord's prior written approval (which Landlord shall not
unreasonably withhold) of all necessary drawings and specifications for Tenant's
proposed improvements to the Premises and shall thereafter construct such
improvements pursuant to the provisions under "Tenant's Work" in Exhibit C.
Provided that Tenant has obtained the insurance required by Section 6 above and
Exhibit C, then Tenant shall, upon receipt of Landlord's Work Notice, have the
right to enter the Premises to construct and complete Tenant's Work and to
install all Tenant's fixtures, sign faces, equipment and merchandise at the
Premises. Tenant's entry into the Premises hereunder shall be at Tenant's own
risk and without interference with any remaining work which must be performed by
Landlord in the Premises or to the balance of the Shopping Center. Tenant shall
use all due diligence to construct and complete Tenant's Work and shall complete
Tenant's Work, the installation of all Tenant's fixtures, sign faces, equipment,
and merchandise and open for business in the Premises within sixty (60) days
after the date of Landlord's Work Notice hereunder. Tenant shall design and
construct Tenant's Work hereunder at Tenant's sole cost and expense. Any and all
fixtures and equipment which Tenant may install or otherwise employ on the
Premises shall be new and shall not have been previously utilized at other
locations.
8.7. Compliance With Codes and Regulations. Tenant and its agents,
employees, and contractors shall diligently prosecute Tenant's Work to
completion and shall perform Tenant's Work in a first-class manner using new
materials of good quality, and in compliance with all applicable codes, laws,
ordinances, rules, and regulations of all governmental and quasi-governmental
authorities with jurisdiction, including (without limitation) the Americans with
Disabilities Act.
8.8. Tenant's Acceptance. The opening by Tenant of its business in the
Premises shall constitute acknowledgment by Tenant that the Premises, the
Building, and the Common Area are then in the condition called for by this Lease
and that Landlord has performed all of Landlord's Work with respect thereto.
Failure of Landlord to complete any work of construction or improvement called
for hereunder within the time and in the condition provided for in this Lease
shall not give rise to
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any claim for damages by Tenant against Landlord or against Landlord's
contractors or architects, and Tenant hereby waives any such claims.
8.9. Warranties. Landlord shall obtain from all prime contractors a
one-year written warranty (beginning upon the Term Commencement Date) against
defects in materials or workmanship, except that Landlord will obtain a two-year
written warranty against defects and materials or workmanship of the roof.
Concurrently with Tenant's acceptance of the Premises, or as soon thereafter as
is reasonably possible, Landlord will deliver to Tenant all warranties relating
to those items which Tenant is obligated to maintain and repair under this
Lease. Landlord agrees to reasonably cooperate with Tenant in enforcing any such
warranty.
8.10. Site Plan Approval. The Site Plan showing the Shopping Center and the
Premises attached as Exhibit "A" and Landlord and Tenant confirm approval of
said Site Plan.
9. REPAIRS AND MAINTENANCE; ALTERATIONS.
9.1. By Tenant. Tenant, at Tenant's sole cost and expense, shall at all
times keep the Premises and all elements thereof, including the exterior
foundations, exterior walls, canopy, roof, downspouts, and gutters of the
Building, all glass, plate glass, show cases, storefront parts, and moldings,
doors, doorjambs, door closers, door hardware, fixtures, equipment, and
appurtenances thereof, floors, partitions, all electrical, lighting, heating,
plumbing, and sprinkler systems, fixtures and equipment, and any air
conditioning system serving the Premises in good order, condition, and repair,
including replacements, reasonable periodic painting as determined by Landlord,
and repair of leaks around ducts, pipes, vents, or other parts of the air
conditioning, heating, or plumbing systems which protrude through the roof or
floor. Landlord shall have no obligation for the performance of any maintenance,
repair or replacement of all or any portion of the Building or the Premises and
Tenant hereby releases Landlord from all such obligations. Tenant shall also be
responsible for the repair of any and all damage caused to the Building or any
other portion of the Shopping Center by any act, neglect, or omission of Tenant
or its employees, agents, invitees, licensees, contractors, or subtenants; the
repair of any such damage shall be made at Tenant's cost and expense. Tenant
shall maintain in force at Tenant's expense a service and preventative
maintenance contract with an authorized air-conditioning service company
covering all heating and air conditioning equipment serving the Premises, and
shall provide Landlord with a copy thereof prior to commencement of the Term.
9.2. Alterations by Tenant. Tenant shall make no alterations, improvements,
or additions in, upon, to, or about the structure, roof or exterior of the
Premises
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without Landlord's prior written consent. Unless otherwise specified by Landlord
pursuant to Section 22.1., all alterations, additions, or improvements, to the
Premises, including air conditioning and heating equipment, mechanical systems,
floor coverings, and fixtures, other than Tenant's trade fixtures, which may be
made or installed by either of the parties in, upon, or about the Premises shall
be the property of Landlord, and at the termination of this Lease shall remain
upon and be surrendered with the Premises.
9.3. Construction Requirements. Any and all alterations, additions, or
improvements made by Tenant under this Section 9 shall be designed by a
competent licensed architect or structural engineer and shall be made under the
supervision of such architect or engineer by financially sound, bondable
contractors of good reputation in accordance with plans and specifications
approved in writing by Landlord hereunder before commencement of any work.
Landlord may require in connection with its consent to any alterations,
additions, or improvements hereunder, that any contractor, or major
subcontractors, provide payment and completion bonds in such amounts and with
sureties acceptable to Landlord. All alterations, additions, and improvements
made by Tenant hereunder shall be performed in a good and workmanlike manner,
diligently prosecuted to completion, and using new materials. Tenant shall
notify Landlord at least twenty (20) days prior to commencement of any work,
alteration, addition, or improvement hereunder so that Landlord may post, file,
and/or record any notice of non-responsibility or other notice required under
applicable mechanic's lien laws. Upon completion of any work hereunder, Tenant
shall record in the Office of the Recorder of Deeds for Washington County,
Oregon a notice of completion or any other notice required or permitted by
applicable mechanic's lien law to commence the running of, or terminate, any
period for the filing of liens or claims, and shall deliver to Landlord as-built
drawings of such alteration, addition or improvement, any certificate of
occupancy or other equivalent evidence of completion of such work in accordance
with the requirements of applicable law and evidence that Landlord has been
named an additional beneficiary under any and all warranties provided by any
contractor of Tenant for any alteration, addition or improvement to the
Building, including Tenant's Work. Tenant shall perform or cause performance of
all work hereunder in accordance with such rules and regulations as Landlord may
from time to time prescribe with respect thereto, and in such manner so as not
to obstruct or interfere with access to the Premises of any other tenant or
owner of the Shopping Center, the business of any such tenant or owner conducted
therein, or any portion of the Common Area. Prior to commencing any work
hereunder, Tenant shall supply to Landlord evidence that its contractor or
contractors have procured such insurance as Landlord may prescribe in connection
with such work.
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9.4. Liens. Tenant shall pay, or cause to be paid, all sums, costs, and
expenses due for, or purporting to be due for, any work, labor, services,
materials, supplies, or equipment furnished, or claimed to be furnished, to or
for Tenant in, upon, or about the Premises, and shall keep the Premises and the
Shopping Center free of all mechanic's, materialmen's, or other liens arising
therefrom. Tenant may contest any such lien, if Tenant first procures and posts,
records, and/or files a bond or bonds issued by a financially sound, qualified
corporate surety, in conformance with the requirements of applicable law for the
release of such lien from the Premises and/or Shopping Center. Tenant shall pay
and fully discharge any contested claim of lien within five (5) days after entry
of final judgment adverse to Tenant in any action to enforce or foreclose the
same; notwithstanding any such contest, Landlord shall have the absolute right
at any time to pay any lien imposed hereunder if in Landlord's reasonable good
faith judgment such payment is necessary to avoid the forfeiture, involuntary
sale, or loss of any interest of Landlord or any other tenant or owner in the
Shopping Center, or any portion thereof. Tenant shall indemnify, defend,
protect, and hold Landlord harmless of and from any and all loss, cost,
liability, damage, injury, or expense (including attorneys' fees) arising out of
or in connection with claims or liens for work, labor, services, materials,
supplies, or equipment furnished or claimed to be furnished to or for Tenant in,
upon, or about the Premises or the Shopping Center.
10. UTILITIES.
10.1. Tenant To Pay for Utilities and Utility Connections. Tenant shall pay
for the cost of connecting all utilities to the Premises, including water,
sewage, gas, electricity and telephones. Tenant shall promptly pay, as the same
become due and payable, all bills, charges, fees, assessments, and exactions for
all water, gas, electricity, heat, refuse pickup, sewer service, telephone, and
any other utilities, materials, and services furnished to or used by Tenant in,
on, or about the Premises. If any utility, material, or service is not
separately charged or metered to the Premises, Tenant shall pay to Landlord,
within ten (10) days after written demand therefor, Tenant's pro rata share of
the total cost thereof as may be determined by Landlord; if any utility,
material, or service is included as part of the maintenance of the Common Area
and/or the Useable Open Space under Section 12, then the cost thereof shall be
included in Common Area Maintenance Costs and Tenant shall pay its share thereof
in accordance with Section 12.3.
10.2. Landlord to Provide Mains and Conduits; No Liability for Interruption
of Service. Landlord shall provide and maintain the necessary mains, conduits,
and cables to bring water, telephone, electricity and/or gas, and remove sewage
from, the exterior wall of the Building containing the Premises. In no event
shall Landlord be
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liable for any interruption or failure of any utility services for any cause,
whether or not within Landlord's control or due to Landlord's act or neglect.
11. ADVERTISING, SIGNS AND DISPLAYS.
11.1. Signs and Other Advertising Media. Within forty-five (45) days of the
date hereof, Landlord shall deliver to Tenant Landlord's Sign Criteria for
Tenant's signs and which sign criteria shall specify the areas, location, size
and type of signage permitted in the Shopping Center. Within thirty (30) days
after receipt by Tenant of Landlord's Sign Criteria, Tenant shall deliver to
Landlord Tenant's Sign Proposal which shall conform to Landlord's Sign Criteria
and which shall specify the areas, location, size and description of all signage
proposed by Tenant for its use in the Shopping Center. Within ten (10) days of
receipt of Tenant's Sign Proposal, Landlord shall either approve or disapprove
Tenant's Sign Proposal. In the event Landlord disapproves Tenant's Sign
Proposal, Landlord shall specify in reasonable detail the reasons for any such
disapproval and the parties shall thereafter reasonably negotiate Tenant's final
signage in good faith. Other than those signs described on Tenant's Sign
Proposal which Landlord has approved, Tenant shall not erect or install in,
upon, or about the Premises any exterior or interior signs or advertising media
or window or door lettering or placards, without Landlord's consent.
Notwithstanding the foregoing, Landlord hereby approves the use by Tenant on the
front and, if permitted by governmental authority, or the rear of the Premises
of Tenant's current standard logo identification, inclusive of G.I. Joe's name,
"Sports and Auto Identifier and Boat Identifier." All such signs and media shall
conform to Landlord's sign criteria provided to Tenant or otherwise prescribed
from time to time by Landlord and shall otherwise comply with all applicable
laws, ordinances, rules, and regulations. Tenant shall properly and promptly
maintain and repair its signs, and keep them in a neat and clean condition. Upon
expiration of this Lease, Tenant shall promptly remove all signs installed
hereunder, unless otherwise specified by Landlord pursuant to Section 22.1., and
shall "cap off" the electrical wiring thereto. Tenant shall not use any
advertising media or other media that is objectionable to Landlord, or which can
be heard outside the Premises, such as loudspeakers, phonographs, or radio
broadcasts.
11.2. Exterior Displays; Illumination of Window Displays. Tenant shall not
keep or display any merchandise on, or otherwise obstruct in any manner, the
sidewalks or areaways adjacent to the Premises without Landlord's consent made
in Landlord's sole discretion. Tenant shall maintain its display windows and
show cases of the Premises in a neat and clean condition, and shall also keep
them well lighted from dusk until such time as Landlord may determine from time
to time during each and every day of the Term. No exposed fluorescent tubes or
incandescent bulbs, except in factory built track lighting fixtures approved by
Landlord, shall be used for
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the illumination of display windows. If (i) a pylon sign is permitted in the
Shopping Center by governmental authority and (ii) Landlord elects to construct
such pylon sign and (iii) Landlord allows any occupant of the Shopping Center a
sign face thereon, then Landlord shall allow Tenant a space on such pylon sign
so long as Tenant first agrees to pay its prorata share (based on the area of
all sign panels on such pylon sign) of all costs of construction, monthly
maintenance and monthly utilities of such pylon sign plus the entire cost of
Tenant's sign panel and the installation and permitting thereof.
12. COMMON AREA AND USEABLE OPEN SPACE
12.1. Maintenance and Repair. Landlord shall, throughout the Term, maintain
in good order, condition and repair (ordinary wear and tear, damage due to
casualty and condemnation or taking excepted) all Common Area in the Shopping
Center and Useable Open Space, where ever it may be located. Landlord may at any
time delegate such maintenance, or any portion thereof, to any other third
party, affiliated or non-affiliated, upon such terms and conditions as Landlord
deems compensatory, necessary, or appropriate. Any use of the Common Area and
Useable Open Space shall be subject to such reasonable rules and regulations as
Landlord may from time to time or at any time promulgate.
12.2. Payment by Tenant of Proportionate Share of Common Area Maintenance
Costs. Commencing with the Term Commencement Date and thereafter throughout the
Term, Tenant shall pay to Landlord in the manner hereinafter provided, Tenant's
Proportionate Share of Common Area Maintenance Costs, except that Taxes shall be
paid by Tenant under Section 7.
12.2.1. Method of Payment. On the first day of each Month during each
Lease Year, Tenant shall pay in advance one-twelfth (1/12th) of the amount which
Landlord estimates as Tenant's Proportionate Share of Common Area Maintenance
Costs for such Lease Year. In the event the Term commences on a day other than
the first day of a Month, Tenant shall pay to Landlord on the first day of the
Term, as Tenant's estimated Proportionate Share of Common Area Maintenance Costs
for such first partial calendar month of the Term, a pro rata portion of
Tenant's estimated Proportionate Share of Common Area Maintenance Costs based on
a thirty (30) day month. Within sixty (60) days after the end of each Lease
Year, or as soon thereafter as practicable, Landlord shall furnish to Tenant a
statement of the actual amount of Tenant's Proportionate Share of Common Area
Maintenance Costs. If the amount paid by Tenant during such Lease Year is less
than Tenant's Proportionate Share of Common Area Maintenance Costs as shown by
Landlord's statement, then Tenant shall pay the difference within twenty (20)
days after the date of Landlord's statement; if the amount paid by Tenant during
such Lease Year is more than Tenant's
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Proportionate Share of Common Area Maintenance Costs as shown by such statement,
then Tenant shall receive a credit on future payments of Common Area Maintenance
Costs hereunder for the amount of such excess.
12.2.2. Adjustments During Lease Year. If at any time it appears to
Landlord that Common Area Maintenance Costs for any Lease Year may exceed
Landlord's estimate thereof, then Landlord shall have the right by notice to
Tenant to revise the estimated monthly amount payable by Tenant hereunder, and
subsequent payments of Tenant's estimated Proportionate Share of Common Area
Maintenance Costs hereunder shall be increased based upon such revised
statement.
12.2.3. Prorations. For the Lease Years in which the Term commences
and ends, Common Area Maintenance Costs shall be prorated based on the number of
days of the calendar year the Term is in effect.
12.3. Grant of Non-Exclusive Rights in Common Area; Rules and Regulations.
Subject to the terms and conditions of this Lease, and such reasonable rules and
regulations as Landlord may from time to time promulgate with respect thereto,
until termination of this Lease, Landlord hereby grants to Tenant, and its
invitees and licensees, the non-exclusive right to use the Common Area for
ingress and egress to and from the Premises. Tenant and its invitees and
licensees shall observe all rules and regulations which Landlord may from time
to time or at any time promulgate with respect to the use, operation, and
maintenance of the Common Area or any other portion of the Shopping Center. Any
such rules and regulations shall be binding upon Tenant and its licensees and
invitees upon Landlord's delivery of a copy thereof to Tenant. Tenant shall not
use the Common Area, or any other portion of the Shopping Center, for any
purpose, or allow therein any use, other than that specifically allowed
hereunder or under any reasonable rules and regulations promulgated by Landlord
hereunder. Tenant's use of the Common Area is granted hereunder as a revocable
license and, if Landlord revokes such license or if the amount of Common Area or
Tenant's use thereof hereunder is diminished, altered, damaged, or modified,
Landlord shall not be subject to any liability or claims of any kind or
character, nor shall Tenant be entitled to any compensation, damages, or rental
abatement on account thereof, nor shall any such diminution, alteration, change,
or modification be deemed a constructive or actual eviction of Tenant, and all
such rights and remedies are hereby waived by Tenant.
12.4. Receiving and Deliveries. All receiving of goods and materials at the
Premises, all delivery of goods and merchandise to the Premises, and all removal
of garbage and refuse from the Premises shall be made only by way of Tenant's
rear service door, if any, or the service delivery facilities designated by
Landlord for Tenant's use. Landlord hereby grants to Tenant and Tenant's
employees, invitees and
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licensees, the non-exclusive right, during the Term, to use, in common with
others entitled to the use thereof, the service delivery facilities most
immediately adjacent to the Premises, subject to the terms and conditions of
this Lease and any rules and regulations as Landlord may from time to time or at
any time promulgate hereunder.
12.5. Tenant Parking. Tenant and its officers, agents, contractors, and
employees shall park their motor vehicles only in that portion of the Parking
Area which Landlord may from time to time designate hereunder. Tenant shall not
at any time park, or permit the parking of, motor vehicles in truck passageways
or adjacent to any loading area or service delivery facility so as to interfere
in any way with the use thereof by others, nor shall Tenant at any time park, or
permit the parking of, motor vehicles of its suppliers or vendors in the Parking
Area. If required by Landlord, Tenant shall cause its employees to display
stickers on their vehicles indicating that they are entitled to park in those
portions of the Parking Area designated as employee parking by Landlord.
12.6. Changes to Shopping Center. So long as such changes do not materially
interfere with the conduct by Tenant of its business in the Premises, Landlord
shall have the right, at any time or from time to time, to designate or change,
alter, modify, or improve any portion of the Shopping Center as Common Area
and/or Parking Area; may change the shape, size, location, number, and extent of
the improvements shown on Exhibit A; and may eliminate or add any property or
improvements to the Shopping Center, including one or more parking decks or
parking structures.
12.7. Seasonal Sales Area. Notwithstanding anything to the contrary
contained in this Section 12, Landlord hereby grants Tenant, and its invitees
and licensees, the exclusive right to use the Seasonal Sales Area. At any time
Tenant occupies or utilizes the Seasonal Sales Area, Tenant shall maintain such
Seasonal Sales Area in good order, condition and repair.
13. ASSIGNMENT AND SUBLETTING.
13.1. Lease as Personal to Tenant. Tenant acknowledges that Landlord has
entered into this Lease based on Tenant's qualifications to operate Tenant's
business under its trade name as specified in Section 5.1.1 above pursuant to
the information given and representations made by Tenant to Landlord with
respect thereto. As such, this Lease is intended by the parties to create a
leasehold estate personal to Tenant to enable Tenant to so operate its business
in the Premises under such trade name. Tenant acknowledges that Landlord is the
owner of the Shopping Center and has bargained for and entered into this Lease
in order to derive the economic and other benefits of such ownership, and that
Tenant has no intention of profiting from an increase in the value of the
leasehold estate created hereunder so as to deprive
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Landlord of the benefits of its ownership of the Shopping Center. The parties
have agreed to the provisions of this Section 13 in order to effectuate the
foregoing understandings.
13.2. Landlord Consent Required; Notice. Tenant shall not assign this
Lease, or any rights, duties, or obligations hereunder, and Tenant shall not
sublet all or any portion of the Premises, without Landlord's prior written
consent to such assignment or sublease, which consent Landlord shall not
unreasonably withhold or delay, and then only upon and subject to the terms and
conditions hereinafter set forth. In considering any request for consent to a
proposed assignment or sublease, Landlord shall make its decision based on the
standards and criteria set forth in Section 13.5. Prior to effectuating any such
assignment or sublease, Tenant shall notify Landlord in writing of the name and
address of the proposed assignee or sublessee, and deliver to Landlord with such
notice a true and complete copy of the proposed assignment agreement or
sublease, financial statements from such proposed assignee or sublessee, such
other information or documents as may be necessary or appropriate to enable
Landlord to determine the qualifications of the proposed assignee or sublessee
and the compliance of such transaction with the requirements of this Section 13,
and a request that Landlord consent thereto ("Tenant's Notice"). Within thirty
(30) days after the receipt of Tenant's Notice, Landlord shall either: (i)
consent in writing to such proposed assignment or sublease, subject to the terms
and conditions hereinafter set forth; or (ii) notify Tenant in writing that
Landlord refuses such consent; or (iii) terminate this Lease with respect to the
portion of the Premises which Tenant desires to assign or sublease. Upon such
termination of this Lease with respect to the portion of the Premises which
Tenant desires to assign or sublease, the Fixed Minimum Rent then payable by
Tenant to Landlord hereunder and Tenant's Proportionate Share shall be reduced
in the proportion that the number of square feet of Gross Leasable Area in such
portion of the Premises bears to the total number of square feet of Gross
Leasable Area of the Premises then leased by Tenant under this Lease.
13.3. Payment of Consideration to Landlord. If Landlord consents to any
assignment of this Lease or to a sublease Thirteen Thousand (13,000) square feet
or more of the Premises hereunder, then Tenant shall pay to Landlord immediately
upon Tenant's receipt thereof, any and all consideration received by Tenant on
account of such transaction, howsoever the same may be denominated, to the
extent that such consideration exceeds the unamortized cost of any leasehold
improvements to the Premises made and paid for by Tenant, and in the case of
subleases, to the extent that such consideration exceeds the pro rata portion of
the Fixed Minimum Rent and other charges payable by Tenant hereunder
attributable to the sublet portion of the Premises, based on the Gross Leasable
Area of the Premises and the Gross Leasable Area of the Premises sublet. As used
herein "consideration" includes any payments
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received by Tenant on account of such assignment or subletting, rent, and other
payments received by Tenant on account thereof, payments made in consideration
of the operation of Tenant's business in the Premises, good will,
non-competition covenants, or any other amounts payable either directly or
indirectly in connection with such transaction.
13.4. Recapture Option. Any time during the thirty (30)-day period
following Landlord's receipt of Tenant's Notice, Landlord may give written
notice to Tenant that Landlord elects to: (i) terminate this Lease, if Tenant
has proposed to assign its interest hereunder; (ii) terminate this Lease with
respect to the portion of the Premises which Tenant desires to sublet, if Tenant
has proposed to sublet Thirteen Thousand (13,000) square feet or more of the
Premises. If Landlord elects to terminate this Lease with respect only to a
portion of the Premises, then this Lease shall be modified to reflect the
smaller square footage of the remaining Premises, including a pro rata
adjustment of rent and other charges due hereunder. If Landlord acts to
terminate this Lease with respect to the entire Premises, then neither Landlord
nor Tenant shall be liable to the other for any reason having to do with this
Lease from and after the date of such termination, except for matters which
shall have arisen prior to such date and except for the obligations of Tenant
under the Lease with respect to the condition of the Premises upon termination
or expiration of this Lease.
13.5. Parameters of Landlord's Consent. Landlord shall have the right to
base its consent to any assignment or sublease hereunder upon such factors and
considerations as Landlord, in its good faith business judgment, deems relevant
or material to the proposed assignment or sublease transaction and the best
interest of the Shopping Center operations. Without limiting the generality of
the foregoing, Tenant acknowledges that it shall be reasonable for Landlord to
withhold its consent to any assignment or sublease transaction hereunder if
Tenant has not demonstrated to Landlord's complete satisfaction, within the
exercise by Landlord of its good faith business judgment, that: (i) the proposed
assignee or sublessee is financially responsible, with sufficient net worth and
net current assets, properly and successfully to operate its business in the
Premises and meet the financial and other obligations of this Lease; (ii) the
proposed assignee or sublessee possesses sound and good business judgment,
reputation, and experience, and proven management skills in the operation of a
business or businesses substantially similar to the uses permitted in the
Premises under Section 5.1.1.; (iii) the use of the Premises proposed by such
assignee or sublessee conforms to the permitted uses specified under Section
5.1.1. above and does not include any of the prohibited uses specified under
Section 5.1.2. above and otherwise conforms with Landlord's tenant-mix
requirements then pertaining in the Shopping Center; (iv) the Percentage Rent
theretofore paid by Tenant under this Lease will not be reduced or adversely
affected as a result of the assignment or sublease transaction; and (v) the
assignment or sublease would not breach any covenant of
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Landlord respecting radius, location, use, or exclusivity in any other lease,
financing agreement, or other agreement relating to the Shopping Center or
contained in this Lease.
13.6. Other Terms and Conditions. Each assignment or sublease hereunder
shall be effected by an instrument in writing in form and substance satisfactory
to Landlord, and shall be executed by both Tenant and the assignee or sublessee,
as the case may be. One (1) executed copy of such written instrument shall be
delivered to Landlord concurrently with the consummation of such assignment or
sublease transaction. Each assignee or sublessee in any assignment or sublease
transaction hereunder shall agree in such written instrument to assume and be
bound by all of the terms, covenants, conditions, and obligations of this Lease.
Every sublease shall be subject and subordinate to the provisions of this Lease.
In the event of an assignment or sublease, Tenant shall remain liable for all
its obligations and liabilities under this Lease, including the payment of Fixed
Minimum Rent, Percentage Rent, Common Area Maintenance Costs, and Taxes. No
consent by Landlord to any modification, amendment, or termination of this
Lease, or extension, waiver, or modification of payment or any other obligations
under this Lease, or any other action of Landlord with respect to any assignee
or sublessee, or the insolvency, bankruptcy, or default of any such assignee or
sublessee, shall affect the continuing liability of Tenant for its obligations
and liabilities hereunder, and Tenant waives any defense arising out of or based
thereon. Tenant shall reimburse Landlord for all costs and expenses incurred in
connection with any proposed assignment or sublease transaction hereunder,
including attorneys' fees and lease administration fees incurred by Landlord in
connection with the processing and documentation of any requested assignment or
subletting, regardless of whether such transaction is actually consummated.
Landlord may also require, as a condition of any assignment or subletting, that
Tenant not then have committed an Event of Default.
13.7. Landlord Rights and Remedies. Any assignment or sublease made without
Landlord's prior written consent hereunder shall, at Landlord's sole election,
be void and shall constitute an Event of Default by Tenant under this Lease. No
consent to any assignment or sublease shall constitute a waiver of the
provisions of this Section 13 with respect to any subsequent assignment or
sublease, and each assignment or sublease by Tenant hereunder shall require
Landlord's prior written consent pursuant to this Section 13. If Tenant purports
to assign this Lease, or sublease all or any portion of the Premises, or permit
any person or persons other than Tenant to occupy the Premises, without
Landlord's prior written consent given hereunder, Landlord may collect rent from
the person or persons then or thereafter occupying the Premises and apply the
net amount collected to the Rent hereunder, but no such collection shall be
deemed a waiver of this Section 13, or the acceptance of
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any such purported assignee, sublessee, or occupant, or a release of Tenant from
the further performance by Tenant of covenants on the part of Tenant herein
contained.
13.8. Exempt Transfers. Notwithstanding anything to the contrary contained
herein, Tenant shall have the right to assign its interest under this Lease, or
sublet the Premises or any portion thereof, without the consent of Landlord, to
any corporation: (i) with which it may merge or consolidate; (ii) which acquires
a majority of Tenant's other stores or a majority of Tenant's stores in Oregon
or all or substantially all of the shares of stock or assets of Tenant; (iii)
which is a parent or subsidiary of Tenant; or (iv) which is the successor
corporation to Tenant in the event of corporate reorganization. In the event of
any of the transfers described above, Tenant shall give Landlord sixty (60) days
prior written notice of such proposed transfer, and shall provide Landlord with
all documentation reasonably required by Landlord in order to verify that the
proposed transfer falls within the parameters of this Section 13.8.
13.9. Encumbrances. Tenant shall not encumber, hypothecate, or transfer as
security (whether by conditional assignment or sublease, or otherwise) this
Lease, or any Tenant's rights, duties or obligations hereunder.
13.10. No Release of Tenant. Should Tenant either assign its interest under
this Lease or sublet the Premises as permitted in this Section 13, Tenant shall
nevertheless remain liable to Landlord for full payment of the rent and other
charges and full performance of Tenant's other obligations under this Lease. No
consent by Landlord to any modification, amendment or termination of this Lease
or extension, waiver or modification of payment or performance of any other
obligation under this Lease, or any other action of Landlord with respect to any
assignee or sublessee of Tenant, or the insolvency, bankruptcy or default of any
such assignee or sublessee of Tenant shall effect the continuing liability of
Tenant for its obligations and liabilities hereunder, and Tenant waives any
defense arising out of or based thereon.
14. ACCESS.
14.1. Access to Premises. Landlord and its designees shall, after providing
reasonable prior notice to Tenant, have the right to enter upon the Premises at
all reasonable hours (and in emergencies at all times) without diminution, or
abatement of Rent or liability to Tenant: (i) to inspect the same or show the
same to prospective lenders or buyers; (ii) to make repairs, improvements,
additions, or alterations to the Premises, the Building, or any property owned
or controlled by Landlord (and for such purposes erect scaffolding and other
necessary structures where required by the character of the work to be
performed); (iii) to serve or post any notice required or permitted under the
provisions of this Lease or by law; and (iv) for any other lawful purposes. In
the event any activities performed by Landlord at or to the Premises
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which are not the result of the request of Tenant or specifically related to
Landlord's obligations with respect to Tenant hereunder and as a result of
Landlord's gross negligence, such activities materially and substantially
interfere with the operation of Tenant's business from the Premises, then Tenant
shall have the right to make claim against Landlord for actual damages sustained
by Tenant as a result of such gross negligence. In no event shall Landlord be
liable to Tenant for consequential damages, indemnification or diminution or
abatement of rent payable hereunder.
14.2. Excavations. If an excavation is made upon the land adjacent to the
Premises or the Building, Tenant shall permit entry to the Premises by all
persons performing such work as Landlord may deem necessary or appropriate to
shore or underpin to preserve the Premises or the Building from injury or
damage, or otherwise. If Landlord is grossly negligent Tenant shall only have a
claim against Landlord for actual damages, but Landlord shall not be liable
under any circumstances to Tenant for consequential damages, indemnification, or
diminution or abatement of Rent payable hereunder, and Tenant waives any such
right or remedy.
15. EMINENT DOMAIN.
15.1. Entire or Substantial Taking. If the Building or the Shopping Center,
or any portion of or interest in either, is taken for any public or quasi-public
use under any statute or by right of eminent domain, or by purchase in lieu
thereof, so that in the reasonable judgment of Landlord and Tenant a reasonable
amount of reconstruction of the Building and/or Shopping Center will not result
in the Premises being reasonably suited for Tenant's continued occupancy for the
uses and purposes for which the Premises are leased, then this Lease shall
terminate as of the date that possession of the Building or Shopping Center, or
part thereof, or interest therein is taken.
15.2. Partial Taking. If any part of or interest in the Building or the
Shopping Center is so taken and the remaining part thereof or interest therein
is, in the reasonable judgment of Landlord and Tenant, after reconstruction of
the remaining Building or Shopping Center, reasonably suitable for Tenant's
continued occupancy for the purposes and uses for which the Building are leased,
then this Lease shall, as to the part of the Building so taken, terminate as of
the date possession of such part is taken, and the Fixed Minimum Rent then in
effect and Tenant's Proportionate Share shall be reduced in the proportion that
the Gross Leasable Area of the part taken (less any additions thereto by reason
of any reconstruction) bears to the original Gross Leasable Area of the
Building. Landlord shall, at its own cost and expense, make necessary repairs or
alterations to the remaining Building and/or Shopping Center, so as to
constitute the remaining Building (or the Building) a complete architectural
unit, provided that (i) the cost of such work does not exceed the amount of the
award available to Landlord as a result of the taking, and (ii) the scope of
such work shall
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not exceed that done by Landlord in originally constructing the Building and/or
the Shopping Center. A just part of the Fixed Minimum Rent shall be abated
during such restoration to the extent that such restoration substantially and
materially interferes with the conduct of Tenant's business in the Premises.
15.3. Disposition of Award. All compensation or damages awarded or paid for
any taking hereunder shall belong to and be the property of Landlord, whether
such compensation or damages are awarded or paid as compensation for diminution
in value of the leasehold, the fee, or otherwise, except that Landlord shall not
be entitled to any award made to Tenant for loss of business or the unamortized
cost of Tenant's stock, trade fixtures, or leasehold improvements paid by
Tenant. Tenant waives all right to any portion of the award belonging to
Landlord hereunder, and grants to Landlord all of Tenant's rights therein.
15.4. Further Assurance. Each party shall execute and deliver to the other
all documents or instruments that may be necessary or appropriate to effectuate
the provisions hereof.
16. DAMAGE OR DESTRUCTION.
16.1. Landlord to Rebuild. If the Building is damaged or destroyed by fire
or other casualty insured under Landlord's casualty insurance carried under
Section 6.2., then Landlord shall repair the damaged or destroyed portions of
the Building, using reasonable diligence, unless Landlord elects not to repair
as hereinafter provided. If such damage or destruction substantially interferes
with the conduct of Tenant's business in the Building, then a just part of the
Fixed Minimum Rent shall be abated, to the extent of such interference
reasonably attributable to such damage or destruction, until substantial
completion of such repairs.
16.2. Landlord's Options to Terminate. If (i) fifty percent (50%) or more
of the Gross Leasable Area of the Building or the Shopping Center is damaged or
destroyed by fire or other casualty insured under Landlord's casualty insurance
carried under Section 6.2. (notwithstanding that the Building may sustain no
material damage), or (ii) the Building is damaged or destroyed by casualty so
insured and the cost of repair or replacement equals or exceeds thirty-three and
one-third percent (33-1/3%) of the actual replacement cost thereof, or (iii) the
Building, and/or the Shopping Center, or any portion thereof, are damaged or
destroyed in whole or in part from any cause or casualty for which Landlord does
not actually receive insurance proceeds sufficient to fund the cost of repair
and restoration, then, in any such event, Landlord may elect, in its sole
discretion, to (a) repair or rebuild the damaged or destroyed portion of the
Building or Shopping Center or (b) terminate this Lease by giving written notice
of such termination to Tenant. Landlord shall make its election
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within thirty (30) days after any such damage or destruction. If Landlord elects
to repair or rebuild, then it shall proceed with reasonable diligence to make
such repairs or rebuilding. Unless Landlord elects to terminate this Lease
hereunder, any damage or destruction to the Building and/or the Shopping Center
shall have no effect on this Lease and this Lease shall remain in full force and
effect, the parties waiving the provisions of any statute or law to the
contrary.
16.3. Extent of Landlord's Repair and Rebuilding Obligations. If Landlord
elects to repair and rebuild hereunder, then its obligation for such repair and
rebuilding shall be limited to a scope of work not exceeding the original scope
of work for the portions of the Shopping Center repaired and reconstructed
hereunder and Landlord's Work as set forth in Exhibit C, to the end that
Landlord shall restore those portions of the Building constructed by Landlord as
part of Landlord's Work to their condition immediately prior to such damage or
destruction. All costs and expenses for such repair and rebuilding shall be
borne by Landlord. If Landlord elects to repair and rebuild hereunder, then
Tenant shall forthwith replace or repair those portions of the Building
constructed by Tenant as part of Tenant's Work to their condition immediately
prior to such damage or destruction, as well Tenant's signs, trade fixtures,
equipment, display cases, and all other installations made or installed by
Tenant under this Lease, regardless of whether paid for by Landlord or Tenant.
Tenant shall prosecute its work of repair and reconstruction hereunder with all
due diligence and shall re-open for business in the Premises at the earliest
possible time after the event of damage or destruction, so that Landlord will be
deprived of the benefits of Tenant's business operations in the Premises for as
short a time as possible.
16.4. Tenant Waivers. Tenant hereby waives any right at law or in equity
which it might have to terminate this Lease on account of any damage or
destruction to the Building and/or the Shopping Center. In the event of any such
damage or destruction, the rights, duties, and obligations of the parties shall
be governed solely by the applicable provisions of this Lease with respect
thereto.
17. WAIVER OF CLAIMS; INDEMNITY.
17.1. Waiver of Claims. Landlord shall not be liable to Tenant, or to any
other person or entity, from or for any event, occurrence, act, neglect,
omission, loss, damage, injury, or death, howsoever caused or whenever
occurring, including damages occasioned by falling plaster; electricity;
plumbing; gas; water; steam; sprinkler or other pipe and sewage system; or by
the bursting, running, or leaking of any tank, washstand, closet, or waste or
other pipes in or about the Premises, the Building, or the Shopping Center;
damages occasioned by water being upon or coming through the roof, skylight,
vent, trapdoor, or otherwise of any portion of the Building; damages arising
from any act or neglect of tenants, owners, or other
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occupants of the Shopping Center, or of adjacent property, or of their
employees, agents, contractors, licensees, or invitees, or the public; or
damages for any failure to furnish, or interruption of, service of any security
personnel or system, water, gas, electricity, and/or telephone; or caused by
fire, accident, riot, strike, labor disputes, acts of God, or the making of or
failure to make any repairs or improvements.
17.2. Tenant's Indemnity. Tenant shall indemnify, defend, protect, and hold
Landlord harmless from and against any and all claims, proceedings, damages,
causes of action, liability, costs, or expense (including attorneys' fees)
arising from or in connection with or caused by: (i) any act, omission, or
negligence of Tenant or any subtenant of Tenant, or their respective
contractors, licensees, invitees, agents, servants, or employees, wheresoever
the same may occur; or (ii) any accident, injury, death, or damage to any person
or property occurring in, on, or about the Premises, or any part thereof, the
sidewalks adjoining the same and any service delivery facilities used by Tenant.
17.3. Landlord's Indemnity. Except as set forth in Section 17.1 above,
Landlord shall indemnify, defend, protect, and hold Tenant harmless from and
against any and all claims, proceedings, damages, causes of action, liability,
costs, or expense (including attorneys' fees) arising from or in connection with
or caused by: (i) any act, omission, or negligence of Landlord or its respective
contractors, licensees, invitees, agents, servants, or employees, wheresoever
the same may occur; or (ii) any accident, injury, death, or damage to any person
or property occurring in, on, or about the Common Area of the Shopping Center.
18. NOTICES.
18.1. Procedure. All notices, consents, waivers, or other communications
which this Lease requires or permits either party to give to the other shall be
in writing and shall be given by personal delivery (including delivery by any
messenger or carrier service which requires a signed receipt) or by registered
or certified mail, or Express Mail, return receipt requested, postage prepaid
(or by facsimile, telecopier, or other equivalent means if personal delivery or
mail delivery is concurrently effected), addressed if to Landlord at Landlord's
address shown below, and addressed if to Tenant at Tenant's address shown below
or to the Premises. Either party may change its mailing address at any time by
giving written notice of such change to the other party in the manner provided
herein, provided that the notified party shall have at least ten (10) days after
receipt of such notice to reflect such change of address in its records. Rent
and other charges required by this Lease to be paid by Tenant to Landlord shall
be delivered to Landlord at Landlord's Eastern Division address set forth below,
or to such other address as Landlord may from time to time specify by written
notice to Tenant. All notices under this Lease shall be deemed given,
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received, made, or communicated on the date personal delivery is effected or
refused or, if mailed, on the delivery date or attempted delivery date shown on
the return receipt. Notices sent by facsimile, telecopier, or equivalent means
shall not be deemed given, made, received, or communicated until mailing or
personal delivery is complete as provided in this Section.
Notice Address of Landlord: PacTrust
Attn: General Counsel/Unit COS/02
15350 S.W. Sequoia Pkwy., Suite 300
Portland, OR 97224
Notice Address of Tenant: G.I. Joe's, Inc.
Attn: Norm Daniels
9805 Boeckman Road
Wilsonville, OR 97070
18.2. Multiple Tenants; Receipt. If there is more than one (1) person or
entity comprising Tenant, then all notices, consents, waivers, or other
communications under this Lease may be given by or to any one of such persons or
entities, and when so served, shall have the same force and effect as if given
or served upon each such person or entity, and each such person or entity hereby
designates each other such person or entity as its agent for service of such
notices in accordance herewith.
19. DEFAULT; REMEDIES.
19.1. Notice to Tenant. Upon the occurrence of any Event of Default,
Landlord shall give Tenant written notice thereof, specifying the Event of
Default and the provisions of this Lease breached by Tenant, and Tenant shall
have the right to cure such Event of Default within the time periods, if any,
hereinafter specified.
19.1.1. Vacation or Abandonment. For vacation or abandonment of the
Premises, within ten (10) days after Landlord's notice.
19.1.2. Nonpayment of Money. For failure to pay Fixed Minimum Rent,
Percentage Rent, Common Area Maintenance Costs, Taxes, or any other charge or
sum, within ten (10) days after Landlord's notice, unless Tenant has failed more
than two (2) times during a given Lease Year timely to pay any Rent so that
Landlord has been required to give notice hereunder, in which event, on the
third (3rd) and any subsequent failure to timely pay Fixed Minimum Rent,
Percentage Rent, Common Area Maintenance Costs, Taxes, or any other charge or
sum during such Lease Year, Landlord, at its option, may elect to pursue its
rights and remedies under this Lease without giving Tenant written notice or the
opportunity to cure such failure to timely pay such amounts.
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19.1.3. Failure to Perform Other Obligations. For failure to perform
any obligation, agreement, or covenant under this Lease, other than nonpayment
of monies and the replacement of glass, plate glass, and storefront parts,
within thirty (30) days after Landlord's notice, unless Tenant has defaulted in
the performance of any obligation, agreement, or covenant more than two (2)
times during the Term and notice of such Event of Default has been given by
Landlord in each instance, in which event no notice or cure period shall
thereafter be required or applicable hereunder. Notwithstanding the foregoing
thirty (30)-day period, if such obligation, agreement, or covenant is of such a
nature that it cannot be cured within thirty (30) days after Landlord's notice,
then Tenant shall not be in default provided that it has commenced to perform
such obligation, agreement, or covenant within such thirty (30)-day period and
is diligently pursuing performance thereof.
19.1.4. Failure to Replace Plate Glass. For failure to replace glass,
plate glass, or storefront parts, within fifteen (15) days after Landlord's
notice, unless Tenant has defaulted in the performance of such obligation more
than two (2) times during the Term and notice of such Event of Default has been
given by Landlord in each instance, in which event no notice or cure period
shall thereafter be required or applicable hereunder.
19.1.5. No Notice. No notice or cure period shall be required or
applicable hereunder for any Event of Default specified in Sections 1.6.3 or
1.6.4.
19.2. Remedy Upon Occurrence of Event of Default. On the occurrence of an
Event of Default which Tenant fails to cure after notice and expiration of the
cure period, if any, specified above, Landlord shall have the right either (i)
to terminate this Lease, and at any time thereafter recover possession of the
Premises, or any part thereof, and expel and remove therefrom Tenant and any
other person occupying the same, by any lawful means, and again repossess and
enjoy the Premises without prejudice to any of the remedies that Landlord may
have under this Lease or at law or in equity by reason of the Event of Default
or of such termination, or (ii) to continue this Lease in effect for so long as
Landlord does not so terminate Tenant's right to possession, and enforce all
Landlord's rights and remedies under this Lease, including the right to recover
Fixed Minimum Rent as it becomes due, or relet the Premises at such rental and
upon such terms and conditions as Landlord, in its sole discretion, may deem
advisable. Acts of maintenance, preservation, or efforts to lease the Premises,
the appointment of a receiver upon application of Landlord to protect Landlord's
interest under this Lease, or re-entry or taking of possession of the Premises
by Landlord hereunder, shall not constitute an election to terminate Tenant's
right to possession unless specific written notice of such termination is given
to Tenant hereunder. Landlord may store any property of Tenant located in the
Premises in a public warehouse, storage facility, or elsewhere at Tenant's
expense or otherwise
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dispose of such property in the manner provided by law. If Landlord does not
terminate this Lease hereunder, then Tenant shall continue to pay currently all
amounts payable by Tenant under this Lease, together with the cost of obtaining
possession of and reletting the Premises, any repairs and alterations necessary
to prepare the Premises for reletting, and brokerage commissions and attorneys'
fees incurred in connection therewith, less the rents, if any, received from
such reletting. Any and all monthly deficiencies so payable by Tenant shall be
paid on each due date for Fixed Minimum Rent herein specified. Notwithstanding
any reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease pursuant to this Section 19.2.
19.3. Damages Upon Termination. If Landlord terminates this Lease pursuant
to Section 19.2., then Landlord may exercise all rights and remedies available
to a landlord at law or in equity, including the right to recover from Tenant:
(i) the worth at the time of award of the unpaid Rent and other amounts payable
by Tenant hereunder which had been earned at the time of termination; (ii) the
worth at the time of award of the amount by which the unpaid Rent and such other
amounts which would have been earned after termination until the time of the
award exceeds the amount of loss of Rent and such other amounts that the Tenant
proves could have been reasonably avoided; (iii) the worth at the time of award
of the amount by which the unpaid Rent and such other amounts for the balance of
the term after the time of the award exceeds the amount of loss of Rent and such
other amounts that the Tenant proves could be reasonably avoided; and (iv) any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant's failure to perform its obligations under this Lease or which,
in the ordinary course of things, would be likely to result therefrom. The
"worth at the time of award" of the amounts referred to in clauses (i) and (ii)
shall be computed with Interest. The "worth at the time of award" of the amount
referred to in clause (iii) shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of Baltimore, Maryland, plus one
percent (1%). As used herein, "time of award" shall mean either the date upon
which Tenant pays to Landlord the amount recoverable by Landlord as hereinabove
set forth, or the date of entry of any determination, order, or judgment, of any
court or other legally constituted body determining the amount recoverable,
whichever first occurs.
19.4. Computation of Rent and Other Amounts for Purposes of Default. For
purposes of Section 19.3, unpaid Rent and other amounts which would have accrued
and become payable under this Lease shall consist of the sum of: (i) the total
Fixed Minimum Rent for the balance of the Term, plus (ii) a computation of
Tenant's Proportionate Share of Taxes and Common Area Maintenance Costs for the
balance of the Term, the assumed Taxes and Common Area Maintenance Costs for the
Lease Year in which the Event of Default occurs and each future Lease Year to be
equal to
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the Taxes and Common Area Maintenance Costs for the Lease Year prior to the
Lease Year in which the Event of Default occurs, compounded at a per annum rate
equal to the mean average rate of inflation for the preceding five (5) Lease
Years as determined by the CPI, plus (iii) a computation of Percentage Rent for
the balance of the Term equal to the average Percentage Rent payable by Tenant
for the three (3) Lease Years immediately prior to the occurrence of the Event
of Default (or if less than three (3) Lease Years have then elapsed, the number
actually then elapsed), compounded at a per annum rate equal to the mean average
rate of inflation for such preceding three (3) Lease Years based on the CPI.
19.5. Waiver of Statutory Notice Periods. The notice periods after Events
of Default specified in Section 19.1. shall be exclusive of any other notice
period provided by law with respect to any such Event of Default, and Tenant
hereby waives any right under law to any other notice period now or hereinafter
enacted.
19.6. Landlord's Right to Perform on Tenant's Breach. In addition to any
other right or remedy of Landlord hereunder, upon the occurrence of an Event of
Default and without waiving or releasing Tenant from any obligation of Tenant
hereunder, Landlord may (but shall not be required to) cure such Event of
Default for the account of Tenant. Landlord shall not be responsible or liable
to Tenant for any loss or damage that may be caused to Tenant's stock or
business by reason of effecting cure hereunder. All sums paid by Landlord and
all costs and expenses incurred by Landlord in connection with such cure
(including attorneys' fees), together with Interest thereon from the respective
dates of Landlord's incurrence of each item of cost or expense, shall be payable
by Tenant on demand.
19.7. Receiver. If a receiver is appointed in any action by Landlord
against Tenant on account of any Event of Default, such receiver may take
possession of any personal property belonging to Tenant and used in the business
conducted on the Premises, and the entry or possession by such a receiver shall
not constitute an eviction of Tenant from the Premises or any portion thereof.
Tenant shall indemnify, defend, protect, and hold Landlord harmless from any
damages, causes of action, liability, cost, or expense (including attorneys'
fees) arising out of or in connection with the entry by such receiver and the
taking of possession of the Premises and/or such personal property. Neither the
application for the appointment of such receiver, nor the appointment itself,
shall constitute an election on Landlord's part to terminate this Lease, unless
written notice of such election is given by Landlord to Tenant hereunder.
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19.8. Landlord's Defaults.
19.8.1. Notice and Cure; Landlord's Liability. If Landlord fails to
perform any of its obligations under this Lease, then Tenant shall give Landlord
written notice thereof, specifying with particularity the breach claimed by
Tenant. Landlord shall have the right to cure such breach during the thirty
(30)-day period following receipt of Tenant's notice hereunder, unless such
breach cannot reasonably be cured within such thirty (30)-day period, in which
event Landlord shall not be in default under this Lease if Landlord commences
such cure within such thirty (30)-day period and thereafter diligently
prosecutes the same to completion. If the Premises, or any portion thereof, are
at any time subject to any mortgage or a deed of trust, and Landlord or the
mortgagee or beneficiary of such deed of trust shall have given Tenant a written
request to do so, Tenant shall serve on the mortgagee or beneficiary thereunder
concurrent copies of any notice of default served on Landlord hereunder. If
Landlord fails to cure any noticed breach hereunder within the time period
provided in this Section 19.8.1., then any such noticed mortgagee or beneficiary
shall have an additional thirty (30) days within which to cure Landlord's
breach, plus such additional time as may be necessary to perfect such
mortgagee's or beneficiary's rights and remedies under its mortgage or deed of
trust (including foreclosure proceedings or the appointment of a receiver) and
complete cure in fact. If and when such mortgagee or beneficiary has rendered
performance on behalf of Landlord, Landlord's breach shall be deemed cured, and
if for any reason Landlord's breach is not susceptible of cure, it shall
nevertheless be deemed cured upon such mortgagee's or beneficiary's taking of
possession of Landlord's interest in the Premises. Notwithstanding anything to
the contrary under applicable law, Tenant shall have no right to terminate this
Lease during the notice and cure periods hereunder. If Landlord fails to cure
its breach hereunder (or such breach is not cured by a mortgagee or beneficiary
as herein specified), Tenant may elect to cure such default on Landlord's behalf
and Landlord shall reimburse Tenant for the actual cost of such cure within ten
(10) days of receipt of written demand therefor. In any event, Landlord shall be
liable to Tenant only for Tenant's direct damages caused by Landlord's breach of
this Lease and Tenant waives any rights to recover consequential or punitive
damages on account thereof.
19.8.2. Certain Limitations on Tenant's Remedies. Landlord shall never
be personally liable under this Lease; Tenant shall look solely to Landlord's
interest in the Shopping Center for any recovery of damages for any breach by
Landlord of this Lease, or any recovery of any judgment from Landlord. None of
the members comprising Landlord (whether partners, shareholders, officers,
directors, trustees, employees, beneficiaries, or otherwise) shall ever be
personally liable for any such judgment. There shall be no levy of execution
against any assets of Landlord, other than the Shopping Center, or the assets of
such members on account of any liability of Landlord hereunder. Tenant hereby
waives any right of recovery or satisfaction of
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any judgment against Landlord or its members, except as to Landlord's interest
in the Shopping Center as herein specified.
19.9. Waiver; Remedies Cumulative. Failure of Landlord to declare an Event
of Default immediately upon the occurrence thereof, or delay in taking any
action in connection therewith, shall not waive such Event of Default, but
Landlord shall have the right to declare any such Event of Default at any time
thereafter. No waiver by Landlord of an Event of Default, or any agreement,
term, covenant, or condition contained in this Lease, shall be effective or
binding on Landlord unless made in writing and no such waiver shall be implied
from any omission by Landlord to take action with respect to such Event of
Default or other such matter. No express written waiver by Landlord of any Event
of Default, or other such matter, shall affect or cover any other Event of
Default, matter or period of time, other than the Event of Default, matter
and/or period of time specified in such express waiver. One or more written
waivers by Landlord of any Event of Default, or other matter, shall not be
deemed to be a waiver of any subsequent Event of Default, or other matter, in
the performance of the same provision of this Lease. Acceptance of Rent by
Landlord hereunder shall not, in and of itself, constitute a waiver of any Event
of Default or of any agreement, term, covenant, or condition of this Lease,
except as to the payment of Rent so accepted, regardless of Landlord's knowledge
of any concurrent Event of Default or matter. All of the remedies permitted or
available to Landlord under this Lease, or at law or in equity, shall be
cumulative and not alternative; invocation of any such right or remedy shall not
constitute a waiver or election of remedies with respect to any other permitted
or available right or remedy.
19.10. Interest. Any sum due and payable to Landlord under the terms of
this Lease which is not paid when due shall bear Interest from the date when the
same becomes due and payable by the provisions hereof until paid.
19.11. No Accord and Satisfaction. No payment by Tenant, or receipt by
Landlord, of a lesser amount than the Rent herein provided shall be deemed to be
other than on account of the earliest Rent due and payable hereunder, nor shall
any endorsement or statement on any check, or letter accompanying any check or
payment, as Rent be deemed an accord and satisfaction. Landlord may accept any
such check or payment without prejudice to Landlord's right to recover the
balance of such Rent or pursue any other right or remedy provided in this Lease.
19.12. Waiver of Right of Redemption. Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future law in
the event Tenant is evicted or dispossessed from the Premises for any cause, or
in the event Landlord obtains possession of the Premises by reason of the
commission by Tenant of an Event of Default or otherwise.
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20. SUBORDINATION AND ATTORNMENT; ESTOPPEL CERTIFICATES.
20.1. Subordination. This Lease, and all of Tenant's rights and interest in
the leasehold estate hereunder, shall be subject and subordinate to any
mortgages or deeds of trust that now encumber, or may hereafter be placed upon,
the Premises, and to the rights of the mortgagees or beneficiaries thereunder,
any and all advances made or to be made thereunder, the interest thereon, and
all modifications, renewals, replacements and extensions thereof so long as such
mortgagee or beneficiary has first executed a non-disturbance agreement in form
and content reasonably acceptable to Tenant. If any such mortgagee or
beneficiary so elects in writing, then this Lease shall be superior to the lien
of the mortgage or deed of trust held by such mortgagee or beneficiary, whether
this Lease is dated or recorded before or after such mortgage or trust deed.
Upon request, Tenant shall promptly execute and deliver to Landlord, or any such
mortgagee or beneficiary, any documents or instruments required by any of them
to evidence subordination of this Lease hereunder or to make this Lease prior to
the lien of any mortgage or deed of trust as herein specified. If Tenant fails
or refuses to do so within ten (10) days after written request therefor by
Landlord or such mortgagee or beneficiary, such failure or refusal shall
constitute an Event of Default by Tenant, but shall in no way affect the
validity or enforceability of the subordination to or by the mortgage or deed of
trust held by such mortgagee or beneficiary. As used herein, the terms
"mortgage" and "deed of trust" include any sale and leaseback transaction in
which Landlord sells and simultaneously leases back all or any portion of its
interest in the Shopping Center.
20.2. Attornment by Tenant. Upon enforcement of any rights or remedies
under any mortgage or deed of trust to which this Lease is subordinated
(including proceedings for judicial foreclosure or a trustee's sale pursuant to
a power of sale, or deed in lieu of foreclosure delivered by Landlord to the
mortgagee or beneficiary thereunder), and so long as such mortgagee or
beneficiary has first executed a non-disturbance agreement in form and content
reasonably acceptable to Tenant, Tenant shall, at the election of the purchaser
or transferee under such right or remedy, attorn to and recognize such purchaser
or transferee as Tenant's landlord under this Lease. Tenant shall execute and
deliver any document or instrument required by such purchaser or transferee
confirming the attornment hereunder.
20.3. Subordination to Covenants and Easements. This Lease, and all of
Tenant's rights and interest in the leasehold estate hereunder, is and shall be
subject and subordinate to the ECR and to any and all amendments or
modifications at any time made thereto. Tenant shall promptly upon request
execute and deliver to Landlord any documents or instruments required to
evidence the subordination of this Lease to the ECR and any amendment thereto.
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20.4. Estoppel Certificates. Landlord and/or Tenant shall, at any time and
from time to time, upon not less than twenty (20) days prior written request by
the other party, execute, acknowledge and deliver to such party, or such party's
designee, a statement in writing certifying: (i) the date of this Lease, and
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same are in full force and effect as modified and
stating the date[s] and identifying the nature of the modification[s]); (ii) the
amounts of pre-paid Rent and other charges (if any) and the dates to which such
Rent and other charges have been paid, if applicable; (iii) and confirming
Tenant's acceptance of the Premises and the Term Commencement Date; (iv) that
neither Landlord nor Tenant is in default under this Lease; that no notice has
been received by or delivered to either party of any Event of Default which has
not been cured, except as to Events of Default specified in the certificate; and
that no event has occurred which, but for the giving of required notice or
expiration of an applicable grace period, would constitute an Event of Default
by either party under this Lease; (v) that Landlord is not in default in the
performance of any of its obligations under this Lease; that neither party has
given notice of default to the other; and that no event has occurred which, but
for the giving of required notice or expiration of an applicable grace period,
would constitute a default by either party hereunder, and (vi) such other
matters as may be reasonably requested by either party or any designee of such
party. Any statement delivered pursuant to this Section 20.4. may be relied upon
by any prospective purchaser, investor, encumbrancer, mortgagee, or assignee of
any encumbrancer or mortgagee, of the Premises or the Shopping Center, or any
portion of or interest in either. Upon not less than ten (10) days prior written
request by Landlord, Tenant shall execute, acknowledge, and deliver to any
lender supplying financing to the Shopping Center, or any portion thereof or
interest therein, an estoppel certificate on such lender's standard form. If
Tenant fails or refuses to give a statement or certificate within the time
provided hereunder after proper notice and request, then the information
contained in such statement or certificate shall be deemed correct for all
purposes.
21. SECURITY DEPOSIT. [Intentionally omitted.]
22. SURRENDER OF PREMISES.
22.1. Condition of Premises. On the last day or sooner termination of the
Term, Tenant shall quit and surrender the Premises to Landlord, broom clean, in
good order, condition, and repair (reasonable wear and tear and damage by
insured casualty excepted) as required by Section 9.2., together with all
alterations, additions, and improvements made in, to, or on the Premises, except
movable furniture and Tenant's trade fixtures installed at the expense of
Tenant. On or before the end of the Term, Tenant shall remove all its personal
property from the Premises, and all property of Tenant not removed hereunder
shall be deemed, at Landlord's option, to be abandoned
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by Tenant and Landlord may store such property in Tenant's name at Tenant's
expense, and/or dispose of the same in any manner permitted by law. Tenant shall
repair any and all damage to the Premises caused by Tenant's removal of its
furniture, trade fixtures, or property hereunder. If the Premises are not
surrendered as of the end of the Term in the manner and condition herein
specified, Tenant shall indemnify, defend, protect, and hold Landlord harmless
from and against all loss, liability, cost, or expense (including attorneys'
fees) resulting from or caused by Tenant's delay or failure in so surrendering
the Premises, including any claims made by any succeeding tenant due to such
delay or failure.
22.2. Effect of Surrender on Subleases. The voluntary or other surrender of
this Lease by Tenant, or a mutual cancellation thereof, or a termination of this
Lease prior to the expiration of the Term, shall not work a merger and shall, at
the sole option of Landlord, either terminate any or all existing subleases or
subtenancies, or operate as an assignment to it of all or any such subleases or
subtenancies.
23. SALE OF PREMISES BY LANDLORD.
23.1. Release of Landlord. In the event of any sale or exchange by the
Landlord of its interest in the Premises and assignment by Landlord of this
Lease, Landlord shall be released and relieved of all liability under any and
all of its covenants and obligations contained in or derived from this Lease
accruing after the consummation of such sale or exchange and assignment.
24. BROKERS.
24.1. Warranty. Tenant and Landlord each warrants and represents to the
other party that each warranting party has not had any dealings with any
realtor, broker or agent, other than Michael Heerman of HSM Commercial Real
Estate Brokerage ("Heerman") in connection with the negotiation of this Lease
and shall pay, indemnify, defend, protect, and hold the other party harmless
from and against any cost, expense, or liability (including attorneys' fees) on
account of or in connection with any compensation, commissions, or charges
claimed by any other realtor, broker, or agent with respect to this Lease and/or
the negotiation thereof resulting from any breach of this warranty. Landlord
shall pay a real estate commission of One Hundred Ten Thousand Dollars
($110,000) to Heerman in accordance with a separate agreement between Heerman
and Landlord.
25. HAZARDOUS MATERIALS
25.1. Landlord's Representations. Landlord represents and warrants to
Tenant that as of the Term Commencement Date, the Premises and the Shopping
Center shall be free of all Hazardous Materials.
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25.2. Tenant's Obligations.
25.2.1. Covenants. If Tenant obtains knowledge of the actual or
suspected Release of Hazardous Materials on, about, under, or in the Premises or
the Shopping Center, then Tenant shall promptly notify Landlord of same. Neither
Tenant nor its agents, employees, or contractors, shall cause or permit
Hazardous Materials to be brought upon, kept, or used in, on, or about the
Premises or the Shopping Center except in the normal conduct of its business and
then in strict compliance with all Environmental Laws. Tenant shall immediately
notify Landlord of any inquiry, test, investigation, or enforcement proceeding
by or against Tenant involving the Premises and/or the Shopping Center and a
Hazardous Material.
25.2.2. Indemnification. If Tenant breaches any obligation set forth
in this Section or if a Release is caused or permitted by Tenant or its agents,
employees, or contractors, and results in contamination of the Premises or the
Shopping Center, then Tenant shall indemnify, defend, protect, and hold
Landlord, its lenders, employees, agents, partners, partners of partners,
officers and directors, harmless from and against any and all claims, actions,
suits, proceedings, losses, costs, damages, liabilities (including without
limitation sums paid in settlement of claims), deficiencies, fines, penalties,
punitive damages, or expenses (including, without limitation, reasonable
attorneys' fees and consultants' fees, investigation and laboratory fees, court
costs, and litigation expenses) which arise during or after the Term as a result
of such breach or contamination. This indemnity shall include, without
limitation (i) any damage, liability, fine, penalty, punitive damage, cost, or
expense arising from or out of any claim, action, suit, or proceeding for
personal injury (including sickness, disease, or death), tangible property
damage, nuisance, pollution, contamination, leak, spill, Release, or other
effect on the environment, and (ii) the cost of any required or necessary
investigation, repair, clean-up, treatment, or detoxification of the Premises or
the Shopping Center and the preparation and implementation of any closure,
disposal, remediation, or other required actions in connection with the Premises
or the Shopping Center.
26. GENERAL PROVISIONS.
26.1. Relationship. Nothing contained in this Lease shall be deemed or
construed by the parties or by any third person to create the relationship of
principal and agent, or of partnership, or of joint venture, or of any
association between Landlord and Tenant, and neither the method of computation
of Rent, nor any other provision contained in this Lease, nor any acts of the
parties shall be deemed to create any relationship between Landlord and Tenant,
other than the relationship of landlord and tenant.
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26.2. Binding on Successors. Subject to the provisions of Section 13
regarding assignment and subletting by Tenant, all of the provisions, terms,
covenants, and conditions of this Lease shall be binding upon and inure to the
benefit of the parties and their respective heirs, executors, administrators,
successors and assigns.
26.3. Litigation Expenses. If either party brings any action or proceeding
against the other (including any cross-complaint, counterclaim, or third party
claim) to enforce or interpret this Lease, or otherwise arising out of this
Lease, the prevailing party in such action or proceeding shall be entitled to
its costs and expenses of suit, including reasonable attorneys' fees, expert
witness fees, and accountants' fees, which shall be payable whether or not such
action or proceeding is prosecuted to judgment. "Prevailing party" within the
meaning of this Section 26.3. shall include a party who dismisses an action for
recovery hereunder in exchange for payment of the sums allegedly due,
performance of covenants allegedly breached, or consideration substantially
equal to the relief sought in the action.
26.4. Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of Oregon.
26.5. Excuse for Non-Performance. If either party is delayed in the
performance of any covenant of this Lease because of acts of the other party,
unusual action of the elements, war, riot, strikes, lockouts, labor disputes,
inability to procure or general shortage of labor or materials in the normal
channels of trade, or delay in governmental action or inaction where action is
required, or any other condition (excluding financial inability, imprudent
management, or negligence) beyond the reasonable control of such party, then
such performance shall be excused for the period of the delay and the period of
such performance shall be extended for a period equivalent to the period of such
delay, except that the foregoing shall in no way affect or apply to (i) Tenant's
obligation to pay Rent or any other sums or amounts hereunder, (ii) the length
of the Term, or (iii) Tenant's covenants contained in Section 5 or any other
provision of this Lease which obligates Tenant to open and/or operate its
business in the Premises, or use due diligence so to do. Nothing herein
contained shall excuse a party from exercising all due diligence and taking all
necessary actions possible under the circumstances to terminate any delaying
cause herein specified at the earliest feasible time.
26.6. Construction and Interpretation. Except in Section 1 ("Definitions")
and the Table of Contents, the headings or titles to the sections of this Lease
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof. The use in this Lease of the words
"including," "such as," or words of similar import when following any general
term, statement, or matter shall not be construed to limit such statement, term,
or matter to the specific items or matters,
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whether or not language of non-limitation such as "without limitation" is used
with reference thereto, but rather shall be deemed to refer to all other items
or matters that could reasonably fall within the broadest possible scope of such
statement, term, or matter. All provisions of this Lease have been negotiated by
Landlord and Tenant at arm's length and neither party shall be deemed the
scrivener of this Lease. This Lease shall not be construed for or against either
party by reason of the authorship or alleged authorship of any provision hereof
or by reason of the status of the respective parties as Landlord or Tenant.
26.7. Entire Agreement and Amendment. This Lease, together with the
Exhibits hereto, contains all the representations and the entire understanding
between the parties with respect to the subject matter hereof. The Exhibits to
this Lease are fully incorporated herein by reference. Any prior negotiations,
correspondence, memoranda, agreements, representations, or warranties are
replaced in total by this Lease and the Exhibits hereto. All reliance with
respect to representations and warranties is solely upon the representations and
warranties contained in this Lease. This Lease may be modified or amended only
by an agreement in writing signed by each of the parties.
26.8. References. All references herein to a given section, subsection or
Exhibit refer to the sections, subsections, and Exhibits of this Lease.
References to a party or parties shall refer to Landlord or Tenant, or both, as
the context may require.
26.9. Warranty of Authority to Enter into Lease. Tenant warrants and
represents to Landlord that Tenant has the full right, power, and authority to
enter into this Lease and has obtained all necessary consents and approvals from
its partners, officers, board of directors, or other members required under the
documents governing its affairs in order to consummate the leasing transaction
contemplated hereby. The persons executing this Lease on behalf of Tenant have
the full right, power, and authority so to do and affirm the foregoing warranty
on behalf of Tenant and on their own behalf.
26.10. Severability of Provisions. If any term or provision of this Lease,
or the application thereof to any person or circumstance, shall be invalid or
unenforceable, then the remainder of this Lease, or the application of such term
or provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby.
26.11. Lease Modifications in Connection with Financing. If Landlord
finances the construction of improvements on and to the Shopping Center, or
otherwise procures financing secured by the Shopping Center, or any portion
thereof or interest therein, then the terms and provisions of this Lease may be
subject to
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review and approval by the financial source providing such financing. If any
such financial source should require, as a condition to such financing, any
modification of the terms and provisions of this Lease (other than the Fixed
Minimum Rent or Percentage Rent and the location of the Premises), Tenant shall
execute any and all documents desired by Landlord to effect the modification. If
Tenant should refuse to approve and execute any documents so desired, then
Landlord shall have the right by notice to Tenant to terminate this Lease.
26.12. Other Tenancies. Landlord reserves the absolute right to effect such
other tenancies in the Shopping Center as Landlord, in the exercise of its sole
discretion, determines may best promote the interests of the Shopping Center.
Landlord does not warrant, represent, or covenant, expressly or impliedly, that
any specific lease or leases now or hereafter in effect between Landlord and any
third parties will be continued in effect for any period of time, that any other
tenant or tenants, or owner, shall during the Term continue to occupy any space
in the Shopping Center; Tenant, in entering into this Lease, has not relied upon
the continued existence or operation of any other tenant or tenants or owner
within the Shopping Center, notwithstanding any other lease or leases in
existence at the time of execution hereof or commencement of the Term.
Notwithstanding the foregoing, so long as Tenant occupies and uses the Premises
for the Primary Purpose (as hereinafter defined), Landlord shall not permit any
other tenant in the Shopping Center to use its Premises for the sale of sporting
goods or automobile or truck parts, supplies and accessories (the "Primary
Purpose") unless such Primary Purpose occupies no more than ten percent (10%) or
two thousand five hundred (2,500) square feet, whichever is greater, of such
tenant's premises.
26.13. Time of Essence. Time is of the essence with respect to the
performance of each of the covenants and agreements contained in this Lease.
26.14. Non-Discrimination. Tenant covenants by and for itself and its
heirs, executors, administrators, and assigns, and all persons claiming under or
through Tenant, and this Lease is made and accepted upon and subject to the
following conditions:
There shall be no discrimination against or segregation of any person or
group of persons on account of race, color, creed, religion, sex, marital
status, national origin, or ancestry, in the leasing, subleasing, transferring,
use, occupancy, tenure, or enjoyment of the Premises nor shall Tenant itself,
nor any person claiming under or through Tenant, establish or permit any such
practice or practices of discrimination or segregation with reference to the
selection, location, number, use, or occupancy of tenants, lessees, sublessees,
subtenants, or vendees in the Premises.
PAGE 52
<PAGE> 54
26.15. Co-Tenancy Agreement. Landlord reserves the absolute right to effect
such other tenancies in the Shopping Center as Landlord, in the exercise of its
sole discretion, determines may best promote the interest of the Shopping
Center. Except with respect to the occupancy of Waremart, Inc. ("Waremart"), an
Idaho corporation, Landlord does not warrant, represent or covenant, expressly
or impliedly, that any specific lease or leases now or hereafter in effect
between Landlord and any third parties will be continued in effect for any
period of time, or that any other tenant or tenants, or owner, shall during the
Term continue to occupy any space in the Shopping Center. Except with respect to
Waremart, Tenant, in entering into this Lease, has not relied upon the continued
existence or operation of any other tenant or tenants or owner within the
Shopping Center, notwithstanding any other lease or leases in existence at the
time of execution hereof or commencement of the Term.
With respect to Waremart, Tenant's obligations hereunder shall be
conditioned upon (i) the acquisition by Waremart of fee title to a portion of
the Shopping Center on or before March 31, 1998, and (ii) the opening by
Waremart of a grocery store of at least sixty-five thousand (65,000) square
feet. If for any reason, Waremart does not acquire fee title to a portion of the
Shopping Center on or before March 31, 1998, Landlord and Tenant shall have a
one-time right to terminate this Lease by delivering notice to the other party
as set forth herein. If for any reason, Waremart does not open for business in
the Shopping Center on or before February 1, 1999, Tenant shall have the
one-time right to terminate this Lease by delivering written notice to Landlord
as set forth below. Any notice required under this Section 26.15 exercise a
Right of Termination shall only be effective if delivered by the terminating
party to the other party at least ninety (90) days prior to the date of such
termination. If, as to Warmer's failure to acquire fee title to a portion of the
Shopping Center, the terminating party fails to provide the other party with
notice of such termination on or before May 1, 1998, and as to Waremart's
failure to open for business in the Shopping Center, if Tenant fails to provide
Landlord with notice of termination on or before March 1, 1999, that party shall
be deemed to have waived its right to terminate this lease as aforesaid. If for
any reason Waremart does not open for business in the Shopping Center on or
before February 1, 1999, Tenant shall have the one-time right to terminate this
Lease by delivering to Landlord ninety (90) days prior written notice (the
"Termination Notice") exercising such right. If Tenant fails to provide Landlord
with the Termination Notice on or before March 1, 1999, Tenant shall be deemed
to have waived its right to terminate this Lease as a result of Waremart's
failure to open.
26.16 Landlord Waiver. Upon receipt thirty (30) days prior written request
therefore, Landlord shall deliver to Tenant a document in form and content
reasonably satisfactory to Landlord wherein Landlord waives any claim Landlord
may thereafter have to levy against Tenant's furniture, fixtures, equipment or
other personal property
PAGE 53
14
<PAGE> 55
in the Premises and shall deliver such document to Tenant within such thirty
(30) day period.
IN WITNESS WHEREOF, the parties have entered into this Lease on the
respective dates set opposite their signatures below, but this Lease on behalf
of such parties shall be deemed to have been dated as of the date first above
written.
LANDLORD:
PACIFIC REALTY ASSOCIATES, L.P., a
Delaware limited partnership
By PacTrust Realty, Inc.,
a Delaware corporation,
its General Partner
Date: 1/28, 1998 By /s/ Peter F. Bechen
---------------------------------------
Peter F. Bechen
-----------------------------------------
(typed or printed name)
Its President
-------------------------------------
TENANT:
G.I. JOE'S, INC.,
an Oregon corporation
Date: 1/28, 1998 By /s/ Norman Daniels
---------------------------------------
Norman Daniels
-----------------------------------------
(typed or printed name)
Its President & CEO
-------------------------------------
By
---------------------------------------
-----------------------------------------
(typed or printed name)
Its
--------------------------------------
PAGE 54
<PAGE> 56
EXHIBIT F
RENT CALCULATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
DEVELOPMENT COSTS - CURRENT RENT@ 11% RENT PER
SQ. FT.
--------
<S> <C> <C> <C> <C>
BAUGH 2,832,103
A&E 57,910
TIF See Below
TAX 1,685
INTEREST See Below
PERMITS 177,162 3,068,860
RUTAN 444,116
LANDSCAPE 93,771
OPEN SPACE 47,748 585,635
DEVELOPMENT INTEREST 84,566
OFF SITE 267,848
R. E. COMMISSION 110,256
LESS PAY DOWN (500,000)
- ----------------------------------------------------------------------------------------------------------------
TOTAL DEVELOPMENT COSTS 3,617,165 $397,888
- ----------------------------------------------------------------------------------------------------------------
LAND
55,120 SF /.25 = 220,480 SF @ $6.00 1,322,880
11,024 SF USEABLE OPEN SPACE @ $6.00 66,144
- ----------------------------------------------------------------------------------------------------------------
TOTAL LAND VALUE 1,389,024 $152,793
- ----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL RENT $550,681 $9.57
- ------------------------------------------------------------------------------------------------------------------------------
ADD 5% CONTINGENCY ON BAUGH & RUTAN 163,811 $18,019
ADD TIF 171,390 $18,853
- ----------------------------------------------------------------------------------------------------------------
TOTAL CONTINGENCY RENT $36,872
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RENT IF CONTINGENCY & TIF SPENT $587,553 $10.21
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 1
<PAGE> 57
EXHIBIT F
Initial Estimate of Off-Site Improvement Work
and Construction Costs
<TABLE>
<CAPTION>
Description of Work Estimated Cost G.I. Joe's Percentage G.I. Joe's Estimated Cost
(See Attached Exhibit E-1 Share of Costs of Improvements
for Location of Improvements)
<S> <C> <C> <C>
I. Public Street Improvements
A. ALOCLEK DRIVE
1. Signal at Cornell* $ 175,000 11% $ 19,250
2. Left Turn Lanes/Median Modification* 63,500 11% 6,985
3. Addition of Two Right Turn Lanes on Cornell 49,000 11% 5,390
Eastbound
4. Three Lane Road from Cornell to Cornelius Pass 766,500 11% 84,315
5. Signal at Cornelius Pass 175,000 11% 19,250
-------
TOTAL COST $1,229,000 11% $135,190
*If Fairfield as developer of Ronler Green contributes
to cost of items I.A.1 or 2, the total will be reduced
accordingly.
B. BUTLER STREET
1. Signal at Cornell - Note: This is in addition to Allow $ 75,000 11% $ 8,250
previously installed signal. The cost included
with commercial project would be controller/sensor
adjustments and pole, arm and head installation.
2. Add an additional thru/right turn lane west of 35,500 11% 3,905
Cornell
3. Butler Thru Property
a. Five Lane plus Wide Median/Left Turn Lane (West 224,000 11% 24,646
1/4 Section)
b. Four Lane Plus Parking (N. side only) (Mid 1/4 219,000 11% 24,090
Section)
$214,000 $ 23,540
-------- --------
Sub Total $767,500 11% 72,270
c. Three Lane (East 1/2 Section) 175,000 11% 19,250
32,000 11% 3,520
--------- ---------
4. Signal at Cornelius
</TABLE>
PAGE 1
<PAGE> 58
<TABLE>
<S> <C> <C> <C>
5. Add Left Turn Lane Westbound on Amberglen/Old $974,500 11% $107,195
Cornell East of Cornelius Pass
TOTAL
C. CORNELL ROAD: These are additional
improvements that occur other than at Aloclek Road
or Butler.
1. Two Right Turn In and Out Only Intersections 98,000 11% 10,780
2. Add Second Exclusive Left Turn Lane Eastbound at 149,000 11% 16,390
-------- -------
Cornelius Pass
TOTAL $247,000 11% 27,170
D. CORNELIUS PASS ROAD: These are 1/2 street improvements
to complete MSTIP County road project on west side
(adjacent to property).
1. Left Turn Lane Northbound at Aloclek 18,000 11% 1,980
2. Left Turn Lane Northbound at Butler (Included in 0
County Project)
3. Balance of 1/2 street improvements on Cornelius $232,500 11% $ 25,250
-------- --------
Pass Road along property frontage (to Aloclek)
TOTAL $250,500 11% $27,555
E. 231 ST/BASELINE ILLUMINATION: This is a potential Allow $25,000 11% $ 2,750
safety priority index system (SPIS) improvement
required. Requirements unknown.
II. "OFF-SITE" Storm, SANITARY, WATER AND
DRIVE IMPROVEMENTS: "Off-site" is defined as
external to the property boundary or within the property
to provide main line system lineage (see map). This
does not include systems in Butler or Aloclek Drive.
These improvements are included in the Public Street
Improvements.
A. Storm Drain Improvements in Cornelius south of $234,000 11% $25,740
Southern Road
B. Sanitary Sewer and Storm Drain Improvements in 24,000 11% 2,640
Aloclek/Southern Road
</TABLE>
PAGE 2
<PAGE> 59
<TABLE>
<S> <C> <C> <C>
C. North/South Internal Main Drive from Southern Road to $342,000 17% $ 58,140
-------- --------
Butler
TOTAL $600,000 86,520
CONSTRUCTION GRAND TOTAL $3,326,000 $386,380
</TABLE>
NOTES: Verify on-site or off-site tie-ins for storm drainage, sanitary and water
needs other than those provided in above systems. Also add consultant/City fees.
Verify signal/controller locations (C2 costs).
III. The following costs are not included but will be added when determined:
1. Landscaping
2. Entry Features
3. Special Pavement/Intersection Treatment
4. Electrical, Telephone, Cable and Gas System Costs
5. Import/Export or Soil Amendment Costs
6. Water Quality Facilities (to be included in property site improvements)
PAGE 3
<PAGE> 60
EXHIBIT A
TO
CROSSROADS AT ORENCO STATION LEASE
[MAP OF ORENCO COMMERCIAL CENTER HERE]
<PAGE> 61
EXHIBIT B
Shopping Center Legal Description
The Shopping Center Legal Description is Comprised of
Orenco Commercial Tracts 3, 4 and 5
<PAGE> 62
OCTOBER 14, 1997
LEGAL DESCRIPTION
ORENCO COMMERCIAL TRACT 3 JOB NO. 381-010
A TRACT OF LAND LOCATED IN THE SOUTHWEST ONE-QUARTER OF SECTION 26, TOWNSHIP 1
NORTH, RANGE 2 WEST, WILLAMETTE MERIDIAN, AND ALSO LOCATED IN THE ISAAC BUTLER
D.L.C. NO. 48, IN THE CITY OF HILLSBORO, WASHINGTON COUNTY, OREGON, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING ON THE SOUTH RIGHT OF WAY LINE OF N.W. CORNELL ROAD (COUNTY ROAD 2662,
BEING 114.00 FEET WIDE) AT ITS POINT OF INTERSECTION WITH THE CENTERLINE OF
VACATED N.W. CORNELL ROAD (COUNTY ROAD 1149); THENCE NORTH 86(degree)10'30"
EAST, ALONG SAID CENTERLINE, 1508.04 FEET; THENCE NORTH 03(degree)49'30" EAST,
30.32 FEET TO A POINT ON A SPIRAL CURVE ON THE SOUTH LINE OF THAT TRACT OF LAND
DESCRIBED IN DEED DOCUMENT NO. 84-035094, WASHINGTON COUNTY DEED RECORDS, SAID
POINT BEING THE TRUE POINT OF BEGINNING; THENCE NORTH 03(degree)49'30" WEST,
146.01 FEET; THENCE NORTH 86(degree)10'32" EAST, 6.00 FEET; THENCE NORTH
03(degree)49'30" WEST, 190.00 FEET; THENCE SOUTH 86(degree)10'30" WEST, 71.67
FEET; THENCE NORTH 03(degree)49'30" WEST, 404.50 FEET; THENCE NORTH
86(degree)10'30" EAST, 418.00 FEET; THENCE NORTH 03(degree)49'30" WEST, 120.56
FEET; THENCE NORTH 75(degree)35'18" EAST, 40.69 FEET; THENCE SOUTH
03(degree)49'30" EAST, 831.18 FEET TO THE SOUTH LINE OF THE LAND DESCRIBED IN
DEED DOCUMENT NO. 84-035094; THENCE WESTERLY, ALONG SAID SOUTH LINE, 7.51 FEET
ON THE ARC OF A NONTANGENT 686.20 FOOT RADIUS CURVE CONCAVE TO THE NORTH THROUGH
A CENTRAL ANGLE OF 00(degree)37'37" (THE LONG CHORD BEARS SOUTH 69(degree)49'51"
WEST, 7.51 FEET) TO A POINT OF SPIRAL CURVATURE; THENCE 386.80 FEET MORE OR LESS
ON THE ARC OF A SPIRAL CURVE TO THE RIGHT (THE LONG CHORD BEARS SOUTH
80(degree)56'39" WEST, 386.74 FEET TO THE TRUE POINT OF BEGINNING, CONTAINING
313,870 SQUARE FEET, OR 7.21 ACRES, MORE OR LESS.
REFERENCE SURVEY- PLAT OF COUNTY ROAD NUMBER 2662, WASHINGTON COUNTY SURVEY
RECORDS.
<PAGE> 63
OCTOBER 13, 1997
LEGAL DESCRIPTION
ORENCO COMMERCIAL TRACT 4 JOB NO. 381-010
A TRACT OF LAND LOCATED IN THE SOUTHWEST ONE-QUARTER OF SECTION 26, TOWNSHIP 1
NORTH, RANGE 2 WEST, WILLAMETTE MERIDIAN, AND ALSO LOCATED IN THE ISAAC BUTLER
D.L.C. NO. 48, IN THE CITY OF HILLSBORO, WASHINGTON COUNTY, OREGON, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING ON THE SOUTH RIGHT OF WAY LINE OF N.W. CORNELL ROAD (COUNTY ROAD 2662,
BEING 114.00 FEET WIDE) AT ITS POINT OF INTERSECTION WITH THE CENTERLINE OF
VACATED N.W. CORNELL ROAD (COUNTY ROAD 1149); THENCE NORTH 86(degree)10'30"
EAST, ALONG SAID CENTERLINE, 847.86 FEET TO THE TRUE POINT OF BEGINNING; THENCE
NORTH 03(degree)49'30" WEST, 64.78 FEET; THENCE NORTH 10(degree)12'41" EAST,
74.94 FEET; THENCE NORTH 03(degree)49'30" WEST, 264.47 FEET; THENCE NORTH
34(degree)03'05" EAST, 467.32 FEET; THENCE NORTH 86(degree)10'30" EAST, 212.15
FEET TO A POINT OF CURVATURE; THENCE 39.18 FEET ALONG THE ARC OF A 25.00 FOOT
RADIUS CURVE TO THE LEFT THROUGH A CENTRAL ANGLE OF 89(degree)47'49" (THE LONG
CHORD BEARS NORTH 41(degree)16'35" EAST, 35.29 FEET); THENCE NORTH
03(degree)37'18" WEST, 76.10 FEET TO A POINT OF CURVATURE; THENCE 23.75 FEET
ALONG THE ARC OF A 60.00 FOOT RADIUS CURVE TO THE RIGHT THROUGH A CENTRAL ANGLE
OF 22(degree)40'34" (THE LONG CHORD BEARS NORTH 07(degree)30'47" EAST, 23.59
FEET); THENCE NORTH 18(degree)51'00" EAST, 20.83 FEET; THENCE 168.65 FEET ALONG
THE ARC OF A NONTANGENT 358.00 FOOT RADIUS CURVE CONCAVE TO THE NORTH THROUGH A
CENTRAL ANGLE OF 26(degree)59'27" (THE LONG CHORD BEARS SOUTH 82(degree)55'12"
EAST, 167.09 FEET); THENCE NORTH 83(degree)35'04" EAST, 174.86 FEET; THENCE
NORTH 86(degree)01'45" EAST, 115.25 FEET; THENCE NORTH 75(degree)35'12" EAST,
3.39 FEET; THENCE SOUTH 03(degree)49'30" EAST, 120.56 FEET; THENCE SOUTH
86(degree)10'30" WEST, 418.00 FEET; THENCE SOUTH 03(degree)49'30" EAST, 404.50
FEET; THENCE NORTH 86(degree)10'30" EAST, 71.67 FEET; THENCE SOUTH
03(degree)49'30" EAST, 190.00 FEET; THENCE SOUTH 86(degree)10'32" WEST, 6.00
FEET; THENCE SOUTH 03(degree)49'30" EAST, 146.01 FEET TO A POINT ON A SPIRAL
CURVE ON THE SOUTH LINE OF THAT TRACT OF LAND DESCRIBED IN DEED DOCUMENT NO.
84-035094; THENCE 3.53 FEET ALONG THE ARC OF A NONTANGENT SPIRAL CURVE CONCAVE
TO THE NORTH (THE SPIRAL CHORD BEARS SOUTH 80(degree)56'42" WEST, 3.53 FEET) TO
THE NORTH RIGHT OF WAY LINE OF N.W. CORNELL ROAD (COUNTY ROAD NO. 1149, BEING
60.00 FEET WIDE); THENCE, ALONG SAID NORTH RIGHT OF WAY LINE, SOUTH
86(degree)10'30" WEST, 528.32 FEET TO THE WEST END OF THE UNVACATED PORTION OF
SAID COUNTY ROAD NO. 1149; THENCE SOUTH 03(degree)49'30" EAST, 30.00 FEET TO THE
CENTERLINE OF SAID COUNTY ROAD NO. 1149; THENCE SOUTH 86(degree)10'30"
<PAGE> 64
WEST, 128.34 FEET TO THE TRUE POINT OF BEGINNING, CONTAINING 458,422 SQUARE FEET
OR 10.52 ACRES, MORE OR LESS.
REFERENCE SURVEY- PLAT OF COUNTY ROAD NUMBER 2662, WASHINGTON COUNTY SURVEY
RECORDS.
<PAGE> 65
OCTOBER 13, 1997
LEGAL DESCRIPTION
ORENCO COMMERCIAL TRACT 5 JOB NO. 381-010
A TRACT OF LAND LOCATED IN THE SOUTHWEST ONE-QUARTER OF SECTION 26, TOWNSHIP 1
NORTH, RANGE 2 WEST, WILLAMETTE MERIDIAN, AND ALSO LOCATED IN THE ISAAC BUTLER
D.L.C. NO. 48, IN THE CITY OF HILLSBORO, WASHINGTON COUNTY, OREGON, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING ON THE SOUTHEASTERLY RIGHT OF WAY LINE OF N.W. CORNELL ROAD (COUNTY
ROAD 2662) AT ENGINEER'S STATION 78+32.62/57.00 FEET RIGHT AS SHOWN ON THE PLAT
OF COUNTY ROAD NO. 2662, WASHINGTON COUNTY SURVEY RECORDS; THENCE CONTINUING ON
SAID RIGHT OF WAY LINE, NORTH 30(degree)27'20" EAST, 558.02 FEET; THENCE,
LEAVING SAID RIGHT OF WAY LINE, NORTH 77(degree)09'46" EAST, 38.58 FEET; THENCE
SOUTH 56(degree)07'48" EAST, 182.44 FEET TO A POINT OF CURVATURE; THENCE 83.07
FEET ALONG THE ARC OF A 358.00 FOOT RADIUS CURVE TO THE LEFT THROUGH A CENTRAL
ANGLE OF 13(degree)17'41" (THE LONG CHORD BEARS SOUTH 62(degree)46'39" EAST,
82.88 FEET); THENCE SOUTH 18(degree)51'00" WEST, 20.83 FEET TO A POINT OF
CURVATURE; THENCE 23.75 FEET ALONG THE ARC OF A 60.00 FOOT RADIUS CURVE TO THE
LEFT THROUGH A CENTRAL ANGLE OF 22(degree)40'34" (THE LONG CHORD BEARS SOUTH
07(degree)30'46" WEST, 23.59 FEET); THENCE SOUTH 03(degree)37'18" EAST, 76.10
FEET TO A POINT OF CURVATURE; THENCE 39.18 FEET ALONG THE ARC OF A 25.00 FOOT
RADIUS CURVE TO THE RIGHT THROUGH A CENTRAL ANGLE OF 89(degree)47'49" (THE LONG
CHORD BEARS SOUTH 41(degree)16'35" WEST, 35.29 FEET); THENCE SOUTH
86(degree)10'30" WEST, 212.15 FEET; THENCE SOUTH 34(degree)03'05" WEST, 467.32
FEET; THENCE SOUTH 03(degree)49'30" EAST, 264.47 FEET; THENCE SOUTH
10(degree)12'41" WEST, 74.94 FEET; THENCE SOUTH 03(degree)49'30" EAST, 23.28
FEET; THENCE SOUTH 86(degree)10'30" WEST, 45.00 FEET TO A POINT OF CURVATURE;
THENCE 313.47 FEET ALONG THE ARC OF A 328.00 FOOT RADIUS CURVE TO THE RIGHT
THROUGH A CENTRAL ANGLE OF 54(degree)45'28" (THE LONG CHORD BEARS NORTH
66(degree)26'46" WEST, 301.68 FEET); THENCE NORTH 39(degree)04'02" WEST, 61.34
FEET; THENCE NORTH 04(degree)53'28" EAST, 27.77 FEET TO THE SOUTHEASTERLY RIGHT
OF WAY LINE OF SAID N.W. CORNELL ROAD; THENCE CONTINUING ON SAID RIGHT OF WAY
LINE, 483.82 FEET ALONG THE ARC OF A NONTANGENT 1507.00 FOOT RADIUS CURVE TO THE
LEFT THROUGH A CENTRAL ANGLE OF 18(degree)23'41" (THE LONG CHORD BEARS NORTH
39(degree)39'10" EAST, 481.74 FEET) TO THE POINT OF BEGINNING, CONTAINING
256,837 SQUARE FEET, OR 5.90 ACRES MORE OR LESS.
<PAGE> 66
REFERENCE SURVEY- PLAT OF COUNTY ROAD NUMBER 2662, WASHINGTON COUNTY SURVEY
RECORDS.
<PAGE> 67
EXHIBIT C
TO
CROSSROADS AT ORENCO STATION LEASE
SCOPE OF LANDLORD'S WORK
AND TENANT'S WORK
I. LANDLORD'S WORK
A. Design and Construction of Tenant's Building
1. Description of Landlord's Work. Landlord shall furnish all labor
and materials to construct and complete in a good, workmanlike manner the
Tenant's Building in a dry, "vanilla shell" condition including the following:
(i) interior walls - framed and sheetrocked; (ii) floors - hard troweled
concrete; (iii) ceilings - exposed framing and joist bay panels; (iv) doors and
windows, including doors for interior offices and bathrooms; (v) electrical,
service, panels, wall plugs, switches, j-boxes, overhead lights, and room
fluorescent ceiling fixtures; (vi) plumbing, water service with separate meter,
bibbs, stub outs, under-slab vents, and fixtures for two bathrooms; (vii)
mechanical, HVAC packaged units, roof penetrations, gas piping, water heater,
and associated vents; (viii) fire protection, as required per code, including
emergency lighting, exit signs, smoke and heat detectors, and sprinkler system
with stub-outs into Tenant improvement areas. Landlord's work shall not include:
finishes, trade fixtures, generator and switching, low-voltage wiring,
communication equipment, security system, floor electrical, architectural
specialties, additional items described in Tenant's Plans, and any modification
or addition to Landlord's Work required as the result of Tenant's specific use
of Tenant's Building, all as described in the Final Plans (as hereinafter
defined) for the G.I. Joe's store ("Tenant's Store). Such work is hereinafter
referred to as "Landlord's Work". Landlord shall supervise and direct all
Landlord's Work. Landlord shall be solely responsible for all construction means
and methods, techniques, sequences and procedures, and for coordinating all
portions of the Landlord's Work. All Landlord's Work shall be performed in
accordance with the Lease to which this Exhibit C is attached.
2. Prototype Plans and Shell Plans. Landlord has previously received
Tenant's prototype plans and specifications for a typical G.I. Joe's store, and
Landlord provided Tenant with a Site Plan of the Shopping Center, and exterior
elevations and Shell Plans for Tenant's Store. Tenant hereby confirms that
Tenant has reviewed and approved the Shell Plans and elevations.
3. Final Plans. The Final Plans shall consist of the Shell Plans and
Improvement Plans including any modifications mutually agreed upon by Tenant and
Landlord. Final Plans shall be prepared by Landlord's architect and submitted to
Landlord
PAGE 1
<PAGE> 68
and Tenant for approval. Landlord and Tenant shall each have five (5) business
days following receipt of the Final Plans to approve or disapprove the Final
Plans. Any disapproval by either Landlord or Tenant must be accompanied by a
specific description of the revisions that the disapproving party would require
in order to approve the Final Plans. Landlord's architect shall incorporate into
the Final Plans any suggested revisions received from Landlord or Tenant and
resubmit the Final Plans to both Landlord and Tenant for approval within five
(5) days following receipt of a notice of disapproval. Any site plan included in
the Final Plans shall conform generally to Exhibit "A" of this Lease. The Final
Plans shall include without limitation plans for grading, driveways, parking
areas, exterior elevations, and landscaping, as well as the Tenant's Store. The
Tenant's Store shall contain approximately the number of square feet as set
forth in this Lease. The Final Plans shall set forth the construction to be done
by each party, it being understood that trade fixtures, furnishings and
equipment, and other improvements provided in Tenant's Plans, shall be the
responsibility of the Tenant.
4. Approvals. Any disapproval or proposed revisions hereunder shall be
on reasonable grounds and supported by a detailed written statement thereof. An
untimely, unreasonable or unsupported disapproval or a failure to respond within
the time allowed shall be deemed an approval for all purposes hereof. Time is of
the essence hereof.
5. Within thirty (30) days after approval of the Final Plans, Landlord
shall select a general contractor who shall use commercially reasonable efforts
to obtain bids from at least three (3) subcontractors in each category of
Landlord's Work, all of which subcontractors shall be mutually acceptable to
Landlord and Tenant. Landlord's Work shall be performed by the lowest
responsible bidder. Landlord shall provide Tenant with copies of all bids for
Tenant's Building delivered by subcontractors.
6. Change Orders. Any changes to the Final Plans desired by Tenant
subsequent to the approval of such plans by both parties shall be requested in
writing. Landlord agrees to use its best efforts to incorporate plan changes
requested in writing by Tenant and to notify Tenant immediately of any cost
increase or potential delay caused by such changes. On the Delivery Date, Tenant
shall reimburse Landlord in cash for the net cost increase, if any, caused by
plan changes requested in writing by Tenant. If the net effect of Tenant's
changes is a cost savings, the Development Costs and Fixed Minimum Monthly Rent
shall be adjusted as set forth in Exhibit "F" of the Lease.
B. Design and Construction of Common Area
1. All Common Areas within the Core Area of the Shopping Center (as shown
on the Site Plan) shall be appropriately completed (including paving and
striping of parking areas, installation of light standards and landscapings,
etc.) in accordance with the ECR.
PAGE 2
<PAGE> 69
C. General Provisions Concerning Landlord's Work.
If Tenant requests any changes or modifications to Landlord's Work, or if
Tenant requests that Landlord delay construction of any improvements to
accommodate Tenant's Work, Landlord shall advise Tenant in writing of the date
the Premises would otherwise be available for occupancy and Tenant's obligation
to pay Rent and all other sums due under the Lease shall commence on the earlier
of: (i) thirty (30) days after such date, notwithstanding that Tenant has not
opened for business and/or the Landlord's Work is not completed, or (ii) the
date on which Tenant first opens for business in the Premises.
Landlord's Work shall be deemed to be "substantially completed" on the date
that Landlord's architect certifies to Landlord in writing (the "Architect's
Certificate") that all work to be performed by Landlord pursuant to this Exhibit
C is substantially complete, except for punch list items and construction items
to be completed as part of the Shopping Center and/or part of the Premises that
would not prevent Tenant from performing Tenant's Work, installing fixtures and
equipment in the Premises, or opening for business in the Premises, and except
for any of Landlord's Work which cannot be feasibly performed before Tenant
completes Tenant's Work, fixturing, or decorating.
Landlord shall provide Tenant with a copy of the Architect's Certificate,
and Tenant shall have ten (10) days from receipt of such certificate within
which to arrange a joint inspection of the Premises with Landlord, at which time
a written punch list shall be prepared specifying those items of Landlord's
Work, if any, which have not been satisfactorily completed as agreed upon by
Landlord and Tenant based on such joint inspection (the "Punch List Work").
Landlord shall have thirty (30) days after receipt of the Punch List Work to
complete the Punch List Work, or a reasonable time thereafter if any item of
Punch List Work is of such a nature that it cannot be completed within such
thirty (30) day period, provided Landlord completes such items of Punch List
Work in good faith and with reasonable diligence.
Upon the last to occur of the substantial completion of the Premises or the
completion of the Punch List Work, Tenant shall conclusively be deemed to have
accepted the Premises in their then existing condition, and Tenant hereby waives
any right or claim arising out of the condition of the Premises, the
appurtenances thereto, or the improvements, or equivalent, therein, including
Landlord's Work, and Landlord shall not be liable for any latent or patent
defects therein.
Tenant shall make no changes, modifications, or alterations in Landlord's
Work without the prior written consent of Landlord. Tenant shall pay, prior to
the commencement of Landlord's Work, any additional charges, expenses, or costs,
including fees for architectural, engineering, or other similar services,
arising by reason of any changes, modifications, or alterations in Landlord's
Work made at the request of Tenant.
PAGE 3
<PAGE> 70
II. TENANT'S WORK
A. Design and Construction of Tenant's Work.
1. Description of Work. Tenant shall furnish all labor and materials
to construct and complete in a good, workmanlike manner the work described in
Tenant's Plans (as hereinafter defined) for Tenant's Building. Such work is
hereinafter referred to as "Tenant's Work". Tenant shall supervise and direct
all Tenant's Work. Tenant shall be solely responsible for all construction means
and methods, techniques, sequences and procedures, and for coordinating all
portions of the Tenant's Work. All Tenant's Work shall be performed in
accordance with the Lease to which this Exhibit C is attached.
Upon delivery of possession of Tenant's Building, Tenant, at its own
expense, shall immediately proceed with due diligence to perform Tenant's Work
and install Tenant's personal property, trade fixtures, equipment, and
merchandise ("Tenant's Property") in Tenant's Building, all without interference
with other work, if any, being done in the Shopping Center. Tenant's Work, and
the installation of Tenant's Property, shall be performed in compliance with all
reasonable rules which Landlord, its architect,, and its contractors may make.
Tenant shall, upon final completion of Tenant's Work, furnish Landlord with
copies of all certificates and approvals relating to any work or installations
done by Tenant that may be required by any governmental authority or insurance
company. Landlord shall have no responsibility for any loss of or damage to any
of Tenant's Property so installed or left in Tenant's Building. Tenant's entry
shall be subject to all of the provisions of the Lease other than the payment of
Rent and other charges to Landlord; at all times after such entry, Tenant shall
maintain or cause to be maintained in effect insurance complying with the Lease.
2. Tenant's Plans. Tenant shall deliver to Landlord a set of plans and
specifications ("Tenant's Plans") for Tenant's Work. Tenant's Plans shall
include any modifications mutually agreed upon by Tenant and Landlord. Tenant's
Plans shall be prepared by Tenant's architect and submitted to Landlord for
approval. Landlord shall have ten (10) business days following receipt of
Tenant's Plans to approve or disapprove Tenant's Plans. Any disapproval by
Landlord must be accompanied by a specific description of the revisions that the
disapproving party would require in order to approve Tenant's Plans. Tenant's
architect shall incorporate into Tenant's Plans any suggested revisions received
from Landlord and resubmit Tenant's Plans to both Landlord and Tenant for
approval within five (5) days following receipt of a notice of disapproval.
Tenant's Plans shall include without limitation plans for all interior
improvements to Tenant's Building, including, but not limited to wall paints or
coverings, floor coverings, and any modification to the HVAC, electrical or
plumbing systems required as the result of Tenant's use of Tenant's Building.
Tenant's Plans shall include the description and general location of Tenant's
trade fixtures, furnishings and equipment.
PAGE 4
<PAGE> 71
3. Approvals. Any disapproval or proposed revisions hereunder shall be
on reasonable grounds and supported by a detailed written statement thereof. An
untimely, unreasonable or unsupported disapproval or a failure to respond within
the time allowed shall be deemed an approval for all purposes hereof. Time is of
the essence hereof.
4. Change Orders. Any changes to Tenant's Plans desired by Tenant
subsequent to the approval of such plans by both parties shall be requested in
writing. Tenant agrees to use its best efforts to incorporate plan changes
requested in writing by Landlord and to notify Landlord immediately of any
potential delay caused by such changes.
B. General Provisions Concerning Tenant's Work.
Any roof penetrations made by Tenant or its contractors shall first be
approved by and then patched by Landlord's roofing contractor, and Tenant shall
reimburse to Landlord the cost thereof.
All of Tenant's Work shall be designed by a competent licensed architect
and shall be performed under the supervision of such architect by financially
sound and bondable contractors of good reputation in accordance with plans and
specifications approved in writing by Landlord before commencement of any work.
All contractors performing Tenant's Work shall be subject to Landlord's prior
approval, and Tenant shall not use any contractor not approved in writing by
Landlord. In connection with its consent, Landlord may require that any
contractor, or major subcontractors, provide payment and completion bonds in
such amounts and with sureties acceptable to Landlord. All work shall be
performed in a good and workmanlike manner, diligently prosecuted to completion,
and using new materials of good quality. Tenant shall notify Landlord at least
twenty (20) days prior to the commencement of any work, so that Landlord may
post, file, and/or record a notice of non-responsibility or other notice
required under applicable mechanics' lien laws. Upon completion of any work
hereunder, Tenant shall record in the Office of the Recorder of Washington
County, Oregon, a notice of completion or any other notice required or permitted
by applicable mechanics' lien laws to commence the running of, or terminate, any
period for the filing of liens or claims, and shall deliver to Landlord any
certificate of occupancy or other equivalent evidence of completion of such work
in accordance with the requirements of applicable law. Tenant's Work shall be
performed in compliance with all applicable laws, codes, rules, and regulations
of all governmental and quasi-governmental authorities with jurisdiction. All
contractors performing any such work shall maintain insurance which meets the
requirements of Section 6.1 of the Lease.
With respect to any work performed by or at the direction of Tenant, Tenant
shall pay, or cause to be paid, all sums, costs, and expenses due for, or
purporting to be due for, any work, labor, services, materials, supplies, or
equipment furnished, or claimed to be furnished, to or for Tenant and shall keep
Tenant's Building and the Shopping Center free of all mechanics', materialmen's
or other liens arising therefrom. Tenant may contest any such lien, if Tenant
first procures and posts, records, and/or files a bond or bonds issued by a
PAGE 5
<PAGE> 72
financially sound, qualified corporate surety, in conformance with the
requirements of applicable law for the release of such lien from Tenant's
Building and/or Shopping Center. Tenant shall pay and fully discharge any
contested claim of lien within five (5) days after entry of final judgment
adverse to Tenant in any action or enforce or foreclose the same;
notwithstanding any such contest, Landlord shall have the absolute right at any
time to pay any lien imposed hereunder if in Landlord's reasonable good faith
judgment such payment is necessary to avoid the forfeiture, involuntary sale or
loss of any interest of Landlord or any other tenant or owner in the Shopping
Center, or any portion thereof. Tenant shall indemnify, defend, protect, and
hold Landlord harmless of and from any and all loss, cost, liability, damage,
injury, or expense (including attorneys' fees) arising out of or in connection
with claims or liens for work, labor, services, materials, supplies, or
equipment furnished or claimed to be furnished to or for Tenant in, upon, or
about Tenant's Building or the Shopping Center.
PAGE 6
<PAGE> 73
EXHIBIT D
TO
CROSSROADS AT ORENCO STATION LEASE
FORM OF CERTIFICATE
[Date]
PacTrust
Attn: General Counsel/COS-02
15350 S.W. Sequoia Pkwy., #300
Portland, OR 97224
Gentlemen:
Re: Unit COS-02, Crossroads Shopping Center at Orenco Station Hillsboro, Oregon
(the "Premises")
On or about __________, 199__, G.I. Joe's, Inc., an Oregon corporation, dba
"G.I. Joe's," as Tenant, and Pacific Realty Associates, L.P., a Delaware limited
partnership, as Landlord, entered into a Lease for the Premises.
Section 3.2 of the Lease requires that within fifteen (15) days following
the Term Commencement Date as defined therein, Tenant shall deliver a
certificate to Landlord confirming certain matters.
Therefore, by execution of this letter, Tenant confirms the following
facts:
1. That the Term Commencement Date is _________, 199__, that Tenant has
accepted the Premises and that the Premises are in the condition required by the
Lease;
2. That the Original Term of the at midnight on ________, 19__; and
3. That the payment of Rent commenced or, pursuant to the Lease, will
commence on ___________, 199__.
Very truly yours,
G.I. JOE'S, INC.,
an Oregon corporation
By:___________________________________________
Its:__________________________________________
By:___________________________________________
Its:__________________________________________
PAGE 1
<PAGE> 74
EXHIBIT E
TO
CROSSROADS AT ORENCO STATION LEASE
RULES AND REGULATIONS
The following Rules and Regulations shall remain in full force and effect
until Tenant is notified in writing by Landlord of any changes or amendments to
the Rules and Regulations.
(1) Landlord's employees or agents shall not perform any work or do
anything outside of their regular duties for Tenant, unless under special
instructions from Landlord.
(2) All loading and unloading of goods, merchandise, supplies, and all
other items used, held, or stored by Tenant in connection with the Premises
shall be done only through the rear door of the Premises.
(3) No aerial or satellite dishes or antennas shall be erected on the roof
or exterior walls of the Premises or the Building of which the Premises are a
part without Landlord's consent not to be unreasonably withheld.
(4) Landlord reserves the right to require Tenant to discontinue any
display or demonstration in or from the Premises which, in Landlord's sole
opinion, interferes with the use of the public passageways of the Shopping
Center or constitutes a nuisance or an unhealthy or unsafe condition.
(5) Tenant shall at all times maintain an adequate number of suitable fire
extinguishers in good working order in the Premises for use in case of local
fires, including electrical or chemical fires.
(6) Tenant shall immediately notify Landlord of any breakage, injury, fire,
or disorder which comes to its attention which occurs in or about the Premises
or any of the Common Areas.
(7) Tenant shall not cause or permit any unusual or objectionable odors to
be produced or emanate from the Premises.
(8) Tenant shall not permit the use in the Premises of any device or
instrument, such as a sound reproduction system, television sets, phonographs or
radios or excessively bright, changing, flashing, flickering, moving or neon
lights, or other lighting devices or any similar devices, intended to be audible
or visible beyond the confines of the Premises, nor shall Tenant permit any act
or thing upon the Premises disturbing to normal sensibilities or other tenants
in the Shopping Center.
PAGE 1
<PAGE> 75
(9) Tenant shall not, at any time, place any security gate or grille in
front of the entrance doors or storefront of the Premises.
(10) Canvassing, soliciting, and peddling in the Shopping Center is
prohibited, and Tenant shall not encourage same. Tenant shall not solicit
business in the parking area or other Common Areas, or distribute handbills or
other advertising matter in or upon automobiles parked in the Shopping Center,
provided that the foregoing shall not prohibit Tenant from using direct mail
solicitation or advertising in the regular communications media.
(11) Landlord reserves the right to exclude from the Shopping Center at any
time disorderly persons and any person who does not have sufficient reason for
being on or about the Shopping Center. If requested in writing by Landlord,
Tenant shall promptly furnish to Landlord an up-to-date list of Tenant's
employees and give reasonable advance notice to Landlord of invitees expected
outside of regular business hours.
(12) Employees of Landlord are prohibited from receiving any packages or
other articles delivered to the Shopping Center for Tenant and, should any such
employee receive any such package or article, he or she in so doing shall be the
agent of Tenant and not Landlord.
(13) Tenant shall insure that all entrance doors in the Premises shall be
locked when the Premises are not in use.
(14) Landlord shall not be responsible to Tenant for the non-observance or
violation of any of these Rules and Regulations at any time by any other tenant
of the Shopping Center.
(15) Tenant shall furnish and install all light bulbs for the Premises.
(16) Tenant and Tenant's employees shall park their cars only in those
portions of the parking areas which may be designated for that purpose by
Landlord from time to time. If requested in writing by Landlord, Tenant shall
promptly furnish Landlord with the automobile license numbers of the automobiles
used by Tenant and Tenant's employees and shall require its employees to place a
sticker on their vehicles indicating their right to park in the parking area if
such stickers are provided by Landlord. Tenant hereby authorizes Landlord to
remove or cause to be removed from the Shopping Center any of Tenant's car or
cars belonging to Tenant's employees which are not parked in designated areas.
Any such removal shall be at Tenant's sole cost and expense. Tenant hereby
waives and releases Landlord and hereby indemnifies and agrees to hold Landlord
harmless from all claims, liabilities, costs, and expenses which may result or
arise from such unauthorized parking.
(17) Tenant shall not place, hang, tape, install, or otherwise affix any
paper or other signage in or on the glass doors, show windows, or other
storefront areas of the Premises
PAGE 2
<PAGE> 76
unless previously approved by Landlord, which approval shall not be unreasonably
withheld.
(18) Landlord may, upon written request by Tenant, waive the compliance by
Tenant of any of the foregoing Rules and Regulations, provided that (i) no
waiver shall be effective unless signed by Landlord or Landlord's authorized
agent, (ii) any such waiver shall not relieve Tenant from the obligation to
comply with such Rule or Regulation in the future unless expressly consented to
by Landlord, and (iii) no waiver granted to Tenant shall relieve any other
tenant from the obligation of complying with the foregoing Rules and
Regulations, unless such other tenant has received a similar waiver in writing
from Landlord.
(19) The term "Tenant" as used herein shall also mean, in addition to the
Tenant under the Lease, any sublessee, assignee, agent, servant, contractor,
employee, invitee, or licensee of Tenant. All said parties are subject to
compliance with these Rules and Regulations.
PAGE 3
<PAGE> 77
EXHIBIT F
TO
CROSSROADS AT ORENCO STATION LEASE
DETERMINATION OF FIXED MINIMUM MONTHLY RENT
1. Determination of Fixed Minimum Monthly Rent based on Cost of Development.
1.1 The Fixed Minimum Monthly Rent for the first sixty (60) months of the
Original Term shall be the sum of (i) eleven percent (11%) of the value of the
land on which the Premises is located, (ii) eleven percent (11 %) of the actual
Development Costs for the Premises and all improvements thereon (as defined
below) and (iii) the sum of (A) Tenant's Proportionate Share of the cost of the
real property dedicated by Landlord as Usable Open Space at Six Dollars ($6.00)
per square foot and (B) all costs incurred by Landlord in the development and
landscaping of such Usable Open Space, less Tenant's Share of Development Costs,
as hereinafter defined. The Fixed Minimum Monthly Rent is based upon the
assumption that the foregoing costs will be as follows:
1.1.1 Land value (including Usable Open Space) of $1,389,024.00 based
on a rate of $6.00 per square foot for the Premises Parcel [231,504 square
feet]; and
1.1.2 Development Costs of $4,452,366.00.
As used herein, "Development Costs" shall include the following:
architectural and engineering fees, soil testing, surveys, site work, pro rata
share of off-site improvement costs per Addendum No. 1 to this Exhibit F,
construction costs for Landlord's Work (including costs of developing and
landscaping the Usable Open Space), permits, construction period interest at
nine percent (9%) per annum through the Term Commencement Date, taxes and
insurance, any other reasonable costs directly related thereto, and any real
estate commissions paid in procuring this Lease.
1.2. If the chosen bid for construction of Landlord's Work causes
Development Costs to exceed Four Million Four Hundred Fifty-Two Thousand Three
Hundred Sixty-Six Dollars ($4,452,366.00) (including Landlord's most current
good faith estimate of other outstanding items to be included as Development
Costs), Tenant shall have the right to cancel this Lease by giving written
notice to Landlord within fifteen (15) days after the date of Landlord's receipt
and delivery of same to Tenant of the last bids for Landlord's Work. If Tenant
does not timely cancel this Lease, then Tenant shall be deemed to have elected
to continue this Lease in effect at the increased rental rate determined in
Section 1.5 below to reflect the increased Development Costs. Tenant's right of
cancellation shall be subject to Landlord's right within fifteen (15) days after
receipt of any such notice of written cancellation from the Tenant to elect, by
written notice to Tenant, to assume and pay the
PAGE 1
<PAGE> 78
additional Development Costs in excess of Four Million Four Hundred Fifty-Two
Thousand Three Hundred Sixty-Six Dollars ($4,452,366.00) in which case Tenant's
notice of cancellation shall be automatically voided and this Lease shall
continue in full force and effect, but the Fixed Minimum Monthly Rent shall be
based upon Development Costs of Three Million Nine Hundred Fifty-Two Thousand
Three Hundred Sixty-Six Dollars ($3,952,366.00) instead of the actual
Development Costs.
1.3. If after a bid is chosen for construction of Landlord's Work, Landlord
requests a change order, the monetary cost of which results in Development Costs
exceeding Four Million Four Hundred Fifty-Two Thousand Three Hundred Sixty-Six
Dollars ($4,452,366.00) the Fixed Minimum Monthly Rent shall not be increased
pursuant to Section 1.4 below to reflect the increased Development Costs as a
result of such change order unless Landlord has obtained Tenant's prior written
consent to such change order. Prior to approving any necessary change order (as
determined by Landlord in its reasonable discretion), the monetary cost of which
will increase Development Costs by more than $5,000, on the Building or $15,000
on Common Area, Landlord shall use its best efforts to notify (by telephone or
fax) Tenant's construction representative (who will be designated by Tenant
prior to commencement of construction) of such change order. If Tenant's
construction representative notifies Landlord of an objection to the change
order and, provided the construction schedule is not delayed, Landlord will
negotiate in good faith with Tenant to resolve Tenant's objection. Prior to
approving any change order which is not a necessary change order, if the
monetary cost of such change order will increase Development Costs by more than
$5,000, on the Building or $15,000 on Common Area, Landlord shall not consent to
such change order unless Landlord has obtained Tenant's prior written consent to
such change order which Tenant shall not unreasonably withhold.
1.4 Should the actual Development Costs be less than or exceed Four Million
Four Hundred Fifty-Two Thousand Three Hundred Sixty-Six Dollars ($4,452,366.00)
but subject to Sections 1.2 and 1.3 regarding responsibility for increases in
the actual Development Costs, then the parties shall enter into a lease
modification agreement decreasing or increasing the annual Fixed Minimum Monthly
Rent set for Lease Years 1-5 by an amount equal to eleven percent (11%)
multiplied by the difference between the actual Development Costs and Four
Million Four Hundred Fifty-Two Thousand Three Hundred Sixty-Six Dollars
($4,452,366.00) (and the annual Fixed Minimum Monthly Rent for Lease Years 6-10
and Lease Years 11-15 shall be similarly adjusted to maintain a ten percent
(10%) increase in Fixed Minimum Monthly Rent from Lease Years 1-5 to Lease Years
6-10 and from Lease Years 6-10 to Lease Years 11-15);
1.5 Notwithstanding the foregoing, Tenant's Fixed Minimum Monthly Rent
shall not exceed Forty Eight Thousand Nine Hundred Sixty-Three Dollars
($48,963.00) per month unless Landlord and Tenant agreed upon a higher rent
after the preconstruction bids were completed.
PAGE 2
<PAGE> 79
2. Payment of Tenant's Share of Development Costs.
Tenant agrees that within thirty (30) days of receipt from Landlord of
written notice that Landlord has completed at least fifty percent (50%) of
Landlord's Work, which notice shall be accompanied by the certificate of
Landlord's architect certifying such completion and an accounting and
itemization of such portion of Landlord's Work, Tenant shall deliver to Landlord
by wire transfer the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) as
Tenant's contribution to the Development Costs. Within thirty (30) days of
receipt by Tenant of Landlord's notice certifying that Landlord has
substantially completed all of Landlord's Work, which notice shall be
accompanied by the certificate of Landlord's architect confirming such
completion and an accounting and itemization of such portion of Landlord's Work,
Landlord shall provide Tenant with Landlord's calculation of the Fixed Minimum
Monthly Rent in accordance with Paragraph 1.1 above and Tenant shall deliver to
Landlord by wire transfer the sum of Two Hundred Fifty Thousand Dollars
($250,000.00) which shall be Tenant's final payment of its contribution to the
Development Costs. Any breach of the requirement to pay Tenant's contribution to
the Development Costs as set forth in this Paragraph 2 shall be deemed a breach
of the Lease to which this Exhibit F is attached and shall entitle Landlord to
exercise any and all remedies as set forth in said Lease.
<PAGE> 1
EXHIBIT 10.16
PURCHASE AND SALE AGREEMENT
---------------------------
Between
G.I. JOE'S, INC.,
an Oregon corporation,
as Seller
and
ESA MANAGEMENT, INC.,
a Delaware corporation,
as Purchaser
Dated
April 21, 1998
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. CONVEYANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. SURVEY; TITLE INSURANCE . . . . . . . . . . . . . . . . . . . . . . .1
4. INSPECTION PERIOD AND CONDITIONS
PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5. EMINENT DOMAIN; DAMAGE. . . . . . . . . . . . . . . . . . . . . . . .5
6. RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8. HAZARDOUS SUBSTANCES. . . . . . . . . . . . . . . . . . . . . . . . .8
9. SURVIVAL OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . .9
10. POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . .9
12. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . . . . . . 11
14. REMEDIES ON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 12
15. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
17. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
18. NO SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . 13
19. MATERIAL CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . 13
20. INTENTIONALLY DELETED. . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
21. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 14
22. EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
23. TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
24. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . 14
25. RELATIONSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
26. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
27. CHOICE OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
28. CAPTIONS, NUMBER AND GENDER . . . . . . . . . . . . . . . . . . . . 15
29. FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
(ii)
<PAGE> 4
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") dated April 21, 1998 is made
by and between G.I. JOE'S, INC., an Oregon corporation ("Seller"), and ESA
MANAGEMENT, INC., a Delaware corporation, or its assignee or nominee
("Purchaser").
1. CONVEYANCE. Seller agrees to sell and convey to Purchaser (or its
assignee or nominee) and Purchaser agrees to purchase from Seller, fee simple
interest to the real estate located in the City of Renton, King County,
Washington, containing approximately 4.48 acres or 195,148 square feet,
excluding roads, streets, alleys or public rights of way, and more particularly
described in Exhibit "A" attached hereto and made a part hereof, together with
(a) all rights, easements and appurtenances belonging or appertaining thereto,
(b) all right, title and interest of Seller in and to any and all roads,
streets, alleys or public and private rights of way, bounding such property, and
(c) all buildings and other improvements thereon, if any (collectively the
"Property").
2. PURCHASE PRICE. The purchase price is Two Million Three Hundred
Forty-One Thousand Seven Hundred Eighty-Five and No/100 Dollars ($2,341,785.00)
(the "Purchase Price"), which shall be due and payable at Closing (as defined
herein) plus or minus prorations, as hereinafter provided. In the event the
Property contains more or less than 195,148 square feet as set forth above, then
the Purchase Price shall be increased or reduced, as applicable, by $12.00 per
square foot. Within ten (10) business days after the Effective Date (as defined
herein) Purchaser shall deposit Twenty Thousand and No/100 Dollars ($20,000.00)
as earnest money (the "Earnest Money Deposit"), to be held in a strict joint
order escrow by First American Title Insurance Company in Glendale California
(the "Title Company"). If this Agreement is closed, the Earnest Money Deposit
and any interest earned on the Earnest Money Deposit shall be applied to the
Purchase Price at Closing. If this Agreement is not closed, then the Title
Company shall disburse the Earnest Money Deposit in the manner provided for
elsewhere herein, and the parties agree to promptly notify the Title Company in
writing upon any termination of this Agreement as to which party is entitled to
the Earnest Money Deposit. Any interest earned on the Earnest Money Deposit
shall be the sole property of the party entitled to the Earnest Money Deposit
pursuant to the terms of this Agreement.
3. SURVEY; TITLE INSURANCE.
(a) Purchaser shall request a survey (the "Survey") to be made of the
Property, dated subsequent to the date hereof, by a licensed surveyor or
Registered Professional Engineer in accordance with ALTA/ACSM standards.
<PAGE> 5
A copy of the survey plat shall also be furnished to the Title Company by
Purchaser. The Survey shall be sufficient to permit the Title Company to
delete the standard printed exception in the Title Policy (as defined
herein) pertaining to discrepancies, conflicts or shortages in area or
boundary lines, encroachments, overlapping of improvements, or similar
matters. If the legal description on the Survey differs from the
description set forth on Exhibit "A", then the legal description from the
Survey shall be incorporated herein for all purposes. The cost of the
Survey shall be borne by Purchaser; provided, however, that if Closing does
not occur due to reasons other than default by Purchaser, Seller shall
promptly reimburse Purchaser for the cost of the Survey, and the Survey
shall become the property of the Seller.
(b) Purchaser shall order a title insurance commitment on the Property
prepared by the Title Company (the "Title Commitment") together with good
legible copies of the recorded plat and all documents constituting
exceptions to Seller's title as reflected in the Title Commitment. Seller
will convey good and marketable title to the Property at Closing and,
except as provided for herein, the Property shall be conveyed free, clear
and unencumbered of all tenancies and parties in possession on the Closing
Date (as defined herein). In the event the Survey or Schedule B to the
Title Commitment shall reflect encumbrances or other conditions not
acceptable to Purchaser ("Defects"), then Seller, upon Purchaser's
notification of Defects, shall immediately and diligently proceed to cure
the Defects and shall have thirty (30) days from the date of such notice of
Defects within which to cure the Defects to Purchaser's satisfaction. If,
after the exercise of all reasonable diligence, Seller is unable to remove
or obtain a title endorsement over the Defects, then, at Purchaser's sole
option, Purchaser may accept the Defects or Purchaser may terminate this
Agreement, in which case Purchaser shall be entitled to the return of the
Earnest Money Deposit and any and all additional deposits in escrow and the
parties shall be released from further liability hereunder. Notwithstanding
the foregoing, Seller shall be required to cure (i) all existing monetary
liens and (ii) any and all encumbrances created by Seller after the
Effective Date, at Seller's sole cost and expense. Seller's failure to cure
such defects shall be a default by Seller hereunder. All hens and
encumbrances caused by Purchaser and any matters waived or deemed waived
pursuant to this Section 3(b) shall be "Permitted Exceptions" as that term
is used herein. It is specifically understood and agreed that the so-called
"pre-printed" exceptions set forth on Schedule B of the Title Commitment
shall not constitute Permitted Exceptions hereunder.
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4. INSPECTION PERIOD AND CONDITIONS PRECEDENT.
(a) Prior to Closing, Purchaser, personally or through its authorized
agents or representatives, shall be entitled, at Purchaser's sole cost and
expense, to enter upon the Property at all reasonable times in order to
perform such investigations as Purchaser shall deem necessary, including,
without limitation, soil tests and environmental audits. Purchaser will
promptly repair and restore any damage or injury to the Property caused by
such investigations. Seller shall make available to Purchaser, or to its
duly authorized agents or representatives, all tests, studies and
investigations relating to the Property and the operation and maintenance
thereof, including, without limitation, any Phase I or other environmental
audit(s) of the Property in Seller's possession or control. Such items may
be examined at all reasonable times. Seller shall furnish to Purchaser, to
the extent available, legible prints or copies of all construction plans
and specifications relating to any buildings and other improvements, which
prints or copies shall, however, be returned to Seller, in the event the
transaction contemplated hereunder is not closed. Purchaser shall not
permit any liens or encumbrances to arise against the Property in
connection with or as a result of such inspections, studies or
investigations. Purchaser shall indemnify, defend and hold Seller and the
Property harmless of and from any and all losses, liabilities, costs,
expenses (including without limitation reasonable attorneys' fees and costs
of court), damages, liens, claims (including without limitation mechanics'
or materialmen's liens or claims of liens), actions and causes of action
arising from or relating to Purchaser's (or Purchaser's agents, employees
or representatives) entering upon the Property to test, study, investigate
or inspect the Property, whether pursuant to this Section 4(a) or
otherwise, except to the extent caused by the negligence or willful
misconduct of Seller.
(b) Purchaser shall have One Hundred Twenty (120) days from the
Effective Date (the "Inspection Period"), within which to make all reviews,
inspections, audits, or investigations desired by Purchaser. Purchaser
shall, at Purchaser's sole discretion, have the right to terminate this
Agreement for any reason at any time prior to the expiration of the
Inspection Period, in which case Purchaser shall be entitled to a full
refund of the Earnest Money Deposit plus any interest earned thereon and
all parties shall be released from further obligations hereunder.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Purchaser's obligations to consummate the acquisition of the
Property pursuant to the terms of this Agreement are subject to and
conditioned on the satisfaction, in Purchaser's sole discretion, or written
waiver by Purchaser of the following conditions ("Conditions Precedent"):
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(i) Purchaser obtaining all rezoning, special use permits,
variances, approvals, permits, easements and licenses ("Permits") and
as necessary for Purchaser's proposed use in accordance with
Purchaser's plans and specifications therefor, including, without
limitation, signage, trade names, satellite dish, curb-cuts, access,
parking and vehicle storage as required by Purchaser.
(ii) Purchaser obtaining approval of final plat and all other
approvals required from the governing local, state, federal or private
authority governing the design, construction and operation of
Purchaser's proposed extended stay hotel/motel/guest quarters project
allowing the development of 104 units on the Property and offering
in-room kitchen facilities, including without limitation, a
refrigerator, two-burner stove, microwave and sink.
(iii) Purchaser obtaining boring, percolation, and other soil
tests determining that the Property is satisfactory for Purchaser's
proposed use; provided, however, this Condition Precedent shall be
deemed to be satisfied or waived upon the expiration of the Inspection
Period, if not otherwise objected to prior to the expiration of the
Inspection Period.
(iv) Purchaser obtaining an environmental assessment
("Environmental Assessment") of the Property that determines that the
Property is free of known or supposed environmental contamination and
Hazardous Substances (as hereinafter defined); provided, however, this
Condition Precedent shall be deemed to be satisfied or waived upon the
expiration of the Inspection Period, if not otherwise objected to
prior to the expiration of the Inspection Period.
(v) The water and gas mains, electric power lines and sanitary
and storm sewers, telephone, natural gas and other necessary public
utilities being located immediately on or contiguous to the Property,
and being adequate and available for service and connection for
Purchaser's proposed use; provided, however, this Condition Precedent
shall be deemed to be satisfied or waived upon the expiration of the
Inspection Period, if not otherwise objected to prior to the
expiration of the Inspection Period.
(vi) All representations and warranties made by Seller hereunder
shall be true and correct in all material respects on the Closing Date
as if such representations and warranties were made on the Closing
Date.
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<PAGE> 8
(vii) Seller shall have complied in all material respects with
its covenants and obligations hereunder.
(d) In the event any of the Conditions Precedent are not satisfied,
approved or waived in writing by Purchaser in its sole discretion, then at
any time following the expiration of the Inspection Period, Purchaser may
terminate this Agreement in which event Purchaser shall be entitled to a
full refund of the Earnest Money Deposit and any and all additional
deposits plus any interest earned thereon and all parties shall be released
from further obligations hereunder.
(e) Upon request by Purchaser from time to time, Seller agrees to
reasonably cooperate with Purchaser in connection with Purchaser's efforts
to obtain the permits and approval described in Sections 4(c)(i) and (ii).
5. EMINENT DOMAIN; DAMAGE. If prior to Closing all or any part of the
Property is condemned or appropriated by public authority or any party
exercising the right of eminent domain, or is threatened thereby, or if the
buildings and improvements on the Property are destroyed or materially damaged
by fire, windstorm, explosion or other casualty, or if the Property becomes
contaminated with Hazardous Substances, Seller will give Purchaser written
notice thereof and Purchaser may, at its option: (1) terminate this Agreement
and Purchaser shall be entitled to the return of the Earnest Money Deposit and
all additional deposits in escrow and the parties shall be released from further
liability; or (2) elect to proceed under this Agreement and, at Purchaser's
discretion, either (a) the Purchase Price shall be reduced by, or (b) Purchaser
may take an assignment of, the amount of Seller's award and/or insurance
proceeds to which Seller is entitled to receive.
6. RISK OF LOSS. Prior to Closing, the risk of loss or damage to the
Property shall remain with Seller.
7. CLOSING.
(a) Time. Closing (herein so called) shall take place at ten o'clock
(10:00) a.m. (PST) on that date which is five (5) days after satisfaction
of the Conditions Precedent, and non-appealable issuance of a building
permit or at such other time and/or on such other date as the parties shall
mutually agree (the "Closing Date").
(b) Place. Closing shall be held at a mutually convenient place
provided, however, that either party may elect by written notice to the
other to close the transaction in escrow by mail through the Title Company.
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(c) Documents from Seller. Seller shall, at Seller's sole cost and
expense, deliver at Closing the following executed documents in form and
content acceptable to Purchaser:
(i) Deed. A Special Warranty Deed ("Deed"), with a release of all
curtesy, homestead and other spousal rights, if any, conveying good,
marketable and insurable fee simple title and warranting title to be
free and clear of all Defects subject only to the Permitted
Exceptions, in the form attached hereto as Exhibit "B" with any
modifications required by the Title Company.
(ii) Affidavits. Affidavit(s) stating that: (1) vacant possession
of the Property is being delivered; (2) there are no unrecorded or
oral leases or agreements affecting the Property; (3) there are no
liens against the Property; (4) Seller has no knowledge of any
proposed or contemplated road or access changes affecting the
Property, such as widening or narrowing; (5) Seller is not a foreign
person or entity; and (6) such other affidavits as Purchaser or Title
Company may reasonably require, including, but not limited to, an ALTA
Statement and Affidavit of Title.
(iii) Closing Statement. Four (4) signed copies of a closing
statement approved by Purchaser.
(iv) Authority. Such evidence or documents as may be reasonably
required by Purchaser or the Title Company evidencing the status and
capacity of Seller and the authority of the person or persons who are
executing the various documents on behalf of Seller in connection with
the sale of the Property, including, but not limited to, a good
standing certificate from the Secretary of State in which the Property
is located and corporate resolutions, if applicable.
(v) The Drainage Easement, if same has not been recorded prior to
Closing.
(vi) Other Documents. Such other documents required by this
Agreement and/or which Purchaser or the Title Company may reasonably
require.
(d) Documents from Purchaser. Purchaser shall deliver at Closing the
following executed documents:
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(i) Closing Statement. Four (4) signed copies of a closing
statement approved by Seller.
(ii) Authority. Such evidence or documents as may be reasonably
required by Seller or the Title Company evidencing the status and
capacity of Purchaser and the authority of the person or persons who
are executing the various documents on behalf of Purchaser in
connection with the acquisition of the Property, including, but not
limited to, a good standing certificate from the Secretary of State in
which the Property is located and corporate resolutions, if
applicable.
(iii) Other Documents. Such other documents required by this
Agreement and/or which Seller or the Title Company may reasonably
require.
(e) Payment. The Purchase Price, subject to any applicable
reimbursements, adjustments, or credits (such as without limitation Earnest
Money, proration of real estate taxes or closing costs) shall be paid in
cash, by wire transferred funds or by any other means as may be acceptable
to both parties.
(f) Real Estate Taxes. General and special real estate taxes and other
state or city taxes affecting the Property shall be prorated as of the
Closing Date.
(g) Transfer Taxes. Any recordation, transfer or sales tax, including
without limitation, tax(es) on the Deed, taxes required to be paid in
connection with the recording of the Deed, documentary stamp taxes, or
intangible taxes, shall be paid by Seller at Closing.
(h) Recording Fees. Recording any documents needed to clear title
shall be at Seller's expense.
(i) Brokers. Seller and Purchaser represent and warrant to each other
that they have not had any dealings with any real estate brokers, finders
or agents and no commissions or fees are payable in connection with this
Agreement other than a five percent (5%) commission to be divided between
Seller's broker, Martin, Peterson & Associates, and Purchaser's broker,
Colliers International (collectively, "Brokers") payable by Seller. Seller
agrees to indemnify, defend (with counsel selected by Purchaser) and hold
Purchaser, and Purchaser's nominees, successors and assigns harmless from
any and all claims, costs, commissions, fees or damages by any person or
firm claiming to have negotiated, instituted or brought about this
Agreement due to contact with Seller. Purchaser agrees to indemnify,
defend, with counsel selected by Seller, and hold
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Seller and Seller's nominees, successors and assigns harmless from any and
all claims, costs, commissions, fees or damages by any person or firm
claiming to have negotiated, instituted or brought about this Agreement due
to contact with Purchaser (other than the Broker(s) named above).
(j) Escrow Fees. Any escrow and/or closing fees charged by the Title
Company shall be divided equally between Seller and Purchaser and paid at
Closing.
(k) Title Policy. It shall be a condition precedent to Purchaser's
obligation to close that Purchaser shall have received an ALTA Extended
Coverage Owner's Policy of title insurance (the "Title Policy") issued by
the Title Company on the standard ALTA form in use in the State of
Washington, insuring good and marketable title to the Property in
Purchaser, subject only to the Permitted Exceptions. The cost of the
standard CLTA portion of the Title Policy shall be borne by Seller, and the
cost of any extended ALTA coverage portion of the Title Policy shall be
borne by Purchaser.
8. HAZARDOUS SUBSTANCES.
(a) Seller's Representations, Warranties and Covenants. Seller
represents, warrants and covenants the following:
(i) To the best of Seller's knowledge without independent
investigation, the Property does not presently contain and is free
from all hazardous substances and/or wastes, toxic and nontoxic
pollutants and contaminates, including, but not limited to, petroleum
products and asbestos ("Hazardous Substances").
(ii) To the best of Seller's knowledge without independent,
investigation, the Property has not in the past been used for the
storage, manufacture or sale of Hazardous Substances or for any
activity involving Hazardous Substances.
(iii) To the best of Seller's knowledge without independent
investigation, no Hazardous Substances are located in the vicinity of
the Property.
(iv) If Seller becomes aware of any Hazardous Substances between
the Effective Date and the Closing Date, Seller shall notify Purchaser
in writing of the presence of any such Hazardous Substances.
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(b) Environmental Assessment. If the Environmental Assessment obtained
by Purchaser discloses the existence of any Hazardous Substances or
environmental contamination, and this Agreement does not close due to any
reason except Purchaser's default, Seller shall immediately reimburse to
Purchaser all costs and expenses incurred by Purchaser in obtaining the
Environmental Assessment.
9. SURVIVAL OF CLOSING. All representations, warranties, agreements and
indemnities contained in this Agreement shall survive the Closing of this
transaction and remain enforceable.
10. POSSESSION. Possession of the Property, free from all tenancies,
parties in possession and occupants, shall be delivered to Purchaser by Seller
at the Closing. In the event that on the Closing Date Seller fails to deliver
possession of the Property in the form described in the preceding sentence,
Seller agrees to pay to Purchaser from the Purchase Price the greater of (i)
Fifteen Thousand Dollars ($15,000.00), or (ii) any and all costs incurred or
suffered by Purchaser as a result of Seller's breach of this covenant and in
connection therewith, in addition to any other remedies available to Purchaser
hereunder.
11. INDEMNIFICATION.
(a) Seller agrees to indemnify and hold Purchaser and its respective
nominees, successors, assigns, parent company (if any), officers,
directors, partners, agents, employees and beneficiaries harmless from any
and all third-party liabilities, claims, causes of action, penalties,
demands and expenses, of any kind or nature whatsoever (except those items
which by this Agreement specifically become the obligation of Purchaser)
arising out of, resulting from, relating to, or incident to the Property
prior to the Closing Date or which are in any way related to the ownership,
development, maintenance or operation of the Property during Seller's
ownership thereof, and all expenses related thereto, including without
limitation, court costs and attorneys' fees.
(b) Purchaser agrees to indemnify and hold Seller and its respective
nominees, successors, assigns, officers, directors, partners, agents,
employees and beneficiaries harmless from any and all third-party
liabilities, claims, causes of action, penalties, demands, and expenses of
any kind or nature whatsoever (except those items by which this Agreement
remain the obligation of Seller) arising after Closing and during the
Purchaser's ownership of the Property, which are in any way related to the
ownership, development, maintenance or operation of the Property by
Purchaser, and all expenses related thereto, including without limitation,
court costs and attorneys' fees.
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<PAGE> 13
12. NOTICE. All notices, demands, or other communications of any type
given, or required to be given, pursuant to this Agreement shall be in writing
and shall be delivered to the person to whom the notice is directed, either in
person with a receipt requested therefor, or sent by a recognized overnight
service for next day delivery or by United States certified mail, return receipt
requested, postage prepaid to the addresses or by facsimile as follows:
If to Seller:
GI Joe's, Inc.
9805 Bockman Road
Wilsonville, Oregon 97070
Attention: Norm Daniels, President
Telecopy: (503) 682-7200
If to Purchaser:
ESA MANAGEMENT, INC.
Attention: Development / Legal Department
450 East Las Olas Boulevard, Suite 1100
Ft. Lauderdale, FL 33301
Telecopy: (954) 713-1665
with a copy to:
Mr. Stewart Clark
616 120th Avenue, N.E., Suite C-111
Bellevue, Washington 98005
Telecopy: (425) 453-7655
with a copy to:
Allen, Matkins, Leck, Gamble & Mallory LLP
1999 Avenue Of The Stars, Suite 1800
Los Angeles, California 90067-6050
Attention: John M. Tipton, Esq.
Telecopy: (310) 788-2410
Any notice given by personal delivery or courier delivery service will be
deemed effective when received. Any notice given by United States Mail will be
deemed effective on the third (3rd) business day following deposit in the United
States mail, postage prepaid, registered or certified mail, return receipt
requested, addressed as set forth above. Any notice sent by facsimile shall be
deemed given by the date reflected
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by the facsimile confirmation receipt. Any notice that may be given by either
party in connection with this Agreement may be given by such party's attorney.
13. REPRESENTATIONS AND WARRANTIES OF SELLER. To induce the Purchaser to
execute, deliver and perform this Agreement and without regard to any
independent investigations made by Purchaser, Seller represents and warrants to
Purchaser on the Effective Date and as of the Closing Date as follows:
(a) Title. Seller owns the Property in fee simple, free of any liens,
claims or encumbrances other than the Permitted Exceptions.
(b) Authorization. Seller has full capacity, right, power and
authority to execute, deliver and perform this Agreement and all documents
to be executed by Seller pursuant hereto, and all required action and
approvals therefor have been fully taken and obtained. The individuals
signing this Agreement and all other documents executed or to be executed
pursuant hereto on behalf of Seller are and shall be duly authorized to
sign the same on Seller's behalf and to bind Seller thereto.
(c) Litigation. To the best of Seller's knowledge without independent
investigation, there are no claims, causes of action or other litigation or
proceedings pending or, to the best of Seller's knowledge, threatened in
respect to the ownership, operation or environmental conditions of the
Property or any part thereof (including disputes with mortgagees,
governmental authorities, utility companies, contractors, adjoining land
owners or suppliers of good or services).
(d) Violation. To the best of Seller's knowledge without independent
investigation, there are no violations of any health, safety, pollution,
zoning or other laws, ordinances, rules or regulations with respect to the
Property, which have not been heretofore entirely corrected. In the event
Seller has knowledge of any such violations, Seller shall (i) immediately
provide Purchaser with copies of all documents evidencing any such
violation and (ii) cure such violation prior to Closing,
(e) Material Changes. To the best of Seller's knowledge without
independent investigation, that no Material Changes (as hereinafter
defined) have occurred to the Property.
(f) No Proffers. Seller has not made, and prior to the Closing Date
will not make, any commitments to any governmental authorities, utility
company, school board, church or other religious body, or any homeowner or
homeowners' association, or to any other organization, group or individual,
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<PAGE> 15
relating to the Property which would impose any obligation on Purchaser, or
its successors or assigns, after the Closing Date to make any contributions
of money, dedications of land or grant of easements or rights-of-way, or to
construct, install or maintain any improvements of a public or private
nature on or off the Property.
(g) Zoning. The Property is currently zoned "Heavy Industrial" and
there are no proceedings threatened or pending with respect to a change in
such zoning, except with respect to the rezoning required pursuant to this
Agreement for Purchaser's intended hotel use.
14. REMEDIES ON DEFAULT.
(a) Seller's Defaults; Purchaser's Remedies. In the event that Seller
shall be in default hereunder, Purchaser may, as its sole option and
exclusive remedy for such default, deliver a written notice to Seller
stating with particularity the alleged default of Seller and the action
required by Seller to cure such default, and stating Purchaser's intent to
terminate this Agreement or seek to enforce specific performance if the
default is not cured, whereupon Seller shall have five (5) days after
receipt of such notice in which to cure the alleged default to Purchaser's
reasonable satisfaction (and the Closing Date shall be delayed, if
necessary, until the end of such five (5) day period). In the event such
default is not cured within such five (5) day period, then Purchaser may,
in addition to any and all other rights and remedies available at law or in
equity, terminate this Agreement by written notice to Seller and the Title
Company, and receive a full refund of the Earnest Money Deposit, together
with an amount equal to Purchaser's out-of-pocket expenses, and/or enforce
all of the terms of this Agreement by specific performance.
(b) Purchaser's Default; Seller's Remedies. In the event Purchaser
shall be in default hereunder, Seller may, as Seller's sole and exclusive
remedy for such default, deliver a written notice to Purchaser stating with
particularity the alleged default of Purchaser and the action required by
Purchaser to cure such default, and stating Seller's intent to terminate
this Agreement if the default is not cured, whereupon Purchaser shall have
five (5) days after receipt of such notice in which to cure the alleged
default to Seller's reasonable satisfaction (and the Closing Date shall be
delayed, if necessary, until the end of such five (5) day period). In the
event such default is not cured within such five (5) day period, then
Seller may terminate this Agreement by written notice delivered to
Purchaser, whereupon Seller shall be entitled to the Earnest Money Deposit
then deposited with Title Company, it being agreed between Purchaser and
Seller that such sum shall be its sole and liquidated damages (and not a
penalty) for such
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<PAGE> 16
default of Purchaser hereunder because of the difficulty, inconvenience and
uncertainty of ascertaining actual damages for such default. Seller hereby
waives any right to sue Purchaser for damages or for specific performance.
15. ASSIGNMENT. Purchaser shall have the right to assign this Agreement at
any time to any successor corporation or an affiliate of Purchaser at
Purchaser's sole discretion.
16. MISCELLANEOUS. No term or condition of this Agreement will be deemed to
have been waived or amended unless expressed in writing, and the waiver of any
condition or the breach of any term will not be a waiver of any subsequent
breach of the same or any other term or condition. This Agreement constitutes
the entire agreement of the parties which incorporates and supersedes all prior
written and oral understandings. This Agreement shall be binding upon, and inure
to the benefit of, the parties, their heirs, executors, personal
representatives, nominees, successors or assigns.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all such
counterparts taken together shall be deemed to constitute one and the same
instrument.
18. NO SOLICITATION. Seller agrees that upon its execution of this
Agreement neither it nor its agents or employees will (a) initiate or encourage
the initiation by others of discussions or negotiations with third parties or
respond to solicitations by third parties relating to the Property or any part
thereof, (b) fail to immediately notify Purchaser if any third party attempts to
initiate any such solicitation, discussion or negotiation with Seller nor (c)
enter into any agreement with any third party with respect to the Property or
any part thereof.
19. MATERIAL CHANGES. Notwithstanding anything herein to the contrary,
Purchaser shall not be obligated to close on the purchase of the Property if
after the Effective Date there is a material change in the condition of the
Property which would materially and adversely affect Purchaser's proposed use of
the Property (hereinafter, a "Material Change") and Purchaser was not aware of
such Material Change until after the expiration of the Inspection Period.
Promptly upon becoming aware of a Material Change, Seller or Purchaser, as
applicable, shall immediately notify the other party in writing, and Seller
shall have the opportunity to remedy the Material Change prior to the Closing
Date. If the Material Change cannot be remedied by the Closing Date to the
reasonable satisfaction of Purchaser, then Purchaser shall, at Purchaser's
option, elect to proceed under this Agreement or terminate this Agreement, in
which case Purchaser shall receive the return of the Earnest Money Deposit and
all additional deposits in escrow and the parties shall be released from further
liability. Seller shall not cause or permit a Material Change to occur, and any
Material Change within Seller's reasonable control shall constitute a default
under this Agreement for
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which Purchaser shall have the rights and remedies set forth in Section 14(a).
Between the Effective Date and the Closing Date, Seller agrees that it will not,
without in each instance first obtaining the written consent of Purchaser, (i)
voluntarily grant, create, assume or permit to exist any lien, lease,
encumbrance, easement, covenant, condition, right-of-way or restriction upon the
Property other than the Permitted Exceptions, or (ii) voluntarily take any
action adversely affecting the title to the Property as it exists on the date of
this Agreement.
20. INTENTIONALLY DELETED.
21. CONFIDENTIALITY. Seller and its agents, representatives, employees,
partners, officers and directors will not disclose the subject matter or terms
of the transaction contemplated by this Agreement unless prior written consent
to such disclosure is obtained from Purchaser, which consent may be withheld at
Purchaser's sole discretion.
22. EFFECTIVE DATE. The term "Effective Date" shall mean that date which
both parties have executed this Agreement and Purchaser and Seller has each
received a fully executed counterpart of this Agreement.
23. TIME. The time in which any act required or permitted by this Agreement
is to be performed shall be determined by excluding the day upon which the event
occurs from whence the time commences. If the last day upon which performance
would otherwise be required or permitted is a Saturday, Sunday or holiday, then
the time for performance shall be extended to the next day which is not a
Saturday, Sunday or holiday. The term "holiday" shall mean all and only
mandatory federal holidays including which deliveries by the United States
Postal Services are suspended.
24. ATTORNEYS' FEES. In the event that either party commences suit to
recover damages arising from a breach of this agreement or otherwise to seek
enforcement hereof, the prevailing party shall be entitled to an award of
reasonable attorneys' fees, together with court costs and litigation expenses
reasonably incurred and actually paid.
25. RELATIONSHIP. Nothing contained in this Agreement shall be deemed or
construed by the parties or by any third person to create a relationship of
principal and agent or a partnership or a joint venture between Purchaser and
Seller or between either or both of them and any third party.
26. SEVERABILITY. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and whenever there is any
conflict between any provision herein and any present or future statute, law,
ordinance or
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<PAGE> 18
regulation contrary to which the parties have no legal right to contract, the
latter shall prevail, but the provision of this Agreement affected shall be
limited only to the extent necessary to bring it within the requirements of such
statute, law, ordinance or regulation.
27. CHOICE OF LAW. This Agreement, and the interpretation and enforcement
thereof, shall be governed by the laws of the State where the Property is
located.
28. CAPTIONS, NUMBER AND GENDER. The captions appearing at the commencement
of the sections and subsections hereof are descriptive only and for convenience
in reference. Should there be any conflict between such caption and the section
or subsection at the head of which it appears, the section or subsection and not
such caption shall control and govern the construction of this Agreement. Unless
the context otherwise requires, singular nouns and pronouns used in this
Agreement are to be construed as including the plural thereof. For convenience
and brevity, masculine pronouns are used herein in their generic sense as a
reference to all persons, without regard to sex.
29. FURTHER ASSURANCES. Seller agrees that it will, at any time and from
time to time after the Closing Date, upon request of Purchaser, do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged or
delivered, all such further acts, deeds, assignments, conveyances, and
assurances as may reasonably be required for the better conveying, transferring,
assigning, assuring and confirming the Property to Purchaser.
IN WITNESS WHEREOF, the Seller and Purchaser have caused this Agreement to
be executed under seal as of the date first above written.
PURCHASER: SELLER:
ESA MANAGEMENT, INC., G.I. JOE'S, INC.,
a Delaware corporation an Oregon corporation
By: (SEAL) By: /s/ Norman Daniels (SEAL)
------------------------------------ -------------------------------
Name: Name: Norman Daniels
---------------------------------- --------------------------
Title: Title: President
--------------------------------- ---------------------------
Date: Date: 4/23/98
---------------------------------- ---------------------------
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EXHIBIT "A"
-----------
PARCEL A:
LOT 1, BURLINGTON NORTHERN, A BINDING SITE PLAN, ACCORDING TO THE PLAT THEREOF
RECORDED JUNE 30,1992 IN VOLUME 161 OF PLATS, PAGES 8 THROUGH 11 UNDER RECORDING
NO. 9206302696, RECORDS OF KING COUNTY, WASHINGTON.
PARCEL B:
RECIPROCAL NON-EXCLUSIVE EASEMENT OF ROADWAYS, WALKWAYS INGRESS AND EGRESS,
ACCESS, PARKING AND USE OF COMMON AREA FACILITIES AS DISCLOSED BY INSTRUMENT
RECORDED JUNE 30, 1992 UNDER KING COUNTY RECORDING NO. 9206302702.
SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.
Exhibit "A" - Page 1
<PAGE> 20
EXHIBIT "B"
-----------
SPECIAL WARRANTY DEED
---------------------
STATE OF
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF
THAT ("Grantor") for and in consideration of the sum of Ten and no/100
Dollars cash and other good and valuable consideration paid in hand by ESA
Management, Inc., a Delaware corporation ("Grantee"), whose address is 450 East
Las Olas Boulevard, Suite 1100, Ft. Lauderdale, FL 33301, the receipt and
sufficiency of which is hereby acknowledged, HAS GRANTED, BARGAINED, SOLD AND
CONVEYED and by these presents DOES GRANT, BARGAIN, SELL and CONVEY unto Grantee
all that certain land situated in County, and described on Exhibit "A" attached
hereto and incorporated herein by reference for all purposes, together with all
of Grantor's right, title and interest in and to all appurtenances thereon or in
anyway appertaining thereto and all of Grantor's right, title and interest in
and to all buildings, structures, fixtures and improvements located thereon
(said land, real property, rights, improvements and appurtenances being herein
collectively referred to as the "Property").
This conveyance and the warranties of title herein are expressly made
subject to the liens, encumbrances, easements and other exceptions set forth on
Exhibit "B" attached hereto and incorporated herein by this reference for all
purposes, to the extent the same are valid and subsisting and affect the
Property.
TO HAVE AND TO HOLD the Property unto Grantee, and Grantee's successors and
assigns forever, and Grantor does hereby bind Grantor, and Grantor's successors
and assigns to WARRANT and FOREVER DEFEND, all and singular the Property unto
Grantee and 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 ______,199__, to be effective upon delivery of this Warranty
Deed by or on behalf of Grantor to Grantee.
GRANTOR:
___________________________________________
By: _______________________________________
Its: ______________________________________
EXHIBIT "A" - Legal Description [Attach prior to Recording]
EXHIBIT "B" - Exceptions to Title [Attach prior to Recording]
Exhibit "B" - Page 1
<PAGE> 21
[ACKNOWLEDGMENT OF GRANTOR]
STATE OF )
)
COUNTY OF )
Personally appeared before me, a Notary Public in and for the above County
and State, _________________________________________ known personally by me and
acknowledged by me to be the same persons who executed the foregoing for the
uses and purposes therein stated.
Witnessed by hand and this notarial seal, this _____ day of ________, 19__.
______________________________________
Notary Public in and for the
State and County aforesaid
My commission expires:_________________
<PAGE> 1
EXHIBIT 10.17
G.I. JOE'S, INC.
RESTATED PENSION PLAN
COPYRIGHT (C) 1994
BENNER & ASSOCIATES, P.C.
ALL RIGHTS RESERVED
<PAGE> 2
G.I. JOE'S, INC.
RESTATED PENSION PLAN
USERRA AMENDMENT
The G.I. Joe's, Inc. Restated Pension Plan is hereby amended pursuant
to Rev. Proc. 96-49 to comply with the requirements of the Uniformed Services
Employment and Reemployment Rights Act of 1994 as follows:
I.
Page 24-2 of the Plan is deleted in its entirety and a new page 24-2
of the Plan, a copy of which is attached hereto and by this reference
incorporated herein, is substituted in lieu thereof.
II.
This Amendment shall be effective as of October 13, 1996.
Dated: 12/18 , 1996
-----------
EMPLOYER:
G.I. JOE'S, INC.
By: /s/
-------------------------------
President
<PAGE> 3
G.I. JOE'S, INC.
RESTATED PENSION PLAN
INDEX
Section 1
ESTABLISHMENT OF PLAN AND TRUST
1.1 Establishment of Plan
1.2 Establishment of Trust
1.3 Named Fiduciaries
1.4 Allocation of Responsibilities
1.5 Funding Policy
1.6 Related Employers
Section 2
DEFINITIONS
2.1 Act
2.2 Accrued Benefit
2.3 Actuarial Assumptions
2.4 Actuarial Equivalent or Equivalency
2.5 Actuary
2.6 Administrator
2.7 Anniversary Date
2.8 Annual Compensation
2.9 Beneficiary
2.10 Benefit Commencement Date
2.11 Break in Service
2.12 Code
2.13 Disability
2.14 Early Retirement Age
2.15 ERISA
2.16 Employee
2.17 Employer
2.18 Forfeitures
2.19 Hour of Service
2.20 Normal Retirement Date
2.21 Participant
2.22 PBGC
2.23 PBGC Interest Rates
2.24 Plan Benefit
2.25 Plan Year
2.26 Present Value
2.27 Related Employer(s)
2.28 Social Security Retirement Age
2.29 Taxable Wage Base
2.30 Year of Participation
2.31 Year of Service
1 - INDEX
<PAGE> 4
Section 3
ADMINISTRATION
3.1 Assignment of Administrative Authority
3.2 Organization and Operation
3.3 Powers and Duties
3.4 Records and Reports
3.5 Payment of Expenses
3.6 Agent for Service of Process
3.7 Indemnity
3.8 Personal Data to Administrator
3.9 Address for Notification
3.10 Actuary
Section 4
ELIGIBILITY
4.1 Eligibility
4.2 Continued Participation
4.3 Reemployment
4.4 Bargaining Unit Employees
Section 5
CONTRIBUTIONS
5.1 Employer Contributions
5.2 Employee Contributions
5.3 Time of Payment
5.4 Conditional Employer Contributions
5.5 Non-Vested Accrued Benefit
5.6 Nonreversion and Residual Assets
5.7 Funding Standard Account
5.8 Related Employers
5.9 Single Plan for Employees of Related Employers
Section 6
NORMAL RETIREMENT BENEFIT/DEFERRED VESTED BENEFIT
6.1 General
6.2 Normal Retirement Benefit
6.3 Integration Level
6.4 Minimum Benefit
6.5 Normal Form of Benefit
6.6 Formula to Determine Accrued Benefit
2 - INDEX
<PAGE> 5
6.7 Partial Accrual Rule
6.8 Accrual of Benefit After Normal Retirement Date
6.9 Integrated Plans -- Actuarial Equivalent for Early Benefit Payment
6.10 Payment of Normal, Delayed and Deferred Vested Benefit
Section 7
EARLY RETIREMENT BENEFITS
7.1 Early Retirement Benefit
7.2 Payment of Early Retirement Benefit
Section 8
DISABILITY BENEFITS
8.1 Eligibility for Disability Benefit
8.2 Form and Time of Payment
8.3 Recovery from Disability
8.4 Continuing Evidence of Disability
Section 9
DEATH BENEFITS
9.1 Preretirement Death Benefit
9.2 Payment of Post-Retirement Death Benefit
9.3 Payment of Pre-Retirement Death Benefit
9.4 Designation of Beneficiary
9.5 Failure to Designate a Beneficiary
9.6 Proof of Death
Section 10
VESTING AND TERMINATION BENEFITS
10.1 Termination Benefit
10.2 Payment of Termination Benefit
10.3 Vesting
10.4 Retirement, Death and Disability
10.5 Vesting Years of Service
10.6 Forfeitures
10.7 Treatment of Forfeitures on Rehire
10.8 Amendment of Vesting Schedule
10.9 Transferred or Rollover Accounts
10.10 Forfeiture due to Inability to Locate
3 - INDEX
<PAGE> 6
Section 11
FORM AND TIME OF PAYMENT OF ACCRUED BENEFIT
11.1 General
11.2 Benefit Elections
11.3 Annuity
11.4 Other Benefit Options
11.5 Latest Benefit Commencement Date
11.6 Minimum Distribution Requirement for Death Benefits
11.7 Delayed Distribution
11.8 Payment of Normal and Delayed Retirement Benefit
11.9 Termination Benefit
11.10 Payment of Early Retirement Benefit
11.11 Payment of Disability Benefit
11.12 Payment of Death Benefit
11.13 No Decrease in Benefits by Change in Social Security
11.14 Minimum Required Distributions
Section 12
INVESTMENT OF TRUST FUND
12.1 Investment Authority
12.2 Prohibited Transactions
12.3 Bonding of Fiduciary
12.4 Immunity and Indemnity of Trustee
12.5 Proxy Voting by Investment Managers
Section 13
TRUSTEE
13.1 Powers of Trustee
13.2 Payments From the Trust
13.3 Trustee's Compensation, Expenses and Taxes
13.4 Certification of Instructions
13.5 Accounting
13.6 Settlement of Accountings
13.7 Determination of Duties
13.8 Removal, Resignation and Appointment of Successor Trustee
13.9 Receipt of Contributions
Section 14
4 - INDEX
<PAGE> 7
LIFE INSURANCE
14.1 Purchase of Life Insurance not Permitted
Section 15
HARDSHIP AND IN-SERVICE DISTRIBUTIONS
15.1 Hardship Withdrawals
15.2 In-Service Distributions
Section 16
ROLLOVERS AND PLAN TRANSFERS
16.1 Rollovers From Other Plans not Permitted
16.2 Transfers From Qualified Plans not Permitted
16.3 Direct Rollovers to Other Plans Permitted
16.4 Accounting for Transferred Funds
16.5 Mergers, Consolidations and Transfers of Plan Assets
Section 17
AMENDMENT AND TERMINATION
17.1 Amendment
17.2 Restrictions on Amendment
17.3 Effective Date of Amendments
17.4 Termination
17.5 Distribution of Trust
17.6 Liquidation of Trust
17.7 Dissolution of Employer
17.8 Allocation of Assets
Section 18
SPECIAL LIMITATIONS ON BENEFITS PAYABLE
TO HIGHEST-PAID EMPLOYEES
18.1 General
18.2 Participants to Whom Limitations Apply
18.3 Benefit Limitations
18.4 Amendment
18.5 Allocation of Excess Benefits
18.6 Death Benefits
5 - INDEX
<PAGE> 8
18.7 Full Funding
18.8 Lump-Sum Distribution Limitations
18.9 Termination of Effect
18.10 Substantial Owner
18.11 Special Limitation on Distribution of Benefits to the 25 Highest-Paid
Highly Compensated Employees
Section 19
QUALIFIED DOMESTIC RELATIONS ORDER
19.1 General
19.2 Distributions Under QDRO
19.3 Time and Manner of Payment
19.4 Procedures
Section 20
PARTICIPANT LOANS
20.1 Participant Loans not Permitted
Section 21
TOP-HEAVY PROVISIONS
21.1 General
21.2 Top-Heavy Year
21.3 Definitions
21.4 Top-Heavy Provisions
Section 22
OVERALL LIMITATION ON BENEFITS
22.1 Limitation on Annual Benefit
22.2 Multiple Defined Benefit Plans
22.3 Defined Contribution Plan Limitation
22.4 Reduction of Contributions to Defined Contribution Plan
22.5 Definitions
Section 23
MISCELLANEOUS PROVISIONS
6 - INDEX
<PAGE> 9
23.1 No Contractual Relationship
23.2 Liability for Benefits
23.3 Inability to Perform
23.4 Participant's Rights
23.5 Plan and Trust Binding on all Parties
23.6 Conflict of Law Provisions
23.7 Spendthrift Clause
23.8 Waiver of Notice
23.9 Third Party
23.10 Use of Terms
Section 24
CLAIMS PROCEDURE
24.1 Filing of Claim
24.2 Notification of Decision
24.3 Request for Review
24.4 Review
7 - INDEX
<PAGE> 10
G.I. JOE'S, INC.
RESTATED PENSION PLAN
This Restated Plan is hereby adopted by G.I. Joe's, Inc., an Oregon
corporation with its principal place of business at Wilsonville, Oregon.
The Employer has heretofore adopted the G.I. Joe's Pension Plan and
has subsequently amended and restated the Plan.
Employer has further amended and restated the Plan in order to comply
with the Tax Reform Act of 1986 and subsequent legislation.
The Effective Date of the amendment and restatement of this Plan shall
be March 1, 1989, except for the following later Effective Dates applicable to
the following provisions:
1. Actuarial Assumptions. The Actuarial Assumptions specified in
Section 2.3 are effective for Plan Years beginning on and after March 1, 1993.
2. OBRA '93 Compensation Limit. The OBRA '93 Compensation Limit set
forth in Section 2.8 is effective for Plan Years beginning on and after March 1,
1994.
3. Eligibility Requirements. The Eligibility Requirements specified in
Section 4.1 are effective for Plan Years as specified in Section 4.1.
4. Normal Retirement Benefit. The Normal Retirement Benefit provisions
of Section 6 are effective for Plan Years beginning on and after March 1, 1993.
For Plan Years beginning before the Effective Dates set forth above,
the terms of the Plan prior to its restatement shall control for purposes of the
designated provision.
The amendment of any plan provision which liberalizes a protected
benefit under Section 411(d)(6) of the Code shall apply on the later of the
adoption date or the Effective Date of this Restated Plan. Any provision which
liberalizes the eligibility, vesting or benefit accrual provisions of the Plan
shall only apply to Employees who are credited with at least one Hour of Service
after the Effective Date or the Effective Date specified for a particular
provision.
<PAGE> 11
Section 1
ESTABLISHMENT OF PLAN AND TRUST
1.1 Establishment of Plan. Employer has adopted this Plan for the
exclusive benefit of its Employees and their Beneficiaries with the intention
that the Plan qualify under Section 401 of the Code and comply with the Act. All
of the plan assets are available to pay benefits to all Employees of Employer
who are covered by the Plan and their Beneficiaries.
1.2 Establishment of Trust. Employer adopting this Plan agrees to make
the contributions required by the terms of the Plan. All amounts received from
an Employer, together with the income therefrom (hereinafter called the "Trust
Fund"), shall be held, managed and administered in trust pursuant to the terms
of this Plan and any separate Trust Agreement. The assets of the Trust Fund
shall be held under one Trust, except as otherwise provided herein. Trustee, by
executing the separate Trust Agreement, accepts the Trust created under the
separate Trust Agreement and agrees to perform its duties hereunder with respect
to the Trust Fund.
1.3 Named Fiduciaries. Trustee, Employer and Administrator shall be
the named fiduciaries under the Plan.
1.4 Allocation of Responsibilities.
(a) Administration of Plan. Administrator shall have the
authority to manage and control the operation and administration of the
Plan pursuant to Section 3.
(b) Custody of Assets. Trustee shall have the custody of the
assets of the Trust Fund pursuant to Section 12.
(c) Management and Investment of Assets. The authority to manage,
control and invest the assets of the Trust Fund shall be vested in the
Trustee pursuant to Section 12.
1.5 Funding Policy. The funding policy of the Plan shall be to make
contributions to the Trust and investments thereof to provide for retirement
benefits for the Participants and their Beneficiaries.
1.6 Related Employers. For purposes of determining eligibility,
continued participation, Employer Contributions and limitations thereto, accrual
of benefits, Forfeitures and vesting, all Employees of all Related Employers
shall be treated as employed by a single Employer to the extent and in the
manner provided herein.
Page 1-1
<PAGE> 12
Section 2
DEFINITIONS
When used herein, the following words shall have the following
meanings, unless the context clearly indicates otherwise:
2.1 "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended.
2.2 "Accrued Benefit" shall mean the Participant's benefits derived
from Employer Contributions determined under the accrual formula provided in
this Plan, or if greater, the top-heavy minimum benefit described in Section 21.
For purposes of determining a Participant's Accrued Benefit, a Participant will
receive credit for a full Year of Participation in the manner specified in this
section. If this is a restated Plan, a Participant's Accrued Benefit for Plan
Years beginning before the effective date of Section 411 of the Code is the
greater of the Accrued Benefit provided by the Plan, or the Accrued Benefit the
participant would have had if the accrual formula provided under Section 6 had
been in effect under this Plan.
2.3 "Actuarial Assumptions" shall mean the Actuarial Assumptions
specified in this section used in determining the present value of a
Participant's Accrued Benefit. The following assumptions will be used:
(a) Post-Retirement.
Interest: 8 percent
(b) Preretirement.
Interest: 8 percent
(c) Mortality.
GA83 - Male and Female
(d) Special Interest Rate Rules. When determining the amount of a
Participant's distribution or the Present Value of the Participant's
Accrued Benefit, the special interest rates used to make an Actuarial
Equivalent determination are either the applicable interest rates specified
in (a) and (b) above or the applicable PBGC interest rates described
herein, whichever results in a greater benefit. As a general rule, the
applicable PBGC interest rates are the immediate and deferred annuity rates
the PBGC would use for a trusteed single employer plan to
Page 2-1
<PAGE> 13
value a benefit upon termination of an insufficient trusteed single
employer plan. However, if the Present Value of the Participant's
nonforfeitable Accrued Benefit (using the applicable PBGC rates) exceeds
$25,000, the applicable PBGC interest rates are 120 percent of these PBGC
immediate and deferred annuity rates. The use of 120 percent of the PBGC
immediate and deferred annuity rates may not reduce the present value
determination below $25,000. The Administrator will apply this paragraph by
referring to the PBGC immediate and deferred annuity rates in effect on the
date specified in this Section 2. This paragraph does not apply to the
determination of the amount of a nondecreasing annuity payable for a period
not less than the life of the Participant or, in the case of a qualified
joint and survivor annuity, the joint lives of the Participant and the
Participant's spouse.
The special interest rules above apply to distributions in Plan
Years beginning after December 31, 1984, except to distributions occurring
in Plan Years beginning prior to January 1, 1987, for which the Plan
satisfied the interest rate requirement (including the applicable PBGC
immediate annuity rate) of Section 1.417(e)-1T(e) of the Treasury
Regulations. These special interest rate rules do not apply to the
following annuity contracts: (1) an annuity contract distribution to or
owned by a Participant prior to September 17, 1985, unless the Employer
makes additional contributions under the Plan to that contract; and (2) an
annuity contract owned by the Employer or by the Plan, or distributed to or
owned by a Participant prior to the first Plan Year beginning after
December 31, 1988, if the annuity contract satisfied the requirements of
Sections 1.401(a)-11T and 1.417(e)-1T of the Treasury Regulations, unless
the Employer makes additional contributions under the Plan with respect to
that contract for any Plan Year beginning after December 31, 1988.
2.4 "Actuarial Equivalent or Equivalency" shall mean a benefit of
equal value computed using the Actuarial Assumptions specified in this Section
and which may be modified for Accrued Benefits which takes into account
permitted disparity.
In the event this section is amended, the Actuarial Equivalent of a
Participant's Accrued Benefit on or after the date of change shall be determined
as the greater of (1) the Actuarial Equivalent of the Accrued Benefit as of the
date of change computed on the old basis, or (2) the Actuarial Equivalent of the
total Accrued Benefit on the new basis.
Regardless of the above, in the event the Plan is an amendment of an
existing Plan, the Actuarial Equivalent of the Accrued Benefit shall not be less
than the Actuarial Equivalent
Page 2-2
<PAGE> 14
of the Accrued Benefit as of the date of this amendment, based on the Actuarial
Equivalent provisions of the Plan prior to such date. Calculations under this
paragraph shall be based on the Actuarial Assumptions specified in this section.
2.5 "Actuary" shall mean an enrolled Actuary selected by the
Administrator to provide actuarial services for the Plan.
2.6 "Administrator" shall mean a Retirement Plan Committee selected by
Employer.
2.7 "Anniversary Date" shall mean the last day of the Plan Year.
2.8 "Annual Compensation" shall mean wages as defined in Section
3401(a) for the purposes of income tax withholding at the source, but determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Section 3401(a)(2)).
The Annual Compensation of each Participant taken into account for
purposes of determining all benefits provided under the Plan for any
determination period shall not exceed $200,000, as adjusted by the Secretary at
the same time and in the same manner as under Section 415(d) of the Code, except
that the dollar increase in effect on January 1 of any calendar year is
effective for years beginning in such calendar year and the first adjustment to
the $200,000 limitation is effected on January 1, 1990. If the period for
determining compensation used in calculating an Employee's benefit accrual for a
determination period is a short Plan Year (i.e., shorter than 12 months), the
Annual Compensation limit is an amount equal to the otherwise applicable Annual
Compensation limit multiplied by the fraction, the numerator of which is the
number of months in the short Plan Year and the denominator of which is 12. In
determining the compensation of a Participant, who is a five percent owner or
one of the ten most highly-paid highly compensated Employees as defined in
Section 414(g) of the Code, for purposes of this limitation, the family
aggregation rules of Section 414(q)(6) of the Code shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the year.
If, for a Plan Year, the combined Annual Compensation of the Employee
and such family members who are Participants entitled to a benefit accrual for
that Plan Year exceeds the adjusted $200,000 limitation, "Annual Compensation"
for each such Participant for purposes of the benefit accrual means his Adjusted
Annual Compensation. Adjusted Annual Compensation is the amount which bears the
same ratio to the adjusted $200,000
Page 2-3
<PAGE> 15
limitation as the affected Participant's Annual Compensation (without regard to
the $200,000 Annual Compensation limitation) bears to the combined Annual
Compensation of all the affected Participants in the family unit. The
Administrator must determine the integration level of each affected family
member Participant prior to the proration of the $200,000 Annual Compensation
limitation, but the combined integration level of the affected Participants may
not exceed the adjusted $200,000 limitation. The combined Excess Annual
Compensation of the affected Participants in the family unit may not exceed the
adjusted $200,000 limitation minus the affected Participants' combined
integration level (as determined under the preceding sentence). If the combined
Excess Annual Compensation exceeds this limitation, the Administrator will
prorate the Excess Annual Compensation limitation among the affected
Participants in the family unit in proportion to each such individual's Adjusted
Annual Compensation minus his integration level.
In addition to other applicable limitations set forth in the Plan and
notwithstanding any other provisions of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the Annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 Annual
Compensation limit. The OBRA '93 Annual Compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Code. The cost of living adjustment in effect
for a calendar year applies to any period, not exceeding 12 months, over which
compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
Annual Compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA '93 Annual Compensation limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the compensation for that prior determination period is subject to the OBRA '93
Annual Compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 Annual
Compensation limit is $150,000.
For purposes of determining Participant's Accrued Benefit, Annual
Compensation shall not include payments at or after termination of employment,
for unused paid absences such as vacation or sick leave.
Page 2-4
<PAGE> 16
2.9 "Beneficiary" shall mean any individual, trustee or other entity
who, by the terms of any contract, the terms of the Plan or because of the
designation by the Participant pursuant to the terms of the Plan, is entitled to
receive any amount or benefit in the event of a Participant's death.
2.10 "Benefit Commencement Date" shall mean the first date of the
first period for which Plan Benefits become payable to a Participant,
Alternative Payee or Beneficiary. The Benefit Commencement Date shall include
the annuity starting date for benefits payable in the form of an annuity and the
date benefits first become payable in the case of any other form of benefit. A
payment shall not be considered to occur after the Benefit Commencement Date
merely because actual payment is reasonably delayed for administrative reasons
including delay for calculation of the benefit amount.
2.11 "Break in Service" means a 12-consecutive month period during
which an Employee has not completed more than 500 Hours of Service. The
computation period shall be the Plan Year.
(a) One-Year Break in Service means a computation period during
which an Employee has not completed more than 500 Hours of Service.
(b) Five-year Break in Service means five consecutive one-year
Breaks in Service.
With respect to any short computation period, the required number of
hours shall be a prorated number of hours based upon the number of months less
than 12 in the period. However, a Participant shall not incur a one-year Break
in Service because of any authorized leave of absence granted by the Employer
pursuant to a uniform nondiscriminatory policy in which the Participant returns
to employment within the prescribed time.
Solely for purposes of determining whether a Break in Service for
participation and vesting purposes has occurred in a computation period, an
Employee who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
to such Employee but for such absence. In any case in which such hours cannot be
determined, eight Hours of Service per day of such absence shall be credited. An
absence from work for maternity or paternity reasons means an absence (a) by
reason of the pregnancy of the Employee, (b) by reason of a birth of a child of
the Employee, (c) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or (d) for purposes
of caring for such child for a period beginning immediately following such birth
or placement. The Hours of Service credited under this paragraph shall be
Page 2-5
<PAGE> 17
credited (a) in the computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that period, or (b) in
all other cases, in the following computation period.
2.12 The "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any succeeding statute of substantially similar effect.
2.13 "Disability" shall mean the same definition as used to determine
eligibility to receive Social Security Disability benefits and such a
determination has been made by the Social Security Administration, provided the
Participant has completed five Years of vesting Service and is receiving Social
Security Disability benefits.
2.14 "Early Retirement Date" shall mean the date the Participant
attains age 55 and has completed at least five Years of Service.
2.15 "ERISA" means the Employee Retirement Income Security Act of
1974.
2.16 "Employee" shall mean any individual considered to be a common
law employee who is either actually employed or available to accept an
assignment under the normal employment practice of Employer or of any Related
Employer required to be aggregated with Employer under Sections 414(b), (c), (m)
or (o) of the Code.
The term Employee shall also include any Leased Employee deemed to be
an Employee of any Employer described in the previous paragraph as provided in
Sections 414(n) or (o) of the Code.
The term "Leased Employee" means any person (other than an Employee of
the recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period of at
least one-year, and such services are of a type historically performed by
Employees in the business field of the recipient Employer. Contributions or
benefits provided a Leased Employee by the leasing organization which are
attributable to services performed for the recipient Employer shall be treated
as provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the recipient
if: (a) such Employee is covered by a money purchase pension plan providing: (i)
a nonintegrated Employer Contribution rate of at least 10 percent of
compensation, as
Page 2-6
<PAGE> 18
defined in Section 415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which are excludable from
the Employee's gross income under Section 125, Section 402(e)(3), Section 402(h)
or Section 403(b) of the Code, (ii) immediate participation, and (iii) full and
immediate vesting; and (b) Leased Employees do not constitute more than 20
percent of the recipient's non-highly compensated work force.
2.17 "Employer" shall include:
(a) G.I. Joe's, Inc.;
(b) Any "Participating Employer" which is a Related Employer,
executes a Participating Employer Agreement and has Employees who are
required to be aggregated with Employer under Sections 414(b), (c), (m), or
(o) of the Code; and
(c) Any successor business to a Participating Employer which
shall adopt and maintain the Plan.
2.18 "Forfeiture" shall mean the non-vested portion of a Participant's
Accrued Benefit, which occurs at the time provided in Section 10.6 herein.
2.19 "Hour of Service" shall be:
(a) Each hour for which an Employee is paid or entitled to
payment by Employer for the performance of duties during the applicable
period; and
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity (including
Disability), layoff, jury duty, military duty or leave of absence. For
purposes of determining Hours of Service, a payment shall be deemed to be
made by or due from the Employer regardless of whether such payment is made
by or due from the Employer directly, or indirectly through, among others,
a trust fund, or insurer, to which the Employer contributes or pays
premiums and regardless of whether contributions made or due to the trust
fund, insurer, or other entity are for the benefit of particular Employees
or are on behalf of a group of Employees in the aggregate. No more than 501
Hours of Service will be credited under this paragraph for any single
continuous period (whether or not such period occurs in a single
computation period). Hours under this paragraph will be calculated and
credited pursuant to Section 2530.200b-2 of the Department of Labor
Page 2-7
<PAGE> 19
Regulations which is incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer.
The same Hours of Service will not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under this
paragraph (c). These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains
rather than the computation period in which the award, agreement or payment
is made.
Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m) of the Code),
a controlled group of corporations (under Section 414(b) of the Code), or a
group of trades or businesses under common control (under Section 414(c) of
the Code) of which the adopting Employer is a member, and any other entity
required to be aggregated with the Employer pursuant to Section 414(o) of
the Code and the regulations thereunder. Such hours will be credited
hereunder regardless of whether such other member or entity has adopted
this Plan; excluding, however, service during periods when Employer was not
a member of the group or required to be aggregated.
Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Section 414(n) of
the Code covering Leased Employees or Section 414(o) of the Code and the
regulations thereunder.
(d) Hours of Service will be determined on the basis of actual
hours worked for which an Employee is paid or entitled to payment as
provided herein.
2.20 "Normal Retirement Date" shall mean the date the Participant
attains age 65.
2.21 "Participant" shall mean an Employee who becomes a Participant in
the Plan in accordance with the provisions of Section 4.
2.22 "PBGC" shall mean the Pension Benefit Guaranty Corporation.
2.23 "PBGC Interest Rates." The Administrator shall apply the "special
interest rate rules" of Section 2.3 with reference to the PBGC Interest Rates in
effect on the first day
Page 2-8
<PAGE> 20
of the Plan Year which includes the Participant's Benefit Commencement Date.
2.24 "Plan Benefit" shall mean the Participant's nonforfeitable
Accrued Benefit in the Plan.
2.25 "Plan Year" shall mean the year on which the Plan records are
kept, which shall be the 12-month period beginning on the first day of March of
each year and ending on the last day of February of the following year.
2.26 "Present Value" shall mean the single sum Actuarial Equivalent
(defined in Section 2.4) of the Participant's Accrued Benefit using the
Actuarial Assumptions and the "special interest rate" rules in Section 2.3.
2.27 "Related Employer(s)" shall include all corporations which are
members of a controlled group of corporations (as defined in Section 414(b) of
the Code), all trades or businesses (whether or not incorporated) which are
under common control (as defined in Section 414(c) of the Code) and all members
of an affiliated service group (as defined in Section 414(m) and (o) of the
Code) with the Employer.
2.28 "Social Security Retirement Age" of a Participant shall be
determined in accordance with the following table:
<TABLE>
<CAPTION>
Calendar Year Social Security
of Birth Retirement Age
------------- --------------
<S> <C>
Prior to 1938 65
1938 through 1954 66
After 1954 67
</TABLE>
2.29 "Taxable Wage Base" shall mean the contribution and benefit base
(as determined under Section 230 of the Social Security Act) in effect for a
particular calendar year.
2.30 "Year of Participation." For purposes of benefit accruals, a Year
of Participation shall mean the completion of 1,000 Hours of Service during the
relevant computation period. A partial Year of Participation is a fraction, the
numerator of which is the number of Hours of Service the Participant has
completed during the applicable computation period, and the denominator is the
number of Hours of Service required for a full Year of Participation.
The computation period for purposes of determining a Year of
Participation shall be the Plan Year beginning with the Plan Year during which
an Employee first performed an Hour of Service for Employer.
Page 2-9
<PAGE> 21
2.31 "Year of Service" shall mean the computation period during which
the Employee has performed at least 1,000 Hours of Service with Employer. The
computation period shall be a 12-consecutive month period except less than 12
months may result from a change in computation period.
(a) For eligibility purposes, the initial eligibility computation
period shall be the 12-consecutive-month period beginning with the date on
which the Employee first performed an Hour of Service for Employer (the
employment commencement date) or the reemployment commencement date, and an
eligibility Year of Service shall not be credited to an Employee prior to
the first anniversary of the employment (or reemployment) commencement
date. If the Employee fails to meet the required Hours of Service
requirement in the initial period or periods to satisfy the service
requirements for eligibility to participate, the continuing eligibility
computation period shall be the Plan Year beginning with the Plan Year that
includes the Employee's first anniversary date of employment.
An Employee who is credited with the required Hours of Service in
both the initial eligibility computation period and the first Plan Year
which commences prior to the first anniversary of the Employee's initial
eligibility computation period will be credited with two Years of Service
for purposes of eligibility to participate.
(b) For vesting purposes, the computation period shall be the
Plan Year.
(c) If an Employer maintains the plan of a predecessor employer,
service with the predecessor employer shall be treated as service with
Employer.
Page 2-10
<PAGE> 22
Section 3
ADMINISTRATION
3.1 Assignment of Administrative Authority. Employer shall appoint a
Retirement Plan Committee as the "Administrator" to administer the Plan. The
Retirement Plan Committee shall be the "Administrator" of the Plan and shall be
responsible for the administration of the Plan. This Retirement Plan Committee
shall consist of one or more officers or other Employees of Employer, or any
other individuals. Any member may resign by delivering written resignation to
Employer and to the Retirement Plan Committee. Vacancies in the Retirement Plan
Committee arising by resignation, death, removal, or otherwise, shall be filled
by Employer. The Retirement Plan Committee may delegate, from time to time, by
written instrument, all or any part of its administrative responsibilities and
duties hereunder to a person, persons or organization (including Trustee)
approved by the Employer. Any such entity, person or organization shall be a
fiduciary and may resign by delivery of a written resignation to the Employer.
Vacancies arising by resignation, death, removal or otherwise shall be filled by
Employer. The reasonable expenses of such person, persons or organization in
carrying out its authority shall be an expense of the administration of the
Trust, unless an Employer elects to pay such expenses. Should Employer fail to
appoint a Retirement Plan Committee, then Employer shall act as the Retirement
Plan Committee and assume all such administrative authority, powers and duties
until such time as a Committee is appointed.
3.2 Organization and Operation. Administrator shall act by a majority
of its members at the time in office, and such action may be taken either by a
vote at a meeting or by unanimous consent in writing without a meeting.
Administrator may authorize any one or more of its members to execute
any document or documents on behalf of Administrator, in which event
Administrator shall notify Trustee in writing of such action and the name or
names of its member or members so designated. Trustee shall thereafter accept
and rely upon any document executed by such member or members as representing
action by Administrator until Administrator shall file with Trustee a written
revocation of such designation.
Administrator may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs, and may appoint such accountants,
counsel, specialists and other persons as it deems necessary or desirable in
connection with the administration of the Plan. Administrator shall be entitled
to rely conclusively upon and shall be fully protected in any action taken by it
in good faith in relying upon any opinions or reports
Page 3-1
<PAGE> 23
which shall be furnished to it by such accountant, counsel or other specialist.
3.3 Powers and Duties. Administrator shall have the primary
responsibility for the administration and operation of the Plan and shall have
all powers necessary to carry out the provisions of the Plan. The Administrator
shall have the discretionary authority to determine all questions arising in the
administration, interpretation and application of the Plan and the
interpretation of the Administrator shall be final and binding on all parties
unless such interpretation is found to be arbitrary and capricious, made in bad
faith or erroneous as a matter of law.
The Administrator under its discretionary authority shall:
(a) Determine the eligibility of each Employee for participation
in the Plan.
(b) Determine the benefits hereunder to which Participants and
their Beneficiaries are entitled.
(c) Authorize all disbursements by Trustee from the Trust.
(d) Set down uniform and nondiscriminatory rules of
interpretation and administration to the extent necessary or appropriate,
which may be modified from time to time in light of Administrator's
experience.
(e) Publish and file or disclose or cause to be published and
filed or disclosed all reports and disclosures required by the Act.
(f) Direct or assist Trustee in notifying Participants and their
Beneficiaries of their elections with respect to withholding requirements
applicable to benefit payments and to withhold from such payments, unless
Administrator has directed Trustee to withhold.
(g) Obtain from Participants and their Beneficiaries elections
with respect to forms of payment of benefits and obtain spousal consent and
waivers where required.
(h) Hear and decide Participant claims pursuant to the Plan's
claims procedure.
3.4 Records and Reports. Administrator shall keep records of its
proceedings and acts, and shall keep such books of account, records and other
data as may be necessary or
Page 3-2
<PAGE> 24
appropriate for proper administration of the Plan. Administrator shall maintain
records with respect to each Participant sufficient to determine the benefits
due or which may become due to such Participant. Administrator shall report to
each Participant with respect to Plan Benefits if such Participant requests such
a report in writing pursuant to the Act. Said report shall be sufficient, based
upon the latest information available, to inform the Participant of his Plan
Benefit under the Plan and the percentage of such benefits which are
nonforfeitable under the Plan. Administrator shall be responsible for reporting
and disclosure requirements under the Act relating to the Plan, unless another
fiduciary of the Plan has agreed to undertake responsibility for one or more
specific requirements.
3.5 Payment of Expenses. Unless otherwise determined by the Employer,
or if Administrator is a full-time Employee of an Employer or an affiliated
Employer, Administrator shall serve without compensation for services as such.
Employer may elect to pay all expenses of Administrator. Such expenses shall
include any expenses incident to the functioning of Administrator, including,
but not limited to, fees of accountants, counsel and other specialists, and
other costs of administering the Plan. If an Employer does not elect to pay such
expenses, they shall be paid from the Trust Fund.
3.6 Agent for Service of Process. The agent for service of process for
the Plan and Trust shall be the Plan Administrator. No Participant or
Beneficiary is entitled to any notice of process unless required by the Act.
3.7 Indemnity. If the Administrator is an officer, director or
employee of an Employer, Employer agrees to indemnify Administrator against any
and all claims, loss, damage, expense or liability arising from any action or
failure to act, except when the same is judicially determined to be due to the
gross negligence or willful misconduct of Administrator or such member.
3.8 Personal Data to Administrator. Each Participant and each
Beneficiary of a deceased Participant must furnish to the Administrator such
evidence, data or information as the Administrator considers necessary or
desirable for the purpose of administering the Plan. The provisions of this Plan
are effective for the benefit of each Participant upon the condition precedent
that each Participant will furnish promptly full, true and complete evidence,
data and information when requested by the Administrator, provided the
Administrator advises each Participant of the effect of his failure to comply
with its request.
3.9 Address for Notification. Each Participant and each Beneficiary of
a deceased Participant must file with the
Page 3-3
<PAGE> 25
Administrator from time to time, in writing, his post office address and any
change of post office address. Any communication, statement or notice addressed
to a Participant, or Beneficiary, at his last post office address filed with the
Administrator, or as shown on the records of the Employer, binds the
Participant, or Beneficiary, for all purposes of this Plan.
3.10 Actuary. Administrator may engage the services of an Actuary to
assist it in its duties, including the determination of contributions necessary
to fund the benefits called for under the Plan, and reasonable fees for such
actuarial services shall be considered an expense of administration of the
Trust.
Page 3-4
<PAGE> 26
Section 4
ELIGIBILITY
4.1 Eligibility.
(a) For Plan Years beginning before January 1, 1991, all
Employees shall be eligible to participate upon satisfaction of the
following requirements:
(i) Completion of one Year of Service. For eligibility
purposes, a Year of Service shall be completed on the last day of the
eligibility 12-month computational period (irrespective of the date in
such period when the Employee completes 1,000 Hours of Service);
(ii) Attainment of age 21.
(b) Effective January 1, 1991, no Employee shall be eligible to
become a Participant in the Plan if the Employee is not already eligible to
participate in the Plan pursuant to its terms as of December 31, 1990.
In general, an Employee hired before December 1, 1989 who has
completed 1,000 Hours of Service since hire will remain eligible to
participate in the Plan. An Employee hired on December 1, 1989 or later
will not be eligible to participate in the Plan.
(c) Effective March 1, 1993, all Employees shall be eligible to
participate upon completion of one Year of Service and attainment of age
21.
(d) An Employee who has satisfied the eligibility requirements
shall be come a Participant on the first day of the month following the
month in which the eligibility requirements are satisfied.
4.2 Continued Participation. Temporary layoffs and leaves of absence
granted by Employer shall not be deemed to be a termination of employment. Any
Participant who fails to return to active employment at or before the expiration
of his leave of absence shall be deemed to have terminated his employment as of
the date of expiration of his leave of absence, except that should he fail to
return because of death or Disability, his service shall be deemed to have
continued until the date of his death or the termination of his employment for
Disability. Employer, in granting leaves of absence, shall follow uniform rules
which shall be consistently applied so that all Participants similarly situated
shall be treated alike.
Page 4-1
<PAGE> 27
4.3 Reemployment. If a Participant is rehired after termination of
employment with Employer, his Years of Service prior to termination of
employment shall be counted for purposes of eligibility and he shall be eligible
to participate in the Plan on his reemployment commencement date.
If a Participant becomes ineligible to participate because he is no
longer a member of an eligible class of Employees, such Employee shall
participate immediately upon his return to an eligible class of Employees.
If an Employee who is not a member of the eligible class of Employees
becomes a member of the eligible class, such Employee shall participate
immediately if such Employee has satisfied the eligibility requirements and
would have previously become a Participant had he been in the eligible class.
4.4 Bargaining Unit Employees. If an Employee is or shall become
included in a unit of Employees covered by a collective bargaining agreement
between Employee representatives and Employer, and if retirement benefits were
the subject of good-faith bargaining between such Employee representatives and
Employer, and if two percent or less of the Employees who are covered pursuant
to the collective bargaining agreement are professionals as defined in Section
1.410(b)-9(g) of the regulations, then any Employee included in such a unit
shall not be eligible to participate or to continue to participate in this Plan
unless the Employee's coverage under this Plan was provided for in the
collective bargaining agreement. The term "employer representatives" does not
include any organization of which more than one-half of whose members are
Employees who are owners, officers or executives of an Employer.
Page 4-2
<PAGE> 28
Section 5
CONTRIBUTIONS
5.1 Employer Contributions. The contributions required to fund the
cost of pension and other benefits provided by the Plan shall be made solely by
Employer. Employer shall contribute to the Trust such sums as are required in
accordance with actuarial practices acceptable to the Internal Revenue Service
to fund the total cost of benefits provided by the Plan. It is intended that
Employer will make such contributions as are necessary to fund the Plan in
accordance with the minimum funding standards of the Code.
5.2 Employee Contributions. Contributions by Participants are neither
required nor permitted.
5.3 Time of Payment. Employer shall pay to Trustee its contribution
for each fiscal year within the time prescribed by the Code and Treasury
Regulations.
5.4 Conditional Employer Contributions.
(a) Conditional Contributions. All contributions made by Employer
under this Plan to this Trust are conditioned upon the qualification of the
Plan under Section 401 of the Code and conditioned upon such contributions
being deductible upon the deductibility of such under Section 404 of the
Code.
(b) Return to Employer. Any Employer contribution that is
nondeductible under Section 404 of the Code must be returned to Employer
if:
(i) The contribution is made by reason of a good-faith
mistake of fact;
(ii) The contribution is conditioned on its deductibility
under the Code and it is disallowed as a deduction.
The return to Employer of the amount of the contribution involved
must be made within one year of the mistaken payment of the contribution or
disallowance of the deduction, as the case may be. The return to Employer
must occur even if a resulting adjustment is made to the Accrued Benefit of
Participants which are partially or entirely nonforfeitable. The amount
which must be returned shall be the excess of (1) the amount contributed
over (2) the amount that would have been contributed had there not occurred
a mistake of fact. Earnings attributable to the contribution
Page 5-1
<PAGE> 29
to be returned may not be returned to Employer, but losses attributable
thereto must reduce the amount to be returned.
5.5 Non-Vested Accrued Benefit. Trustee will retain in the Trust all
amounts representing the non-vested Accrued Benefit of Participants who have
terminated employment. The Employer will not use forfeited Plan Benefits to
increase the Plan Benefits of other Participants, but instead will use the
amounts to reduce its contribution for future Plan Years.
5.6 Nonreversion and Residual Assets. Prior to the satisfaction of all
Accrued Benefits to the extent funded with respect to the Participants and their
Beneficiaries under this Plan and Trust, no part of the corpus or the income of
the Trust may be used for, or diverted to, purposes other than for the exclusive
benefit of the Participants or their Beneficiaries. Any residual assets of the
Plan may be distributed to the respective Participating Employers after all
Accrued Benefits of Participants and their Beneficiaries to the extent funded
have been satisfied. If this is an amended and restated Plan, an amendment which
provides for a reversion of residual plan assets to Employer which was not
provided in the Plan prior to the amendment will not be effective until a period
of five years from the date of the amendment.
5.7 Funding Standard Account. Administrator shall establish a funding
standard account for the Plan which will be charged annually with the amount
required to be contributed by each Employer and shall be credited annually with
Employer's actual contributions made to the Trust under the Plan.
5.8 Related Employers. If one or more Related Employers adopt the Plan
by executing a Participating Employer Agreement, then the Primary Employer and
each Participating Employer shall satisfy the annual contribution in a manner
agreed upon by those Employers. The contribution requirement of a Participating
Employer may be waived by the Primary Employer.
5.9 Single Plan for Employees of Related Employers. Contributions made
by each Participating Employer and the Primary Employer shall be made to and
considered to be a contribution to a single plan and used to pay benefits for
all Participants under the Plan except as otherwise provided in Employer's Plan.
Page 5-2
<PAGE> 30
Section 6
NORMAL RETIREMENT BENEFIT/DEFERRED VESTED BENEFIT
6.1 General. When a Participant attains the applicable retirement date
and terminates employment with Employer, Administrator shall direct Trustee to
distribute the Plan Benefit to the Participant pursuant to the provisions of
this Plan.
(a) Normal retirement shall occur when a Participant reaches the
Normal Retirement Date and terminates employment with Employer.
(b) Early retirement shall occur when a Participant terminates
employment with Employer after reaching the Early Retirement Date. If a
Participant separates from service before satisfying the age requirement,
but has satisfied the service requirement, the Participant will be entitled
to elect an early retirement benefit upon satisfaction of such age
requirement.
(c) Deferred retirement may occur if a Participant continues
employment with Employer beyond the Normal Retirement Date. During any
period of continued employment, the Participant shall continue to
participate in the Plan until actual retirement, when participation shall
cease.
6.2 Normal Retirement Benefit. A Participant who retires on his Normal
Retirement Date shall be entitled to receive an annual normal retirement benefit
(payable monthly) which shall be equal to the following:
(a) The Participant's Accrued Benefit determined as of February
28, 1993 listed on Exhibit A attached hereto, which by this reference is
incorporated herein; plus
(b) The sum of the nonintegrated component, 1.1 percent of the
Participant's Annual Compensation for each Year of Participation (as
defined in Section 2.30), plus for the integrated component, .364 percent
of the Participant's Excess Compensation for each Year of Participation
taken into account. Excess Compensation for a Year of Participation is
Compensation in excess of the Integration Level in effect for that Year of
Participation. The nonintegrated component percentage shall not be less
than the integrated component percentage and the integrated component shall
not exceed the applicable maximum unit benefit disparity percentage set
forth in the attached Addendum.
Page 6-1
<PAGE> 31
Employer may not maintain any plan during the Plan Year which
relies on the permitted disparity rules of Section 401(c) of the Code which
covers any Participant under this Plan.
(c) Overall Permitted Disparity Limits. For any Plan Year this
Plan benefits any Employee who benefits under another qualified plan or
simplified employee pension maintained by Employer that provides for
permitted disparity (or imputes disparity), the benefit for each
Participant under this Plan will be equal to the nonintegrated component
percentage of the Participant's Average Annual Compensation. If this
paragraph is applicable, this Plan will have a fresh start date on the last
day of the Plan Year preceding the Plan Year in which this paragraph is
first applicable. In addition, if in any subsequent Plan Year this Plan no
longer benefits any Employee who also benefits under another qualified plan
or simplified employee pension maintained by Employer that provides for
permitted disparity (or imputes disparity), this Plan will have a fresh
start date on the last day of the Plan Year preceding the Plan Year in
which this paragraph is no longer applicable.
(d) Cumulative Disparity Adjustments. If the Participant has
earned a Year of Credited Service in one or more other qualified plans or
simplified employee pensions maintained by Employer, and the number of the
Participant's cumulative disparity years exceed 35, the Participant's
benefit will be further adjusted as provided below. A Participant's
cumulative disparity years consist of the sum of: (1) the total Years of
Credited Service a Participant is projected to have earned under this Plan
by the end of the Plan Year containing the Participant's Normal Retirement
Age and subsequent Years of Credited Service, if any (the total not to
exceed 35), and (2) the number of years during which the Participant earned
a Year of Credited Service under one or more other qualified plans or
simplified employee pensions maintained by Employer (other than years
counted in (1), and not including any Years of Credited Service earned by
the Participant under such other qualified plans or simplified employee
pensions after the Participant has earned 35 Years of Credited Service
under this Plan).
If this cumulative disparity adjustment is applicable, the
Participant's benefit will be increased as follows:
(i) Subtract the Participant's nonintegrated component
percentage from the Participant's integrated component percentage
(after modification in accordance with the paragraphs preceding this
cumulative disparity adjustment).
Page 6-2
<PAGE> 32
(ii) Divide the result in (i) by the Participant's Years of
Credited Service under this Plan projected to the later of Normal
Retirement Age or current age, not to exceed 35 Years of Credited
Service.
(iii) Multiply the result in (ii) by the number of years by
which the Participant's cumulative disparity years exceed 35.
(iv) Add the result in (iii) to the Participant's
nonintegrated component percentage determined prior to this cumulative
disparity adjustment.
6.3 "Integration Level" shall mean the Taxable Wage Base as defined in
Section 2.29.
6.4 Minimum Benefit. In no event shall the normal retirement benefit
be less than the Participant's Accrued Benefit determined as of February 28,
1993.
6.5 Normal Form of Benefit. To compute a Participant's normal
retirement benefit, the normal form of benefit is a life annuity with 10 year
term certain.
6.6 Formula to Determine Accrued Benefit. A Participant's Accrued
Benefit shall be determined under the unit accrual rule. Each Participant will
accrue a benefit of 1.1 percent of Total Annual Compensation plus .364 percent
of Excess Compensation per Year of Participation. The normal retirement benefit
is the total benefit accrued at Normal Retirement Date.
6.7 Partial Accrual Rule. A Participant is eligible to receive credit
for a partial Year of Participation for any Plan Year beginning after December
31, 1993 or such later date prescribed by applicable Treasury Regulations in
which the Plan fails to satisfy either the participation test or the coverage
test of Sections 401(a)(26) and 410(b) of the Code respectively. A Participant
shall receive a partial Year of Participation if he does not complete the
required number of Hours of Service necessary to receive credit for a full Year
of Participation. If the participant incurs a separation from service during the
Plan Year he must complete a least 501 Hours of Service during the Plan Year to
be eligible for a partial Year of Participation. A partial Year of Participation
is a fraction, the numerator of which is the number of Hours of Service the
Participant has completed during the relevant computation period and the
denominator of which is the number of Hours of Service specified herein
necessary for a full Year of Participation. If a Participant receives credit for
a partial Year of Participation
Page 6-3
<PAGE> 33
under a plan using the fractional rule accrual method, the Administrator, in the
Plan Year following the partial accrual year, will adjust the denominator of the
Participant's accrual fraction to reflect the partial Year of Participation
credited in the prior year.
6.8 Accrual of Benefit After Normal Retirement Date. A Participant
shall accrue benefits after attainment of his Normal Retirement Date if the
Participant's normal retirement benefit under this section would increase
because of additional Years of Participation, Years of Service or increases in
Average Annual Compensation. If a Participant has postponed commencement of his
benefit, the Administrator will reduce the additional accrual for any Plan Year
by the Actuarial Equivalent adjustment for late retirement. If a Participant
commences distribution of his normal retirement benefit, the Participant's
additional accrual for any Plan Year shall be reduced as required under this
section by the Actuarial Equivalent of any distribution made to the Participant
for that Plan Year (but only to the extent the distribution does not exceed the
annual distribution the Participant otherwise would receive under the normal
form of benefit). An additional accrual determined under this section may not
cause a Participant's normal retirement benefit (as adjusted by this section) to
exceed the maximum normal retirement benefit permitted under this section. The
additional accrual requirement of this section applies to any Plan Year
beginning after December 31, 1987. With respect to such Plan Years the
Administrator shall determine a Participant's Accrued Benefit with respect to
Compensation earned and Years of Participation or Years of Service earned by the
Participant since his attainment of Normal Retirement Date, even if earned for a
Plan Year beginning prior to January 1, 1988, except for years earned prior to
the Participant's initial date of participation in the Plan.
6.9 Integrated Plans -- Actuarial Equivalent for Early Benefit
Payment. If the normal retirement benefit incorporates permitted disparity, to
determine the Actuarial Equivalent of the Participant's Accrued Benefit for
benefit payment prior to the Participant's attaining Social Security Retirement
Age, the adjustment described in this section will apply. The excess benefit
percentage or the offset benefit percentage, whichever is applicable, of the
Actuarial Equivalent benefit (expressed in the normal form of benefit) will
equal the lesser of (1) the percentage determined after application of the
factors specified in this section for Actuarial Equivalence or (2) the
percentage determined by reducing the maximum disparity percentage at Social
Security Retirement Age by a factor of 1/15 for each of the first five years the
benefit commencement date precedes the Social Security Retirement Age, 1/30 for
each of the next five years the benefit commencement date precedes Social
Security Retirement Age, and actuarially thereafter using the Plan factors. The
maximum disparity percentage is .75 percent (adjusted, if
Page 6-4
<PAGE> 34
required, for the integration level designation under the Plan and for the
normal form of benefit) multiplied by the Participant's first 35 Years of
Participation taken into account for benefit accrual purposes. Furthermore, for
an offset benefit plan, the benefit percentage of the Actuarial Equivalent
benefit (prior to application of the offset) will equal the lesser of the
percentage otherwise determined using the Plan factors or the percentage
determined using the minimum reduction applicable to the offset percentage under
(2) above. The Actuary will apply this percentage by making appropriate
adjustment for benefit commencement in a month later than the month in which the
Participant attains a particular age prior to Social Security Retirement Age.
The adjustment described in this section is not applicable if the sole reason
for exceeding the applicable limitation is the use of the PBGC interest rates.
6.10 Payment of Normal or Delayed Retirement Benefit. Payment of
Normal or Delayed Retirement Benefit shall be made in accordance with Section
11.
Page 6-5
<PAGE> 35
ADDENDUM
MAXIMUM DISPARITY TABLES
The applicable Maximum Disparity Percentage is the percentage from the following
table
<TABLE>
<CAPTION>
Earliest Normal Maximum Fixed Maximum Unit Benefit
Retirement Age Disparity % Disparity %
- -------------- ------------- --------------------
<S> <C> <C>
65 22.75% 0.65%
64 21.00% 0.60%
63 19.25% 0.55%
62 17.50% 0.50%
61 16.625% 0.475%
60 15.75% 0.45%
59 14.875% 0.425%
58 14.00% 0.40%
57 13.125% 0.375%
56 12.04% 0.44%
55 11.06% 0.316%
</TABLE>
The applicable Disparity Percentage set forth above may be adjusted by the
Actuary to determine the normal form of benefit which is the Actuarial
Equivalent life annuity or the following table in the event the Plan's
integration level for a Plan Year exceeds the greater of $10,000 or 50 percent
of Covered Compensation.
<TABLE>
<CAPTION>
Integration Level (as a
percentage of Covered Compensation Adjustment
- ---------------------------------- ----------
<S> <C>
More than 50% but not more than 125% .92/1
More than 125% but not more than 150% .80
More than 150% but not more than 175% .71
More than 175% but not more than 200% .63
More than 200% .56
</TABLE>
- --------------
/1 The .92% adjustment factor set forth above shall be reduced to .8% in
the event that the integration level in the Plan is a flat dollar amount or
percentage of Covered Compensation of an individual attaining Social Security
Retirement Age in that Plan Year, but not less than $10,000, and not more than
the taxable wage base at the beginning of the Plan Year.
<PAGE> 36
Section 7
EARLY RETIREMENT BENEFIT
7.1 Early Retirement Benefit. A Participant who has attained his Early
Retirement Date may elect to retire prior to Normal Retirement Date and receive
an early retirement benefit. The early retirement benefit shall equal his
Accrued Benefit calculated using the Participant's Years of Participation and
Average Annual Compensation up to his actual retirement date, reduced by 5/9
percent for each of the first 60 months and 5/18 percent for each month
thereafter that the date on which the payment of the early retirement benefit
precedes the Participant's Normal Retirement Date.
7.2 Payment of Early Retirement Benefit. A Participant who is eligible
for an early retirement benefit and who elects to retire prior to his Normal
Retirement Age may elect, subject to Section 11, an early retirement benefit as
of his Early Retirement Date which shall be the date the early retirement
benefit commences. The early retirement benefit shall be paid in the form and as
of the distribution date as described in Section 11.
Page 7-1
<PAGE> 37
Section 8
DISABILITY BENEFITS
8.1 Eligibility for Disability Benefit. A Participant who incurs a
Disability (as defined in Section 2.14) while employed by Employer prior to
satisfying the requirements for a normal retirement benefit is eligible to
receive a Disability Benefit.
If the Participant is receiving benefits from the Employer's long-term
disability plan, the Disability Benefit will be calculated as provided in
Section 6.2 for normal retirement benefits, but only counting Years of
Participation in which the Participant received Social Security benefits, and
computing Compensation based on the Participant's Compensation prior to his
Disability.
If the Participant is not receiving benefits from the Employer's
long-term disability plan, the Disability Benefit will be calculated as provided
in Section 7.1 for early retirement benefits, without reduction for commencement
of payment before age 65.
8.2 Form and Time of Payment. The form and time of payment of the
Disability Benefit shall be as provided in Section 11.
8.3 Recovery from Disability. If a Participant recovers from
Disability and reenters employment covered under the Plan, the Participant's
Years of Participation to the date of his termination for Disability shall be
restored. The Participant then will commence to accrue benefits under the Plan
based upon his Years of Participation before his termination for Disability
after his reemployment.
8.4 Continuing Evidence of Disability. The Administrator may require a
Participant to submit evidence of his continued eligibility for Disability
Benefits at any time he is receiving the Disability Benefit. In the event that a
disabled Participant refuses or fails to submit evidence of his continued
Disability when requested by the Administrator, the Trustee, upon written notice
from the Administrator, may discontinue the Participant's Disability Benefits
until the Participant submits satisfactory evidence of his continued Disability.
Page 8-1
<PAGE> 38
Section 9
DEATH BENEFITS
9.1 Preretirement Death Benefit. If a Participant dies prior to the
commencement of a pension benefit under the Plan, his Accrued Benefit shall
become vested. Such Participant's Beneficiary shall receive a death benefit
equal to the Present Value of the Participant's nonforfeitable Accrued Benefit
as of the Anniversary Date subsequent to or coinciding with the date of death.
9.2 Payment of Post-Retirement Death Benefit. The provisions covering
the payment of Plan Benefits in the event the Participant dies after the
commencement of payment of benefits is provided under Section 11.
9.3 Payment of Preretirement Death Benefit. A Participant's
preretirement death benefit shall be reduced by any security interest held by
the Plan by reason of any Participant's loan, provided any post-August 18, 1985
loan satisfied the spousal consent requirements of Section 11. Pending payment
to a Beneficiary of any insurance death benefit proceeds it receives under life
insurance contracts, the Trustee may set aside the proceeds in a segregated
account solely for the benefit of the Participant's Beneficiary. The
Administrator may direct the Trustee to invest the Beneficiary's segregated
account in federally insured interest bearing savings account(s) or time
deposit(s) (or a combination of both), or in other fixed income investments
until distribution. A segregated account remains a part of the Trust, but it
alone shares in any income it earns, and it alone bears any expense or loss it
incurs.
Payment of the deceased Participant's preretirement death benefit
shall commence in accordance with Section 11. The Participant's preretirement
death benefit shall be paid first to satisfy the preretirement survivor annuity,
if any, payable in accordance with Section 11, and then to pay the remaining
portion of the preretirement death benefit in accordance with other forms of
payment which may be available in that Section. If the value of the
preretirement survivor annuity exceeds the value of the pre-retirement death
benefit, the Plan shall not pay any pre-retirement death benefit other than the
preretirement survivor annuity.
9.4 Designation of Beneficiary. Each Participant shall, in writing,
designate the beneficiary to which Plan Benefit, if any, shall be payable in
accordance with the provisions of this section. Each Participant shall have the
right at any time and from time to time to direct Administrator to change the
designation of Beneficiary and direct the manner in which the proceeds shall be
paid to the Beneficiary. If a
Page 9-1
<PAGE> 39
Participant is married, the Participant's spouse shall be deemed to be the
designated Beneficiary to receive the Participant's vested Accrued Benefit upon
the Participant's death, unless the surviving spouse consents in writing to the
designation of another Beneficiary, which consent shall acknowledge the effect
of such a designation and be witnessed by a notary public or a representative of
Administrator. The spouse's consent must acknowledge the specific non-spouse
beneficiary. A spousal consent to a Participant's Beneficiary designation shall
not be required if:
(a) the spouse is designated as the primary Beneficiary by the
Participant, or
(b) it is established to the satisfaction of the Administrator
that spousal consent cannot be obtained because there is no spouse, because
the spouse cannot be located or because of such other circumstances as may
be prescribed in regulations issued by the Secretary of the Treasury.
Any consent by a spouse or any determination that the consent is
not required pursuant to subparagraphs (a) or (b) above, shall be effective
only with respect to such spouse. A spouse shall mean the spouse to whom
the Participant was married at the time of the Participant's death.
9.5 Failure to Designate a Beneficiary. If any Participant shall fail
to designate a Beneficiary, or if all designated beneficiaries shall have
predeceased the Participant, for purposes of the Plan, Administrator shall
distribute the Participant's Plan Benefits as follows:
(a) To the Participant's surviving spouse, or if there be none
surviving,
(b) To the Participant's children, in equal shares, or if there
be none surviving,
(c) To the estate of the Participant.
9.6 Proof of Death. The Administrator may require such proper proof of
death and such evidence of the right of any person to receive the death benefit
payable as a result of the death of a Participant as the Administrator may deem
desirable. The Administrator's determination of death and the right of any
person to receive payment shall be conclusive.
Page 9-2
<PAGE> 40
Section 10
VESTING AND TERMINATION BENEFITS
10.1 Termination Benefit. A Participant who, prior to his Normal
Retirement Date, terminates employment for any reason other than death,
eligibility for a disability benefit or eligibility for an early retirement
benefit, will receive a Termination Benefit.
The Participant's Termination Benefit is the Actuarial Equivalent of
his nonforfeitable Accrued Benefit payable at Normal Retirement Date. Actuarial
Equivalence shall be determined on the date the termination benefit commences.
10.2 Payment of Termination Benefit. Payment of termination benefit
shall be made in accordance with Section 11.
10.3 Vesting. Except as otherwise provided in this section, a
Participant's Accrued Benefit shall be subject to graduated vesting in
accordance with the following schedule:
<TABLE>
<CAPTION>
Plan Years of Service Vested Interest
--------------------- ---------------
<S> <C>
Less than 5 years 0%
5 years or more 100%
</TABLE>
10.4 Retirement, Death and Disability. A Participant's Accrued Benefit
shall be fully vested regardless of his vesting Years of Service upon the
occurrence of (a) attainment of Normal Retirement Age, as defined in Section
411(a)(8) of the Code; (b) death while still employed by Employer; or (c)
Disability.
10.5 Vesting Years of Service. For the purpose of determining Years of
Service for vesting purposes:
(a) The vesting computation period shall be the Plan Year. The
Employee need not be employed at the beginning or the end of the vesting
computation period if at least the required number of Hours of Service have
been performed during the period.
(b) In determining vesting Years of Service, all Years of Service
with the Employer shall be counted except during a period when Employer did
not maintain this Plan or any Year of Service before a Break in Service if
the number of consecutive Breaks in Service equals or exceeds the greater
of five or the aggregate number of the Years of Service prior to the break.
This exception applies only if the Participant is zero percent vested in
his Accrued Benefit derived from Employer Contributions at the time he
Page 10-1
<PAGE> 41
has a Break in Service. Furthermore, the aggregate number of Years of
Service before a Break in Service does not include any Years of Service not
required to be taken into account under this exception by reason of any
prior Break in Service.
(c) A Participant who terminates employment with Employer with a
vested interest in his or her Accrued Benefit who is reemployed by Employer
before incurring a one year Break in Service will receive credit for Years
of Service earned before and after termination of employment for purposes
of determining the vested interest in both pre-termination and
post-termination Benefit Accruals.
10.6 Forfeitures. A Forfeiture will be deemed to occur when the
Participant terminates employment with Employer and has received a cash-out
distribution upon termination of participation in the Plan, or terminated
employment with Employer without any vested interest under the Plan.
A Forfeiture can only occur at the designated time if the terminated
Participant previously received a cash-out distribution following termination of
employment with Employer. A cash-out distribution made to a terminated
Participant not later than the end of the second Plan Year following the Plan
Year in which the termination occurred is deemed to be made on termination and
qualifies as a cash-out distribution. A cash-out distribution must consist of
the Participant's entire nonforfeitable Accrued Benefit. If the Participant's
Accrued Benefit is zero upon termination (due to a 100 percent Forfeiture), the
Participant shall be deemed to have received a cash-out distribution of his
Accrued Benefit and the Forfeiture of the non-vested Accrued Benefit shall occur
at the end of the Plan Year in which the Participant's termination occurs.
10.7 Treatment of Forfeitures on Rehire. If a Participant incurs a
Forfeiture and is subsequently rehired, the Forfeiture shall remain forfeited or
shall be restored as follows:
(a) After Five Years. If the Participant is rehired after
incurring a five-year Break in Service, Years of Service after such
five-year Break in Service period shall not be counted for purposes of
determining the Participant's Accrued Benefit in pre-break benefits, and
the Forfeiture incurred shall remain forfeited.
(b) Before Five Years.
(i) If the Participant is rehired before incurring a
five-year Break in Service and received or is deemed to have received
a cash-out distribution
Page 10-2
<PAGE> 42
before being rehired, any Forfeiture which occurred prior to rehire
shall be restored if the Participant repays to the Plan the full
amount of the Employer-derived portion of the cash-out distribution
and the repayment is made on or before the earlier of the following
times: (a) five years after the first date on which the Participant is
subsequently rehired or (b) the close of the five-year Break in
Service period commencing after the distribution. The Participant's
repayment must include interest compounded annually, at the rate used
for purposes of Section 411(c)(2)(C) of the Code, calculated from the
date of the cash-out distribution.
(ii) If the Participant's entire Accrued Benefit was
forfeited, and no actual distribution of any Plan Benefit accrued
before rehire, then any Forfeiture which occurred prior to rehire will
be restored if the Participant is rehired within the five-year period
prescribed above. For purposes of applying the repayment and
restoration provisions above, the rehired Participant shall be treated
as repaying his deemed cash-out distribution on the date of rehire.
(iii) Restoration of the Participant's Accrued Benefit
includes restoration of all Code Section 411(d)(6) protected benefits
applicable to that restored Accrued Benefit in accordance with
applicable Treasury Regulations.
10.8 Amendment of Vesting Schedule. No amendment of the vesting
schedule shall directly or indirectly deprive a Participant of nonforfeitable
rights to Accrued Benefits to the date of the amendment. Further, if the vesting
schedule of the Plan is amended, or the Plan is amended in any way that directly
or indirectly affects the computation of any Participant's nonforfeitable
percentage, or if the Plan is deemed amended by an automatic change to or from a
top-heavy vesting schedule, each Participant with at least three Years of
Service with the Employer may elect, within a reasonable period after the
adoption of the amendment or the change, to have the nonforfeitable percentage
computed under the Plan without regard to such amendment.
An amended vesting schedule will apply to a Participant only if the
Participant receives credit for at least one Hour of Service after the new
schedule becomes effective.
The period during which the election may be made shall commence with
the date the amendment is adopted or deemed to be made and shall end on the
latest of:
Page 10-3
<PAGE> 43
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by Employer or Administrator.
10.9 Transferred or Rollover Accounts. If Employer's Plan shall
receive any amounts as a result of a rollover or a plan transfer, such amounts
shall be fully vested and nonforfeitable.
10.10 Forfeiture Due to Inability to Locate. If a Participant's Plan
Benefit becomes payable and the Administrator, after a reasonable search cannot
locate the Participant (or his Beneficiary who is entitled to payment), the Plan
Benefit shall be forfeited. If the Participant or his Beneficiary subsequently
presents a valid claim for benefits, the Administrator shall reinstate the Plan
Benefit in a uniform and nondiscriminatory manner.
Page 10-4
<PAGE> 44
Section 11
FORM AND TIME OF PAYMENT OF ACCRUED BENEFITS
11.1 General. Subject to the requirements of Section 11.2, a
Participant shall be paid his nonforfeitable Accrued Benefit in a form permitted
under Section 11.3 or, if provided under the Plan, in one of the optional forms
of benefit. Annuity payments will continue until the last scheduled payment
coincident with or immediately preceding the date of the Participant's death or,
if applicable, the date of his survivor's death. To determine the value of any
benefit payable under the Plan, the Participant's nonforfeitable Accrued Benefit
shall be reduced by any security interest held by the Plan by reason of a
Participant loan, provided any post-August 18, 1985 loan satisfied the spousal
consent requirement of this section.
11.2 Benefit Elections. If the Participant is eligible to receive a
Plan Benefit in excess of $3,500, the Administrator shall (for Plan Years
beginning after 1988) provide a benefit election notice to a Participant at
least 30 days and not more than 90 days prior to the Benefit Commencement Date.
The notice shall explain the optional forms of benefit under the Plan, including
the material features and relative values of the options, and the Participant's
right to defer distribution until the Participant attains the later of age 62 or
the Normal Retirement Date. If the Participant is eligible to receive an annuity
option, then the benefit election notice shall also comply with the Annuity
Notice Requirements described in Section 11.3. A benefit election shall not be
made before the Participant receives the benefit election notice and shall not
be made prior to the Benefit Commencement Date. Optional forms of benefit may
not be conditioned upon the discretion of Employer, Administrator, Trustee,
fiduciary, independent third party or any other person (other than the
Participant) except for such administrative discretion as may be permitted by
regulations.
11.3 Annuity.
(a) Joint and Survivor Annuity - Life Annuity. A married
Participant's Plan Benefit shall be distributed in the form of a "qualified
joint and survivor annuity" and an unmarried Participant's Plan Benefit
shall be paid in the form of an immediate and nontransferable
Page 11-1
<PAGE> 45
life annuity unless the Participant elects an optional form of payment
pursuant to a valid waiver election in accordance with paragraph (d) or the
exception for small amounts described in paragraph 11.4(b) below applies.
The Participant may elect to have such annuity distributed upon attainment
of the earliest retirement age under the Plan. A "qualified joint and
survivor annuity" is an immediate and nontransferable annuity which is
purchasable with the Participant's Plan Benefit (including rollovers) and
which is payable for the life of the Participant and either with a survivor
annuity for the life of the Participant's surviving spouse of 50 percent of
the amount of the annuity payable during the joint lives of the Participant
and the Participant's spouse. The 100 percent survivor annuity will be
provided unless the Plan offers and the Participant elects the 50 percent
survivor annuity.
(b) Preretirement Survivor Annuity. If a married Participant dies
prior to commencement of payment of his Plan Benefit (the "Benefit
Commencement Date"), Administrator shall direct Trustee to distribute the
Participant's Plan Benefit (as of the date of death) to the Participant's
surviving spouse in the form of a "qualified preretirement survivor
annuity," unless the Participant has a valid waiver election (as described
in paragraph (d)) in effect or the exception for small amounts described in
paragraph 11.4(b) applies. A surviving spouse may make a waiver election
after the Participant's death provided the applicable notice and
explanation is given to the surviving spouse after the Participant's death.
A qualified preretirement survivor annuity is an annuity which is
purchasable with the Participant's Plan Benefit and which is payable for
the life of the Participant's surviving spouse. The surviving spouse may
direct the commencement of payment of the annuity within a reasonable time
after the Participant's death. If payment of the qualified preretirement
annuity begins earlier or later than the Participant's Earliest Retirement
Age, the actuarial value of such benefits shall be reasonably adjusted to
reflect such earlier or later time of payment. Administrator may not
postpone distribution of the preretirement survivor annuity.
(c) Form of Contract. Any annuity contract distributed to a
Participant shall be nontransferable and the terms of such contract shall
comply with the form of benefit to be provided.
(d) Waiver Election. A waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity must be in writing on
a form approved by Administrator and must be consented to by the
Participant's spouse (or the spouse's legal guardian if the spouse is
legally incompetent). The spouse's consent to a waiver must be witnessed by
a notary public or a representative of Administrator. A spousal consent
shall not be required if is established to the satisfaction of the
Administrator that spousal consent cannot be obtained because there is no
spouse, because the spouse cannot be located or because of
Page 11-2
<PAGE> 46
such other circumstances as may be prescribed in regulations issued by the
Secretary of the Treasury. Additionally, a Participant's waiver of the
qualified joint and survivor annuity shall not be effective unless the
election designates a form of benefit payment which may not be changed
without spousal consent (or the spouse expressly permits designations by
the Participant without any further spousal consent). The election must
designate a specific beneficiary, including any class of beneficiaries or
any contingent beneficiaries, which may not be changed without spousal
consent (or the spouse expressly permits designations by the Participant
without any further spousal consent). The spouse's consent must acknowledge
the effect of the election. Any consent necessary under this provision will
not be valid with respect to any other spouse. Additionally, a revocation
of a prior waiver may be made by a Participant without the consent of the
spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. Any new waiver or change of Beneficiary
will require a new spousal consent. The waiver election for a qualified
joint and survivor annuity must be made not earlier than 90 days before the
Participant's Benefit Commencement Date. The waiver election for a
qualified preretirement survivor annuity must be made within a period which
begins on the first day of the Plan Year in which the Participant attains
age 35 and ends on the date of the Participant's death. If a Participant
separates from service prior to the first day of the Plan Year in which age
35 is attained, with respect to the account balance as of the date of
separation, the election period shall begin on the date of separation.
An unmarried Participant may elect to waive the life annuity form
of payment. The election must comply with the requirement for a waiver of a
joint and survivor annuity by a married Participant, but without the
spousal consent requirement.
The terms "spouse or surviving spouse" shall mean the spouse or
surviving spouse of the Participant, provided that a former spouse will be
treated as the spouse or surviving spouse to the extent provided under a
qualified domestic relations order as described in Section 414(p) of the
Code.
If the waiver includes any non-spouse Beneficiary who may receive
a survivor benefit, then the waiver must comply with the spousal consent
requirements for the designation of a Beneficiary contained in this Plan.
Neither the consent of the Participant nor the Participant's
spouse shall be required to the extent that a
Page 11-3
<PAGE> 47
distribution is required to satisfy Section 401(a)(9) or Section 415 of the
Code.
(e) Annuity Notice Requirements.
(i) Qualified Joint and Survivor Annuity. In the case of a
qualified joint and survivor annuity, Administrator shall provide each
Participant no more than 90 days prior to the Benefit Commencement
Date, a written explanation of: (a) the terms and conditions of a
joint and survivor annuity; (b) the Participant's right to make and
the effect of an election to waive the joint and survivor annuity form
of benefit; (c) the rights of a Participant's spouse; and (d) the
right to make, and the effect of, a revocation of a previous election
to waive the qualified joint and survivor annuity.
(ii) Preretirement Survivor Annuity. In the case of a
preretirement survivor annuity, Administrator shall provide each
Participant a written explanation of the preretirement survivor
annuity in such terms and in such manner as would be comparable to the
explanation provided for meeting the requirements applicable to a
joint and survivor annuity. The written explanation shall be provided
to each such Participant within whichever of the following periods
ends last: (a) the period beginning with the first day of the Plan
Year in which the Participant attains age 32 and ending with the close
of the Plan Year preceding the Plan Year in which the Participant
attains age 35; (b) a reasonable period after the Participant first
participates in the Plan; (c) a reasonable period after termination of
employment in the case of a Participant who terminates his employment
before attaining age 35; (d) a reasonable period after the joint and
survivor rules become applicable to the Participant; or (e) a
reasonable period after a fully subsidized preretirement survivor
annuity no longer satisfies the requirements for a fully subsidized
benefit.
If a Participant terminates employment prior to attaining
age 32, the notice shall be provided at the time of or within one-year
after termination.
If a Participant enters the Plan after the first day of the
Plan Year in which the Participant attained age 32, the Plan
Administrator shall provide notice no later than the close of the
third Plan Year succeeding the entry of the Participant in the Plan.
Page 11-4
<PAGE> 48
For purposes of applying the preceding paragraphs, a
reasonable period ending after the enumerated events described above
is the end of the two year period beginning one year prior to the date
the applicable event occurs, and ending one year after that date. In
the case of a Participant who separates from service before the Plan
Year in which age 35 is attained, notice shall be provided within the
two year period beginning one year prior to separation and ending one
year after separation. If such a Participant thereafter returns to
employment with the Employer, the applicable period for such
Participant shall be redetermined.
(iii) Notwithstanding the other requirements of this
paragraph (e), the respective notices prescribed by this section need
not be given to a Participant if his plan "fully subsidizes" the costs
of a qualified joint and survivor annuity or qualified preretirement
survivor annuity and the Participant can not elect another form of
benefit or designate a non-spouse Beneficiary. For purposes of this
paragraph (e), a plan fully subsidizes the costs of a benefit if under
the plan the failure to waive such benefit by a Participant would not
result in a decrease in any Plan Benefit with respect to such
Participant and would not result in increased contributions from the
Participant.
11.4 Other Benefit Options. Unless otherwise provided herein, if the
annuity form of payment does not apply because of a valid waiver election, then
a Participant's Plan Benefit shall be distributed as follows:
(a) Small Amounts. If the Present Value of the Participant's Plan
Benefit does not exceed $3,500 (and at the time of any prior distribution
has not exceeded $3,500), the Plan Benefit shall be distributed in the form
of a single lump-sum without the requirement of the consent of the
Participant or the Participant's Beneficiary and such benefit shall not be
subject to the joint and survivor annuity, life annuity or preretirement
survivor annuity provisions of Section 11.3.
The Participant may elect in accordance with Section 16, a Direct
Rollover of the lump-sum distribution via a Trustee-to-Trustee transfer to
an eligible retirement plan pursuant to Section 401(a)(31) of the Code and
the Regulations thereunder.
(b) Life Annuity. The Participant may elect a straight life
annuity, payable no less frequently than
Page 11-5
<PAGE> 49
annually, with payment of the Participant's Accrued Benefit ending on the
Participant's death.
(c) Joint and Survivor Annuity. The Participant may elect a joint
and survivor annuity providing a reduced monthly benefit payable for the
life of the Participant with a 50 percent, 75 percent or 100 percent (as
elected by the Participant) survivor annuity for the remaining life of the
Beneficiary.
(d) Distribution Payments. The Participant may elect any method
of distribution designated prior to January 1, 1984, to the extent
permitted by Section 242 of the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA).
(e) Protected Benefits. The Participant may elect in accordance
with Section 11.2 any optional form of protected benefit required to be
continued pursuant to Section 411(d)(6) of the Code for affected
Participants.
(f) Direct Rollover of Plan Benefits. The Participant may elect
in accordance with Section 16, a Direct Rollover of Plan Benefits via a
Trustee-to-Trustee transfer to an eligible retirement plan pursuant to
Section 401(a)(31) of the Code and the Regulations thereunder.
All benefit options in this section shall be the Actuarial
Equivalent of the Normal Form of Benefit in accordance with Section 11.2.
11.5 Latest Benefit Commencement Date. Notwithstanding any provision
to the contrary, in the event of a Participant's termination of employment for
any reason, the terminated Participant's Plan Benefit shall be paid as
specifically provided in this section; provided, however, the latest time that
payment must begin shall not be later than the Required Beginning Date, unless
otherwise provided below:
(a) The payment of a Participant's benefit shall begin not later
than 60 days after the end of the Plan Year in which the latest of the
following occurs unless the Participant otherwise elects:
(i) The Participant reaches the Normal Retirement Date under
the Plan; or
(ii) The date the Participant terminates employment if
subsequent to the Normal Retirement Date.
Notwithstanding the foregoing, the failure of a Participant and
spouse to consent to a distribution while a
Page 11-6
<PAGE> 50
benefit is immediately distributable shall be deemed to be an election to
defer commencement of payment of any benefit sufficient to satisfy this
section. Immediately distributable means prior to the date the Participant
attains the later of the Normal Retirement Date under the Plan or age 62.
(b) The Required Beginning Date.
(i) General Rule. The Required Beginning Date is the first
day of April of the calendar year following the calendar year in which
the Participant attains age 70-1/2, unless otherwise provided below.
(ii) The Required Beginning Date of a Participant who
attains age 70-1/2 before January 1, 1988, shall be determined in
accordance with a. or b. below:
a. Non-five percent owners. The Required Beginning Date
of a Participant who is not a five percent owner is the first day
of April of the calendar year following the calendar year in
which the later of retirement or attainment of age 70-1/2 occurs.
b. Five percent owners. The Required Beginning Date of
a Participant who is a Five percent owner during any year
beginning after December 31, 1979, is the first day of April
following the later of:
1. The calendar year in which the Participant
attains age 70-1/2; or
2. The earlier of the calendar year with or within
which ends the Plan Year in which the Participant becomes a
five percent owner, or the calendar year in which the
Participant retires.
(iii) The Required Beginning Date of a Participant who is
not a five percent owner who attains age 70-1/2 during 1988 and who
has not retired as of January 1, 1989, is April 1, 1990.
(iv) Five percent owner. A Participant is treated as a five
percent owner for purposes of this section if such Participant is a
five percent owner as defined in Section 416(i) of the Code
(determined in accordance with Section 416 but without regard to
whether the Plan is top-heavy) at any time during the
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<PAGE> 51
Plan Year ending with or within the calendar year in which such owner
attains age 66-1/2 or any subsequent Plan Year.
(v) Once distributions have begun to a five percent owner
under this section, they must continue to be distributed, even if the
Participant ceases to be a five percent owner in a subsequent year.
11.6 Minimum Distribution Requirement for Death Benefits. The payment
of Plan Benefits due to death must be distributed to the Participant's
Beneficiaries as follows:
(a) If the distribution of a Participant's Plan Benefit has
commenced in a form other than a life annuity and the Employee dies before
his entire interest has been distributed, the remaining portion of such
interest shall be distributed at least as rapidly as under the method of
distributions being used as of the date of death.
(b) If distribution of the Participant's Plan Benefit has
commenced in the form of a life annuity, then the amount and payment of the
death benefit shall be based upon the form of the survivor's portion of the
annuity option selected.
(c) If a Participant dies before any distribution of the
Participant's interest has commenced, the method of payment to the
Beneficiary must provide for completion of payment over a period not
exceeding five years after the date of the Participant's death with
payments completed by December 31 of the calendar year in which occurs the
fifth anniversary of the Participant's date of death, unless a designated
Beneficiary elects one of the exceptions set forth below. The election must
be made no later than the earlier of December 31 of the calendar year which
contains the fifth anniversary of the Participant's death, or December 31
of the calendar year in which the Participant would have attained age
70-1/2. The election may be made on an individual basis by each Beneficiary
and shall be made in writing to the Administrator. The election shall be
irrevocable with respect to the Beneficiary (an all subsequent
Beneficiaries) and shall apply to all subsequent years.
(i) If any portion of the deceased Employee's interest is
payable to (or for the benefit of) a designated Beneficiary, such
portion may be distributed over a period not extending beyond the life
expectancy of the Beneficiary and the Benefit Commencement Date must
be on or before December 31 of
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<PAGE> 52
the calendar year following the calendar year in which Participant
dies.
(ii) If the designated Beneficiary is the surviving spouse
of the Employee, the Benefit Commencement Date must be not later than
the date on which the Employee would have attained age 70-1/2. If the
surviving spouse dies before the distributions to such spouse
commence, then the distributions shall be made pursuant to this
subparagraph as if the surviving spouse were the Employee.
11.7 Delayed Distribution. Unless otherwise specified herein, if a
distribution or any Plan Benefit described in this section is not consented to
by the Participant or the Participant's designated Beneficiary, if applicable,
at the time designated (when such consent is required) for a particular Plan
Benefit, or if the distributions do not otherwise commence within 90 days of the
date Participant or the Participant's Beneficiary, if applicable, is provided
with the benefit election notice as may be required by this section, then the
deferred time of payment shall be as soon as administratively feasible after the
Participant attains the later of age 62 or his Normal Retirement Date.
11.8 Payment of Normal and Delayed Retirement Benefit. The payment of
a Participant's retirement benefit shall commence as soon as administratively
feasible on the Participant's Normal Retirement Date in the case of a normal
retirement, or as soon administratively feasible after the first day of the
month after the actual retirement date, in the case of delayed retirement, and
shall continue until the first day of the month in which the Participant dies;
provided, however, the payment of a Participant's retirement benefit must begin
not later than the date specified in Section 11.5. The form of distribution of
the Participant's normal or delayed retirement benefit shall be as described in
Sections 11.3 and 11.4.
11.9 Termination Benefit. Subject to Section 6, a Participant's
Termination Benefit shall be determined as follows:
(a) Form of Payment of Termination Benefit.
(i) If the Present Value of the Participant's Termination
Benefit does not exceed $3,500 (and at the time of any prior
distribution has not exceeded $3,500), the Trustee shall pay the
Termination Benefit in a lump-sum.
(ii) If the Present Value of the Participant's Termination
Benefit exceeds $3,500, the Participant may elect (in accordance with
Section 11.2)
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<PAGE> 53
to receive his Termination Benefit in one of the forms described in
Section 11.4 as elected by the Participant.
(b) Time of Payment of Termination Benefit.
(i) If the Present Value of the Participant's Termination
Benefit does not exceed $3,500 (and at the time of any prior
distribution has not exceeded $3,500), the Trustee shall pay the
Termination Benefit as soon as administratively feasible after the
first day of the first month of the Plan Year following the Plan Year
during which the Participant terminated employment.
(ii) If the Present Value of the Participant's Termination
Benefit exceeds $3,500, the Participant may elect to commence his
Termination Benefit as soon as administratively feasible after the
Participant attains age 55.
(iii) Deferred Distribution. If distribution is not
consented to by the Participant or the Participant's designated
Beneficiary at the time designated above (when such consent is
required), or if distributions do not otherwise commence within 90
days of the date the Participant or the Participant's designated
Beneficiary is provided with the benefit election notice, then the
deferred time of payment shall be as soon as administratively feasible
after the first day of the first month of the Plan Year during which
the Participant requests that a distribution be made.
11.10 Payment of Early Retirement Benefit. Subject to Sections 11.2
and 11.3, the Participant's early retirement benefit shall be paid as follows:
(a) Form of Payment of Early Retirement Benefit.
(i) If the Present Value of a Participant's early retirement
benefit does not exceed $3,500 (and at the time of any prior
distribution has not exceeded $3,500), the Trustee shall pay the early
retirement benefit in a lump-sum.
(ii) If the Present Value of a Participant's early
retirement benefit exceeds $3,500, the Participant may elect (in
accordance with Section 11.2) to receive his early retirement benefit
in one of the forms described in Section 11.4.
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<PAGE> 54
(b) Time of Payment of Early Retirement Benefit.
(i) If the Present Value of the Participant's early
retirement benefit does not exceed $3,500 (and at the time of any
prior distribution has not exceeded $3,500), the Trustee shall pay the
early retirement benefit as soon as administratively feasible after
the later of (a) the Participant's termination of employment, or (b)
the date the Participant qualifies for an early retirement benefit.
(ii) If the Present Value of the Participant's early
retirement benefit exceeds $3,500, the Participant may elect (in
accordance with Section 11.2) to commence his early retirement benefit
at the time specified in (i) above.
(iii) Deferred Distribution. If distribution is not
consented to by the Participant or the Participant's designated
Beneficiary at the time designated above (when such consent is
required), or if distributions do not otherwise commence within 90
days of the date the Participant is provided with the benefit election
notice, then the deferred time of payment shall be as soon as
administratively feasible after the first day of the first month of
the Plan Year during which the Participant requests that a
distribution be made.
11.11 Payment of Disability Benefit. The Participant's disability
benefit shall be distributed as follows:
(a) Form of Payment of Disability Benefit.
(i) If the Present Value of the Participant's Disability
benefit does not exceed $3,500 (and at the time of any prior
distribution has not exceeded $3,500), the Trustee shall pay the
Disability benefit in lump-sum.
(ii) If the Present Value of the Participant's disability
benefit exceeds $3,500, the Participant may elect (in accordance with
Section 11.2) to receive his disability benefit in one of the forms
described in Section 11.4.
(b) Time of Payment of Disability Benefit.
(i) If the Participant is receiving benefits from the
Employer's long-term disability plan, payment of the Disability
Benefit will commence when such benefits cease.
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<PAGE> 55
(ii) If the Participant is not receiving benefits from the
Employer's long-term disability plan, payment of the Disability
Benefit will commence immediately.
(iii) Deferred Distribution. If distribution is not
consented to by the Participant at the time designated above (when
such consent is required), or if distributions do not otherwise
commence within 90 days of the date the Participant is provided with
the benefit election notice, then the deferred time of payment shall
be as soon as administratively feasible after the first day of the
first month of the Plan Year during which the Participant requests
that a distribution be made.
11.12 Payment of Death Benefit. Subject to Sections 11.3 and 11.6, if
the distribution of the Participant's Plan Benefit has begun prior to his death,
the Participant's death benefit shall be paid in accordance with the
distribution method in effect at the time of death. If the distribution of the
deceased Participant's Plan Benefit has not commenced prior to his death, the
Participant's death benefit shall be distributed as follows:
(a) Form of Payment of Death Benefit. The deceased Participant's
death benefit shall be paid to the deceased Participant's designated
Beneficiary as follows:
(i) If the Present Value of the death benefit does not
exceed $3,500 (and at the time of any prior distribution has not
exceeded $3,500), the benefit shall be paid in a lump-sum.
(ii) If the Present Value of the death benefit exceeds
$3,500, the benefit shall be paid in one of the forms described in
Section 11.4 elected by the deceased Participant's designated
Beneficiary.
(b) Time of Payment of Death Benefit.
(i) If the Present Value of the Participant's death benefit
does not exceed $3,500 (and at the time of any prior distribution has
not exceeded $3,500), the Trustee shall pay the death benefit as soon
as administratively feasible after the first day of the first month of
the Plan Year following the Plan Year in which the Participant died.
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<PAGE> 56
(ii) If the Present Value of the Participant's death benefit
exceeds $3,500, the Participant's designated Beneficiary may elect (in
accordance with Section 11.2) to commence his death benefit in
accordance with (i) above.
(iii) Deferred Distribution. If distribution is not
consented to by the Participant or, if applicable, by the
Participant's designated Beneficiary, at the time designated above
(when such consent is required), or if distributions do not otherwise
commence within 90 days of the date the Participant or the
Participant's designated Beneficiary is provided with the benefit
election notice, then the deferred time of payment shall be as soon as
administratively feasible after the first day of the first month of
the Plan Year during which the Participant's designated Beneficiary
requests that a distribution be made.
11.13 No Decrease in Benefits by Change in Social Security. In the
case of a Participant or Beneficiary who is receiving benefits under this Plan
or a Participant who has terminated employment with the Employer and has a Plan
Benefit under this Plan, any increase in the Taxable Wage Base or the benefit
level payable under Title II of the Social Security Act will not affect in any
way the benefits payable under this Plan to such Participant or Beneficiary. The
Plan does not permit the recalculation of any benefits accrued before the
Participant's termination of employment with the Employer on the basis of
changes in Social Security benefit levels or the Taxable Wage Base in effect
during the Years of Participation after reemployment with the Employer.
11.14 Minimum Required Distributions.
(a) General. Any distribution provisions which are required in
order to comply with Section 401(a)(9) of the Code and the regulations
thereunder shall override any inconsistent distribution provisions in the
Plan. The distribution of a Participant's interest in the Plan must begin
by the Required Beginning Date defined in Section 11.5. The amount of the
distribution must satisfy the minimum distribution requirements under
Section 401(a)(9) of the Code and the applicable Treasury Regulations,
including the minimum distribution incidental benefit requirement ("MDIB")
of Section 1.401(a)(9)-2 of the Treasury Regulations.
If a Participant's Benefit is to be distributed over (i) a period
not extending beyond the life expectancy of the Participant and the
Participant's designated
Page 11-13
<PAGE> 57
Beneficiary, or (ii) a period not extending beyond the life expectancy of
the designated Beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first distribution
calendar year, must at least equal the quotient obtained by dividing the
Participant's benefit by the applicable life expectancy. Life expectancy
and joint and last survivor expectancy are computed by the use of the
return multiples contained in Section 1.72-9 of the Treasury Regulations.
For purposes of this computation, a Participant's life expectancy may be
recalculated (but not more frequently than annually) upon the written
election of the Participant (or his spouse - Beneficiary, if Participant
has died) made no later than the time of the first required minimum
distribution under this election. The election shall be irrevocable and
shall apply with respect to the Participant (or spouse) and to all
subsequent years. The life expectancy of a non-spouse Beneficiary shall not
be recalculated.
The minimum required distribution for the first distribution
calendar year must be made by the Required Beginning Date. The minimum
required distribution for each subsequent distribution calendar year,
including the calendar year in which the Participant's Required Beginning
Date falls, is due by December 31 of that year. If the Participant receives
distribution in the form of a Nontransferable Annuity Contract, the
distribution satisfies this section if the contract complies with the
requirements of Code Section 401(a)(9) and the applicable Treasury
Regulations.
For calendar years beginning after December 31, 1988, the amount
to be distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (i) the applicable life
expectancy or (ii) if the Participant's spouse is not the designated
Beneficiary, the applicable divisor determined from the table set forth in
Q&A-4 of Section 1.401(a)(9)-2 of the proposed Regulations. Distributions
after the death of the Participant shall be distributed using the
applicable life expectancy above as the relevant divisor without regard to
Section 1.401(a)(9)-2 of the proposed Regulations.
(b) Definitions.
(i) Applicable Life Expectancy. The life expectancy (or
joint and last survivor expectancy) calculated using the attained age
of the participant (or designated Beneficiary) as of the Participant's
(or designated Beneficiary's) birthday in the applicable
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<PAGE> 58
calendar year which has elapsed since the date life expectancy was
first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first
distribution calendar year, and if life expectancy is being
recalculated, such succeeding calendar year.
(ii) Distribution Calendar Year. A calendar year for which a
minimum distribution is required. For distributions beginning before
the Participant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains
the Participant's required beginning date. For distributions beginning
after the Participant's death, the first distribution calendar year is
the calendar year in which distributions are required to begin
pursuant to the provisions above.
(iii) Life Expectancy. Life expectancy and joint and last
survivor expectancy are computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the income tax
regulations.
Unless otherwise elected by the Participant (or spouse, in
the case of distributions described in Section 11.6 above) by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Participant (or spouse) and shall apply to all subsequent years. The
life expectancy of a non-spouse Beneficiary may not be recalculated.
Page 11-15
<PAGE> 59
Section 12
INVESTMENT OF TRUST FUND
12.1 Investment Authority. The authority to manage and control the
Trust Fund shall be provided in the separate Trust Agreement.
12.2 Prohibited Transactions. Unless otherwise specifically permitted
by law or unless an exemption has been granted pursuant to Section 408(a) of the
Act and Section 4975(c)(2) of the Code, any of the following transactions
directly or indirectly between a plan and a party in interest (as defined by
Section 3(14) of the Act) or a disqualified person (as defined by Section
4975(e)(2) of the Code constitutes a prohibited transaction:
(a) A sale or exchange or leasing of any property;
(b) The lending of money or other extension of credit;
(c) The furnishing of goods, services, or facilities;
(d) The transfer to, or use by or for the benefit of a party in
interest of any assets of the plan; or
(e) The acquisition on behalf of a plan of any employer security
or employer real property in violation of Section 407 of the Act.
Unless excepted or exempt, a fiduciary, with respect to a plan
shall not (1) deal with the assets of the plan in his own interest or for
his own account; (2) act in any transaction involving the plan on behalf of
a party (or represent a party) whose interests are adverse to the interest
of the plan or its Participants or beneficiaries; or (3) receive any
consideration for his own personal account from any person dealing with
such plan in connection with a transaction involving the assets of the
plan.
12.3 Bonding of Fiduciary. To the extent required by Section 412 of
the Act, each fiduciary of a plan and every person who handles funds or other
property of a plan shall be bonded for an amount not less than 10 percent of the
amount of funds handled, but not less than $1,000 nor more than $500,000.
12.4 Immunity and Indemnity of Trustee. Trustee shall not be liable
for the making, retention or sale of any investment or reinvestment made by it,
as herein provided, nor for any loss
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<PAGE> 60
to or diminution of the Trust Fund by reason of any purchase, retention or sale
which was directed by an appointed Investment Manager unless Trustee knowingly
participated in, or knowingly undertakes to conceal, an act or omission of the
appointed Investment Manager, knowing such act or omission is a breach of
fiduciary responsibility hereunder. Employer shall indemnify Trustee against any
and all claims, loss, damage, expense or liability arising from any action or
failure to act, except when the same is judicially determined to be due to the
gross negligence or willful misconduct of Trustee.
12.5 Proxy Voting by Investment Managers. In the event all or a part
of the Trust Fund shall be managed by a duly appointed Investment Manager (other
than the Trustee), the responsibility for voting proxies appurtenant to
corporate stock (other than Employer Securities) being so managed by the
appointed Investment Manager shall be the responsibility of the Investment
Manager and such Investment Manager shall have sole responsibility for making
the decision how to vote such proxies and the power and authority to vote such
proxies.
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Section 13
TRUSTEE
13.1 Powers of Trustee. Trustee shall have the powers and authority in
the administration and investment of the Trust Fund as set forth in the separate
Trust Agreement.
13.2 Payments From the Trust. Trustee shall from time to time, on the
written direction of Administrator, make payments out of the Trust Fund to such
persons, in such manner, in such amounts, and for such purposes as may be
specified in the written direction of Administrator, and upon any such payment
being made, the amount thereof shall no longer constitute a part of the Trust
Fund. Trustee shall not be responsible for the application of such payments or
for the adequacy of the Trust Fund to meet and discharge any and all liabilities
under the Plan, except for failure to properly withhold, when the responsibility
for withholding has been properly delegated to Trustee.
13.3 Trustee's Compensation, Expenses and Taxes. Trustee (if not a
full-time Employee of Employer) shall be paid such reasonable compensation as
shall from time to time be agreed upon in writing by Employer and Trustee. In
addition, Trustee shall be reimbursed for any reasonable expenses, including
reasonable counsel fees, incurred by Trustee in the administration of the Trust
Fund. Such compensation and expenses may be paid by Employer, but if not paid by
Employer, shall be paid from the Trust Fund. All taxes of any and all kinds
whatsoever that may be levied or assessed under existing or future laws upon or
in respect to the Trust Fund or the income thereof shall be paid from the Trust
Fund, except those assessed personally upon fiduciaries.
13.4 Certification of Instructions. Trustee may rely upon a
certification of a member of Administrator or a Participant with respect to any
instruction or direction of Administrator or a Participant or an appointed
Investment Manager, and may also rely upon the certification as it then exists,
and in continuing to rely upon such certification until a subsequent
certification is filed with Trustee. Trustee may act upon any instrument,
certificate or paper believed by it to be genuine and to be signed or presented
by the proper person or persons, and Trustee shall be under no duty to make any
investigation or inquiry as to any statement contained in any such writing, but
may accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained.
13.5 Accounting. Trustee shall keep complete and accurate accounts of
all investments, receipts, disbursements and other transactions hereunder. All
accounts, books and records
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<PAGE> 62
relating to such transactions shall be open to inspection and audit at all
reasonable times by any person designated by Administrator.
Within 60 days following the close of each Trust Year, and within 90
days following the effective date of the removal or resignation of Trustee,
Trustee shall file with Administrator a written statement of account setting
forth the assets and liabilities, receipts and disbursements and other
transactions during such year or during the period from the close of the last
Trust Year, to the date of such removal or resignation. The form and content of
the account shall be sufficient for Administrator to comply with reporting and
disclosure requirements under applicable law.
13.6 Settlement of Accountings. Administrator may object to an
accounting and require that it be settled by audit by a qualified, independent
certified public accountant. The auditor shall be chosen by Trustee from a list
of at least three such accountants furnished by Administrator at the time the
audit is requested. Either Administrator or Trustee may require that the account
be settled by a court of competent jurisdiction in lieu of or in conjunction
with the audit. All expenses of any audit or court proceedings including
reasonable attorneys' fees shall be allowed as administrative expenses of the
Trust.
When an account has been accepted by the Administrator, it shall be
final and binding on all parties, including Employer and all Participants and
persons claiming through them.
13.7 Determination of Duties. In the event any controversy shall arise
between Trustee and any other person, including but not limited to
Administrator, Employer or any Employees under the Plan, with respect to the
payment or delivery by Trustee of any moneys or other property held by it
hereunder, or with respect to the proper construction of this Agreement or of
any amendment thereto, or with respect to the management of the Trust Fund,
Trustee may require that its duties be determined by a court of competent
jurisdiction.
13.8 Removal, Resignation and Appointment of Successor Trustee. Any
Trustee may be removed by Employer at any time upon 60 days' notice in writing
to Trustee and Administrator. Any Trustee may resign at any time upon 60 days'
notice in writing to Administrator and Employer. Upon such removal or
resignation of a Trustee, Employer may appoint a successor Trustee, who shall
have the same powers and duties as those conferred upon the Trustee resigning.
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13.9 Receipt of Contributions. Trustee is accountable only for funds
actually received by Trustee. Trustee shall have no right or duty to see that
the contributions received comply with the Plan or to collect any contributions
from Employer or Participants.
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Section 14
LIFE INSURANCE
14.1 Purchase of Life Insurance not Permitted. The purchase of life
insurance on the life of Participants, their spouses, or any other person in
whom the Participants have an insurable interest shall not be permitted.
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Section 15
HARDSHIP AND IN-SERVICE DISTRIBUTIONS
15.1 Hardship Withdrawals are not permitted.
15.2 In-Service Distributions are not permitted, except to the extent
required for age 70-1/2 minimum required distributions.
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Section 16
ROLLOVERS AND PLAN TRANSFERS
16.1 Rollovers From Other Plans not Permitted. This Plan does not
accept rollovers or Direct Rollovers as (defined in Section 16.4) from other
qualified plans or from individual retirement accounts.
16.2 Transfers From Qualified Plans not Permitted. This Plan does not
accept transfers from other qualified plans.
16.3 Transfers to Other Plans. If a Participant shall be entitled to
receive a distribution of benefits under this Plan and (i) becomes a Participant
under another qualified plan established by Employer or (ii) shall be
subsequently employed by another employer which has a qualified plan, the
Participant's Nonforfeitable Accrued Benefits under this Plan may be transferred
directly to the Trustee of the other plan if the following conditions are
satisfied:
(a) The plan to which such funds are to be transferred permits
the transfer to be made;
(b) The Participant's vested interest in the transferred funds
shall not be forfeitable or reduce in any way the obligation of the new
employer;
(c) The transferee plan provides for all protected benefit
options contained in this Plan, as required under Section 411(d)(6) of the
Code;
(d) The Secretary of the Treasury has been properly notified as
required by Section 6057(d) of the Code.
16.4 Direct Rollovers to Other Plans.
(a) General. This section applies to distributions made on or
after January 1, 1993. A Distributee may elect, at the time and in the
manner prescribed by the Administrator, to have any portion of an Eligible
Rollover Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in the form of a Direct Rollover which
complies with the provisions of Section 401(a)(31) of the Code.
(b) Definitions.
(i) Eligible Rollover Distribution. An Eligible Rollover
Distribution is any distribution of
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all or any portion of the balance to the credit of the Distributee,
except that an Eligible Rollover Distribution does not include (a) any
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or
life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated
beneficiary, or for a specified period of ten years or more; (b) any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and (c) the portion of any distribution that is
not includible in gross income (determined without regard to the
exclusion for the net unrealized appreciation with respect to Employer
Securities).
(ii) Eligible Retirement Plan. An Eligible Retirement Plan
is an individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section 408(b) of
the Code, an annuity plan described in 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code that accepts
the Distributee's Eligible Rollover Distribution. However, in the case
of an Eligible Rollover Distribution to the surviving spouse, an
Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
(iii) Distributee. A Distributee includes a Participant, an
Employee or former Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the Code,
are Distributees with regard to the interest of the spouse or former
spouse.
(iv) Direct Rollover. A Direct Rollover is a payment by the
Plan to the Eligible Retirement Plan specified by the Distributee.
16.5 Accounting for Transferred Funds. Amounts received by a transfer
of a distribution to this Plan from another plan will be accounted for in such
manner as Administrator shall decide.
16.6 Mergers, Consolidations and Transfers of Plan Assets. In the case
of any merger or consolidation with, or transfers of assets to any other Plan,
each Participant in this Plan shall be entitled (if the Plan had then
terminated) to receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit he would
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have been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then terminated).
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<PAGE> 69
Section 17
AMENDMENT AND TERMINATION
17.1 Amendment. To provide for contingencies which may require or make
advisable the clarification, modification or amendment of this Plan, Employer
reserves the right to amend the Plan at any time and from time to time, in whole
or in part, including without limitation, retroactive amendments necessary or
advisable to qualify the Plan and Trust under the provisions of Section 401(a)
of the Code, or any successor or similar statute enacted. However, no such
amendment shall prior to the satisfaction of all Plan Benefits (a) cause any
part of the assets of the Plan and Trust to revert to or be recoverable by any
Employer or be used for or diverted to purposes other than the exclusive benefit
of Participants, former Participants and Beneficiaries; or (b) eliminate an
optional form of distribution except to the extent permitted under the
regulations. Amendments shall apply to all Participating Employers who have
adopted this Plan.
17.2 Restrictions on Amendment. Any amendment by the Employer to this
Plan must be in writing and shall comply with the following restrictions:
(a) No amendment shall authorize or permit any Plan Benefits, to
the extent funded, (other than such part as is required to pay taxes and
administration expenses or otherwise permitted by this Plan) to be used for
or diverted for purposes other than for the exclusive benefit of the
Participants or their beneficiaries.
(b) No amendment shall cause or permit any portion of the Trust
Fund to revert to or become the property of Employer, except as otherwise
provided herein prior to the satisfaction of all Plan Benefits to
Participants and their Beneficiaries to the extent funded.
(c) No amendment shall cause any reduction in the Plan Benefits
of any Participant, except as may be permitted under the Act, necessary to
continue qualification of the Plan and Trust as exempt under the Code; or
permitted under Section 412(c)(8) of the Code or this Plan.
(d) No amendment shall have the effect of decreasing a
Participant's Plan Benefit determined without regard to such amendment as
of the later date of the date such amendment is adopted or the date it
becomes effective.
(e) No amendment shall decrease a Participant's Plan Benefit,
except to the extent permitted under Section
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412(c)(8) of the Code. For purposes of this paragraph, a plan amendment
which has the effect of decreasing a Participant's Plan Benefit or
eliminating an optional form of benefit, with respect to benefits
attributable to service before the amendment, shall be treated as reducing
a Plan Benefit.
(f) No amendment shall reduce or eliminate a protected benefit
under Section 411(d)(6) of the Code with respect to benefits accrued up to
and including the date the amendment is adopted (or, if later, the
Effective Date) except as permitted by Section 412(c)(8) of the Code,
Section 4281 of the Act, Treasury Regulations or by authority of the
Commissioner of the Internal Revenue Service exercised through publication
of revenue rulings, notices or other documents of general applicability. In
the event the Administrator determines that any amendment to this Plan or
the adoption of this Plan as a restatement of an existing plan has the
effect of eliminating or reducing a protected benefit in violation of
Section 411(d)(6) of the Code or regulations promulgated thereunder, the
amendment shall be disregarded to the extent necessary to satisfy Section
411(d)(6) of the Code and the regulations.
An amendment reduces or eliminates Code Section 411(d)(6)
protected benefits if the amendment has the effect of either (i)
eliminating or reducing an early retirement benefit or a retirement-type
subsidy (as defined in Treasury Regulations), or (ii) eliminating an
optional form of benefit except to the extent permitted under Treasury
Regulations.
17.3 Effective Date of Amendments. Any amendment shall be effective on
the date provided therein and may have retroactive effect if necessary to
satisfy the requirements of the Code or the Act. Amendments may be adopted at
any time prior to the later of the time prescribed by law for filing the tax
return of Employer for the tax accounting year in which such amendment was
adopted (including extensions thereof), a date designated by the Secretary of
the Treasury or his delegate, or as otherwise permitted by law.
17.4 Termination. Employer shall have the right at any time to
terminate the Plan hereby created by delivering to the Trustee, Administrator
and all Participating Employers written notice of such termination. The Plan
shall also terminate with respect to an Employer upon the dissolution, merger,
consolidation, bankruptcy or reorganization of the Employer or the sale by the
Employer of substantially all of its assets unless the Administrator's successor
in interest or purchaser substitutes itself for the Employer under this Plan.
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Upon termination or partial termination of the Plan hereunder, the
rights of all affected Participants to their Plan Benefits under such Plans to
the date of such termination, to the extent funded as of such date, shall become
fully vested and nonforfeitable. Forfeitures occurring prior to the date of plan
termination shall not become fully vested as a result of a complete or partial
termination of the Plan.
17.5 Distribution of Trust. Upon permanent discontinuance of
contributions under the Plan, the Plan and Trust shall not automatically
terminate. Employer shall have the option of terminating the Plan and Trust or
continuing the Plan in accordance with the provisions of this section. If
Employer elects to continue the Plan and Trust, Trustee shall continue to hold
the fully vested and Plan Benefits of the Participants for their benefit, and
the Trust Agreement shall be administered as though the Plan were otherwise in
full force and effect, to the extent not inconsistent with this section.
17.6 Liquidation of Trust. If the Employer elects to terminate the
Plan and Trust, the Employer shall direct Trustee to distribute the assets
remaining in the Trust after payment of any expenses properly chargeable against
the Trust to the Participants. If the present value of the Participant's Plan
Benefit exceeds $3,500 and the Participant does not consent to an immediate
distribution, Administrator may purchase and distribute from a commercial
provider an annuity contract for such Participant with the present value of the
Participant's Plan Benefit. If Employer maintains a successor qualified
retirement plan, the present value of the Participant's Plan Benefit may be
transferred to the successor plan. A distribution made after March 31, 1988 and
prior to January 1, 1993, pursuant to Plan termination, must be part of a
lump-sum distribution to the Participant of his Plan Benefit.
17.7 Dissolution of Employer. In the event Employer shall be dissolved
or liquidated and has elected not to terminate this Trust, Administrator shall
retain all of its powers and duties granted herein and shall assume the
authority to fill any vacancies occurring, to appoint successor Trustees in the
event of resignation by Trustee and to amend the Plan and Trust in order to keep
the Plan and Trust qualified under applicable law. If Employer is Administrator,
Trustee shall assume all such responsibilities and authority. Administrator
shall proceed to liquidate and distribute the Trust assets within an
administratively feasible time, under guidelines established and published by
the Internal Revenue Service.
17.8 Allocation of Assets.
(a) After notice by Administrator to the PBGC, if applicable,
that the Plan is to be terminated and upon
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receipt by Administrator of a notice from the PBGC that the assets held
under the Plan are sufficient to discharge when due all obligations of the
Plan with respect to the basic benefits of the Participants, Administrator
shall allocate the assets of the Plan in accordance with Section 4044 of
ERISA for the purposes set forth below and in the order set forth below, to
the extent the assets are available to provide benefits to the Participants
and beneficiaries.
Administrator shall make the allocation referred to above as
follows:
First, in the case of benefits payable as an annuity;
(i) In the case of the benefit of a Participant or
beneficiary which was in pay status as of the beginning of the
three-year period ending on the termination date of the Plan, to each
such benefit, based on the provisions of the Plan (as in effect during
the five-year period ending on such date) under which such benefit
would be the last.
(ii) In the case of a Participant's or Beneficiary's benefit
(other than a benefit described in (a) above) which would have been in
pay status as of the beginning of such three-year period if the
Participant had retired prior to the beginning of the three-year
period and if his benefits had commenced (in the normal form of
annuity under the Plan) as of the beginning of such period, to each
such benefit based on the provisions of the Plan (as in effect during
the five-year period ending on such date) under which such benefit
would be the least.
For purposes of (i) above, the lowest benefit in pay status
during the three-year period shall be considered the benefit in pay status
for such period.
Second, to all other benefits (if any) of individuals under the
Plan guaranteed under the termination insurance provisions of the Act.
Third, to all other nonforfeitable benefits under the Plan.
Fourth, to all other benefits under the Plan.
(b) If the assets available for allocation under any priority
category (other than the third and fourth priority categories) are
insufficient to satisfy in full the benefits of all individuals, the assets
shall be allocated
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pro rata among such individuals on the basis of the present value (as of
the termination date) of their respective benefits.
(c) If any assets of the Plan attributable to Participant
contributions remain after all liabilities of the Plan to Participants and
their beneficiaries have been satisfied, such assets shall be equitably
distributed to the Participants who made such contributions (or their
beneficiaries) in accordance with their rate of contributions.
(d) Any residual assets of the Plan remaining after distribution
in accordance with paragraphs (a), (b) and (c) as aforesaid shall be
distributed to the Employer provided that all Plan Benefits of Participant
and their Beneficiaries have been satisfied; provided, however, if this is
an amended and restated Plan which provides for a reversion of residual
plan assets to Employer which was not provided in the Plan prior to the
amendment, then the amendment will not be effective until a period of five
years from the date of the amendment.
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Section 18
SPECIAL LIMITATIONS ON BENEFITS PAYABLE
TO HIGHEST-PAID EMPLOYEES
18.1 General. Prior to the effective date of Treasury Regulations
under 1.401(a)(4)-5, Sections 18.1 through 18.10 shall apply. Notwithstanding
any provision in this Plan to the contrary, the benefits provided by Employer
contributions to the Plan shall be limited as provided herein if any one of the
following occurs:
(a) The Plan is terminated within ten years of its effective
date;
(b) Benefits are payable within ten years after the effective
date of the Plan to a Participant to which limitations herein are imposed;
or
(c) Benefits are payable to a Participant to which limitations
herein are imposed after the Plan has been in effect for 10 years and the
full current costs of the Plan for the first 10 years have not been met.
18.2 Participants to Whom Limitations Apply. The limitations imposed
herein shall apply to the Participants whose anticipated annual benefit provided
by Employer contributions will exceed $1,500 and, further, who are among the 25
highest-paid Employees of Employer as of the effective date of Employer's Plan
(including any such highest-paid Employees who are not Participants at that time
but may later become Participants).
18.3 Benefit Limitations. Benefits paid to Participants upon which
limitations are imposed shall be paid in full but not to exceed those
purchasable by the following amounts:
(a) If the Participant is a "substantial owner" as defined in
Section 18.10, the maximum amount shall be the greater of:
(i) $20,000;
(ii) An amount equal to 20 percent of the first $50,000 of
the Participant's average Annual Compensation multiplied by the number
of years since the effective date of the Plan;
(iii) A dollar amount equal to the present value of the
benefit guaranteed for such Participant
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under Section 4022 of the Act (or any successor statute thereto), or,
if the Plan has not terminated;
(iv) A dollar amount equal to the present value of the
benefit that would be guaranteed if the Plan had terminated on the
date the benefit commenced.
(b) If the Participant is not a "substantial owner" as defined in
Section 18.10, the maximum amount shall be the greater of:
(i) $20,000;
(ii) An amount equal to 20 percent of the first $50,000 of
the Participant's average Annual Compensation multiplied by the number
of years since the effective date of the Plan; or
(iii) A dollar amount equal to the present value of the
maximum benefit described in Section 4022(b)(3)(B) of the Act (or any
successor statute thereto) determined on the earlier of the date the
Plan terminates or the date benefits commence without regard to any
other limitations in Section 4022 of the Act (or any successor statute
thereto).
For purposes of this section, the present value of any
benefit shall be determined in accordance with regulations promulgated
by the Pension Benefit Guaranty Corporation.
If a Participant receives limited benefits within 10 years
of the effective date and at the end of said 10 years, the full
current costs of the Plan have been funded, the limitations shall no
longer apply to such Participant. If, at the end of said 10 years, the
full current costs have not been met, the limitations on benefits
shall continue to apply until the full current costs are funded for
the first time.
18.4 Amendment. If the Plan is amended so as to increase substantially
the benefits of the Plan, then the limitations of this Section 18 shall be
applied to such additional benefits as if they were provided under a new plan
established on the date of such change; provided, however, the benefit
limitation of Section 18.3 is applied to the aggregate amount of contributions
by Employer since the effective date of the original plan, and, for purposes of
determining whether a Participant's anticipated annual benefit shall exceed
$1,500, both Employer contributions prior to date of change and those expected
to be made after the date of change are to be considered.
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18.5 Allocation of Excess Benefits. In the event of termination of the
Plan while the limitations imposed herein are in effect, any excess reserves
arising from the application of the restrictions imposed hereunder upon benefits
of Participants shall be applied to the satisfaction of liabilities under the
Plan to the Participant whose benefits are not so restricted and if any excess
remains after satisfaction of such liabilities, the excess may be allocated
among all Participants in a nondiscriminatory manner based upon their relative
Present Value of Accrued Benefits.
18.6 Death Benefits. The limitations imposed herein shall not apply to
payments of any insurance, death or survivor benefits on behalf of a Participant
who dies while the Plan is in full effect and its full current costs have been
met.
18.7 Full Funding. The limitations imposed herein shall not restrict
the current payment of full retirement benefits while the Plan is in full effect
and its full current costs have been met, subject to the limitations applicable
to lump-sum distributions contained in Section 18.8
18.8 Lump-Sum Distribution Limitations. If, prior to the time set
forth in Sections 18.1(a), (b) or (c), any Participant defined in Section 18.2
becomes entitled to receive a lump-sum distribution of his entire Plan Benefit
in the Trust Fund at a time when the full current costs of the Plan up to the
tenth Anniversary Date have not yet been met, said Participant shall be subject
to the following conditions:
(a) Prior to his separation from service with Employer, the
Participant must enter into an agreement with Trustee to the effect that in
the event (1) the Plan terminates within the first 10 years of its
establishment; or (2) a default occurs in the payment of the full current
costs of the Plan for any year ending within the first 10 years after
establishment of the Plan; and (3) a lump-sum distribution of the entire
amount standing to the Participant's credit in the Trust Fund has been
distributed to him, then the Participant (or, in the case of his death, his
estate) will repay to Trustee a sum equal to the actuarial value of the
amounts by which his monthly retirement income benefits would have been
decreased during his then remaining lifetime pursuant to this Section 18.
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<PAGE> 77
(b) Promptly after the distribution of the entire amount standing
to his credit, the Participant must deposit with a acceptable depository
property having a fair market value equal to 125 percent of the amount
which would be repayable if the Plan had terminated on the distribution of
such lump sum. The Participant must further agree that if the market value
of the property held by the depository falls below 110 percent of the
amount which would then be repayable if the Plan were then to terminate, he
will deposit additional property necessary to bring the value of the
property held by the depository up to 125 percent of such amount.
(c) The Participant has the right to receive any income from the
property placed on deposit subject to the obligations to maintain the value
of the property as described in (d) below.
(d) The depository may not redeliver any property held to the
Participant (or his estate) except upon receipt of a certification of
Trustee that the Participant (or his estate) is not longer obligated to
repay any amount under the agreement.
18.9 Termination of Effect. The provisions of this section shall
cease to be effective at such time as it is determined by statute, court
decision, ruling or regulation, that these provisions are no longer necessary to
qualify the Plan under the Code.
18.10 Substantial Owner. The term "substantial owner" as used herein
shall mean an individual who (a) owns the entire interest in an unincorporated
trade or business; (b) in the case of a partnership, is a partner who owns,
directly or indirectly, more than 10 percent of either the capital interest or
the profits interest in such partnership; or (c) in the case of a corporation,
owns, either directly or indirectly, more than 10 percent in value either the
voting stock of the corporation or all the stock of the corporation. Should the
Pension Benefit Guaranty Corporation revise or amend the foregoing definition of
a "substantial owner," then, in that event, the provisions of this Section 18
shall be applied in accordance with such revised or amended definition.
18.11 Special Limitation on Distribution of Benefits to the 25
Highest-Paid Highly Compensated Employees. Effective for Plan Years beginning on
or after the effective date of the Treasury Regulations under 1.401(a)(4) this
Section 18.11 shall apply in lieu of the above paragraphs. Notwithstanding any
provision in this Plan to the contrary, annual payments to an Employee described
in this Section are restricted to an amount
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equal in each year to the payments that would be made on behalf of the Employee
as follows:
(a) A straight life annuity that is the Actuarial Equivalent of
the Accrued Benefit and other benefits to which the Employee is entitled
under the plan (other than a social security supplement if provided by this
plan); and
(b) The amount of the payments that the Employee is entitled to
receive under a social security supplement if provided by this Plan.
The restrictions in this Section do not apply, however, if any
one of the following requirements is satisfied:
(i) After payment to an Employee described in this Section
of all benefits payable to the Employee under the Plan, the value of
plan assets equals or exceeds 110 percent of the value of current
liabilities, as defined in Section 412(l)(7) of the Code;
(ii) The value of the benefits payable to the Employee under
the Plan for an Employee described in this Section is less than one
percent of the value of the current liabilities before distribution;
or
(iii) The value of the benefits payable to the Employee
under the Plan for an Employee described in this Section does not
exceed the amount described in Section 411(a)(11)(A) of the Code
(restrictions on certain mandatory distributions).
(c) The Employees whose benefits are restricted on distribution
include all Highly Compensated Employees and Highly Compensated Former
Employees as defined in Treasury Regulations under 1.401(a)(4). The total
number of Employees whose benefits are subject to restriction under this
Section are limited to a group of not less than 25 Highly Compensated and
Highly Compensated Former Employees. The group consists of those Highly
Compensated Employees and Highly Compensated Former Employees with the
greatest Compensation in the current or any prior year. Plan provisions
defining or altering the group of Employees whose benefits are restricted
under this Section may be amended at any time without violating Section
411(d)(6) of the Code.
For purposes of this Section, the term "benefit" includes, among
other benefits, loans in excess of the amounts set forth in Section
72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable
to a living
Page 18-5
<PAGE> 79
Employee, and any death benefits not provided for on the Employee's life.
(d) For purposes of this Section, if the Employer is required to
file Form 5500 (Annual Return/Report of Employee Benefit Plan (with more
than 100 Participants)) or Form 5500 C/R (Annual Return/Report of Employee
Benefit Plan (with less than 100 Participants)) the Employer may use the
value of current liabilities as reported on Schedule B of the Employer's
most recent, timely filed Form 5500 or Form 5500 C/R. Alternatively, the
Employer is permitted to determine current liabilities as of a later date.
If the Employer is not required to file Schedule B of the Form 5500 or Form
5500 C/R, rules similar to those applicable to Employers who do not file
Schedule B to determine the value of current liabilities can be used.
Page 18-6
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Section 19
QUALIFIED DOMESTIC RELATIONS ORDER
19.1 General. The provisions of this section shall take precedent over
any other provisions in the Plan which may be inconsistent with this section.
19.2 Distributions under QDRO. Distributions to an Alternate Payee (as
defined in Section 414(p)(8) of the Code) may be made in the manner described
herein pursuant to a Qualified Domestic Relations Order (as defined in Section
414(p) of the Code ("QDRO")).
19.3 Time and Manner of Payment. Distributions may be made to an
Alternate Payee pursuant to the terms of a QDRO. The time and manner of payment
may be as provided herein, even if the time of payment is prior to the "earliest
retirement age" as defined under Section 414(p)(4)(B) of the Code, and without
regard to whether the Participant has terminated employment with Employer,
provided the following conditions are met:
(a) The QDRO specifies distribution at an administratively
feasible time which would be permitted under the Plan if the Participant
had terminated employment as of the date of the QDRO or permits an
agreement between the Plan and the Alternate Payee to authorize a time for
distribution; and
(b) Payment to the Alternate Payee must be in a form permitted
under the Plan, but not in the form of a joint and survivor annuity with
respect to the Alternate Payee and his/her subsequent spouse. Notice and
consent to make a distribution to an Alternative Payee are not required
except as may be otherwise provided in the QDRO.
19.4 Procedures. The Administrator shall establish reasonable
procedures to determine the qualified status of a QDRO and to administer
distributions under a QDRO, including:
(a) Upon receiving a domestic relations order, the Administrator
shall promptly notify the Participant and any Alternate Payee named in the
order, in writing, of the receipt of the order and the Plan's procedures
for determining the qualified status of the order. Within a reasonable
period of time after receiving the domestic relations order, the
Administrator must determine the qualified status of the order and must
notify the Participant and each Alternate Payee, in writing, of its
determination. The Administrator must provide such notice by mailing the
notice to the individual's address specified
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<PAGE> 81
in the domestic relations order, or in a manner consistent with Department
of Labor regulations.
(b) If any portion of the Participant's Plan Benefit is payable
during the period the Administrator is making its determination of the
qualified status of the domestic relations order, the Administrator must
make a separate accounting of the amounts payable. If the Administrator
determines the order is a qualified domestic relations order within 18
months of the date amounts first are payable following receipt of the
order, the Administrator will direct the Trustee to distribute the payable
amounts in accordance with the order. If the Administrator does not make
its determination of the qualified status of the order within the 18-month
determination period, the payable amounts shall be distributed at the time
and in the manner provided under the Plan as if no order had been received
by the Plan. If the Administrator later determines that the order is a
qualified domestic relations order, Administrator will apply the order
prospectively.
(c) For purposes of applying Sections 8 and 10, the Administrator
will treat a former spouse as the Participant's spouse or as the
Participant's surviving spouse to the extent provided under a qualified
domestic relations order. The preretirement survivor annuity and the joint
and survivor annuity requirements of Section 10 apply separately to the
portion of the Participant's Plan Benefit subject to the qualified domestic
relations order and to the portion of the Participant's Plan Benefit not
subject to that order. The Trustee will make any payments or distributions
required under this section by separate benefit check(s) or other separate
distribution to the Alternate Payee(s).
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Section 20
PARTICIPANT LOANS
20.1 Participant Loans not Permitted. Participant loans shall not be
permitted under the Plan.
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Section 21
TOP-HEAVY PROVISIONS
21.1 General. If the Plan is or becomes top-heavy or a member of a
"required aggregation group" which is a "top-heavy group" (as defined in Section
416 of the Code), in any Plan Year, the provisions of this section will
supersede any conflicting provisions in the Plan, but only for those Plan Years
in which the Plan remains top-heavy, except as otherwise provided below with
respect to vesting. The top-heavy provisions shall only apply to Employees who
completed at least one Hour of Service in a top-heavy year. The top-heavy
provisions shall be interpreted to meet the requirements of Section 416 of the
Code and the regulations promulgated thereunder. If Employer's Plan is or
becomes top-heavy, the top-heavy vesting schedule applicable to Employer's Plan
will not be cut back in any Plan Year when the Plan ceases to be top-heavy.
21.2 Top-Heavy Year. "Top-Heavy Year" shall mean any Plan Year
beginning after December 31, 1983, in which the present value of the cumulative
Accrued Benefits, with respect to Key Employees in the aggregation group of
plans, exceeds 60 percent of the Present Value of the cumulative Accrued
Benefits for all Employees in the aggregation group of plans on the applicable
determination date.
21.3 Definitions. For purposes of this section, the following
definitions shall apply:
(a) Key Employee. The officers and owners of Employer (and their
beneficiaries) as are required to be taken into account under Section
416(i) of the Code.
(b) Annual Compensation. Compensation as defined in Section
415(c)(3) of the Code, but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under Section 125, Section 402(e)(3), Section
402(h) or Section 403(b) of the Code. The determination period is the Plan
Year containing the determination date and the four preceding Plan Years.
(c) Top-Heavy Plan. For any Plan Year beginning after December
31, 1983, this Plan is top-heavy if any of the following conditions exists:
(i) If the top-heavy ratio for this Plan exceeds 60 percent,
and this Plan is not part of any required aggregation group or
permissive aggregation group of plans.
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<PAGE> 84
(ii) If this Plan is a part of a required aggregation group
of plans, but not part of a permissive aggregation group, and the
top-heavy ratio for the group of plans exceeds 60 percent.
(iii) If this Plan is a part of a required aggregation group
and part of a permissive aggregation group of plans and the top-heavy
ratio for the permissive aggregation group exceeds 60 percent.
(d) Top-heavy Ratio:
(i) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension plan)
and the Employer has not maintained any defined benefit plan which,
during the five-year period ending on the determination date(s) has or
has had accrued benefits, the top-heavy ratio for this Plan alone, or
for the required or permissive aggregation group as appropriate, is a
fraction, the numerator of which is the sum of the account balances of
all Key Employees as of the determination date(s) (including any part
of any account balance distributed in the five-year period ending on
the determination date(s)), and the denominator of which is the sum of
all account balances (including any part of any account balance
distributed in the five-year period ending on the determination
date(s)), both computed in accordance with Section 416 of the Code and
the regulations thereunder. Both the numerator and denominator of the
top-heavy ratio are increased to reflect any contribution not actually
made as of the determination date, but which is required to be taken
into account on that date under Section 416 of the Code and the
regulations thereunder.
(ii) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension plan)
and the Employer maintains or has maintained one or more defined
benefit plans which, during the five-year period ending on the
determination date(s), has or has had any Accrued Benefits, the
top-heavy ratio for any required or permissive aggregation group, as
appropriate, is a fraction, the numerator of which is the sum of
account balances under the aggregated defined contribution plan or
plans for all Key Employees, determined in accordance with (i) above,
and the Present Value of Accrued Benefits under the aggregated defined
benefit plan or plans for all Key Employees as of the determination
date(s), and the denominator of which is the sum of the account
balances
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<PAGE> 85
under the aggregated defined contribution plan or plans for all
Participants, determined in accordance with (i) above, and the Present
Value of Accrued Benefits under the defined benefit plan or plans for
all Participants as of the determination date(s), all determined in
accordance with Section 416 of the Code and the regulations
thereunder. The Accrued Benefits under a defined benefit plan in both
the numerator and denominator of the top-heavy ratio are increased for
any distribution of an accrued benefit made in the five-year period
ending on the determination date.
(iii) For purposes of (i) and (ii) above, the value of
account balances and the Present Value of Accrued Benefits will be
determined as of the most recent valuation date that falls within or
ends with the 12-month period ending on the determination date, except
as provided in Section 416 of the Code and the regulations thereunder
for the first and second Plan Years of a defined benefit plan. The
account balances and Accrued Benefits of a Participant (a) who is not
a Key Employee but who was a Key Employee in a prior year, or (b) who
has not been credited with at least one Hour of Service with any
Employer maintaining the Plan at any time during the five-year period
ending on the determination date, will be disregarded. The calculation
of the top-heavy ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in
accordance with Section 416 of the Code and the regulations
thereunder. Deductible employee contributions will not be taken into
account for purposes of computing the top-heavy ratio. When
aggregating the Present Value of plans, the value of account balances
and Accrued Benefits will be calculated with reference to the
determination dates that fall within the same calendar year.
The accrued benefit of a Participant, other than a Key
Employee, shall be determined under (a) the method, if any, that
uniformly applies for accrual purposes under all defined benefit plans
maintained by the Employer, or (b) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule of Section 411(b)(1)(C) of the
Code.
(e) Permissive Aggregation Group. The required aggregation group
of plans plus any other plan or plans of the Employer which, when
considered as a group with the required aggregation group, would continue
to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
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(f) Required Aggregation Group. (i) Each qualified plan of the
Employer in which at least one Key Employee participates or participated at
any time during the determination period (regardless of whether the plan
has terminated), and (ii) any other qualified plan of the Employer which
enables a plan described in (i) to meet the requirements of Sections
401(a)(4) or 410 of the Code.
(g) Determination Date. For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the first Plan Year
of the Plan, the last day of that year. The Determination Period is the
five-year period ending on the Determination Date.
(h) Valuation Date. The same date as the Determination Date.
(i) Present Value. Present Value for purposes of this Section
shall be based only on the interest rate and mortality table described in
Section 2 used for purposes of determining preretirement Actuarial
Equivalence.
21.4 Top-Heavy Provisions. If the Plan is determined to be a top-heavy
plan for a Plan Year, then, notwithstanding any provisions herein to the
contrary, the following provisions will apply for such Plan Years as the Plan is
determined to be top-heavy.
(a) Vesting. Vesting shall be determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
Plan Years of Service
Completed for Vesting Vested
Purposes Interest
--------------------- --------
<S> <C>
Less than 3 0%
3 or more 100%
</TABLE>
If the Plan becomes top-heavy with the vesting schedule herein
becoming effective, and the Plan subsequently is determined not to be
top-heavy, the top-heavy vesting schedule will not automatically revert
back to the prior schedule without complying with the requirements of
Section 411(a)(10) of the Code and the regulations thereunder, including
the election of former schedule provisions which must be given to
Participants with at least three Years of Service.
The period during which the election may be made shall commence
with the date the amendment is adopted or deemed to be made and shall end
on the latest of:
Page 21-4
<PAGE> 87
(i) 60 days after the amendment is adopted;
(ii) 60 days after the amendment becomes effective; or
(iii) 60 days after the Participant is issued written notice
of the amendment by Employer or Administrator.
(b) Top-Heavy Minimum Benefits.
(i) Minimum Benefits. If this Plan is a top-heavy plan for a
Plan Year, Employer shall provide an annual minimum benefit for all
non-key Eligible Employees. A minimum benefit, when expressed as an
annual retirement benefit payable in the form of a single life annuity
beginning at Normal Retirement Date (or the attained age of the
Participant, if later) shall not be less than the participant's
average Annual Compensation as defined in paragraph 21.3(b) for years
in the testing period multiplied by the lesser of:
a. Two percent multiplied by the number of years of
top-heavy service with Employer; or
b. 20 percent.
For purposes of the minimum benefit, years of top-heavy
service shall be determined under the rules of paragraphs (4), (5) and
(6) of Section 411(a) of the Code but excluding any year of service
when the plan was not a top-heavy plan or a year of service completed
in a Plan Year beginning before January 1, 1984. A Participant's
testing period for purposes of determining his average Annual
Compensation for the minimum benefit is the five consecutive year
period or the number of years specified in the definition of Annual
Compensation included in Section 2 to determine Annual Compensation,
whichever is less during which the Participant had the greatest
aggregate Annual Compensation, from Employer, excluding years ending
in a Plan Year beginning before January 1, 1984 and years beginning
after the close of the last year in which the Plan is a top-heavy
plan. The minimum benefit determination shall take into account as a
part thereof, the retirement benefit otherwise provided under this
Plan.
The minimum benefit is determined without regard to any
Social Security contribution. The
Page 21-5
<PAGE> 88
minimum benefit applies even though under other Plan provisions the
Participant would not otherwise be entitled to receive an accrual, or
would have received a lesser accrual for the year because (i) the
Non-Key Employee fails to make mandatory contributions to the Plan,
(ii) the Non-Key Employee's Compensation is less than a stated amount,
(iii) the Non-Key Employee is not employed on the last day of the
accrual computation period or, (iv) the Plan is integrated with Social
Security.
(ii) Coverage Under Both Defined Benefit and Defined
Contribution Plans.
a. If a key employee is a participant in both a defined
contribution plan and a defined benefit plan that are part of a
top-heavy group wherein neither plan is a super top-heavy plan,
to the extent the defined contribution plan does not provide the
required top-heavy minimum contribution, the two percent and 20
percent minimum benefit percentages shall be increased to three
percent and 30 percent respectively.
Also, for any Plan Year in which the plans are part of
a super top-heavy group, in determining the sum of the defined
contribution fraction and the defined benefit fraction for
purposes of Section 415(e) of the Code, 1.0 shall be substituted
for 1.25 in any event. A plan is a super top-heavy plan if (1)
the Plan's top-heavy ratio exceeds 90 percent, or (2) the Plan's
top-heavy ratio is greater than 60 percent, and the Employer does
not elect to provide extra minimum benefits which satisfy Section
416(h)(2) of the Code.
b. Notwithstanding anything herein to the contrary, in
any Plan Year in which a non-key employee is a participant in
both this Plan and a defined contribution plan, and both such
plans are top-heavy plans, the Employer shall not be required to
provide a non-key employee with both the full separate minimum
defined benefit plan benefit and the full separate defined
contribution plan allocations. Therefore, for non-key employees
who are participating in a defined contribution plan maintained
by the Employer and a five percent minimum contribution is
accruing to a non-key employee under such Plan, the minimum
benefit provided for above shall not
Page 21-6
<PAGE> 89
be applicable, and no minimum benefit shall be required under
this Plan on behalf of the non-key employee.
(iii) Coverage Under Other Defined Benefit Plan. If a
Non-Key Employee is a Participant in another defined benefit plan
which is part of a top-heavy group and such other plan provides the
required top-heavy benefit, then the top-heavy minimum benefit shall
not be required under this Plan.
Page 21-7
<PAGE> 90
Section 22
OVERALL LIMITATION ON BENEFITS
22.1 Limitation on Annual Benefit. A Participant's Annual Benefit
payable at any time within a Limitation Year may not exceed the limitations of
this section even if the benefit formula under the Plan would produce a greater
Annual Benefit.
(a) Commencement at Social Security Retirement Age. A
Participant's Annual Benefit payable at his Social Security Retirement Age
may not exceed the lesser of $90,000 (or, beginning January 1, 1988, such
larger dollar amount as the Commissioner of Internal Revenue Service may
prescribe) or 100 percent of the Participant's Average Compensation for his
high three consecutive Years of Service.
(b) Commencement Prior to Social Security Retirement Age. If a
Participant's Annual Benefit commences prior to his attaining Social
Security Retirement Age, but not earlier than his attaining age 62, the
Administrator will adjust the $90,000 (or the larger adjusted dollar
amount) limitation of paragraph (a) above by five-ninths of one percent for
each of the first 36 months the benefit commencement date precedes the
Participant's Social Security Retirement Age, and by five-twelfths of one
percent for each additional month (not exceeding 24 months) the benefit
commencement date precedes the Participant's Social Security Retirement
Age. If a Participant's Annual Benefit commences prior to his attaining age
62, the Administrator will adjust the dollar amount limitation of this
paragraph to the actuarial equivalent of an Annual Benefit equal to the
dollar limitation applicable to an Annual Benefit commencing to that
Participant at age 62. To determine the actuarial equivalent under this
paragraph, the Administrator will use an interest rate assumption equal to
the greater of five percent per annum or the interest rate specified in
Section 2 herein for preretirement.
(c) Commencement After Social Security Retirement Age. If a
Participant's Annual Benefit commences after his attaining Social Security
Retirement Age, the Administrator will adjust the $90,000 (or larger
adjusted dollar amount) limitation of this paragraph to the actuarial
equivalent of an Annual Benefit equal to such dollar limitation commencing
at Social Security Retirement Age. To determine the actuarial equivalent
under this paragraph, the Administrator will use an interest rate
Page 22-1
<PAGE> 91
assumption equal to the lesser of five percent per annum or the interest
rate specified herein for preretirement.
(d) Minimum Benefit Limitation. If a Participant's Annual Benefit
payable under the Plan and all other defined benefit plans maintained by
the Employer is $10,000 or less and the Participant does not participate
and has never participated in a defined contribution plan maintained by the
Employer, the Annual Benefit satisfies the limitations of this paragraph
even if it exceeds the 100 percent of average Compensation limitation or
the applicable dollar limitation of paragraph (a) above.
(e) Adjustment for Years of Service/Years of Participation less
Than 10. The maximum Annual Benefit described in this paragraph applies to
a Participant who has completed at least 10 Years of Service with the
Employer for purposes of the 100 percent average Compensation limitation
and the $10,000 minimum benefit limitation and has completed at least 10
Years of Participation in the Plan, for purposes of the dollar limitation.
If a Participant has less than 10 Years of Service with the Employer at the
time benefits commence, the Administrator will multiply his 100 percent
average Compensation limitation and the $10,000 minimum benefit limitation
by a fraction, the numerator of which is the number of Years of Service
(including fractional years) with the Employer and the denominator of which
is 10. If a Participant has less than 10 Years of Participation in the Plan
at the time his benefits commence, the Administrator will multiply his
dollar limitation by a fraction, the numerator of which is the number of
Years of Participation (including fractional years) in the Plan and the
denominator of which is 10. The reductions described in this paragraph will
not reduce a Participant's maximum Annual Benefit to less than one-tenth of
the maximum Annual Benefit determined without regard to the reductions. To
the extent required by Treasury Regulations or by other published Internal
Revenue Service guidance, the Administrator will apply the reductions of
this paragraph separately to each change in the benefit structure of the
Plan.
(f) Alternate Forms of Payment. If the Trustee pays the
Participant's benefit in a form other than a straight life annuity or
qualified joint and survivor annuity (with no ancillary benefits other than
a survivor's annuity), the benefit paid may not exceed the actuarial
equivalent of the maximum Annual Benefit payable as a life annuity. To
determine the actuarial equivalence under this paragraph, an interest rate
assumption equal to the greater
Page 22-2
<PAGE> 92
of five percent per annum or the rate specified herein for preretirement
shall be used.
(g) Adjustments to Dollar Limitation. Any adjustment to the
dollar limitation of this paragraph does not take effect until the first
day of the calendar year for which the Commissioner of the Internal Revenue
Service publishes the adjustment. The new limitation will apply to the
Limitation Year ending with or within the calendar year for which the
Commissioner of the Internal Revenue Service makes the adjustment.
(h) Current Accrued Benefit Exception. The Administrator will
apply the limitations of this paragraph by substituting for the applicable
limitation a Participant's Current Accrued Benefit, if that Current Accrued
Benefit exceeds the applicable limitation. A Participant's Current Accrued
Benefit is the sum of the Participant's Accrued Benefit in this Plan and
his Accrued Benefit in all other defined benefit plans maintained by the
Employer, determined as of the end of the 1986 Limitation Year (the last
Limitation Year beginning before January 1, 1987), and without regard to
any change in the terms or conditions of the Plan made after May 5, 1986,
and without regard to any cost of living adjustment occurring after May 5,
1986. If, as of the first day of the first Limitation Year beginning after
December 31, 1986, a Participant's Accrued Benefit exceeds his Current
Accrued Benefit, the Administrator will disregard the excess amount as if
it never accrued to the Participant. The Current Accrued Benefit rule
applies only if this Plan and any other defined benefit plan individually
and in the aggregate satisfied the requirements of Section 415 of the Code
as in effect at the end of the 1986 Limitation Year. A Participant's
Accrued Benefit at any time may not exceed the applicable limitation under
Section 22.1.
(i) The provisions of Section 22.1 are effective for Plan Years
beginning after December 31, 1986.
22.2 Multiple Defined Benefit Plans. If the Employer maintains, or at
one time maintained, a defined benefit plan in addition to this Plan, which
benefits or could benefit a Participant in this Plan, the Administrator will
freeze or reduce the rate of accrual under this Plan to the extent necessary to
prevent the aggregate Annual Benefit from exceeding the limitations of this
section.
22.3 Defined Contribution Plan Limitation. If the Employer maintains a
defined contribution plan or has ever maintained a defined contribution plan
which the Employer has terminated, then the sum of the defined benefit plan
fraction and
Page 22-3
<PAGE> 93
the defined contribution plan fraction for any Participant for any Limitation
Year must not exceed 1.0.
22.4 Reduction of Contributions to Defined Contribution Plan. To the
extent necessary to satisfy the limitation under Section 22.1, the Employer will
reduce its contribution or allocation on behalf of the Participant to the
defined contribution plan under which the Participant participates and then, if
necessary, the Participant's projected Annual Benefit under this Plan.
22.5 Definitions. For purposes of this section, only the following
words shall have the following meaning:
(a) "Annual Benefit" shall mean the Participant's retirement
benefit (including any portion of the Participant's retirement benefit
payable to an alternate payee under a qualified domestic relations order
satisfying the requirements of Section 414(p) of the Code) attributable to
Employer contributions payable in the form of a straight life annuity or a
qualified joint and survivor annuity, with no ancillary benefits (other
than the survivor annuity). If the normal form of benefit herein is a joint
and survivor annuity, the adjustment under Section 10 for alternate forms
of payment will be applied as if that joint and survivor annuity were not
an Annual Benefit, unless the joint and survivor annuity is the only form
of benefit available to the Participant.
(b) "Compensation" shall mean Compensation as defined in Section
2.8 herein.
(c) "Limitation Year" shall mean the Plan Year. All qualified
plans of the Employer must use the same Limitation Year. If the Employer
amends the Limitation Year to a different 12-consecutive month period, the
new Limitation Year must begin on a date within the Limitation Year for
which the Employer makes the amendment, creating a short Limitation Year.
(d) "Annual Addition" shall mean the sum of the following amounts
allocated on behalf of a Participant for a Limitation Year, under a defined
contribution plan maintained by the Employer: (1) all Employer
contributions; (2) all Forfeitures; and (3) all Employee contributions.
Except to the extent provided in Treasury Regulations, Annual Additions
include excess contributions in Section 401(k) of the Code, excess
aggregate contributions described in Section 401(m) of the Code and excess
deferrals described in Section 402(g) of the Code, irrespective of whether
the plan distributes or forfeits such excess amounts. Amounts allocated
after March 31,
Page 22-4
<PAGE> 94
1984 to an individual medical account (as defined in Section 415(l)(2) of the
Code), included as part of a defined benefit plan maintained by the Employer and
allocations made under a simplified employee pension plan as defined in Section
408(k) of the Code maintained by the Employer are also Annual Additions.
Furthermore, Annual Additions include contributions paid or accrued after
December 31, 1985 for taxable years ending after December 31, 1985 attributable
to post-retirement medical benefits allocated to the separate account of a key
employee (as defined in Section 419(d)(3) of the Code) under a welfare benefit
fund (as defined in Section 419(3) of the Code) maintained by the Employer, but
only for purposes of the dollar limitation applicable to the Maximum Permissible
Amount. For a Limitation Year, the Annual Additions allocated on behalf of any
Participant, to all defined contribution plans maintained by the Employer, may
not exceed the Maximum Permissible Amount. The "Maximum Permissible Amount" is
the lesser of (i) $30,000 (or, if greater, one-fourth of the defined benefit
dollar limitation under Section 415(b)(1)(A) of the Code) or (ii) 25 percent of
the Participant's Compensation for the Limitation Year.
(e) "Short Year Limitation." If there is a short Limitation Year
because of a newly adopted plan with a short initial Plan Year or because
of a change in Limitation Year, the Administrator will multiply the $30,000
limitation (or larger limitation) on Annual Additions by the following
fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(f) "Year of Service" shall mean a Plan Year during which a
Participant completes at least 1,000 Hours of Service.
(g) "Year of Participation" shall mean participation as
determined under Section 2 herein, but only if the Plan is in existence for
such Year of Participation and the Participant is a Participant in the Plan
at least one day in that Year of Participation. If the Participant receives
credit for only a partial Year of Participation under the Plan, he will
receive credit for only a partial year for purposes of the limitations of
this section. For any other defined benefit plan taken into account, a Year
of Participation is each accrual computation period for which (i) the
Participant receives credit for at least the number of Hours of Service (or
period of service, if the Plan uses elapsed time) necessary to accrue a
benefit for that accrual computation period;
Page 22-5
<PAGE> 95
and (ii) the eligibility conditions of the plan include the Participant as
a participant in that plan on at least one day of that accrual computation
period. If the Employee satisfies the conditions described in (i) and (ii)
above, he will receive credit for a Year of Participation (or partial Year
of Participation, if applicable) equal to the amount of benefit accrual
service (computed to fractional parts of a year) credited under that plan
for the accrual computation period. A Participant receives credit for a
Year of Participation under another defined benefit plan only if the plan
was established no later than the last day of the accrual computation
period to which the Year of Participation relates. A Participant will not
be credited with more than one Year of Participation under this paragraph
with respect to the same 12-month period.
(h) "Social Security Retirement Age" shall mean a Participant's
Security Retirement Age determined under following table:
<TABLE>
<CAPTION>
Calendar Year Social Security
of Birth Retirement Age
------------- ---------------
<S> <C>
Prior to 1938 65
1938 through 1954 66
After 1954 67
</TABLE>
(i) "Employer" shall mean the Employer that adopts this Plan and
any related Employers described in Section 2.15. Solely for purposes of
applying the limitations of this section, related Employer shall be
determined by modifying Sections 414(b) and (c) of the Code in accordance
with Section 415(h) of the Code.
(j) "Defined benefit plan" shall mean a retirement plan which
does not provide for individual accounts for Employer contributions. All
defined benefit plan (whether or not terminated) maintained by the Employer
shall be treated as a single plan.
(k) "Defined contribution plan" shall mean a retirement plan
which provides for an individual account for each Participant and for
benefits based solely on the amount contributed to the Participant's
account, and any income, expenses, gains and losses, and any forfeitures of
accounts of other Participants which the plan may allocate to such
Participant's account. All defined contribution plans (whether or nor
terminated) maintained by the Employer shall be treated as a single plan.
For purposes of the limitations of this section (except for the $10,000
minimum benefit limitation in Section 22.1(b)), Employee contributions made
to a defined benefit plan (including this
Page 22-6
<PAGE> 96
Plan) maintained by the Employer shall be treated as a separate defined
contribution plan. An individual medical account (as defined in Section
415(l)(2) of the Code), included as a part of a defined benefit plan
maintained by the Employer, and for taxable years ending after December 31,
1985, a welfare benefit fund under Section 419(e) of the Code maintained by
the Employer to the extent there are at least post-retirement medical
benefits allocated to the separate account of a key employee (as defined in
Section 419A(d)(3) of the Code) shall be treated as a defined contribution
plan.
(l) "Defined benefit plan fraction" shall mean
projected annual benefit of the Participant under the
-----------------------------------------------------
defined benefit plan(s) the lesser of (1) 125%
(subject to the "100% limitation" in paragraph
(n) of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for the
Limitation Year, or (2) 140% of the
Participant's Average Compensation
for his high three-consecutive
Years of Service
The "projected annual benefit" is the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if the plan
expresses such benefit in a form other than a straight life annuity or a
qualified joint and survivor annuity) of the Participant under the terms of
the defined benefit plan on the assumptions he continues employment until
his Normal Retirement Age (or current age, if later) as stated in the
defined benefit plan, his Compensation continues until the date of his
Normal Retirement Age and all other relevant factors used to determine
benefits under the defined benefit plan remain constant as of the current
Limitation Year for all future Limitation Years. The denominator of this
fraction assumes the Participant has at least 10 Years of Service or will
have at least 10 Years of Service at Normal Retirement Age. To determine
whether the Participant will have at least 10 Years of Service, the year in
which the Participant reaches Normal Retirement Age shall be included but
only if it is reasonable to anticipate he will receive credit for a Year of
Service in that year. If a Participant fails to satisfy this 10 Years of
Service requirement, the denominator of the Participant's defined benefit
fraction shall be reduced in the same manner as described under Section
22.1(e) with respect to reductions for less than 10 Years of Service.
If the Participant's Current Accrued Benefit (as described in
this section) exceeds the applicable dollar limitation in effect under
Section 415(b)(1)(A) of the Code, the denominator of the Participant's
defined benefit plan fraction determined under this paragraph may not be
less than 125% (subject to the 100% limitation in (n) below) of that
Current Accrued Benefit.
Page 22-7
<PAGE> 97
(m) "Defined contribution plan fraction" shall mean:
The sum as of the close of the Limitation Year, of the Annual
Additions to the Participant's account under the defined
contribution plan(s)
-------------------------------------------------------------
The sum of the lesser of the
following amounts determined for the Limitation
Year and for each prior Year of Service with the
Employer (1) 125% (subject to the "100% limitation"
in paragraph (n)) of the dollar limitation in effect
under Section 415(c)(1)(A) of the Code for the Limitation Year
(determined without regard to the special dollar limitations for
employee stock ownership plans), or (2) 35% of the Participant's
Compensation for the Limitation Year
For purposes of determining the defined contribution plan
fraction, the Annual Additions in Limitation Years beginning prior to
January 1, 1987 shall not be recomputed to treat all Employee contributions
as Annual Additions. If the Plan satisfied Section 415 of the Code for the
Limitation Years beginning prior to January 1, 1987, the defined
contribution plan fraction and the defined benefit plan fraction as of the
end of the 1986 Limitation Year shall be redetermined in accordance with
this section. If the sum of the redetermined fractions exceeds 1.0, an
amount equal to the product of (1) the excess of the sum of the fraction
over 1.0 times (2) the denominator of the defined contribution fraction
promptly will be subtracted permanently from the numerator of the defined
contribution plan fraction. In making the adjustment, any Accrued Benefit
under the defined benefit plan which is in excess of the Current Accrued
Benefit may be disregarded. This Plan continues any transitional rules
applicable to the determination of the defined contribution plan fraction
under the Employer's Plan as of the end of the 1986 Limitation Year.
(n) "100% limitation" shall mean that if the 100% limitation
applies the denominator of the defined benefit plan fraction and the
denominator of the defined contribution plan fraction shall be determined
by substituting 100% for 125%. The 100% limitation applies only if (1) the
Plans' top-heavy ratio exceeds 90 percent; or (2) the Plan's top-heavy
ratio is greater than 60 percent, and the Employer does not elect to
provide extra minimum benefit which satisfy Section 416(h)(2) of the Code.
Page 22-8
<PAGE> 98
Section 23
MISCELLANEOUS PROVISIONS
23.1 No Contractual Relationship. The establishment of this Plan shall
not be construed as creating any contract of employment between any Employer and
any Employee. Nothing herein contained shall give any Employee of an Employer
the right to inspect the books of the Employer or any Related Employer; nor to
interfere with the right of the Employer to discharge any Employee at any time;
nor shall it give any Employer the right to require any Employee to remain in
its employ; nor shall it interfere with any Employee's right to terminate his
employment at any time.
23.2 Liability for Benefits. All Plan Benefits payable under this Plan
shall be provided solely from the Trust, to the extent funded, and neither the
Employer, the Administrator, the Trustee or the Sponsor assume any liability or
responsibility therefor.
23.3 Inability to Perform. Neither the Employer, the Administrator or
the Trustee shall be responsible for any inability to perform or delay in
performing, any act occasioned by any person or by law, and, in the event any
such inability or delay shall be so occasioned, the Employer, the Administrator
or the Trustee shall perform such act which, in their sole discretion, most
completely carries out the intention and purpose of this Plan. All parties to
this Plan or in any way interested therein shall be bound by any acts so
performed under such conditions.
23.4 Participant's Rights. No Participant or Beneficiary shall have
any rights or interest in any specific assets in the Trust, except as expressly
set forth herein.
23.5 Plan and Trust Binding on all Parties. The Plan and Trust
provisions shall be binding upon the heirs, personal representatives, successors
and assigns of all present and future parties.
23.6 Conflict of Law Provisions. All matters respecting the validity,
effect, interpretation and administration of the Plan and Trust shall be
determined in accordance with the laws of the state in which the Employer
maintains its principal place of business, except as preempted by federal law.
Page 23-1
<PAGE> 99
23.7 Spendthrift Clause. The provisions hereof are intended as
personal protection for the Participants. No Participant shall have any right to
assign, anticipate or hypothecate his account, nor shall any such assets be
subject to seizure by legal process or be in any way subject to the claims of
any creditor of such Participant; provided, however, a Participant may pledge
his vested interest under this Plan herein as security for a loan made from the
Trust to the Participant which is exempt from the tax imposed by Section 4975 of
the Code by reason of Section 4975(d)(1) of the Code, and provided further,
Administrator may direct trustee to comply with a Qualified Domestic Relations
Order, as defined in Section 414(p) of the Code and in compliance with the
procedures set forth in Section 414(p) of the Code and any applicable
regulations issued thereunder. Administrator may disregard any assignment of an
interest in the Plan to the extent the assignment is security for a participant
loan which is not exempt under Section 4975(d)(1) of the Code.
23.8 Waiver of Notice. Any person, including a Participant or
Beneficiary, entitled to notice under the Plan may waive the notice.
23.9 Third Party. No person dealing with the Trustee is obligated to
see to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the Trustee has acted pursuant to any of the
terms of the Plan. Each person dealing with the Trustee may act upon any notice,
request or representation in writing by the Trustee, or by the Trustee's duly
authorized agent, and is not liable to any person in so acting. The certificate
of the Trustee that it is acting in accordance with the Plan will be conclusive
in favor of any person relying on the certificate. If more than two persons act
as Trustee, a decision of the majority of such persons controls with respect to
any decision regarding the administration or investment of the Trust Fund.
23.10 Use of Terms. Wherever appropriate, words used herein in the
singular may include the plural, or the plural may be read as the singular, and
the masculine may include the feminine.
Page 23-2
<PAGE> 100
Section 24
CLAIMS PROCEDURE
24.1 Filing of Claim. A Participant or Beneficiary may make a claim
for a Plan Benefit by written request to the Administrator.
24.2 Notification of Decision. A decision shall be made on the claim
as soon as practicable and shall be communicated in writing to the person who
made the claim. If the claim is partially or wholly denied, written notice of
such denial shall be made to the claimant within 90 days after receipt of the
written claim by the Administrator. The notice of denial shall contain:
(a) The reasons for the denial, with specific reference to the
provisions of the Plan upon which the denial is based;
(b) If required, a description of any additional data necessary,
which may be furnished to further support the request, and the reason why
such additional data may be necessary; and
(c) Notice of the claimant's right to have the denial reviewed,
together with specific information as to the steps to be taken, and the
time limit involved, if the claimant wishes to request a review of the
decision.
If a written communication of the decision is not made within 90
days, the claimant may deem the request denied.
24.3 Request for Review. If a claimant receives a notice of denial or
if no response has been made to his claim within a specified 90 days, the
claimant may request a review of his claim and the denial thereof by giving
written notice to the Administrator. The claimant's request for review must be
made not later than 60 days after receipt of the notice of denial, or if no such
notice has been given, within 60 days after the expiration of the 90-day period
specified for such notice. If the written request for review is not made within
the specified 60-day period, the claimant shall waive his right to review.
24.4 Review. A review shall be promptly made by the Administrator
after receipt of a timely filed request for review. The claimant may submit
issues and comments in writing, may review pertinent documents and may request a
hearing. A decision on review shall be made and furnished in writing to the
claimant. The decision shall be made not later than 60 days after receipt of the
request for review unless special circumstances, such as a
Page 24-1
<PAGE> 101
claimant's request for a hearing, require an extension of time for processing,
in which case the time limit shall be not later than 120 days after such
receipt. The decision on review shall be furnished to the claimant in writing
and shall include the reasons for the decision, with references to the pertinent
plan provisions upon which the decision is based.
IN WITNESS WHEREOF, Employer has caused this Agreement to be executed
by its duly authorized officer this 16 day of December, 1994.
EMPLOYER:
G.I. JOE'S, INC.
By /s/
--------------------------------------
President
Page 24-2
<PAGE> 102
G. I. JOE's, INC. RESTATED PENSION PLAN
INTERIM AMENDMENT TO RESTATED PLAN
The G. I. Joe's, Inc. Restated Pension Plan is hereby conditionally
amended to change the small amount figure for mandatory cash-outs from $3,500 to
$5,000 to reflect the change in the law made by the Taxpayer Relief Act of 1997
("TRA '97"). Employer intends to amend its Plan to reflect this law change at
such time as the Internal Revenue Service issues appropriate procedures for
amending Plans to reflect changes made by TRA '97. Employer's amendment will be
retroactive to the effective date specified below. Employer intends to operate
its Plan in accordance with such change beginning with the effective date
specified below.
I.
The following pages of the Plan are deleted in their entirety:
11-1, 11-5, 11-9, 11-10, 11-10,
11-11, 11-12 and 17-3; and
the following pages, copies of which are attached hereto and by this reference
incorporated herein, are substituted in lieu thereof:
11-1, 11-5, 11-9, 11-10, 11-10,
11-11, 11-12 and 17-3; and
Page 24-3
<PAGE> 103
II.
This amendment shall be effective as of March 1, 1998.
DATED this _____ day of _______________, 1998.
EMPLOYER:
G. I. JOE's, INC.
By: __________________________
President
Page 24-4
<PAGE> 104
Section 11
FORM AND TIME OF PAYMENT OF ACCRUED BENEFITS
11.1 General. Subject to the requirements of Section 11.2, a
Participant shall be paid his nonforfeitable Accrued Benefit in a form permitted
under Section 11.3 or, if provided under the Plan, in one of the optional forms
of benefit. Annuity payments will continue until the last scheduled payment
coincident with or immediately preceding the date of the Participant's death or,
if applicable, the date of his survivor's death. To determine the value of any
benefit payable under the Plan, the Participant's nonforfeitable Accrued Benefit
shall be reduced by any security interest held by the Plan by reason of a
Participant loan, provided any post-August 18, 1985 loan satisfied the spousal
consent requirement of this section.
11.2 Benefit Elections. If the Participant is eligible to receive a
Plan Benefit in excess of $5,000, the Administrator shall provide a benefit
election notice to a Participant at least 30 days and not more than 90 days
prior to the Benefit Commencement Date. The notice shall explain the optional
forms of benefit under the Plan, including the material features and relative
values of the options, and the Participant's right to defer distribution until
the Participant attains the later of age 62 or the Normal Retirement Date. If
the Participant is eligible to receive an annuity option, then the benefit
election notice shall also comply with the Annuity Notice Requirements described
in Section 11.3. A benefit election shall not be made before the Participant
receives the benefit election notice and shall not be made prior to the Benefit
Commencement Date. Optional forms of benefit may not be conditioned upon the
discretion of Employer, Administrator, Trustee, fiduciary, independent third
party or any other person (other than the Participant) except for such
administrative discretion as may be permitted by regulations.
11.3 Annuity.
(a) Joint and Survivor Annuity - Life Annuity. A married
Participant's Plan Benefit shall be distributed in the form of a "qualified
joint and survivor annuity" and an unmarried Participant's Plan Benefit
shall be paid in the form of an immediate and nontransferable life annuity
unless the Participant elects an optional form of payment pursuant to a
valid waiver election in accordance with paragraph (d) or the exception for
small amounts described in paragraph 11.4(b) below applies. The Participant
may elect to have such annuity distributed upon attainment of the earliest
retirement age under the Plan. A "qualified joint and survivor annuity" is
an immediate and nontransferable annuity which is purchasable with the
Participant's Plan Benefit (including rollovers) and which is payable for
the
Page 11-1, Interim Amendment, Effective March 1, 1998
<PAGE> 105
service before the Plan Year in which age 35 is attained, notice shall be
provided within the two year period beginning one year prior to separation
and ending one year after separation. If such a Participant thereafter
returns to employment with the Employer, the applicable period for such
Participant shall be redetermined.
(iii) Notwithstanding the other requirements of this paragraph
(e), the respective notices prescribed by this section need not be given to
a Participant if his plan "fully subsidizes" the costs of a qualified joint
and survivor annuity or qualified preretirement survivor annuity and the
Participant can not elect another form of benefit or designate a non-spouse
Beneficiary. For purposes of this paragraph (e), a plan fully subsidizes
the costs of a benefit if under the plan the failure to waive such benefit
by a Participant would not result in a decrease in any Plan Benefit with
respect to such Participant and would not result in increased contributions
from the Participant.
11.4 Other Benefit Options. Unless otherwise provided herein, if the
annuity form of payment does not apply because of a valid waiver election, then
a Participant's Plan Benefit shall be distributed as follows:
(a) Small Amounts. If the Present Value of the Participant's Plan
Benefit does not exceed $5,000 (and at the time of any prior distribution
has not exceeded $5,000), the Plan Benefit shall be distributed in the form
of a single lump-sum without the requirement of the consent of the
Participant or the Participant's Beneficiary and such benefit shall not be
subject to the joint and survivor annuity, life annuity or preretirement
survivor annuity provisions of Section 11.3.
The Participant may elect in accordance with Section 16, a Direct
Rollover of the lump-sum distribution via a Trustee-to-Trustee transfer to
an eligible retirement plan pursuant to Section 401(a)(31) of the Code and
the Regulations thereunder.
(b) Life Annuity. The Participant may elect a straight life
annuity, payable no less frequently than annually, with payment of the
Participant's Accrued Benefit ending on the Participant's death.
(c) Joint and Survivor Annuity. The Participant may elect a joint
and survivor annuity providing a reduced monthly benefit payable for the
life of the Participant with a 50 percent, 75 percent or 100 percent (as
elected by the Participant) survivor annuity for the remaining life of the
Beneficiary.
Page 11-5, Interim Amendment, Effective March 1, 1998
<PAGE> 106
designated (when such consent is required) for a particular Plan Benefit, or if
the distributions do not otherwise commence within 90 days of the date
Participant or the Participant's Beneficiary, if applicable, is provided with
the benefit election notice as may be required by this section, then the
deferred time of payment shall be as soon as administratively feasible after the
Participant attains the later of age 62 or his Normal Retirement Date.
11.8 Payment of Normal and Delayed Retirement Benefit. The payment of
a Participant's retirement benefit shall commence as soon as administratively
feasible on the Participant's Normal Retirement Date in the case of a normal
retirement, or as soon administratively feasible after the first day of the
month after the actual retirement date, in the case of delayed retirement, and
shall continue until the first day of the month in which the Participant dies;
provided, however, the payment of a Participant's retirement benefit must begin
not later than the date specified in Section 11.5. The form of distribution of
the Participant's normal or delayed retirement benefit shall be as described in
Sections 11.3 and 11.4.
11.9 Termination Benefit. Subject to Section 6, a Participant's
Termination Benefit shall be determined as follows:
(a) Form of Payment of Termination Benefit.
(i) If the Present Value of the Participant's Termination
Benefit does not exceed $5,000 (and at the time of any prior
distribution has not exceeded $5,000), the Trustee shall pay the
Termination Benefit in a lump-sum.
(ii) If the Present Value of the Participant's Termination
Benefit exceeds $5,000, the Participant may elect (in accordance with
Section 11.2) to receive his Termination Benefit in one of the forms
described in Section 11.4 as elected by the Participant.
(b) Time of Payment of Termination Benefit.
(i) If the Present Value of the Participant's Termination
Benefit does not exceed $5,000 (and at the time of any prior
distribution has not exceeded $5,000), the Trustee shall pay the
Termination Benefit as soon as administratively feasible after the
first day of the first month of the Plan Year following the Plan Year
during which the Participant terminated employment.
(ii) If the Present Value of the Participant's Termination
Benefit exceeds $5,000, the Participant may elect to commence his
Termination Benefit as soon as administratively feasible after the
Participant attains age 55.
Page 11-9, Interim Amendment, Effective March 1, 1998
<PAGE> 107
(iii) Deferred Distribution. If distribution is not
consented to by the Participant or the Participant's designated
Beneficiary at the time designated above (when such consent is
required), or if distributions do not otherwise commence within 90
days of the date the Participant or the Participant's designated
Beneficiary is provided with the benefit election notice, then the
deferred time of payment shall be as soon as administratively feasible
after the first day of the first month of the Plan Year during which
the Participant requests that a distribution be made.
11.10 Payment of Early Retirement Benefit. Subject to Sections 11.2
and 11.3, the Participant's early retirement benefit shall be paid as follows:
(a) Form of Payment of Early Retirement Benefit.
(i) If the Present Value of a Participant's early retirement
benefit does not exceed $5,000 (and at the time of any prior
distribution has not exceeded $5,000), the Trustee shall pay the early
retirement benefit in a lump-sum.
(ii) If the Present Value of a Participant's early
retirement benefit exceeds $5,000, the Participant may elect (in
accordance with Section 11.2) to receive his early retirement benefit
in one of the forms described in Section 11.4.
(b) Time of Payment of Early Retirement Benefit.
(i) If the Present Value of the Participant's early
retirement benefit does not exceed $5,000 (and at the time of any
prior distribution has not exceeded $5,000), the Trustee shall pay the
early retirement benefit as soon as administratively feasible after
the later of (a) the Participant's termination of employment, or (b)
the date the Participant qualifies for an early retirement benefit.
(ii) If the Present Value of the Participant's early
retirement benefit exceeds $5,000, the Participant may elect (in
accordance with Section 11.2) to commence his early retirement benefit
at the time specified in (i) above.
(iii) Deferred Distribution. If distribution is not
consented to by the Participant or the Participant's designated
Beneficiary at the time designated above (when such consent is
required), or if distributions do not otherwise commence within 90
days of the date the Participant is provided with the benefit election
notice, then the deferred time of
Page 11-10, Interim Amendment, Effective March 1, 1998
<PAGE> 108
payment shall be as soon as administratively feasible after the first
day of the first month of the Plan Year during which the Participant
requests that a distribution be made.
11.11 Payment of Disability Benefit. The Participant's disability
benefit shall be distributed as follows:
(a) Form of Payment of Disability Benefit.
(i) If the Present Value of the Participant's Disability
benefit does not exceed $5,000 (and at the time of any prior
distribution has not exceeded $5,000), the Trustee shall pay the
Disability benefit in lump-sum.
(ii) If the Present Value of the Participant's disability
benefit exceeds $5,000, the Participant may elect (in accordance with
Section 11.2) to receive his disability benefit in one of the forms
described in Section 11.4.
(b) Time of Payment of Disability Benefit.
(i) If the Participant is receiving benefits from the
Employer's long-term disability plan, payment of the Disability
Benefit will commence when such benefits cease.
(ii) If the Participant is not receiving benefits from the
Employer's long-term disability plan, payment of the Disability
Benefit will commence immediately.
(iii) Deferred Distribution. If distribution is not
consented to by the Participant at the time designated above (when
such consent is required), or if distributions do not otherwise
commence within 90 days of the date the Participant is provided with
the benefit election notice, then the deferred time of payment shall
be as soon as administratively feasible after the first day of the
first month of the Plan Year during which the Participant requests
that a distribution be made.
11.12 Payment of Death Benefit. Subject to Sections 11.3 and 11.6, if
the distribution of the Participant's Plan
Page 11-11, Interim Amendment, Effective March 1, 1998
<PAGE> 109
Benefit has begun prior to his death, the Participant's death benefit shall be
paid in accordance with the distribution method in effect at the time of death.
If the distribution of the deceased Participant's Plan Benefit has not commenced
prior to his death, the Participant's death benefit shall be distributed as
follows:
(a) Form of Payment of Death Benefit. The deceased Participant's
death benefit shall be paid to the deceased Participant's designated
Beneficiary as follows:
(i) If the Present Value of the death benefit does not
exceed $5,000 (and at the time of any prior distribution has not
exceeded $5,000), the benefit shall be paid in a lump-sum.
(ii) If the Present Value of the death benefit exceeds
$5,000, the benefit shall be paid in one of the forms described in
Section 11.4 elected by the deceased Participant's designated
Beneficiary.
(b) Time of Payment of Death Benefit.
(i) If the Present Value of the Participant's death benefit
does not exceed $5,000 (and at the time of any prior distribution has
not exceeded $5,000), the Trustee shall pay the death benefit as soon
as administratively feasible after the first day of the first month of
the Plan Year following the Plan Year in which the Participant died.
(ii) If the Present Value of the Participant's death benefit
exceeds $5,000, the Participant's designated Beneficiary may elect (in
accordance with Section 11.2) to commence his death benefit in
accordance with (i) above.
(iii) Deferred Distribution. If distribution is not
consented to by the Participant or, if applicable, by the
Participant's designated Beneficiary, at the time designated above
(when such consent is required), or if distributions do not otherwise
commence within 90 days of the date the Participant or the
Participant's designated Beneficiary is provided with the benefit
election notice, then the deferred time of payment shall be as soon as
administratively feasible after the first day of the first month of
the Plan Year during which the Participant's designated Beneficiary
requests that a distribution be made.
Page 11-12, Interim Amendment, Effective March 1, 1998
<PAGE> 110
nonforfeitable. Forfeitures occurring prior to the date of plan termination
shall not become fully vested as a result of a complete or partial termination
of the Plan.
17.5 Distribution of Trust. Upon permanent discontinuance of
contributions under the Plan, the Plan and Trust shall not automatically
terminate. Employer shall have the option of terminating the Plan and Trust or
continuing the Plan in accordance with the provisions of this section. If
Employer elects to continue the Plan and Trust, Trustee shall continue to hold
the fully vested and Plan Benefits of the Participants for their benefit, and
the Trust Agreement shall be administered as though the Plan were otherwise in
full force and effect, to the extent not inconsistent with this section.
17.6 Liquidation of Trust. If the Employer elects to terminate the
Plan and Trust, the Employer shall direct Trustee to distribute the assets
remaining in the Trust after payment of any expenses properly chargeable against
the Trust to the Participants. If the present value of the Participant's Plan
Benefit exceeds $5,000 and the Participant does not consent to an immediate
distribution, Administrator may purchase and distribute from a commercial
provider an annuity contract for such Participant with the present value of the
Participant's Plan Benefit. If Employer maintains a successor qualified
retirement plan, the present value of the Participant's Plan Benefit may be
transferred to the successor plan. A distribution made after March 31, 1988 and
prior to January 1, 1993, pursuant to Plan termination, must be part of a
lump-sum distribution to the Participant of his Plan Benefit.
17.7 Dissolution of Employer. In the event Employer shall be dissolved
or liquidated and has elected not to terminate this Trust, Administrator shall
retain all of its powers and duties granted herein and shall assume the
authority to fill any vacancies occurring, to appoint successor Trustees in the
event of resignation by Trustee and to amend the Plan and Trust in order to keep
the Plan and Trust qualified under applicable law. If Employer is Administrator,
Trustee shall assume all such responsibilities and authority. Administrator
shall proceed to liquidate and distribute the Trust assets within an
administratively feasible time, under guidelines established and published by
the Internal Revenue Service.
17.8 Allocation of Assets.
(a) After notice by Administrator to the PBGC, if applicable,
that the Plan is to be terminated and upon receipt by Administrator of a
notice from the PBGC that the assets held under the Plan are sufficient to
discharge when due all obligations of the Plan with respect to the basic
benefits of the Participants, Administrator shall allocate the assets of
the Plan in accordance with Section 4044 of ERISA for the purposes set
forth below and in the order set
Page 17-3, Interim Amendment, Effective March 1, 1998
<PAGE> 111
G. I. JOE's, INC.
RESTATED PENSION PLAN
AMENDMENT NO. ONE
TO 1994 RESTATED PLAN
The G. I. Joe's, Inc. Restated Pension Plan is hereby amended to
change the method of determining the value of a lump sum distribution in
accordance with the applicable provisions of the Retirement Protection Act of
1994 as follows:
I.
The following pages of the Plan are deleted in their entirety:
2-1 and 2-2; and
the following pages, copies of which are attached hereto and by this reference
incorporated herein, are substituted in lieu thereof:
Page 2-1, 2-2 and Exhibit B.
II.
This amendment shall be effective as of March 1, 1995.
DATED: April 14 , 1995.
EMPLOYER:
G. I. JOE's, INC.
By: /s/
-------------------------------
President
<PAGE> 112
Section 2
DEFINITIONS
When used herein, the following words shall have the following
meanings, unless the context clearly indicates otherwise:
2.1 "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended.
2.2 "Accrued Benefit" shall mean the Participant's benefits derived
from Employer Contributions determined under the accrual formula provided in
this Plan, or if greater, the top-heavy minimum benefit described in Section 21.
For purposes of determining a Participant's Accrued Benefit, a Participant will
receive credit for a full Year of Participation in the manner specified in this
section. If this is a restated Plan, a Participant's Accrued Benefit for Plan
Years beginning before the effective date of Section 411 of the Code is the
greater of the Accrued Benefit provided by the Plan, or the Accrued Benefit the
participant would have had if the accrual formula provided under Section 6 had
been in effect under this Plan.
2.3 "Actuarial Assumptions" shall mean the Actuarial Assumptions
specified in this section used in determining the present value of a
Participant's Accrued Benefit. The following assumptions will be used:
(a) Post-Retirement.
Interest: 8 percent
(b) Preretirement.
Interest: 8 percent
(c) Mortality.
GA83 - Male and Female
(d) Applicable Mortality Table. The Mortality Table prescribed by
the Secretary of the Treasury for purposes of determining Present Value
under Section 417(e)(3) of the Code is set forth in Exhibit B hereto.
(e) Special Interest Rate Rules. When determining the amount of a
Participant's distribution or the Present Value of the Participant's
Accrued Benefit, the special interest rates used to make an Actuarial
Equivalent determination are either the applicable interest rates specified
in (a) and (b) above or the "Applicable Interest Rate" described herein,
whichever results in a greater
Page 2-1, Amendment No. One, Effective March 1, 1995
<PAGE> 113
benefit. The "Applicable Interest Rate" is the annual rate of interest
on 30-year Treasury Securities for the month before the date of
distribution, or such other date as may be prescribed by regulations.
This paragraph does not apply to the determination of the amount of a
nondecreasing annuity payable for a period not less than the life of
the Participant or, in the case of a qualified joint and survivor
annuity, the joint lives of the Participant and the Participant's
spouse.
The special interest rules above apply to distributions in
Plan Years beginning after February 28, 1995.
2.4 "Actuarial Equivalent or Equivalency" shall mean a benefit of
equal value computed using the Actuarial Assumptions specified in this Section
and which may be modified for Accrued Benefits which takes into account
permitted disparity.
In the event this section is amended, the Actuarial Equivalent of a
Participant's Accrued Benefit on or after the date of change shall be determined
as the greater of (1) the Actuarial Equivalent of the Accrued Benefit as of the
date of change computed on the old basis, or (2) the Actuarial Equivalent of the
total Accrued Benefit on the new basis.
Regardless of the above, in the event the Plan is an amendment of an
existing Plan, the Actuarial Equivalent of the Accrued Benefit shall not be less
than the Actuarial Equivalent of the Accrued Benefit as of the date of this
amendment, based on the Actuarial Equivalent provisions of the Plan prior to
such date. Calculations under this paragraph shall be based on the Actuarial
Assumptions specified in this section.
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
Page 2-2, Amendment No. One, Effective March 1, 1995
<PAGE> 114
EXHIBIT B
TO THE G. I. JOE's, INC
RESTATED PENSION PLAN
APPLICABLE MORTALITY TABLE
[Diagram]
The Mortality Table above is based on a fixed blend of 50 percent of the male
mortality rates and 50 percent of the female mortality rates from the 83 GAM.
The table shows, for each age, the number living based on a starting population
of one million lives at age 5 (lx), and the annual rate of mortality (qx).
<PAGE> 115
G. I. JOE's, INC.
RESTATED PENSION PLAN
AMENDMENT NO.TWO
TO 1994 RESTATED PLAN
The G. I. Joe's, Inc. Restated Pension Plan is hereby amended at the
request of the Internal Revenue Service as follows:
I.
Page 4-1 of the Plan is deleted in its entirety and a new page 4-1, a
copy of which is attached hereto and by this reference incorporated herein, is
substituted in lieu thereof.
II.
This amendment shall be effective as of March 1, 1993.
DATED: _______________, 1995.
EMPLOYER:
G. I. JOE's, INC.
By: __________________________
President
<PAGE> 116
Section 4
ELIGIBILITY
4.1 Eligibility.
(a) For Plan Years beginning before January 1, 1991, all
Employees shall be eligible to participate upon satisfaction of the
following requirements:
(i) Completion of one Year of Service. For eligibility
purposes, a Year of Service shall be completed on the last day of the
eligibility 12-month computational period (irrespective of the date in
such period when the Employee completes 1,000 Hours of Service);
(ii) Attainment of age 21.
(b) Effective March 1, 1993, all Employees shall be eligible to
participate upon completion of one Year of Service and attainment of age
21.
In general, an Employee hired before December 1, 1989 who has
completed 1,000 Hours of Service since hire will remain eligible to
participate in the Plan.
(c) An Employee who has satisfied the eligibility requirements
shall be come a Participant on the first day of the month following the
month in which the eligibility requirements are satisfied.
4.2 Continued Participation. Temporary layoffs and leaves of absence
granted by Employer shall not be deemed to be a termination of employment. Any
Participant who fails to return to active employment at or before the expiration
of his leave of absence shall be deemed to have terminated his employment as of
the date of expiration of his leave of absence, except that should he fail to
return because of death or Disability, his service shall be deemed to have
continued until the date of his death or the termination of his employment for
Disability. Employer, in granting leaves of absence, shall follow uniform rules
which shall be consistently applied so that all Participants similarly situated
shall be treated alike.
Page 4-1 - Amendment No. Two, Effective March 1, 1993
<PAGE> 1
EXHIBIT 10.18
G.I. JOE'S, INC.
1998 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the G.I. Joe's, Inc. 1998 Stock Incentive Compensation Plan
(the "Plan") is to enhance the long-term shareholder value of G.I. Joe's, Inc.,
an Oregon corporation (the "Company"), by offering opportunities to employees,
directors, officers, consultants, agents, advisors and independent contractors
of the Company and its Subsidiaries (as defined in Section 2) to participate in
the Company's growth and success, and to encourage them to remain in the service
of the Company and its Subsidiaries and to acquire and maintain stock ownership
in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Award
"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Options and Stock Awards, or any
combination of the foregoing.
2.2 Board
"Board" means the Board of Directors of the Company.
2.3 Cause
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
2.4 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 Common Stock
"Common Stock" means the common stock, no par value per share, of the
Company.
2.6 Corporate Transaction
"Corporate Transaction" means any of the following events:
-1-
<PAGE> 2
(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or
pursuant to which shares of the Common Stock are converted into cash,
securities or other property, if following such merger or consolidation the
holders of the Company's outstanding voting securities immediately prior to
such merger or consolidation own less than 66-2/3% of the outstanding
voting securities of the surviving corporation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all
of the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation"
is defined in Section 8.3) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
(d) Acquisition by a person, within the meaning of Section 3(a)(9) or
of Section 13(d)(3) (as in effect on the ate of adoption of the Plan) of
the Exchange Act of a majority or more of the Company's outstanding voting
securities (whether directly or indirectly, beneficially or of record).
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.7 Disability
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.8 Early Retirement
"Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.9 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 Fair Market Value
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for
-2-
<PAGE> 3
a single trading day. If there is no such reported price for the Common Stock
for the date in question, then such price on the last preceding date for which
such price exists shall be determinative of Fair Market Value.
2.11 Good Reason
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice by the Holder:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the Holder's
reasonable judgment, represents a substantial reduction in the status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to the Holder of any duties or responsibilities that, in the Holder's
reasonable judgment, are materially inconsistent with such status, title,
position or responsibilities; or any removal of the Holder from or failure to
reappoint or reelect the Holder to any of such positions, except in connection
with the termination of the Holder's employment for Cause, for Disability or as
a result of his or her death, or by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Successor Corporation's requiring the Holder (without the
Holder's consent) to be based at any place outside a 50-mile radius of his or
her place of employment prior to a Corporate Transaction, except for reasonably
required travel on the Successor Corporation's business that is not materially
greater than such travel requirements prior to the Corporate Transaction;
(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Holder was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Holder with
compensation and benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each material employee
benefit plan, program and practice as in effect immediately prior to the
Corporate Transaction;
(e) any material breach by the Successor Corporation of its
obligations to the Holder under the Plan or any substantially equivalent plan of
the Successor Corporation; or
(f) any purported termination of the Holder's employment or service
for Cause by the Successor Corporation that does not comply with the terms of
the Plan or any substantially equivalent plan of the Successor Corporation.
2.12 Grant Date
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
-3-
<PAGE> 4
2.13 Holder
"Holder" means: (i) the person to whom an Award is granted; (ii) for a
Holder who has died, the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights under the Award have passed by will or by
the applicable laws of descent and distribution, or the beneficiary designated
in accordance with Section 10; or (iii) the person(s) to whom an Award has been
transferred in accordance with Section 10.
2.14 Incentive Stock Option
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.15 Nonqualified Stock Option
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.16 Option
"Option" means the right to purchase Common Stock granted under Section 7.
2.17 Plan Administrator
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.18 Restricted Stock
"Restricted Stock" means shares of Common Stock granted under Section 9,
the rights of ownership of which are subject to restrictions prescribed by the
Plan Administrator.
2.19 Retirement
"Retirement" means retirement as of the individual's normal retirement date
under the Company's 401(k) Plan or other similar successor plan applicable to
salaried employees.
2.20 Securities Act
"Securities Act" means the Securities Act of 1933, as amended.
2.21 Stock Award
"Stock Award" means an Award granted under Section 9.
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<PAGE> 5
2.22 Subsidiary
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.23 Successor Corporation
"Successor Corporation" has the meaning set forth under Section 11.2.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees consisting of two
or more members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
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<PAGE> 6
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 11.1, a
maximum of 800,000 shares of Common Stock shall be available for issuance under
the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company.
4.2 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards may
include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.
6.2 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
Awards shall be deemed to be Holders.
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<PAGE> 7
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options.
7.3 Term of Options
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
Period of Holder's Continuous Employment
or Service With the Company or Its Percent of Total Option
Subsidiaries From the Option Grant Date That Is Vested and Exercisable
--------------------------------------- ------------------------------
<S> <C>
After 1 year 20%
After 2 years 40%
After 3 years 60%
After 4 years 80%
After 5 years 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the
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<PAGE> 8
Option is being exercised and accompanied by payment in full as described in
Section 7.5. The Plan Administrator may determine at any time that an Option may
not be exercised as to less than 100 shares at any one time (or the lesser
number of remaining shares covered by the Option).
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Holder for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price; or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, to the extent permitted by the Plan Administrator in
its sole discretion, the price for shares purchased under an Option may be paid,
either singly or in combination with one or more of the alternative forms of
payment authorized by this Section 7.5, by (y) a promissory note delivered
pursuant to Section 13; or (z) such other consideration as the Plan
Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. [If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one year if the termination of the Holder's employment or services is
coincident with Retirement, Early Retirement at the Company's request or
Disability or (b) within three months after the date the Holder ceases to be an
employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Holder's
employment or services is for any reason other than Retirement, Early Retirement
at the Company's request or Disability, but in no event
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<PAGE> 9
later than the remaining term of the Option. Any Option exercisable at the time
of the Holder's death may be exercised, to the extent of the number of shares
purchasable by the Holder at the date of the Holder's death, by the personal
representative of the Holder's estate, the person(s) to whom the Holder's rights
under the Award have passed by will or the applicable laws of descent and
distribution or the beneficiary designated pursuant to Section 10, at any time
or from time to time within one year after the date of death, but in no event
later than the remaining term of the Option. Any portion of an Option that is
not exercisable on the date of termination of the Holder's employment or
services shall terminate on such date, unless the Plan Administrator determines
otherwise. In case of termination of the Holder's employment or services for
Cause, the Option shall automatically terminate upon first notification to the
Holder of such termination, unless the Plan Administrator determines otherwise.
If a Holder's employment or services with the Company are suspended pending an
investigation of whether the Holder shall be terminated for Cause, all the
Holder's rights under any Option likewise shall be suspended during the period
of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence on the terms and conditions of
an Option shall be determined by the Plan Administrator, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Holder holds two or more such Options that become exercisable for the first
time in the same calendar year, such limitation shall be applied on the basis of
the order in which such Options are granted.
8.2 10% Shareholders
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this
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<PAGE> 10
Section 8.3, "parent corporation" and "subsidiary corporation" shall have the
meanings attributed to those terms for purposes of Section 422 of the Code.
8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 Exercisability
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be deemed
to continue beyond the first 90 days of a leave of absence unless the Holder's
reemployment rights are guaranteed by statute or contract. For purposes of this
Section 8.5, "total disability" shall mean a mental or physical impairment of
the Holder that is expected to result in death or that has lasted or is expected
to last for a continuous period of 12 months or more and that causes the Holder
to be unable, in the opinion of the Company and two independent physicians, to
perform his or her duties for the Company and to be engaged in any substantial
gainful activity. Total disability shall be deemed to have occurred on the first
day after the Company and the two independent physicians have furnished their
opinion of total disability to the Plan Administrator.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Holder must hold the shares issued upon the
exercise of an Incentive Stock Option for two years after the Grant Date of the
Incentive Stock Option and one year from the date of exercise. A Holder may be
subject to the alternative minimum tax at the time of exercise of an Incentive
Stock Option. The Holder shall give the Company prompt notice of any disposition
of shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 13 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK AWARDS
9.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock on such
terms and conditions and subject to such restrictions, if any (which may be
based on continuous service with the Company or the achievement of performance
goals) as the Plan Administrator shall
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<PAGE> 11
determine, in its sole discretion, which terms, conditions and restrictions
shall be set forth in the instrument evidencing the Award. The terms, conditions
and restrictions that the Plan Administrator shall have the power to determine
shall include, without limitation, the manner in which shares subject to Stock
Awards are held during the periods they are subject to restrictions and the
circumstances under which forfeiture of Restricted Stock shall occur by reason
of termination of the Holder's services.
9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock.
9.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. ASSIGNABILITY
No Option granted under the Plan may be assigned or transferred by the
Holder other than by will or by the applicable laws of descent and distribution,
and, during the Holder's lifetime, such Awards may be exercised only by the
Holder. Notwithstanding the foregoing, and to the extent permitted by Section
422 of the Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit a Holder of such Awards
to designate a beneficiary who may exercise the Award or receive compensation
under the Award after the Holder's death; provided, however, that any Award so
assigned or transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the Award.
SECTION 11. ADJUSTMENTS
11.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
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<PAGE> 12
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
11.2 Corporate Transaction
Except as otherwise provided in the instrument that evidences the Award, in
the event of any Corporate Transaction, each Award that is at the time
outstanding shall automatically accelerate so that each such Award shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested and exercisable. Such Award shall not so accelerate, however,
if and to the extent that such Award is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or parent thereof
(the "Successor Corporation") or to be replaced with a comparable award for the
purchase of shares of the capital stock of the Successor Corporation. The
determination of Award comparability shall be made by the Plan Administrator,
and its determination shall be conclusive and binding. Any such Awards granted
to an "executive officer" (as that term is defined for purposes of Section 16 of
the Exchange Act) of the Company that are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall be accelerated in
the event that the Holder's employment or services should subsequently terminate
within two years following such Corporate Transaction, unless such employment or
services are terminated by the Successor Corporation for Cause or by the Holder
voluntarily without Good Reason. The acceleration will not occur if, in the
opinion of the Company's outside accountants, it would render unavailable
"pooling of interest" accounting for a Corporate Transaction that would
otherwise qualify for such accounting treatment.
11.3 Further Adjustment of Awards
Subject to Section 11.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Holders, with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, lifting restrictions and other modifications, and the Plan
Administrator may take such actions with respect to all Holders, to certain
categories of Holders or only to individual Holders. The Plan Administrator may
take such action before or after granting Awards to which the action relates and
before or after any public announcement with respect to such sale, merger,
consolidation, reorganization, liquidation or change in control that is the
reason for such action.
11.4 Limitations
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
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<PAGE> 13
SECTION 12. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, vesting or exercise of any Award. Subject to the Plan and applicable law,
the Plan Administrator may, in its sole discretion, permit the Holder to satisfy
withholding obligations, in whole or in part, by paying cash, by electing to
have the Company withhold shares of Common Stock or by transferring shares of
Common Stock to the Company, in such amounts as are equivalent to the Fair
Market Value of the withholding obligation. The Company shall have the right to
withhold from any Award or any shares of Common Stock issuable pursuant to an
Award or from any cash amounts otherwise due or to become due from the Company
to the Holder an amount equal to such taxes. The Company may also deduct from
any Award any other amounts due from the Holder to the Company or a Subsidiary.
SECTION 13. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or a director of
the Company) in acquiring shares of Common Stock pursuant to an Award granted
under the Plan, the Plan Administrator, in its sole discretion, may authorize,
either at the Grant Date or at any time before the acquisition of Common Stock
pursuant to the Award, (a) the extension of a loan to the Holder by the Company,
(b) the payment by the Holder of the purchase price, if any, of the Common Stock
in installments, or (c) the guarantee by the Company of a loan obtained by the
Holder from a third party. The terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of repayment, will be subject
to the Plan Administrator's discretion; provided, however, that repayment of any
Company loan to the Holder shall be secured by delivery of a full-recourse
promissory note for the loan amount executed by the Holder, together with any
other form of security determined by the Plan Administrator. The maximum credit
available is the purchase price, if any, of the Common Stock acquired, plus the
maximum federal and state income and employment tax liability that may be
incurred in connection with the acquisition.
SECTION 14. AMENDMENT AND TERMINATION OF PLAN
14.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan or that may be issued as Stock
Awards, (b) modify the class of persons eligible to receive Options, or (c)
otherwise require shareholder approval under any applicable law or regulation.
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<PAGE> 14
14.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan will have
no fixed expiration date; provided, however, that no Incentive Stock Options may
be granted more than 10 years after the earlier of the Plan's adoption by the
Board and approval by the shareholders.
14.3 Consent of Holder
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Holder, be made in a manner so as to constitute a "modification"
that would cause such Incentive Stock Option to fail to continue to qualify as
an Incentive Stock Option.
SECTION 15. GENERAL
15.1 Award Agreements
Awards granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
15.2 Continued Employment or Services; Rights in Awards
None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.
15.3 Registration
The Company shall be under no obligation to any Holder to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may restrict the exercise of any Option and may adopt exercise
control restrictions in order to maintain any exemption requirements of federal
or state securities laws. The Company may refuse the exercise of any Option for
which an exemption from registration under federal and state securities laws is
unavailable. The Company may issue certificates for shares with such legends and
subject to such restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the
Company with federal and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the
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<PAGE> 15
nonissuance or sale of such shares as to which such requisite authority shall
not have been obtained.
15.4 No Rights as a Shareholder
No Option shall entitle the Holder to any cash dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option, free of all applicable
restrictions.
15.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Holders who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Holders. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.
15.6 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Holder, and no Holder shall
have any rights that are greater than those of a general unsecured creditor of
the Company.
15.7 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 16. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
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<PAGE> 16
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
<TABLE>
<CAPTION>
Date of
Adoption/
Amendment/ Date of Shareholder
Adjustment Section Effect of Amendment Approval
- ---------- ------- ------------------- -------------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.19
================================================================================
LOAN AND SECURITY AGREEMENT
by and between
G.I. JOE'S, INC.
and
FOOTHILL CAPITAL CORPORATION
Dated as of March 10, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page(s)
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION. ....................................... 1
1.1 Definitions ................................................ 1
1.2 Accounting Terms ........................................... 15
1.3 Code ....................................................... 15
1.4 Construction ............................................... 15
1.5 Schedules and Exhibits ..................................... 16
2. LOAN AND TERMS OF PAYMENT. .......................................... 16
2.1 Revolving Advances. ........................................ 16
2.2 Letters of Credit. ......................................... 16
2.3 Intentionally Omitted. ..................................... 19
2.4 Intentionally Omitted. ..................................... 19
2.5 Overadvances ............................................... 19
2.6 Interest and Letter of Credit Fees: Rates, Payments,
and Calculations. .......................................... 19
2.7 Collection of Accounts ..................................... 20
2.8 Crediting Payments; Application of Collections ............. 21
2.9 Designated Account ......................................... 21
2.10 Maintenance of Loan Account; Statements of Obligations ..... 22
2.11 Fees ....................................................... 22
3. CONDITIONS; TERM OF AGREEMENT. ...................................... 23
3.1 Conditions Precedent to the Initial Advance and the
Initial Letter of Credit ................................... 25
3.2 Conditions Precedent to all Advances and all Letters
of Credit ................................................. 25
3.3 Condition Subsequent ....................................... 25
3.4 Term; Automatic Renewal .................................... 25
3.5 Effect of Termination ...................................... 26
3.6 Early Termination by Borrower .............................. 26
3.7 Termination Upon Event of Default .......................... 26
4. CREATION OF SECURITY INTEREST. ...................................... 27
4.1 Grant of Security Interest ................................. 27
4.2 Negotiable Collateral ...................................... 27
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral ...................................... 27
4.4 Delivery of Additional Documentation Required .............. 27
</TABLE>
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<TABLE>
<S> <C> <C>
4.5 Power of Attorney .......................................... 27
4.6 Right to Inspect ........................................... 28
5. REPRESENTATIONS AND WARRANTIES. ..................................... 28
5.1 No Encumbrances ............................................ 29
5.2 Intentionally Omitted. ..................................... 29
5.3 Eligible Inventory ......................................... 29
5.4 Equipment .................................................. 29
5.5 Location of Inventory and Equipment ........................ 29
5.6 Inventory Records .......................................... 29
5.7 Location of Chief Executive Office; FEIN ................... 29
5.8 Due Organization and Qualification; Subsidiaries. .......... 29
5.9 Due Authorization; No Conflict. ............................ 29
5.10 Litigation ................................................. 30
5.11 No Material Adverse Change ................................. 30
5.12 Solvency ................................................... 31
5.13 Employee Benefits .......................................... 31
5.14 Environmental Condition .................................... 31
6. AFFIRMATIVE COVENANTS. .............................................. 31
6.1 Accounting System .......................................... 31
6.2 Collateral Reporting ....................................... 32
6.3 Financial Statements, Reports, Certificates ................ 32
6.4 Tax Returns ................................................ 33
6.5 Guarantor Reports .......................................... 34
6.6 Returns .................................................... 34
6.7 Title to Equipment ......................................... 34
6.8 Maintenance of Equipment ................................... 34
6.9 Taxes ...................................................... 34
6.10 Insurance. ................................................. 35
6.11 No Setoffs or Counterclaims ................................ 36
6.12 Location of Inventory and Equipment ........................ 36
6.13 Compliance with Laws ....................................... 36
6.14 Employee Benefits. ......................................... 37
6.15 Leases ..................................................... 37
6.16 Inventory Counting and Appraisals........................... 38
7. NEGATIVE COVENANTS. ................................................. 38
7.1 Indebtedness ............................................... 38
7.2 Liens ...................................................... 39
7.3 Restrictions on Fundamental Changes ........................ 39
7.4 Disposal of Assets ......................................... 39
</TABLE>
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<TABLE>
<S> <C> <C>
7.5 Change Name ................................................ 39
7.6 Guarantee .................................................. 39
7.7 Nature of Business ......................................... 39
7.8 Prepayments and Amendments. ................................ 39
7.9 Change of Control .......................................... 40
7.10 Consignments ............................................... 40
7.11 Distributions .............................................. 40
7.12 Accounting Methods ......................................... 40
7.13 Investments ................................................ 40
7.14 Transactions with Affiliates ............................... 40
7.15 Suspension ................................................. 41
7.16 Compensation ............................................... 41
7.17 Use of Proceeds ............................................ 41
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees ....................... 41
7.19 No Prohibited Transactions Under ERISA. .................... 41
7.20 Financial Covenants ........................................ 42
7.21 Capital Expenditures ....................................... 43
8. EVENTS OF DEFAULT. .................................................. 43
9. FOOTHILL'S RIGHTS AND REMEDIES. ..................................... 45
9.1 Rights and Remedies ........................................ 45
9.2 Remedies Cumulative ........................................ 47
10. TAXES AND EXPENSES. ................................................. 48
11. WAIVERS; INDEMNIFICATION. ........................................... 48
11.1 Demand; Protest; etc. ...................................... 48
11.2 Foothill's Liability for Collateral ........................ 48
11.3 Indemnification ............................................ 49
12. NOTICES. ............................................................ 49
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. ......................... 50
14. DESTRUCTION OF BORROWER'S DOCUMENTS. ................................ 51
15. GENERAL PROVISIONS. ................................................. 51
15.1 Effectiveness .............................................. 51
15.2 Successors and Assigns ..................................... 52
15.3 Section Headings ........................................... 52
15.4 Interpretation ............................................. 52
</TABLE>
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<TABLE>
<S> <C> <C>
15.5 Severability of Provisions ................................. 52
15.6 Amendments in Writing ...................................... 52
15.7 Counterparts; Telefacsimile Execution ...................... 52
15.8 Revival and Reinstatement of Obligations ................... 53
15.9 Integration................................................. 53
16. PERMITTED REDEMPTION AND RELATED TRANSACTIONS. ...................... 53
16.1 Sale and Leaseback.......................................... 53
16.2 Permitted Redemption ....................................... 53
</TABLE>
SCHEDULES AND EXHIBITS
----------------------
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 3.1 Real Properties
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Exhibit C-1 Form of Compliance Certificate
Exhibit R-1 Redemption Agreement
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<PAGE> 6
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
March 10, 1998, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 11111 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025-3333 and G.I. JOE'S, INC., an Oregon
corporation ("Borrower"), with its chief executive office located at 9805
Boeckman Road, Wilsonville, Oregon 97070.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who directly
or indirectly controls, is controlled by, is under common control with or is a
director or officer of such Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power to vote 5% or more of
the securities having ordinary voting power for the election of directors or the
direct or indirect power to direct the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Authorized Person" means any officer or other employee of Borrower.
"Average Unused Portion of Maximum Amount" means, as of any date of
determination, (a) the Maximum Amount, less (b) the sum of (i) the average Daily
Balance of Advances that were outstanding during the immediately preceding
month,
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<PAGE> 7
plus (ii) the average Daily Balance of the undrawn Letters of Credit that were
outstanding during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ss.
101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35)
of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrower's Books" means all of Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing Borrower's properties or
assets (including the Collateral) or liabilities; all information relating to
Borrower's business operations or financial condition; and all computer
programs, disk or tape files, printouts, runs, or other computer prepared
information.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time as: (a)
David Orkney ceases to be the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of at least 51% of
the total voting power of all classes of stock then outstanding of Borrower
entitled to vote in the election of directors and having the right to elect a
majority of Borrower's directors at any time prior to the Permitted Redemption,
and (b) at any time after the Permitted Redemption, (i) Borrower ceases to be a
wholly-owned Subsidiary of Parent unless Borrower : (y) issues shares of its
capital stock in a private placement with Persons who are not Affiliates or (z)
issues shares of its capital stock in a bona fide, underwritten public offering
provided, however, that Parent continues to owns not less than 51% of the Common
Stock of Borrower after any such issuance; or (ii) Norman Daniels ceases to be
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of 51% of the total voting power of all
classes of stock then outstanding of Parent entitled to vote in the election of
directors and having the right to elect a majority of Parent's directors.
"Closing Date" means the date of the first to occur of the making of the
initial Advance or the issuance of the initial Letter of Credit.
"Code" means the California Uniform Commercial Code.
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<PAGE> 8
"Collateral" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Investment Property,
(g) the Negotiable Collateral,
(h) the Real Properties,
(i) any money, or other assets of Borrower that now or hereafter come
into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of
the Collateral, and any and all Accounts, Borrower's Books, Equipment,
General Intangibles, Inventory, Investment Property, Negotiable Collateral,
Real Property, money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee waiver,
bailee letter, or acknowledgment agreement of any warehouseman, processor,
lessor, consignee, or other Person in possession of, having a Lien upon, or
having rights or interests in the Equipment or Inventory, in each case, in form
and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and other items
of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C-1 and delivered by the chief accounting officer of Borrower to
Foothill.
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<PAGE> 9
"Core and Bottle Deposit Reserve" means a reserve against Inventory for
Borrower's liability for core and bottle deposits, as determined from time to
time by Foothill in its reasonable credit judgment.
"Daily Balance" means, with respect to each day during the term of this
Agreement, the amount of an Obligation owed at the end of such day.
"deems itself insecure" means that the Person deems itself insecure in
accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 2092600378 of Borrower maintained
with Borrower's Designated Account Bank, or such other deposit account of
Borrower (located within the United States) which has been designated, in
writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means Bank of America National Trust and Savings
Association, whose office is located at 1001 S.W. Fifth Avenue, Portland, Oregon
97304, and whose ABA number is 323070380, or such other bank which has been
designated, in writing from time to time, by Borrower to Foothill.
"Disbursement Letter" means an instructional letter executed and delivered
by Borrower to Foothill regarding the extensions of credit to be made on the
Closing Date, the form and substance of which shall be satisfactory to Foothill.
"Discontinued Inventory Reserve" means a reserve against Inventory for
discontinued categories of Inventory (as noted on Borrower's Books as "X items")
as determined from time to time by Foothill in its reasonable credit judgment.
On the Closing Date this reserve shall be in an amount equal to 50% of the Value
of discontinued Inventory.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in Section 3.6.
"EBITDA" means the consolidated net income of Borrower and its Subsidiaries
(excluding extraordinary items) for the prior 12 month period (a) plus all
interest expense, income tax expense, depreciation and amortization (including
amortization of any goodwill or other intangibles) for the period, (b) plus or
minus losses or gains attributable to any fixed asset sales in the period and
(c) plus or minus any other
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<PAGE> 10
non-cash charges which have been subtracted or added in calculating consolidated
net income for the period.
"Eligible Inventory" means Inventory consisting of first quality finished
goods held for sale in the ordinary course of Borrower's business, that are
located at or in-transit between Borrower's premises identified on Schedule E-1,
that strictly comply with each and all of the representations and warranties
respecting Inventory made by Borrower to Foothill in the Loan Documents, and
that are and at all times continue to be acceptable to Foothill in all respects;
provided, however, that standards of eligibility may be fixed and revised from
time to time by Foothill in Foothill's reasonable credit judgment. In
determining the amount to be so included, Inventory shall be valued at the lower
of cost or market on a basis consistent with Borrower's current and historical
accounting practices and shall be reduced by the amount of the following
reserves: (i) the Discontinued Inventory Reserve, (ii) the Gift Certificate
Reserve and (iii) the Shrinkage Reserve. An item of Inventory shall not be
included in Eligible Inventory if:
(a) it is not owned solely by Borrower or Borrower does not have good,
valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on Schedule
E-1;
(c) it is not located on property owned or leased by Borrower or in a
contract warehouse, in each case, subject to a Collateral Access Agreement
executed by the mortgagee, lessor, the warehouseman, or other third party,
as the case may be, and segregated or otherwise separately identifiable
from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first priority security
interest in favor of Foothill;
(e) it consists of goods returned or rejected by Borrower's customers
or goods in transit; and
(f) it consists of food or beverages, display items, or it is out of
season, obsolete or slow moving, a restrictive or custom item, raw
materials, work-in-process, a component that is not part of finished goods,
or constitutes spare parts, packaging and shipping materials, supplies used
or consumed in Borrower's business, Inventory subject to a Lien in favor of
any third Person, bill and hold goods, defective goods, "seconds," or
Inventory acquired on consignment.
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<PAGE> 11
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan
or Multiemployer Plan, (b) the withdrawal of Borrower, any of its Subsidiaries
or ERISA Affiliates from a Benefit Plan during a plan year in which it was a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the
providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means the amount as determined by Foothill at any
time, equal to: (a) (i) the amount of the Advances available to Borrower as of
such time
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<PAGE> 12
based upon the applicable lending formulas set forth in Section 2.1, subject to
the sublimits and reserves from time to time established in accordance with
Sections 2.1(b), 6.15 and 10, minus (b) the sum of (i) the amount of the
outstanding Obligations (including Letters of Credit), plus (ii) the aggregate
amount of trade payables payable by Borrower that are more than 90 days from
invoice date.
"Existing Lender" means BankAmerica Business Credit, Inc.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with Borrower,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Collateral
appraisals); costs and expenses incurred by Foothill in the disbursement of
funds to Borrower (by wire transfer or otherwise); charges paid or incurred by
Foothill resulting from the dishonor of checks; costs and expenses paid or
incurred by Foothill to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by Foothill in examining
Borrower's Books; costs and expenses of third party claims or any other suit
paid or incurred by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's relationship with Borrower or any guarantor; and Foothill's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing, defending,
or concerning the Loan Documents (including attorneys fees and expenses incurred
in connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or any guarantor of the Obligations), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
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<PAGE> 13
"General Intangibles" means all of Borrower's present and future general
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Gift Certificate Reserve" means a reserve against Inventory for Borrower's
liability for outstanding gift certificates, as determined from time to time by
Foothill in its reasonable credit judgment.
"Governing Documents" means the certificate or articles of incorporation,
by-laws, or other organizational or governing documents of any Person.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guaranty" means that certain continuing guaranty of the Obligations, of
even date herewith, executed by Parent in favor of Foothill.
"Hazardous Materials" means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of Borrower for borrowed money,
(b) all obligations of Borrower evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursement or other obligations of Borrower in
respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial products, (c) all obligations of Borrower under capital leases, (d)
all obligations or liabilities of
8
<PAGE> 14
others secured by a Lien on any property or asset of Borrower, irrespective of
whether such obligation or liability is assumed, and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of the
book value of all of such Person's assets that would be treated as intangibles
under GAAP.
"Intellectual Property Security Agreement" means that certain Intellectual
Property Security Agreement, of even date herewith, between Borrower and
Foothill.
"Inventory" means all present and future inventory in which Borrower has
any interest, including goods held for sale or lease or to be furnished under a
contract of service and all of Borrower's present and future raw materials, work
in process, finished goods, and packing and shipping materials, wherever
located.
"Inventory Reserves" means reserves (determined from time to time by
Foothill in its discretion) for the estimated reclamation claims of unpaid
sellers of Inventory sold to Borrower.
"Investment Property" has the meaning set forth in Section 9115 of the
Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the context
requires.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a
9
<PAGE> 15
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, security agreement, adverse claim or charge, conditional sale or
trust receipt, or from a lease, consignment, or bailment for security purposes
and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Liquidation Value" means the orderly liquidation value of Borrower's
Inventory as determined by one or more appraisers acceptable to Foothill.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement Letter, the Letters
of Credit, the Lockbox Agreements, Intellectual Property Security Agreement, the
Guaranty, any note or notes executed by Borrower and payable to Foothill, and
any other agreement entered into, now or in the future, in connection with this
Agreement.
"Lockbox Account" shall mean a depositary account established pursuant to
one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Depository Account Agreements, in
form and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means U.S. Bank or such other banks as may be agreed to by
Foothill and Borrower from time to time.
"Lockboxes" has the meaning set forth in Section 2.7.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (b) the material impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of Foothill to enforce the Obligations or realize upon the
Collateral, (c) a material adverse effect on the value of the Collateral or the
amount that Foothill would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Maximum Amount" means $20,000,000.
"Mortgages" means one or more mortgages, deeds of trust, or deeds to secure
debt, executed by Borrower in favor of Foothill, the form and substance of which
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<PAGE> 16
shall be satisfactory to Foothill, that encumber the Real Properties and the
related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past six
years.
"Negotiable Collateral" means all of Borrower's present and future letters
of credit, notes, drafts, instruments, Investment Property, securities
(including the shares of stock of Subsidiaries of Borrower), documents, personal
property leases (wherein Borrower is the lessor), and chattel paper.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination Premiums), liabilities
(including all amounts charged to Borrower's Loan Account pursuant hereto),
obligations, fees, charges, costs, or Foothill Expenses (including any fees or
expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Overadvance" has the meaning set forth in Section 2.5.
"Parent" means Joe's Holdings, Inc. an Oregon corporation.
"Participant" means any Person to which Foothill has sold a participation
interest in its rights under the Loan Documents.
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Foothill, from Existing Lender respecting the amount necessary
to repay in full all of the obligations of Borrower owing to Existing Lender and
obtain a termination or release of all of the Liens existing in favor of
Existing Lender in and to the properties or assets of Borrower.
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"PBGC" means the Pension Benefit Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto.
"PD Properties" means PD Properties, LLC, an Oregon limited liability
company.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for unpaid
taxes that either (i) are not yet due and payable or (ii) are the subject of
Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of
lessors under Equipment leases and purchase money security interests and Liens
of secured creditors the extent that the acquisition of the underlying asset is
permitted under Section 7.21 and so long as the Lien only attaches to the asset
purchased or acquired and only secures the purchase price of the asset, (e)
existing encumbrances on the Real Property, (f) Liens arising by operation of
law in favor of warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, incurred in the ordinary course of business of Borrower
and not in connection with the borrowing of money, and which Liens either (i)
are for sums not yet due and payable, or (ii) are the subject of Permitted
Protests, (g) Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance, (h) Liens or deposits to
secure performance of bids, tenders, or leases (to the extent permitted under
this Agreement), incurred in the ordinary course of business of Borrower and not
in connection with the borrowing of money, (i) Liens arising by reason of
security for surety or appeal bonds in the ordinary course of business of
Borrower, and (j) Liens of or resulting from any judgment or award that would
not cause a Material Adverse Change and as to which the time for the appeal or
petition for rehearing of which has not yet expired, or in respect of which
Borrower is in good faith prosecuting an appeal or proceeding for a review, and
in respect of which a stay of execution pending such appeal or proceeding for
review has been secured.
"Permitted Protest" means the right of Borrower to protest any Lien (other
than any such Lien that secures the Obligations), tax (other than payroll taxes
or taxes that are the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such obligation is
established on the books of Borrower in an amount that is reasonably
satisfactory to Foothill, (b) any such protest is instituted and diligently
prosecuted by Borrower in good faith, and (c) Foothill is satisfied that, while
any such protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Liens of Foothill in and to the Collateral.
"Permitted Redemption" means the redemption by Borrower of outstanding
shares of capital stock and options to acquire such shares, pursuant to the
Redemption Agreement and option purchase agreements. Such redemption will be
made for cash from the proceeds of the Sale and Leaseback and the Subordinated
Debenture Loan.
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"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or arrangement maintained
or contributed to by Borrower or with respect to which it may incur liability.
"PMSI Reserve" means a reserve determined by Foothill for Inventory that is
the subject of purchase money security interests in favor of other Persons,
including Worldwide Distributors.
"Real Property" means any estates or interests in real property now owned
or hereafter acquired by Borrower.
"Redemption Agreements" means those certain redemption agreements,
substantially in the form attached as Exhibit R-1.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.4.
"Rent Reserves" means reserves determined by Foothill regarding lease
payments for any location on Schedule E-1 for which Borrower has not obtained a
Collateral Access Agreement.
"Reportable Event" means any of the events described in Section 4043(c) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Retiree Health Plan" means an "employee welfare benefit plan" within the
meaning of Section 3(l) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Sale and Leaseback" means the sale by Borrower of the Real Properties to
PD Properties and leaseback of such properties to Borrower.
"Sellers" means the shareholders of Borrower whose shares of Common Stock
or options are redeemed by Borrower pursuant to one of the Redemption
Agreements.
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"Shrinkage Reserve" means a reserve against Inventory for Borrower's
Inventory shrinkage, as determined from time to time by Foothill in its
reasonable credit judgment. On the Closing Date this reserve shall be in an
amount equal to 1.75% of Borrower's sales for the fiscal year to date.
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Subordinated Debenture Loan" means that certain loan from Peregrine
Holdings, LTD to Borrower in the principal amount not less than $5,000,000 to be
made concurrently with or prior to the Permitted Redemption.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
"Tangible Net Worth" means, as of any date of determination, the difference
of (a) Borrower's total stockholder's equity, minus (b) the sum of: (i) all
Intangible Assets of Borrower, (ii) all of Borrower's prepaid expenses, and
(iii) all amounts due to Borrower from Affiliates.
"Tax Reserves" means (a) the pre-Redemption Agreement reservation, until
paid, of those amounts to be paid to the various Sellers as described in the
"Tax Matters" section of the various Redemption Agreements and determined in
accordance with an attached exhibit prepared by Arthur Andersen, which sums are
intended to
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reimburse Sellers for federal and state income taxes due for Subchapter S income
attributable to the Common Stock of Borrower for the fiscal year ended January
31, 1997 (estimated to be $700,000), and (b) the post-Redemption Agreement
reservation, until paid, of any required adjustments to the amounts previously
paid to Sellers needed to carry out Borrower's obligations to reimburse the
various Sellers for all tax liabilities of Sellers listed in the Redemption
Agreements after tax returns are finalized, which amounts are to be paid on or
before October 15, 1998.
"Value" means, with respect to Borrower's Inventory, the lower of
Borrower's cost or market value, determined on a basis consistent with
Borrower's current and historical accounting practices.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Year 2000 Problem" means the risk that computer applications used by any
Person may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999.
1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" or "Parent" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower or Parent on a
consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. An Event of Default shall "continue"
or be "continuing" until such Event of Default has been waived in writing by
Foothill. Section, subsection, clause, schedule, and exhibit references are to
this Agreement unless otherwise specified. Any reference in this Agreement or in
the Loan Documents to this Agreement or any of the Loan Documents shall include
all alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
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1.5 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall
be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement, Foothill agrees
to make advances ("Advances") to Borrower in an amount outstanding not to exceed
at any one time the lesser of (i) the Maximum Amount less the outstanding
balance of all undrawn or unreimbursed Letters of Credit, or (ii) the Borrowing
Base less the aggregate amount of all undrawn or unreimbursed Letters of Credit.
For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the result of:
(y) 60% of the Value of Eligible Inventory minus the amount of the
Core and Bottle Deposit Reserve, the PMSI Reserve, the Tax Reserves and
Inventory Reserve, if any, and provided that the advance rate applicable to
Eligible Inventory shall not at any time exceed the quotient expressed as a
percentage equal to 80% of the Liquidation Value of Eligible Inventory
divided by the Value of Eligible Inventory, minus
(z) the aggregate amount of reserves, if any, established by Foothill
under Sections 2.1(b), 6.15, and 10.
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
Foothill may create reserves against the Borrowing Base or reduce its advance
rate based upon Eligible Inventory without declaring an Event of Default if it
determines that there has occurred a Material Adverse Change.
(c) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Foothill agrees
to issue letters of credit for the account of Borrower (each, an "L/C") or to
issue guarantees of payment (each such guaranty, an "L/C Guaranty") with respect
to letters of credit issued by an issuing bank for the account of Borrower.
Foothill shall have no obligation to issue a Letter of Credit if any of the
following would result:
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(i) 100% of the aggregate amount of all undrawn and unreimbursed
Letters of Credit, would exceed the Borrowing Base less the amount of
outstanding Advances; or
(ii) the aggregate amount of all undrawn or unreimbursed Letters of
Credit would exceed the lower of: (x) the Maximum Amount less the amount of
outstanding Advances; or (y) $1,000,000.
Borrower expressly understands and agrees that Foothill shall have no obligation
to arrange for the issuance by issuing banks of the letters of credit that are
to be the subject of L/C Guarantees. Borrower and Foothill acknowledge and agree
that certain of the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date. Each Letter of Credit shall
have an expiry date no later than 60 days prior to the date on which this
Agreement is scheduled to terminate under Section 3.4 (without regard to any
potential renewal term) and all such Letters of Credit shall be in form and
substance acceptable to Foothill in its sole discretion. If Foothill is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such amount to Foothill and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be an
Advance hereunder and, thereafter, shall bear interest at the rate then
applicable to Advances under Section 2.6.
(b) Borrower hereby agrees to indemnify, save, defend, and hold Foothill
harmless from any loss, cost, expense, or liability, including payments made by
Foothill, expenses, and reasonable attorneys fees incurred by Foothill arising
out of or in connection with any Letter of Credit. Borrower agrees to be bound
by the issuing bank's regulations and interpretations of any letters of credit
guarantied by Foothill and opened to or for Borrower's account or by Foothill's
interpretations of any Letter of Credit issued by Foothill to or for Borrower's
account, even though this interpretation may be different from Borrower's own,
and Borrower understands and agrees that Foothill shall not be liable for any
error, negligence, or mistake, whether of omission or commission, in following
Borrower's instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Borrower understands that the
L/C Guarantees may require Foothill to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify, save, defend, and hold Foothill
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by Foothill under any L/C Guaranty as a result of
Foothill's indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that issues a letter of
credit guaranteed by Foothill to deliver to Foothill all instruments, documents,
and
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other writings and property received by the issuing bank pursuant to such letter
of credit, and to accept and rely upon Foothill's instructions and agreements
with respect to all matters arising in connection with such letter of credit and
the related application. Borrower may or may not be the "applicant" or "account
party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred by Foothill
relating to the letters of credit guaranteed by Foothill shall be considered
Foothill Expenses for purposes of this Agreement and immediately shall be
reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this Agreement, Borrower agrees to
either (i) provide cash collateral to be held by Foothill in an amount equal to
102% of the maximum amount of Foothill's obligations under outstanding Letters
of Credit, or (ii) cause to be delivered to Foothill releases of all of
Foothill's obligations under outstanding Letters of Credit. At Foothill's
discretion, any proceeds of Collateral received by Foothill after the occurrence
and during the continuation of an Event of Default may be held as the cash
collateral required by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable law, treaty, rule, or
regulation or any change in the interpretation or application by any
governmental authority of any such applicable law, treaty, rule, or regulation,
or (ii) compliance by the issuing bank or Foothill with any direction, request,
or requirement (irrespective of whether having the force of law) of any
governmental authority or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is or shall be
imposed or modified in respect of any Letters of Credit issued hereunder,
or
(B) there shall be imposed on the issuing bank or Foothill any other
condition regarding any letter of credit, or Letter of Credit, as
applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at
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the rate set forth in Section 2.6(a) or (c)(i), as applicable. The determination
by the issuing bank or Foothill, as the case may be, of any amount due pursuant
to this Section 2.2(f), as set forth in a certificate setting forth the
calculation thereof in reasonable detail, shall, in the absence of manifest or
demonstrable error, be final and conclusive and binding on all of the parties
hereto.
2.3 Intentionally Omitted.
2.4 Intentionally Omitted.
2.5 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and 2.2 is
greater than either the Dollar or percentage limitations set forth in Sections
2.1 and 2.2 (an "Overadvance"), Borrower immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill first, to repay Advances
outstanding under Section 2.1 and, thereafter, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to Letters of Credit.
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations.
(a) Interest Rate. Except as provided in clause (c) below, all
Obligations (except for undrawn Letters of Credit) shall bear interest on the
Daily Balance at a per annum rate of one half percentage point above the
Reference Rate. In the event that the Permitted Redemption does not occur within
90 days of the Closing Date, the interest rate shall be reduced from one half
percentage point above the Reference Rate to one quarter percentage point above
such rate so long as the Permitted Redemption has not occurred and is
continuing. After such event, the interest rate shall be increased to one half
percentage point above the Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Foothill a fee (in
addition to the charges, commissions, fees, and costs set forth in Section
2.2(d)) equal to 1.25% per annum times the aggregate undrawn amount of all
Letters of Credit outstanding as of the end of each day.
(c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default, (i) all Obligations (except for undrawn Letters of Credit)
shall bear interest on the Daily Balance at a per annum rate equal to 4.50
percentage points above the Reference Rate and (ii) the Letter of Credit fee
provided in Section 2.6(b) shall be increased to 5.25% per annum times the
aggregate undrawn amount of all outstanding Letters of Credit.
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(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7.00% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less than
the foregoing minimum daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest and Letter of Credit fees payable hereunder
shall be due and payable, in arrears, on the first day of each month during the
term hereof. Borrower hereby authorizes Foothill, at its option, without prior
notice to Borrower, to charge such interest and Letter of Credit fees, all
Foothill Expenses (as and when incurred), the charges, commissions, fees, and
costs provided for in Section 2.2(d) (as and when accrued or incurred), the fees
and charges provided for in Section 2.11 (as and when accrued or incurred), and
all installments or other payments due under any Loan Document to Borrower's
Loan Account, which amounts thereafter shall accrue interest at the rate then
applicable to Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement
is 8.50% per annum. In the event the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Foothill, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto as of the
date of this Agreement, Borrower is and shall be liable only for the payment of
such maximum as allowed by law, and payment received from Borrower in excess of
such legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.7 Collection of Accounts. Borrower shall at all times maintain lockboxes
(the "Lockboxes") and, immediately after the Closing Date, shall instruct all
Account Debtors with respect to the Accounts, General Intangibles, and
Negotiable Collateral
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of Borrower to remit all Collections in respect thereof to such Lockboxes.
Borrower, Foothill, and the Lockbox Banks shall enter into the Lockbox
Agreements, which among other things shall provide for the opening of a Lockbox
Account for the deposit of Collections at a Lockbox Bank. Borrower agrees that
all Collections and other amounts received by Borrower from any Account Debtor
or any other source immediately upon receipt shall be deposited into a Lockbox
Account. No Lockbox Agreement or arrangement contemplated thereby shall be
modified by Borrower without the prior written consent of Foothill. Upon the
terms and subject to the conditions set forth in the Lockbox Agreements, all
amounts received in each Lockbox Account shall be wired each Business Day into
an account (the "Foothill Account") maintained by Foothill at a depositary
selected by Foothill.
2.8 Crediting Payments; Application of Collections. The receipt of any
Collections by Foothill (whether from transfers to Foothill by the Lockbox Banks
pursuant to the Lockbox Agreements or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under Section 2.1, but shall
not be considered a payment on account unless such Collection item is a wire
transfer of immediately available federal funds and is made to the Foothill
Account or unless and until such Collection item is honored when presented for
payment. From and after the Closing Date, Foothill shall be entitled to charge
Borrower for two Business Days of 'clearance' or 'float' at the rate set forth
in Section 2.6(a) or Section 2.6(c)(i), as applicable, on all Collections that
are received by Foothill (regardless of whether forwarded by the Lockbox Banks
to Foothill, whether provisionally applied to reduce the Obligations under
Section 2.1, or otherwise). This across-the-board two Business Day clearance or
float charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging two
Business Days of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrower shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 Designated Account. Foothill is authorized to make the Advances and to
cause to be issued the Letters of Credit under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person, or
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without instructions if pursuant to Section 2.6(e). Borrower agrees to establish
and maintain the Designated Account with the Designated Account Bank for the
purpose of receiving the proceeds of the Advances requested by Borrower and made
by Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
Advance requested by Borrower and made by Foothill hereunder shall be made to
the Designated Account.
2.10 Maintenance of Loan Account; Statements of Obligations. Foothill shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with all Advances made by Foothill to Borrower or
for Borrower's account, including, accrued interest, Foothill Expenses, and any
other payment Obligations of Borrower. In accordance with Section 2.8, the Loan
Account will be credited with all payments received by Foothill from Borrower or
for Borrower's account, including all amounts received in the Foothill Account
from any Lockbox Bank. Foothill shall render statements regarding the Loan
Account to Borrower, including principal, interest, fees, and including an
itemization of all charges and expenses constituting Foothill Expenses owing,
and such statements shall be conclusively presumed to be correct and accurate
and constitute an account stated between Borrower and Foothill unless, within 30
days after receipt thereof by Borrower, Borrower shall deliver to Foothill
written objection thereto describing the error or errors contained in any such
statements.
2.11 Fees. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee in the amount of
$250,000;
(b) Intentionally Omitted.
(c) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrower
performed by personnel employed by Foothill; Foothill's customary appraisal fee
of $1,500 per day per appraiser, plus out-of-pocket expenses for each appraisal
of the Collateral performed by personnel employed by Foothill; and, the actual
charges paid or incurred by Foothill if it elects to employ the services of one
or more third Persons to perform such financial analyses and examinations (i.e.,
audits) of Borrower or to appraise the Collateral; and, on each anniversary of
the Closing Date, Foothill's customary fee of $1,000 per year for its
documentation review; and
(d) Servicing Fee. On the first day of each month during the term of
this Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in the amount of $5,000.
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3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance and the Initial Letter of
Credit. The obligation of Foothill to make the initial Advance and to issue the
initial Letter of Credit is subject to the fulfillment, to the satisfaction of
Foothill and its counsel, of each of the following conditions on or before the
Closing Date:
(a) the Closing Date shall occur on or before March 31, 1998;
(b) Foothill shall have received searches reflecting the filing of its
financing statements and fixture filings;
(c) Foothill shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the termination by
Existing Lender of its Liens in and to the properties and assets of
Borrower;
(iv) the Intellectual Property Security Agreement;
(v) the Guaranty;
(vi) the Mortgages which shall be second to existing mortgages or
deeds of trust on Borrower's distribution center and a first on the
remaining Real Properties;
(d) Foothill shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's and Parent's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower and Parent respectively;
(f) Foothill shall have received a certificate of status with respect
to Borrower and Parent dated within 10 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdiction of
organization of Borrower and
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Parent which certificate shall indicate that each of Borrower and Parent is in
good standing in such jurisdiction;
(g) Foothill shall have received certificates of status with respect
to Borrower, each dated within 15 days of the Closing Date, such certificates to
be issued by the appropriate officer of the jurisdictions in which its failure
to be duly qualified or licensed would constitute a Material Adverse Change,
which certificates shall indicate that Borrower is in good standing in such
jurisdictions;
(h) Foothill shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill and its counsel;
(i) Foothill shall have received duly executed certificates of title
with respect to that portion of the Collateral that is subject to certificates
of title;
(j) Foothill shall have received such Collateral Access Agreements
from lessors, warehousemen, bailees, mortgagees and other third persons as
Foothill may require;
(k) Foothill shall have received an opinion of Borrower's counsel in
form and substance satisfactory to Foothill in its sole discretion;
(l) On the Closing Date, Borrower shall have not less than $500,000 of
Excess Availability and unrestricted cash on hand, net of Tax Reserves, after
making the payments described in Section 7.17(a);
(m) Foothill shall have received reference checks for Borrower's
executive officers;
(n) Foothill shall have completed its field examination of Borrower
and an appraisal of Borrower's Inventory;
(o) Foothill shall have received a certificate from the relevant
officer of Borrower to the effect that, on the basis of a comprehensive review
and assessment undertaken by Borrower of Borrower's computer applications and
inquiry made of Borrower's material suppliers, vendors and customers, Borrower
reasonably believes that the Year 2000 Problem will not result in a Material
Adverse Change;
(p) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Foothill and its
counsel.
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3.2 Conditions Precedent to all Advances and all Letters of Credit. The
following shall be conditions precedent to all Advances and all Letters of
Credit hereunder:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and as of
the date of such extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof, and
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit shall
have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
3.3 Condition Subsequent. As a condition subsequent to initial closing
hereunder, Borrower shall perform or cause to be performed the following (the
failure by Borrower to so perform or cause to be performed constituting an Event
of Default):
(a) within 30 days of the Closing Date, deliver to Foothill the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.10, the form and substance of which shall
be satisfactory to Foothill and its counsel;
(b) in the event that the Sale and Leaseback has not been consummated
within 90 days of the Closing Date, Foothill shall have the right to obtain a
mortgagee title insurance policy for the Real Properties in an amount
satisfactory to Foothill assuring that the Mortgages are valid and enforceable
first or second priority mortgage Liens (as applicable) on the Real Properties,
and such policy shall otherwise be in form and substance reasonably satisfactory
to Foothill; and
(c) upon the earlier of (i) 30 days after the Closing Date and (ii)
the completion of the Permitted Redemption, Borrower shall provide Foothill with
the key man life insurance described in Section 6.10(d).
3.4 Term; Automatic Renewal. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on the date (the "Renewal Date") that is
three years from the Closing Date and automatically shall be renewed for
successive one year periods thereafter, unless sooner terminated pursuant to the
terms hereof. Either
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party may terminate this Agreement effective on the Renewal Date or on any
anniversary of the Renewal Date by giving the other party at least 90 days prior
written notice. The foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3.5 Effect of Termination. On the date of termination of this Agreement,
all Obligations (including contingent reimbursement obligations of Borrower with
respect to any outstanding Letters of Credit) immediately shall become due and
payable without notice or demand. No termination of this Agreement, however,
shall relieve or discharge Borrower of Borrower's duties, Obligations, or
covenants hereunder, and Foothill's continuing security interests in the
Collateral shall remain in effect until all Obligations have been fully and
finally discharged and Foothill's obligation to provide additional credit
hereunder is terminated. If Borrower has sent a notice of termination pursuant
to the provisions of Section 3.4, but fails to pay the Obligations in full on
the date set forth in said notice, then Foothill may, but shall not be required
to, renew this Agreement for an additional term of one year.
3.6 Early Termination by Borrower. The provisions of Section 3.4 that allow
termination of this Agreement by Borrower only on the Renewal Date and certain
anniversaries thereof notwithstanding, Borrower has the option, at any time upon
90 days prior written notice to Foothill, to terminate this Agreement by paying
to Foothill, in cash, the Obligations (including an amount equal to 102% of the
undrawn amount of the Letters of Credit), in full, together with a premium (the
"Early Termination Premium") equal to the following percentages of the Maximum
Amount in effect on the date hereof, as applicable: (a) 3.00% of the Maximum
Amount during the first year after the Closing Date, (b) 2.00% of the Maximum
Amount during the second year after the Closing Date, and (c) 1.00% of the
Maximum Amount at any time after two years from the Closing Date.
3.7 Termination Upon Event of Default. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
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4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Foothill's security interests in
the Collateral shall attach to all Collateral without further act on the part of
Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for the sale of Inventory to
buyers in the ordinary course of business, Borrower has no authority, express or
implied, to dispose of any item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower,
immediately upon the request of Foothill, shall endorse and deliver physical
possession of such Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.
At any time, Foothill or Foothill's designee may (a) notify customers or Account
Debtors of Borrower that the Accounts, General Intangibles, or Negotiable
Collateral have been assigned to Foothill or that Foothill has a security
interest therein, and (b) collect the Accounts, General Intangibles, and
Negotiable Collateral directly and charge the collection costs and expenses to
the Loan Account. Borrower agrees that it will hold in trust for Foothill, as
Foothill's trustee, any Collections that it receives and immediately will
deliver said Collections to Foothill in their original form as received by
Borrower.
4.4 Delivery of Additional Documentation Required. At any time upon the
request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, control agreements, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill reasonably may request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral, and in
order to fully consummate all of the transactions contemplated hereby and under
the other the Loan Documents.
4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Foothill (and any of Foothill's officers, employees, or agents
designated by Foothill) as Borrower's true and lawful attorney, with power to
(a) if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in
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Section 4.4, sign the name of Borrower on any of the documents described in
Section 4.4, (b) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, sign Borrower's name on any
invoice or bill of lading relating to any Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to Account Debtors, (c) send requests for verification of Accounts, (d)
endorse Borrower's name on any Collection item that may come into Foothill's
possession, (e) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, notify the post office authorities
to change the address for delivery of Borrower's mail to an address designated
by Foothill, to receive and open all mail addressed to Borrower, and to retain
all mail relating to the Collateral and forward all other mail to Borrower, (f)
at any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure, make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, settle and adjust
disputes and claims respecting the Accounts directly with Account Debtors, for
amounts and upon terms that Foothill determines to be reasonable, and Foothill
may cause to be executed and delivered any documents and releases that Foothill
determines to be necessary. The appointment of Foothill as Borrower's attorney,
and each and every one of Foothill's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 Right to Inspect. Foothill (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter to inspect Borrower's
Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower makes
the following representations and warranties which shall be true, correct, and
complete in all respects as of the date hereof, and shall be true, correct, and
complete in all respects as of the Closing Date, and at and as of the date of
the making of each Advance or Letter of Credit made thereafter, as though made
on and as of the date of such Advance or Letter of Credit (except to the extent
that such representations and warranties relate solely to an earlier date) and
such representations and warranties shall survive the execution and delivery of
this Agreement:
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5.1 No Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2 Intentionally Omitted.
5.3 Eligible Inventory. All Eligible Inventory is of good and merchantable
quality, free from defects.
5.4 Equipment. All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes.
5.5 Location of Inventory and Equipment. The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified on
Schedule 6.12 or otherwise permitted by Section 6.12.
5.6 Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive office of
Borrower is located at the address indicated in the preamble to this Agreement
and Borrower's FEIN is 93-0500948.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in good standing under
the laws of the jurisdiction of its incorporation and qualified and licensed to
do business in, and in good standing in, any state where the failure to be so
licensed or qualified reasonably could be expected to cause a Material Adverse
Change.
(b) Borrower does not have any direct and indirect Subsidiaries.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation (including
Regulations G, T, U, and X of the Federal Reserve Board) applicable to Borrower,
the Governing Documents of Borrower, or any order, judgment, or decree of any
court or
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other Governmental Authority binding on Borrower, (ii) conflict with, result in
a breach of, or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation or material lease of Borrower, (iii)
result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower, other than Permitted
Liens, or (iv) require any approval of stockholders or any approval or consent
of any Person under any material contractual obligation of Borrower.
(c) Other than the filing of appropriate financing statements, fixture
filings, and mortgages, the execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which Borrower is a party do not and
will not require any registration with, consent, or approval of, or notice to,
or other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to its properties
and assets pursuant to this Agreement and the other Loan Documents are validly
created, perfected, and first priority Liens, subject only to Permitted Liens
when properly filed in the appropriate filing or recording office.
5.10 Litigation. There are no actions or proceedings pending by or against
Borrower before any court or administrative agency and Borrower does not have
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff, (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that, if decided
adversely to Borrower, would not cause a Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to
Borrower or Parent that have been delivered by Borrower to Foothill have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present Borrower's (or Parent's, as applicable)
financial condition as of the date thereof and Borrower's results of operations
for the period then ended. There has
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not been a Material Adverse Change with respect to Borrower (or Parent, as
applicable) since the date of the latest financial statements submitted to
Foothill on or before the Closing Date.
5.12 Solvency. Borrower is Solvent. No transfer of property is being made
by Borrower and no obligation is being incurred by Borrower in connection with
the transactions contemplated by this Agreement or the other Loan Documents with
the intent to hinder, delay, or defraud either present or future creditors of
Borrower.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan, other
than those listed on Schedule 5.13. Borrower, each of its Subsidiaries and each
ERISA Affiliate have satisfied the minimum funding standards of ERISA and the
IRC with respect to each Benefit Plan to which it is obligated to contribute. No
ERISA Event has occurred nor has any other event occurred that may result in an
ERISA Event that reasonably could be expected to result in a Material Adverse
Change. None of Borrower or its Subsidiaries, any ERISA Affiliate, or any
fiduciary of any Plan is subject to any direct or indirect liability with
respect to any Plan under any applicable law, treaty, rule, regulation, or
agreement. None of Borrower or its Subsidiaries or any ERISA Affiliate is
required to provide security to any Plan under Section 401(a)(29) of the IRC.
5.14 Environmental Condition. None of Borrower's properties or assets has
ever been used by Borrower or, to the best of Borrower's knowledge, by previous
owners or operators in the disposal of, or to produce, store, handle, treat,
release, or transport, any Hazardous Materials. None of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials disposal site, or a
candidate for closure pursuant to any environmental protection statute. No Lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned or operated by Borrower. Borrower has
not received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency concerning
any action or omission by Borrower resulting in the releasing or disposing of
Hazardous Materials into the environment.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
do all of the following:
6.1 Accounting System. Maintain a standard and modern system of accounting
that enables Borrower to produce financial statements in accordance with
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GAAP, and maintain records pertaining to the Collateral that contain information
as from time to time may be requested by Foothill. Borrower also shall keep a
modern inventory reporting system that shows all additions, sales, claims,
returns, and allowances with respect to the Inventory. Borrower also shall take
all necessary steps to assure that its material accounting and other software
and computer applications, and those of its material vendors and suppliers,
will, on a timely basis, adequately address the Year 2000 Problem in all
material respects.
6.2 Collateral Reporting. Provide Foothill with the following documents at
the following times in form satisfactory to Foothill: (a) on a weekly basis a
detailed calculation of the Borrowing Base, (b) on a monthly basis and, in any
event, by no later than the 15th day of each month during the term of this
Agreement, a summary aging, by vendor, of Borrower's accounts payable and any
book overdraft and an unprocessed invoice report identifying amounts owed to
vendors with purchase money security interests in Inventory, (c) on a weekly
basis, Inventory reports specifying Borrower's cost and the wholesale market
value of its Inventory by category, with additional detail showing additions to
and deletions from the Inventory, (d) upon request, notice of all returns,
disputes, claims, credit memos, shipping and delivery documents in connection
with Inventory and Equipment acquired by Borrower, purchase orders and invoices,
(e) on a monthly basis, evidences that all payments have been made on Borrower's
Equipment and Real Property leases, and (f) such other reports as to the
Collateral or the financial condition of Borrower as Foothill may request from
time to time.
6.3 Financial Statements, Reports, Certificates. Deliver to Foothill: (a)
as soon as available, but in any event within 30 days after the end of each
month during each of Parent's fiscal years, a company prepared balance sheet,
income statement, and statement of cash flow covering Parent's operations during
such period; and (b) as soon as available, but in any event within 90 days after
the end of each of Parent's fiscal years, financial statements of Parent for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default under Sections 7.20 or 7.21. Such audited financial statements shall
include a balance sheet, profit and loss statement, and statement of cash flow
and, if prepared, such accountants' letter to management. In addition to the
audited financial statements referred to above, Borrower agrees to deliver
financial statements prepared on a consolidating basis so as to present Borrower
and each such related entity separately, and on a consolidated basis.
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Together with the above, Borrower also shall deliver to Foothill Borrower's
or Parent's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower or Parent with the
Securities and Exchange Commission, if any, as soon as the same are filed, or
any other information that is provided by Borrower to its public shareholders,
and any other report reasonably requested by Foothill relating to the financial
condition of Borrower or Parent.
Each month, together with the financial statements provided pursuant to
Section 6.3(a), Borrower shall deliver to Foothill a certificate signed by its
chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents
are true and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial covenant in Section 7.20
is to be tested, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable financial covenants
contained in Section 7.20, and (iv) on the date of delivery of such certificate
to Foothill there does not exist any condition or event that constitutes a
Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any noncompliance, describing such non-compliance as to which he
or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill may reasonably request, and so long as not Event of Default has
occurred and is continuing, with concurrent notice to Borrower. Borrower hereby
irrevocably authorizes and directs all auditors, accountants, or other third
parties to deliver to Foothill, at Borrower's expense, copies of Borrower's
financial statements, papers related thereto, and other accounting records of
any nature in their possession, and to disclose to Foothill any information they
may have regarding Borrower's business affairs and financial conditions.
6.4 Tax Returns. Deliver to Foothill copies of each of Borrower's future
federal income tax returns, and any amendments thereto, within 30 days of the
filing thereof with the Internal Revenue Service.
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6.5 Guarantor Reports. Cause any guarantor of any of the Obligations to
deliver its annual financial statements at the time when Borrower provides its
audited financial statements to Foothill and copies of all federal income tax
returns as soon as the same are available and in any event no later than 30 days
after the same are required to be filed by law.
6.6 Returns. Cause returns and allowances, if any, as between Borrower and
its customers to be on the same basis and in accordance with the usual customary
practices of Borrower, as they exist at the time of the execution and delivery
of this Agreement. When any customer returns any Inventory to Borrower, Borrower
promptly shall determine the reason for such return and, if Borrower accepts
such return, issue a credit memorandum (and, upon Foothill's request, with a
copy to be sent to Foothill) in the appropriate amount to such customer.
6.7 Title to Equipment. Upon Foothill's request, Borrower immediately shall
deliver to Foothill, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment.
6.8 Maintenance of Equipment. Maintain the Equipment in good operating
condition and repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date, Borrower shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and such Equipment shall at all times remain personal property.
6.9 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrower
shall make due and timely payment or deposit of all such federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate certificates attesting
to the payment thereof or deposit with respect thereto. Borrower will make
timely payment or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Foothill with proof satisfactory to Foothill indicating that Borrower
has made such payments or deposits.
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6.10 Insurance.
(a) At its expense, keep the Collateral insured against loss or damage
by fire, theft, explosion, sprinklers, and all other hazards and risks, and in
such amounts, as are ordinarily insured against by other owners in similar
businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type
necessary to insure the Improvements and Chattels (as such terms are defined in
the Mortgages), for the full replacement cost thereof, against any loss by fire,
lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage,
and other risks from time to time included under "extended coverage" policies,
in such amounts as Foothill may reasonably require, but in any event in amounts
sufficient to prevent Borrower from becoming a co-insurer under such policies,
and (ii) combined single limit bodily injury and property damages insurance
against any loss, liability, or damages on, about, or relating to each parcel of
the Real Properties, in an amount of not less than $5,000,000. Replacement
costs, at Foothill's option, may be redetermined by an insurance appraiser,
satisfactory to Foothill, not more frequently than once every 12 months at
Borrower's cost.
(c) Original policies or certificates thereof satisfactory to Foothill
evidencing such insurance shall be delivered to Foothill at least 30 days prior
to the expiration of the existing or preceding policies. Borrower shall give
Foothill prompt notice of any loss covered by such insurance, and Foothill shall
have the right to adjust any loss. Foothill shall have the exclusive right to
adjust all losses payable under any such insurance policies without any
liability to Borrower whatsoever in respect of such adjustments. Any monies
received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Foothill to be applied
at the option of Foothill to the prepayment of the Obligations without premium,
in such order or manner as Foothill may elect. Upon the occurrence of an Event
of Default, Foothill shall have the right to apply all prepaid premiums to the
payment of the Obligations in such order or form as Foothill shall determine.
(d) Borrower shall maintain key man life insurance policies with
respect to Norman Daniels in the amount of $3,000,000.
Borrower shall furnish Foothill with an "Absolute Assignment" of such life
insurance policy, shall record each such "Absolute Assignment" with the issuer
of the
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<PAGE> 41
respective policy, and shall furnish proof of such issuer's acceptance of such
assignment. All proceeds payable under such life insurance policy shall be
payable to Foothill to be applied on account of the Obligations.
(e) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Foothill.
All hazard insurance and such other insurance as Foothill shall specify, shall
contain a California Form 438BFU (NS) mortgagee endorsement, or an equivalent
endorsement satisfactory to Foothill, showing Foothill as sole loss payee
thereof, and shall contain a waiver of warranties. Every policy of insurance
referred to in this Section 6.10 shall contain an agreement by the insurer that
it will not cancel such policy except after 30 days prior written notice to
Foothill and that any loss payable thereunder shall be payable notwithstanding
any act or negligence of Borrower or Foothill which might, absent such
agreement, result in a forfeiture of all or a part of such insurance payment and
notwithstanding (i) occupancy or use of the Real Properties for purposes more
hazardous than permitted by the terms of such policy, (ii) any foreclosure or
other action or proceeding taken by Foothill pursuant to the Mortgages upon the
happening of an Event of Default, or (iii) any change in title or ownership of
the Real Properties. Borrower shall deliver to Foothill certified copies of such
policies of insurance and evidence of the payment of all premiums therefor.
6.11 No Setoffs or Counterclaims. Make payments hereunder and under the
other Loan Documents by or on behalf of Borrower without setoff or counterclaim
and free and clear of, and without deduction or withholding for or on account
of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified on Schedule 6.12; provided, however, that
Borrower may amend Schedule 6.12 so long as such amendment occurs by written
notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also provides to Foothill a Collateral Access
Agreement.
6.13 Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any governmental authority, including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not have and could not reasonably be expected to
cause a Material Adverse Change.
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<PAGE> 42
6.14 Employee Benefits.
(a) Deliver to Foothill: (i) promptly, and in any event within 10
Business Days after Borrower or any of its Subsidiaries knows or has reason to
know that an ERISA Event has occurred that reasonably could be expected to
result in a Material Adverse Change, a written statement of the chief financial
officer of Borrower describing such ERISA Event and any action that is being
taking with respect thereto by Borrower, any such Subsidiary or ERISA Affiliate,
and any action taken or threatened by the IRS, Department of Labor, or PBGC.
Borrower or such Subsidiary, as applicable, shall be deemed to know all facts
known by the administrator of any Benefit Plan of which it is the plan sponsor,
(ii) promptly, and in any event within 3 Business Days after the filing thereof
with the IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect
to such request, and (iii) promptly, and in any event within 3 Business Days
after receipt by Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of each
such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request, each
of the following: (i) a copy of each Plan (or, where any such plan is not in
writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such payments are the subject of a Permitted Protest. To the
extent that Borrower fails timely to make payment of such rents and other
amounts payable when
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<PAGE> 43
due under its leases, Foothill shall be entitled, in its discretion, to reserve
an amount equal to such unpaid amounts against the Borrowing Base. To the extent
that Borrower fails to obtain a Collateral Access Agreement from one of its
lessors and such lessor has a Lien on Collateral that has priority over
Foothill's security interests, Foothill shall be entitled, in its discretion, to
reserve an amount determined in its reasonable business judgment with respect to
the prior Lien. On the Closing Date, Rent Reserves shall be established in an
amount equal to one month's rent for properties located in Oregon and an amount
equal to two months' rent for properties located in Washington.
6.16 Inventory Counting and Appraisals. Foothill shall have the right to
observe Borrower's quarterly Inventory cycle counts; and Borrower shall conduct
a physical inventory at each of its locations not less frequently than annually.
Borrower agrees that Foothill shall have the right, at Borrower's expense, to
have two third party appraisals of its Inventory conducted during each of
Borrower's fiscal years, and more frequently after the occurrence of an Event of
Default.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not do any of the following:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth on Schedule 7.1;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) and (c) of this Section 7.1 (and continuance or renewal
of any Permitted Liens associated therewith) so long as: (i) the terms and
conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the
net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness
so refinanced, renewed, or extended, (iii) such refinancings, renewals,
refundings, or
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<PAGE> 44
extensions do not result in a shortening of the average weighted maturity
of the Indebtedness so refinanced, renewed, or extended, and (iv) to the
extent that Indebtedness that is refinanced was subordinated in right of
payment to the Obligations, then the subordination terms and conditions of
the refinancing Indebtedness must be at least as favorable to Foothill as
those applicable to the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets except for the Sale and Leaseback.
7.4 Disposal of Assets. Except for the Sale and Leaseback, sell, lease,
assign, transfer, or otherwise dispose of any of Borrower's properties or assets
other than sales of Inventory to buyers in the ordinary course of Borrower's
business as currently conducted.
7.5 Change Name. Change Borrower's name, FEIN, corporate structure (within
the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person except by endorsement of instruments or
items of payment for deposit to the account of Borrower or which are transmitted
or turned over to Foothill.
7.7 Nature of Business. Make any change in the principal nature of
Borrower's business.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section
7.1(d), prepay, redeem, retire, defease, purchase, or otherwise acquire
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<PAGE> 45
any Indebtedness owing to any third Person, other than the Obligations in
accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or change
any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), or (d).
7.9 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 Consignments. Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.
7.11 Distributions. Except for (a) the Permitted Redemption and (b) any
required adjustments to the amounts previously paid to any Seller needed to
carry out Borrower's obligations to reimburse such Seller for all tax
liabilities of such Seller listed in the Redemption Agreements after the tax
returns are finalized, which amounts are to be paid on or before October 15,
1998, make any distribution or declare or pay any dividends (in cash or other
property, other than capital stock) on, or purchase, acquire, redeem, or retire
any of Borrower's capital stock, of any class, whether now or hereafter
outstanding.
7.12 Accounting Methods. Modify or change its method of accounting or enter
into, modify, or terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or service bureau
for the preparation or storage of Borrower's accounting records without said
accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Foothill pursuant to or in accordance with this Agreement, and agrees that
Foothill may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.13 Investments. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b) loans, advances, capital contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person.
7.14 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms,
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<PAGE> 46
that are fully disclosed to Foothill, and that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 Compensation. Increase the annual fee or per-meeting fees paid to
directors during any year by more than 15% over the prior year; pay or accrue
total cash compensation, during any year, to officers and senior management
employees in an aggregate amount in excess of 150% of that paid or accrued in
the prior year.
7.17 Use of Proceeds. Use the proceeds of the Advances hereunder for any
purpose other than (a) on the Closing Date, (x) to repay in full the outstanding
principal, accrued interest, and accrued fees and expenses owing to Existing
Lender, and (y) to pay transactional costs and expenses incurred in connection
with this Agreement, and (b) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted corporate purposes.
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Foothill and so long as,
at the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests and also provides to Foothill a Collateral Access
Agreement with respect to such new location. The Inventory and Equipment shall
not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party without Foothill's prior written consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC
for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the
IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
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<PAGE> 47
(d) terminate, or permit any Subsidiary of Borrower to terminate, any
Benefit Plan where such event would result in any liability of Borrower,
any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay any
required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the
IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw, from
any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 Financial Covenants. Fail to maintain:
(a) Tangible Net Worth. Tangible Net Worth of at least the following
amounts as of the end of the following fiscal quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Minimum Tangible Net Worth
--------------------- --------------------------
<S> <C>
April 30, 1998 $ 6,000,000
July 31, 1998 $ 6,300,000
October 31, 1998 $ 6,200,000
January 31, 1999 $ 7,300,000
April 30, 1999 $ 6,000,000
July 31, 1999 $ 8,000,000
October 31, 1999 $ 8,300,000
January 31, 2000 $ 9,200,000
April 30, 2000 $ 7,800,000
July 31, 2000 $ 8,900,000
October 31, 2000 $ 9,100,000
January 31, 2001 $10,000,000
</TABLE>
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<PAGE> 48
In the event that Parent makes an additional capital contribution in
conjunction with the Permitted Redemption in an amount less than $9,500,000,
then the minimum Tangible Net Worth shall be reduced by an amount equal to the
difference between $9,500,000 and the amount contributed.
(b) EBITDA. EBITDA of at least the following amounts as of the end of the
following fiscal quarters:
<TABLE>
Fiscal Quarter Ending Minimum EBITDA
--------------------- --------------
<S> <C>
April 30, 1998 $ (1,300,000)
July 31, 1998 $ 1,900,000
October 31, 1998 $ 1,200,000
January 31, 1999 $ 2,000,000
April 30, 1999 $ (1,000,000)
July 31, 1999 $ 2,700,000
October 31, 1999 $ 1,800,000
January 31, 2000 $ 2,700,000
April 30, 2000 $ (1,000,000)
July 31, 2000 $ 2,700,000
October 31, 2000 $ 1,800,000
January 31, 2001 $ 2,700,000
</TABLE>
In the event that the Permitted Redemption has not occurred (a) on or
before April 30, 1998, the financial covenants set forth in the Section 7.20
shall not be tested until the quarter ending July 31, 1998; (b) on or before 120
days of the Closing Date, then Borrower shall provide Foothill with revised
financial projections reasonably satisfactory to Foothill (the "Revised
Projections") on or before such date. Within 10 Business Days of Foothill's
receipt of the Revised Projections, Foothill and Borrower shall each negotiate
revised financial covenant amounts for this Section 7.20 that are reasonably
satisfactory to each of them. The failure to timely establish the revised
financial covenants within 10 Business Days of Foothill's receipt of the Revised
Projections shall constitute an Event of Default.
7.21 Capital Expenditures. Make capital expenditures in (a) the fiscal year
ending January 31, 1999 in excess of $2,500,000 and (b) any fiscal year
thereafter in excess of $4,000,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
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<PAGE> 49
8.1 If Borrower fails to pay when due and payable or when declared due and
payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Borrower and
Foothill;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and any of
the following events occur: (a) Borrower consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period,
Foothill shall be relieved of its obligation to extend credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion
of the properties or assets of, or to operate all or any substantial portion of
the business of, Borrower; or (e) an order for relief shall have been issued or
entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower's properties or assets and the
same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of Borrower's properties or assets;
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<PAGE> 50
8.10 If there is a default in any material agreement to which Borrower is a
party with one or more third Persons and such default (a) occurs at the final
maturity of the obligations thereunder, or (b) results in a right by such third
Person(s), irrespective of whether exercised, to accelerate the maturity of
Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement, or report made to Foothill by Borrower
or any officer, employee, agent, or director of Borrower, or if any such
warranty or representation is withdrawn; or
8.13 If the obligation of any guarantor under its guaranty or other third
Person under any Loan Document is limited or terminated by operation of law or
by the guarantor or other third Person thereunder, or any such guarantor or
other third Person becomes the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default Foothill may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under
any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which Foothill considers advisable, and in
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<PAGE> 51
such cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection
therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Foothill considers necessary or
reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Borrower
authorizes Foothill to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and
to pay, purchase, contest, or compromise any encumbrance, charge, or Lien
that in Foothill's determination appears to conflict with its security
interests and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned or leased premises, Borrower hereby
grants Foothill a license to enter into possession of such premises and to
occupy the same, without charge, for up to 120 days in order to exercise
any of Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Without notice to Borrower (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of
an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower
held by Foothill (including any amounts received in the Lockbox Accounts),
or (ii) indebtedness at any time owing to or for the credit or the account
of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Foothill is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in completing
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<PAGE> 52
production of, advertising for sale, and selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the Collateral as
follows:
(1) Foothill shall give Borrower and each holder of a security
interest in the Collateral who has filed with Foothill a written request
for notice, a notice in writing of the time and place of public sale, or,
if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12, at least 5 days before the
date fixed for the sale, or at least 5 days before the date on or after
which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Collateral that
is perishable or threatens to decline speedily in value or that is of a
type customarily sold on a recognized market. Notice to Persons other than
Borrower claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall give
notice of the time and place by publishing a notice one time at least 5
days before the date of the sale in a newspaper of general circulation in
the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by
Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
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<PAGE> 53
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that such
failure by Borrower could result in a Material Adverse Change, in its discretion
and without prior notice to Borrower, Foothill may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's Loan Account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type described in Section 6.10 and take any action
with respect to such policies as Foothill deems prudent. Any such amounts paid
by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which Borrower may in any way be liable.
11.2 Foothill's Liability for Collateral. So long as Foothill complies with
its obligations, if any, under Section 9207 of the Code, Foothill shall not in
any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
48
<PAGE> 54
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
Foothill, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by first-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, or telefacsimile to Borrower or to Foothill, as
the case may be, at its address set forth below:
If to Borrower: G.I. JOE'S, INC.
9805 Boeckman Road
Wilsonville, Oregon 97070
Attn: Norman Daniels, President
Fax No. 503.682-7200
49
<PAGE> 55
with copies to: BROWNSTEIN, RASK, ARENZ, SWEENEY,
KERR & GRIM, LLP
1200 S.W. Main Building
Portland, Oregon 97205-2039
Attn: Terry De Sylvia, Esq.
Fax No. 503.221-1074
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 So. Figueroa
Suite 2400
Los Angeles, California 90017
Attn: Robert C. Colton, Esq.
Fax No. 213.896.0400
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted by telefacsimile or other similar method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL
50
<PAGE> 56
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION
OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by Foothill four months after
they are delivered to or received by Foothill, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall
51
<PAGE> 57
be absolutely void. No consent to an assignment by Foothill shall release
Borrower from its Obligations. Foothill may assign this Agreement and its rights
and duties hereunder and no consent or approval by Borrower is required in
connection with any such assignment. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In connection with any
such assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement can only be amended by a writing
signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
52
<PAGE> 58
15.8 Revival and Reinstatement of Obligations. If the incurrence or payment
of the Obligations by Borrower or any guarantor of the Obligations or the
transfer by either or both of such parties to Foothill of any property of either
or both of such parties should for any reason subsequently be declared to be
void or voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Foothill is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
15.9 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
16. PERMITTED REDEMPTION AND RELATED TRANSACTIONS.
So long as no Event of Default has occurred and is continuing, Foothill
consents to the following transactions on the conditions set forth below:
16.1 Sale and Leaseback. The Sale and Leaseback so long as: (a) the cash
proceeds to Borrower are $31,000,000 less expenses of the Sale and Leaseback and
payments to holders of Indebtedness secured by any of the properties that are
the subject thereof, (b) the terms of the lease from PD Properties are
reasonably satisfactory to Foothill, and (c) Foothill receives Collateral Access
Agreements, in form and substance reasonably satisfactory to Foothill, from PD
Properties and the mortgagee of the properties that are the subject of the Sale
and Leaseback. Concurrently with the Sale and Leaseback Foothill shall reconvey
the Mortgages.
16.2 Permitted Redemption. The Permitted Redemption so long as: (a)
Borrower shall have not less than $3,500,000 of Excess Availability and
unrestricted cash on hand, net of Tax Reserves, after making the Permitted
Redemption, (b) the Redemption Agreements shall be reasonably satisfactory to
Foothill, (c) within five Business Days after the Permitted Redemption, Borrower
shall become a wholly owned Subsidiary of Parent, and (d) Parent shall have
received not less than $5,000,000 in proceeds from the sale of equity securities
or subordinated debt,
53
<PAGE> 59
including the Subordinated Debenture Loan, and such monies shall have been
invested in Borrower in the form of an additional capital contribution.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Los Angeles, California.
G.I. JOE'S, INC., an Oregon corporation
By /s/
-----------------------------------------
Norman Daniels
Title: President
FOOTHILL CAPITAL CORPORATION, a
California corporation
By /s/
-----------------------------------------
Title: AVP
---------------------------------
54
<PAGE> 60
Schedule E-1 Eligible Inventory
Schedule 6.12 Location of Inventory and Equipment
<TABLE>
<CAPTION>
Location # Location Name Address
---------- ------------- -------
<S> <C> <C>
1 Hayden Meadows 1140 Hayden Meadows Dr.
Portland, OR 97217
2 South Salem 4825 Commercial St. South
Salem, OR 97302
3 Tualatin 17799 SW Boones Ferry Rd.
Tualatin, OR 97062
4 Gresham 700 NW Eastman Parkway
Gresham, OR 97030
5 Oak Grove 15600 SE McLouglin Blvd.
Milwaukie, OR 97222
6 Beaverton 3485 SW Cedar Hills Blvd.
Beaverton, OR 97005
7 Salem - Lancaster 275 NE Lancaster Dr.
Salem, OR 97303
8 Eastport Plaza 3900 SE 82nd Ave.
Portland, OR 97030
9 Bend 6355 Hwy 97 N.
Bend, OR 97701
10 Eugene 1030 Greenacres Rd.
Eugene, OR 97401
11 Medford 2370 Poplar Dr.
Medford, OR 97504
12 Vancouver 13215 East Mill Plain Blvd.
Vancouver, WA 98664
13 Albany 2000 SE 14th
Abany, OR 97321
14 Federal Way 35020 SE Enchanted Parkway
Federal Way, WA 98003
91 Corporate Office and 9805 Boeckman Rd.
Distribution Center Wilsonville, OR 97070
</TABLE>
<PAGE> 61
Schedule P- 1
-------------
Permitted Liens
<TABLE>
<CAPTION>
FILE
NUMBER THRU DATE/
NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION
- ---------------- ------------------ ---------- ------------------------------ -------------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
G.I. Joe's, Inc. SOS, OR (UCC, Tax 334762 Sensormatic Electronics Corp. All Sensormatic 1-22-98
Liens) 8-12-96 Sensorvision Surveillance
systems at Beaverton, OR
location.
334764 Sensormatic Electronics Corp. All Sensormatic
8-12-96 Sensorvision Surveillance
systems at Albany, OR
location.
343239 Sensormatic Electronics Corp. All Sensormatic
10-22-96 Sensorvision Surveillance
systems at Portland, OR
location.
346098 Sensormatic Electronics Corp. All Sensormatic
11-12-96 Sensorvision Surveillance
systems at Tualatin, OR
location.
380260 Sensormatic Electronics Corp. All Sensormatic
7-1-97 Sensorvision Surveillance
systems at Bend, OR
location.
390272 Mellon US Leasing Leasing filing (store
9-11-97 fixtures)
J00446 First Interstate Bank of Lease filing (computer
1-30-84 Oregon, N.A. software and electronic
equipment)
M82254 First Interstate Bank of Lease filing (specific
8-15-88 Oregon, N.A. equipment)
</TABLE>
1
<PAGE> 62
<TABLE>
<CAPTION>
FILE
NUMBER THRU DATE/
NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION
- ---------------- ------------------ ---------- ------------------------------ -------------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
N12414 First Interstate Bank of Lease filing (computer
2-7-89 Oregon, N.A. software)
N45896 John Hancock Leasing Lease filing (all equipment
8-7-89 Corporation under lease no. 2787)
N68309 First Interstate Bank of Lease filing (computer
12-21-89 Oregon, N.A. equipment)
R49507 PLC Lease Receivables 1993-A Lease filing (specific
4-2-93 Trust equipment)
R83958 Hyster Credit Company Lease filing (forklifts)
12-10-93
S08950 USL Capital Corporation Lease filing (specific
6-15-94 equipment)
S70091 USL Capital Corporation Lease filing (specific
9-13-95 equipment)
S72432 USL Capital Corporation Lease filing (specific
10-2-95 equipment)
S77983 USL Capital Corporation Lease filing (specific
11-15-95 equipment)
325174 IBM Credit Corporation Lease filing (specific
6-26-96 equipment)
353897 Mellon US Leasing Lease filing (computer
1-9-97 equipment)
361694 Mellon US Leasing Lease filing (store
3-10-97 fixtures)
363388 Mellon US Leasing Lease filing (store
3-17-97 fixtures)
377327 Industrial Finance Company Two forklifts
6-11-97
</TABLE>
2
<PAGE> 63
<TABLE>
<CAPTION>
FILE
NUMBER THRU DATE/
NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION
- ---------------- ------------------ ---------- ------------------------------ -------------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
381174 Industrial Finance Company One stacker and one
7-7-97 forklift
383167 Industrial Finance Company One forklift
7-23-97
384819 Mellon US Leasing Lease filing (store
8-7-97 fixtures)
384821 Mellon US Leasing Lease filing (store
8-7-97 fixtures)
389487 Life Investors Insurance Fixtures
9-5-97 Company of America
389489 Life Investors Insurance Fixtures
9-5-97 Company of America
390020 IBM Credit Corporation Lease filing (computer
9-9-97 equipment)
391083 Industrial Finance Company One forklift
9-17-97
391088 Industrial Finance Company One forklift
9-17-97
398394 Heller Financial, Inc. Specific equipment (DOES
11-13-97 NOT APPEAR TO BE LEASE
FILING)
406567 Heller Financial, Inc. Specific equipment (DOES
1-14-98 NOT APPEAR TO BE LEASE
FILING)
M608849 Oregon Public Employes Fixtures
4-21-88 Retirement Systems
S74290 The Minnesota Mutual Life Fixtures
10-16-95 Insurance Company
</TABLE>
3
<PAGE> 64
<TABLE>
<CAPTION>
FILE
NUMBER THRU DATE/
NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION
- ---------------- ------------------ ---------- ------------------------------ -------------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
S85054 The Minnesota Mutual Life Fixtures
1-25-96 Insurance Company
G.I. Joe's, Inc. Washington County, 1-8-98
OR (UCC, Tax Clear
Liens, Judgments,
Litigation, Bulk
Transfer Sales,
Bankruptcy)
G.I. Joe's, Inc. Clackamas County, 95-021450 Oregon Public Employes Assignment of Mortgage 1-13-98
OR (UCC, Tax 4-13-95 Retirement Systems
Liens, Judgments,
Litigation, Bulk
Transfer Sales,
Bankruptcy)
95-063631 The Minnesota Mutual Life Fixture filing
10-16-95 Insurance Company
95-080880 The Minnesota Mutual Life Deed of Trust
12-28-95 Insurance Company
95-080881 The Minnesota Mutual Life Fixture filing
12-28-95 Insurance Company
9712419 Plaintiff: Toni L. King Complaint for Employment
12-23-97 Discrimination; Emotional
Distress
G.I. Joe's, Inc. DOL, WA (UCC, Tax 96-152-0429 Sensormatic Electronics Corp. All Sensormatic 1-5-98
Liens) 5-31-96 Sensorvision Surveillance
systems at Vancouver, WA
location.
97-174-0452 Sensormatic Electronics Corp. All Sensormatic
6-23-97 Sensorvision Surveillance
systems at Federal Way,
WA location.
</TABLE>
4
<PAGE> 65
<TABLE>
<CAPTION>
FILE
NUMBER THRU DATE/
NAME SEARCHED JURISDICTION DATE SECURED PARTY COLLATERAL STATUS ACTION
- ---------------- ------------------ ---------- ------------------------------ -------------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
97-307-0431 Sensormatic Electronics Corp. All Sensormatic
11-3-97 Sensorvision Surveillance
systems at Puyallup, WA
location.
89-219-1313 John Hancock Leasing Corp. Lease filing (all equipment
8-7-89 under lease no. 2787)
97-107-0269 The CIT Group/Equipment Lease filing (specific
4-17-91 Finance equipment)
97-069-0046 Mellon US Leasing Lease filing (store
3-10-97 fixtures)
97-076-0080 Mellon US Leasing Lease filing (store
3-17-97 fixtures)
97-190-0165 Industrial Finance Company One Walkie Stacker
7-9-97
97-262-0139 Industrial Finance Company One forklift
9-19-97
</TABLE>
5
<PAGE> 66
Schedule 3.1 to
Loan and Security Agreement
Real Properties
1. Distribution Center
9805 Boeckman Road
Wilsonville, Oregon 97078
2. South Salem
4825 Commercial Street S.E.
Salem, Oregon 97302
3. Lancaster
275 Lancaster Drive N.E.
Salem, Oregon 97301
4. 255 Lancaster Drive N.E.
Salem, Oregon 97301
5. 3938 Pacific Avenue
Forest Grove, Oregon 97116
6. 9300 S.W. 34 Street
Renton, Washington 98055
Schedule 3.1
<PAGE> 67
SCHEDULE 5.10
ADMINISTRATIVE PROCEEDINGS
The following claims have been filed with the State of Oregon Bureau of
Labor and Industries. Because these claims are being handled at the
administrative level, there is presently no claim for monetary damages and we
have had no opportunity to conduct discovery by way of deposition,
interrogatories, etc. As such, we are unable to express an opinion at this time
as to the materiality of these claims.
Shannen D. Kaufmann, Bureau of Labor and Industries, Case No.
EE-EM-SH-970430-6129. This claim was filed on April 30, 1997. The claim is based
on gender discrimination (pregnancy and sexual harassment). We have provided
documents and a response denying any unlawful employment actions and/or
discriminatory conduct. The case will be subject to dismissal on April 24, 1998,
after which Ms. Kaufmann will have 90 days to file a legal action.
Julie Swope, Bureau of Labor and Industries, Case No. ST-EM-IW-970815-1143.
Ms. Swope filed a complaint on August 14, 1997, alleging employment
discrimination based upon her filing a workman's compensation claim. We have
filed a response to the complaint denying any wrong doing. We are aware of no
further action on this file since the filing of our response.
Daniel L. Lee, Bureau of Labor and Industries, Case No.
EE-EM-SX-971218-1471. Mr. Lee filed a claim on December 18, 1997, alleging
discrimination based upon filing a worker's compensation claim and gender
discrimination. We have filed a response on behalf of G. I. Joe's, Inc. denying
the claim. There has been no further communication from the Bureau of Labor with
regard to their investigation.
CIVIL LITIGATION
Toni L. King v. G. I. Joe's, Inc., Clackamas County Circuit Court Registry
No. 97-12-419. This case was filed on December 22, 1997, against the company and
two supervisory employees. We are representing the company as well as the
individual employees. The complaint alleges employment discrimination for filing
a workman's compensation claim and for intentional infliction of emotional
distress. The complaint seeks economic damages of $150,000 and non-economic
damages of $750,000. Because this case is still at the pleading stage and there
has been no discovery, we are unable to express an opinion at this time as to
probability of successful defense, jury verdict range or settlement value.
<PAGE> 68
Dawn Morris v. G. I. Joe's, Claim No. S53-121016-1995. This is an insured
claim and is being defended by the company's liability carrier WAUSAU Insurance
Companies, Western Division, 8905 S.W. Nimbus Avenue, Suite 300, Beaverton,
Oregon, 97008-7169, and various attorneys retained by the insurance company. We
have received no information from the insurance company or their attorney which
would indicate there is any possibility of a verdict in excess of applicable
insurance limits.
<PAGE> 69
Schedule 5.13 ERISA Benefit Plans
<TABLE>
<CAPTION>
Plan Name Plan Number
- --------- -----------
<S> <C>
G.I. Joe's. Inc. Pension Plan 001
G.I. Joe's, Inc. 401 (k) Savings Plan 004
G.I. Joe's, Inc. Welfare Benefit Plan and Trust 501
G.I. Joe's, Inc. Group Disability Plan 503
</TABLE>
<PAGE> 70
Schedule 7.1 Indebtedness
<TABLE>
<CAPTION>
Balance
Outstanding At
Description Holder Security 1/31/98 Maturity
- ----------- ------ -------- -------------- --------
<S> <C> <C> <C> <C>
Term Loan Heller Puyallup, WA location personal 1,285,000 December 2001
property
First Mortgage MMLIC Tualatin, OR location land and 2,116,000 September 2010
building
First Mortgage Aegon Gresham, OR location building 1,185,000 May 2011
First Mortgage Aegon Oak Grove, OR location land and 1,974,000 May 2011
building
First Mortgage MMLIC Wilsonville, OR location land and November 2010
buildings 3,699,000
-----------
Total $10,259,000
</TABLE>
<PAGE> 71
COMPLIANCE CERTIFICATE SAMPLE COPY
(Loan and Security Agreement Section 6.3)
Date ____________
FOOTHILL CAPITAL CORPORATION
111111 Santa Monica Boulevard, Suite 1500
Santa Monica, California 90025-3333
Attention: _________________
RE: Loan and Security Agreement, dated as of March 10, 1998 (the "Agreement")
by and between FOOTHILL CAPITAL CORPORATION ("Foothill") and G.I. JOE'S,
INC. ("Borrower").
Dear ___________:
In accordance with Section 6.3 of the Agreement, this letter shall serve as
certification to Foothill that to the best of my knowledge: (i) all financial
statements have been prepared in accordance with GAAP and fairly represent the
financial condition of Borrower, (ii) the representations and warranties of
Borrower set forth in the Agreement and other Loan Documents are true and
correct in all material respects on and as of the date of this certification,
(iii) as demonstrated on Exhibit 1 attached hereto, Borrower is in compliance
with each of its financial covenants set forth in Section 7.20 of the Agreement
as of the date of this certification, and (iv) there does not exist any
condition or event that constitutes a Default or Event of Default. Such
certification is made as of the fiscal month ending .
Sincerely,
Chief Financial Officer
EXHIBIT C-1
<PAGE> 72
EXHIBIT "R-1"
STOCK REDEMPTION AGREEMENT
1. Parties The parties to this Agreement are _____________ ("Seller"), and G. I.
Joe's, Inc., an Oregon corporation ("Company").
2. Recitals
2.1. Seller is the owner of ________ shares of the common stock (the
"Stock") of the Company.
2.2 Seller desires to sell and Company desires to purchase all of the Stock
on the terms and conditions set forth in this Agreement.
3. Closing. The closing of the sale/purchase of the Stock shall be on _________
at the Company's head office or at such other time and place as shall be
mutually agreed by the parties (the "Closing Date").
4. Purchase of Stock and Payment of Purchase Price. Seller agrees to sell and
Company agrees to purchase the Stock for ______________ Dollars ($____) per
share for a total purchase price of ______________ Dollars ($_______). The
Purchase price for the Stock less the balance due as of the Closing Date on
Company's loan to Shareholder (currently $________) shall be payable in cash or
immediately available funds on the Closing Date. (Note: total purchase price to
be computed by Arthur Anderson equal to $14.89 per share less estimated state
and federal capital gain tax which would be due in the event of third party
purchase at $14.89 per share).
5. Representations and Warranties of Seller. Seller represents and warrants to
Company as follows:
5.1 The Stock is owned by Seller free of any lien or encumbrance;
5.2 Seller has the unrestricted right to sell the Stock to Company.
5.3 Seller has been advised to have this Agreement reviewed by Seller's
independent legal counsel and tax advisor.
5.4 Seller's decision to sell the Stock on the terms set forth in this
Agreement made solely on the basis of Seller's opinion as to the value of the
Stock and not based on any representation, statement or opinion of the Company.
PAGE 1 - STOCK REDEMPTION AGREEMENT
<PAGE> 73
6. Representations-and Warranties of Company. Company represents and warrants to
Seller as follows:
6.1 Company is an Oregon corporation in good standing.
6.2 This Agreement has been duly approved by the Company's Board of
Directors and Company has full power and authority to execute and comply with
the terms and provisions of this Agreement.
7. Tax Matters.
7.1 Not less than one day prior to the Closing Date, Company shall pay to
Seller an amount determined in accordance with Exhibit "A" attached, which sum
is intended to reimburse Seller for federal and state income tax due for Sub
Chapter S income attributable to the Stock for the Company fiscal years ending
1/31/97 and 1/31/98. If such amount is not sufficient to reimburse Seller for
all such tax liabilities, Company shall pay the difference to Seller on or
before October 15, 1998.
7.2 Not less than one day prior to the Closing Date, Company shall pay to
Seller an amount determined in accordance with Exhibit "A" attached, which is
intended to reimburse Seller for federal and state income tax liability
resulting from Sub Chapter S income attributable to the Stock for the period
2/1/98 through the Closing Date, as well as estimates of federal and state
income taxes due as a result of the redemption of the Stock. If such amount is
not sufficient to reimburse for all such tax liabilities, Company shall pay the
difference to Seller on or before October 15, 1998.
8. Conditions to Closing. The obligations of the parties to close the redemption
of the Stock and purchase/sale of the Options shall be conditioned as follows:
8.1 All representations and warranties made in this Agreement shall be true
in all material respects on and as of the Closing Date as though such
representations and warranties had been made or given on the Closing Date.
8.2 Each party shall have performed all obligations and complied with all
covenants required to be performed or complied with prior to the Closing Date.
8.3 No investigation, suit, action or other proceeding shall be threatened
or pending before any court, governmental agency or other agency or authority
which in either parties reasonable opinion may have a material adverse effect on
the Company or the transaction provided for in this Agreement.
PAGE 2 - STOCK REDEMPTION AGREEMENT
<PAGE> 74
8.4 The redemption of a majority of the issued and outstanding common
capital stock of the Company shall have been completed or contemporaneously
closed with this transaction.
8.5 Company has completed the sale of Company owned real estate at a sales
price of not less than Thirty Million Five Hundred Thousand Dollars
($30,500,000.00).
8.6 Seller has executed and delivered to Company an Income Allocation
Agreement in the form attached as Exhibit "B".
9. Miscellaneous
9.1 This Agreement may be amended or supplemented only by a written
agreement signed by all parties.
9.2 All matters with respect to this agreement shall be governed by the
laws of the State of Oregon.
9.3 This Agreement and any document or agreement entered into pursuant to
the terms of this Agreement shall constitute the entire agreement between the
parties and there are no other restrictions, promises, representations,
warranties, or obligations other than those as expressly set forth referred to
in such documents. This Agreement and such documents supersede all prior
agreements and understandings between the parties.
9.4 In the event of litigation related to or arising from this Agreement,
the prevailing party shall be entitled in addition to any other remedy or relief
to recover their reasonable attorneys fees at trial or on appeal.
9.5 All representations and warranties made in this Agreement by Company
and Seller shall be true as of the closing date and shall survive the closing of
this Agreement.
"SELLER" "COMPANY"
"G. I. JOE'S, INC."
__________________________________ By:___________________________________
NORM DANIELS, President
PAGE 3 - STOCK REDEMPTION AGREEMENT
<PAGE> 1
EXHIBIT 10.20
No.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$ Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to or its registered assigns (the "Holder"), the
sum of DOLLARS ($100,000), or such lesser amount as shall then equal the
outstanding principal amount hereof and any unpaid accrued interest hereon, as
set forth below, on May 1, 2008 ("Maturity Date"). Payment for all amounts due
hereunder shall be made by mail to the registered address of the Holder, or, if
requested in writing by the Holder, by wire transfer in accordance with the
Holder's instructions. This Note is issued in connection with the transactions
described in that certain Note Purchase Agreement dated the date hereof, by and
among the Company and the Purchasers described therein, as the same may be
amended, modified or supplemented from time to time (the "Note Purchase
Agreement"). The Holder is subject to certain restrictions, and is entitled to
certain rights and privileges, set forth in the Note Purchase Agreement. This
Note is one of the Notes referred to as the "Notes" in the Note Purchase
Agreement.
-1-
<PAGE> 2
No. 1
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to JAMES Q. AND MARION M. JOHNSON or its
registered assigns (the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS
($100,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 3
No. 2
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to GARY J. AND CHRISTINE C. ROOD or its
registered assigns (the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS
($100,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 4
No. 3
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$1,000,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to CLIFFORD V. AARON or its registered assigns
(the "Holder"), the sum of ONE MILLION DOLLARS ($1,000,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 5
No. 4
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DOUBLE TEN ENTERPRISES LIMITED PARTNERSHIP or
its registered assigns (the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS
($100,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 6
No. 5
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$25,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to GLORIA D. SETTLEMIER or its registered
assigns (the "Holder"), the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 7
No. 6
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$40,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to KERRI MOOS or its registered assigns (the
"Holder"), the sum of FORTY THOUSAND DOLLARS ($40,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 8
No. 7
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to THOMAS M. VAN DOMELEN or its registered
assigns (the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 9
No. 8
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to ALAN A. JOCHIM or its registered assigns (the
"Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 10
No. 9
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$150,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DOUGLAS R. MCENRY or its registered assigns
(the "Holder"), the sum of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 11
No. 10
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$150,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DANIEL & DEBRA MCENRY or its registered
assigns (the "Holder"), the sum of ONE HUNDRED FIFTY THOUSAND DOLLARS
($150,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 12
No. 11
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to RUDY AND PATTI FASCELL or its registered
assigns (the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 13
No. 12
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to GORDON HARRIS or its registered assigns (the
"Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 14
No. 13
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$1,250,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to WAYNE M. HAMERSLY or its registered assigns
(the "Holder"), the sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($1,250,000), or such lesser amount as shall then equal the outstanding
principal amount hereof and any unpaid accrued interest hereon, as set forth
below, on May 1, 2008 ("Maturity Date"). Payment for all amounts due hereunder
shall be made by mail to the registered address of the Holder, or, if requested
in writing by the Holder, by wire transfer in accordance with the Holder's
instructions. This Note is issued in connection with the transactions described
in that certain Note Purchase Agreement dated the date hereof, by and among the
Company and the Purchasers described therein, as the same may be amended,
modified or supplemented from time to time (the "Note Purchase Agreement"). The
Holder is subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 15
No. 14
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$450,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to PEREGRINE CAPITAL, INC. or its registered
assigns (the "Holder"), the sum of FOUR HUNDRED FIFTY THOUSAND DOLLARS
($450,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 16
No. 15
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to JACOB KRYSZEK or its registered assigns (the
"Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 17
No. 16
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$75,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to WILLIAM GREELEY or its registered assigns
(the "Holder"), the sum of SEVENTY-FIVE THOUSAND DOLLARS ($75,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 18
No. 17
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$20,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to CONNIE SHALU or its registered assigns (the
"Holder"), the sum of TWENTY THOUSAND DOLLARS ($20,000), or such lesser amount
as shall then equal the outstanding principal amount hereof and any unpaid
accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity Date").
Payment for all amounts due hereunder shall be made by mail to the registered
address of the Holder, or, if requested in writing by the Holder, by wire
transfer in accordance with the Holder's instructions. This Note is issued in
connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 19
No. 18
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to RON WYSASKE or its registered assigns (the
"Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 20
No. 19
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to PAT SHEAFFER or its registered assigns (the
"Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 21
No. 20
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to TT&L SHEET METAL, INC. PROFIT SHARING PLAN or
its registered assigns (the "Holder"), the sum of FIFTY THOUSAND DOLLARS
($50,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 22
No. 21
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$110,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DAVID WESTCOTT or its registered assigns (the
"Holder"), the sum of ONE HUNDRED TEN THOUSAND DOLLARS ($110,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 23
No. 22
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to WENDELL MANNING or its registered assigns
(the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 24
No. 23
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$25,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to JOHN SAVELKOUL or its registered assigns (the
"Holder"), the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 25
No. 24
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to FISERV AS CUSTODIAN FOR THE RICHARD HUEBNER
IRA or its registered assigns (the "Holder"), the sum of FIFTY THOUSAND DOLLARS
($50,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 26
No. 25
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$25,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to WILLIAM LOCKWOOD or its registered assigns
(the "Holder"), the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 27
No. 26
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$80,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to ART JOHNSTONE AND TERRI JOHNSTONE LIVING
TRUST or its registered assigns (the "Holder"), the sum of EIGHTY THOUSAND
DOLLARS ($80,000), or such lesser amount as shall then equal the outstanding
principal amount hereof and any unpaid accrued interest hereon, as set forth
below, on May 1, 2008 ("Maturity Date"). Payment for all amounts due hereunder
shall be made by mail to the registered address of the Holder, or, if requested
in writing by the Holder, by wire transfer in accordance with the Holder's
instructions. This Note is issued in connection with the transactions described
in that certain Note Purchase Agreement dated the date hereof, by and among the
Company and the Purchasers described therein, as the same may be amended,
modified or supplemented from time to time (the "Note Purchase Agreement"). The
Holder is subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 28
No. 27
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$250,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to THOMAS MCCHESNEY or its registered assigns
(the "Holder"), the sum of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 29
No. 28
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to SUMMIT CAPITAL LLC or its registered assigns
(the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 30
No. 29
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$750,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to TIBURON FUND LP or its registered assigns
(the "Holder"), the sum of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 31
No. 30
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$750,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to SUMMIT FUND LP or its registered assigns (the
"Holder"), the sum of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 32
No. 31
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$25,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to STEPHEN A. SMITH or its registered assigns
(the "Holder"), the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 33
No. 32
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$150,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to VISTA CAPITAL LLC or its registered assigns
(the "Holder"), the sum of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 34
No. 33
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to WASHINGTON PACIFIC INC. RETIREMENT ACCOUNT or
its registered assigns (the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS
($100,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 35
No. 34
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to LEXINGTON FINANCIAL LLC or its registered
assigns (the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 36
No. 35
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$200,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to BISON INVESTORS TRUST or its registered
assigns (the "Holder"), the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 37
No. 36
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DEANNE EAKIN or its registered assigns (the
"Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 38
No. 37
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$200,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DAVE NELSON AND ASSOCIATES or its registered
assigns (the "Holder"), the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 39
No. 38
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to MILDRED M. PRATT or its registered assigns
(the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 40
No. 39
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to HERBERT L. NEWMARK or its registered assigns
(the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 41
No. 40
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$80,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to MERLE MANNING or its registered assigns (the
"Holder"), the sum of EIGHTY THOUSAND DOLLARS ($80,000), or such lesser amount
as shall then equal the outstanding principal amount hereof and any unpaid
accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity Date").
Payment for all amounts due hereunder shall be made by mail to the registered
address of the Holder, or, if requested in writing by the Holder, by wire
transfer in accordance with the Holder's instructions. This Note is issued in
connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 42
No. 41
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to RICHARD SCHWARTZ AND MARCY S. SCHWARTZ AS
TENANTS IN COMMON or its registered assigns (the "Holder"), the sum of FIFTY
THOUSAND DOLLARS ($50,000), or such lesser amount as shall then equal the
outstanding principal amount hereof and any unpaid accrued interest hereon, as
set forth below, on May 1, 2008 ("Maturity Date"). Payment for all amounts due
hereunder shall be made by mail to the registered address of the Holder, or, if
requested in writing by the Holder, by wire transfer in accordance with the
Holder's instructions. This Note is issued in connection with the transactions
described in that certain Note Purchase Agreement dated the date hereof, by and
among the Company and the Purchasers described therein, as the same may be
amended, modified or supplemented from time to time (the "Note Purchase
Agreement"). The Holder is subject to certain restrictions, and is entitled to
certain rights and privileges, set forth in the Note Purchase Agreement. This
Note is one of the Notes referred to as the "Notes" in the Note Purchase
Agreement.
-1-
<PAGE> 43
No. 42
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to STEVE TUBBS or its registered assigns (the
"Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 44
No. 43
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to CAP HEDGES & ASSOCIATES, INC. PENSION &
PROFIT SHARING PLAN & TRUST U/A DTD 1/1/76 or its registered assigns (the
"Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 45
No. 44
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$25,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to SCOTT WEBER or its registered assigns (the
"Holder"), the sum of TWENTY FIVE THOUSAND DOLLARS ($25,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 46
No. 45
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to BARCLAY M. ARMITAGE or its registered assigns
(the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 47
No. 46
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to WILLIAM TODD ARMITAGE or its registered
assigns (the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 48
No. 47
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to GEORGE L. JOHNSON or its registered assigns
(the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 49
No. 48
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to RON AND HEATHER KILLOUGH or its registered
assigns (the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 50
No. 49
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to GREG BENNETT AND DWIGHT L. CUMMINS, JOINT
TENANTS IN COMMON or its registered assigns (the "Holder"), the sum of FIFTY
THOUSAND DOLLARS ($50,000), or such lesser amount as shall then equal the
outstanding principal amount hereof and any unpaid accrued interest hereon, as
set forth below, on May 1, 2008 ("Maturity Date"). Payment for all amounts due
hereunder shall be made by mail to the registered address of the Holder, or, if
requested in writing by the Holder, by wire transfer in accordance with the
Holder's instructions. This Note is issued in connection with the transactions
described in that certain Note Purchase Agreement dated the date hereof, by and
among the Company and the Purchasers described therein, as the same may be
amended, modified or supplemented from time to time (the "Note Purchase
Agreement"). The Holder is subject to certain restrictions, and is entitled to
certain rights and privileges, set forth in the Note Purchase Agreement. This
Note is one of the Notes referred to as the "Notes" in the Note Purchase
Agreement.
-1-
<PAGE> 51
No. 50
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DAVID L. DITCHEN or its registered assigns
(the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 52
No. 51
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to BRIAN SCOTT DITCHEN or its registered assigns
(the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 53
No. 52
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to LAWRENCE M. NEHER AND MARY LOU NEHER or its
registered assigns (the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000),
or such lesser amount as shall then equal the outstanding principal amount
hereof and any unpaid accrued interest hereon, as set forth below, on May 1,
2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made by
mail to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 54
No. 53
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$25,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DOLORES E. CHENOWETH or its registered
assigns (the "Holder"), the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 55
No. 54
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$60,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to ALAN A. JOCHIM or its registered assigns (the
"Holder"), the sum of SIXTY THOUSAND DOLLARS ($60,000), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 56
No. 55
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to MARK L. HOLIFER or its registered assigns
(the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 57
No. 56
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DEANNE WOODRING or its registered assigns
(the "Holder"), the sum of FIFTY THOUSAND DOLLARS ($50,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 58
No. 57
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$30,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to CRAIG A. NICHOLS or its registered assigns
(the "Holder"), the sum of THIRTY THOUSAND DOLLARS ($30,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
-1-
<PAGE> 59
No. 58
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$25,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DONOVAN W. BOLLIG & MARIANN E. BOLLIG
REVOCABLE TRUST U/A DTD 10/31/95 or its registered assigns (the "Holder"), the
sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000), or such lesser amount as shall
then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on May 1, 2008 ("Maturity Date"). Payment
for all amounts due hereunder shall be made by mail to the registered address of
the Holder, or, if requested in writing by the Holder, by wire transfer in
accordance with the Holder's instructions. This Note is issued in connection
with the transactions described in that certain Note Purchase Agreement dated
the date hereof, by and among the Company and the Purchasers described therein,
as the same may be amended, modified or supplemented from time to time (the
"Note Purchase Agreement"). The Holder is subject to certain restrictions, and
is entitled to certain rights and privileges, set forth in the Note Purchase
Agreement. This Note is one of the Notes referred to as the "Notes" in the Note
Purchase Agreement.
-1-
<PAGE> 60
No. 59
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$75,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to EAKIN LIVING TRUST or its registered assigns
(the "Holder"), the sum of SEVENTY-FIVE THOUSAND DOLLARS ($75,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
-1-
<PAGE> 61
No. 60
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$30,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to PAMB INVESTMENTS or its registered assigns
(the "Holder"), the sum of THIRTY THOUSAND DOLLARS ($30,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
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<PAGE> 62
No. 61
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$15,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to DONALD A. DOLE or its registered assigns (the
"Holder"), the sum of FIFTEEN THOUSAND DOLLARS ($15,000), or such lesser amount
as shall then equal the outstanding principal amount hereof and any unpaid
accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity Date").
Payment for all amounts due hereunder shall be made by mail to the registered
address of the Holder, or, if requested in writing by the Holder, by wire
transfer in accordance with the Holder's instructions. This Note is issued in
connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
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<PAGE> 63
No. 62
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$50,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to THOMAS A. WIITA AND KATHRYN C. WIITA, JTWROS
or its registered assigns (the "Holder"), the sum of FIFTY THOUSAND DOLLARS
($50,000), or such lesser amount as shall then equal the outstanding principal
amount hereof and any unpaid accrued interest hereon, as set forth below, on May
1, 2008 ("Maturity Date"). Payment for all amounts due hereunder shall be made
by mail to the registered address of the Holder, or, if requested in writing by
the Holder, by wire transfer in accordance with the Holder's instructions. This
Note is issued in connection with the transactions described in that certain
Note Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
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<PAGE> 64
No. 63
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$100,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to PATRICK TERRELL or its registered assigns
(the "Holder"), the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
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<PAGE> 65
No. 64
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$20,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to ROBERT G. TURNER or its registered assigns
(the "Holder"), the sum of TWENTY THOUSAND DOLLARS ($20,000), or such lesser
amount as shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, on May 1, 2008 ("Maturity
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder, or, if requested in writing by the Holder, by
wire transfer in accordance with the Holder's instructions. This Note is issued
in connection with the transactions described in that certain Note Purchase
Agreement dated the date hereof, by and among the Company and the Purchasers
described therein, as the same may be amended, modified or supplemented from
time to time (the "Note Purchase Agreement"). The Holder is subject to certain
restrictions, and is entitled to certain rights and privileges, set forth in the
Note Purchase Agreement. This Note is one of the Notes referred to as the
"Notes" in the Note Purchase Agreement.
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<PAGE> 66
No. 65
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS.
G. I. JOE'S, INC.
9% SUBORDINATED NOTE DUE 2008
$1,000,000 Portland, Oregon
May 4, 1998
G. I. JOE'S, INC., an Oregon corporation (the "Company"), for value
received hereby promises to pay-to PEREGRINE CAPITAL, INC. or its registered
assigns (the "Holder"), the sum of ONE MILLION DOLLARS ($1,000,000), or such
lesser amount as shall then equal the outstanding principal amount hereof and
any unpaid accrued interest hereon, as set forth below, on May 1, 2008
("Maturity Date"). Payment for all amounts due hereunder shall be made by mail
to the registered address of the Holder, or, if requested in writing by the
Holder, by wire transfer in accordance with the Holder's instructions. This Note
is issued in connection with the transactions described in that certain Note
Purchase Agreement dated the date hereof, by and among the Company and the
Purchasers described therein, as the same may be amended, modified or
supplemented from time to time (the "Note Purchase Agreement"). The Holder is
subject to certain restrictions, and is entitled to certain rights and
privileges, set forth in the Note Purchase Agreement. This Note is one of the
Notes referred to as the "Notes" in the Note Purchase Agreement.
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<PAGE> 67
The following is a statement of the rights of the Holder and the conditions
to which this Note is subject, and to which the Holder, by the acceptance of
this Note, agrees:
1. Principal and Interest. Unless this Note is sooner prepaid, the
principal of (and premium, if any) and interest on this Note shall be paid in
full on the Maturity Date. This Note may be prepaid at any time, without premium
or penalty, upon thirty (30) days' prior written notice.
Commencing on June 30, 1998, and on the last day of each calendar quarter
thereafter, until the payment in full of all outstanding principal of (and
premium, if any) and interest on this Note, the Company shall accrue and defer
interest on this Note, computed on the basis of a 365-day year, from the date of
this Note, on the unpaid balance-of the outstanding principal amount of this
Note, at nine percent (9%) simple interest per annum (the "Coupon Rate"), and
such interest shall be payable upon payments of principal on this Note.
2. Events of Default. An Event of Default with, respect: to this Note shall
mean the following:
(i) default for three (3) business days in payment of principal or premium,
if any, and interest when due;
(ii) default in the performance or breach of any covenant or warranty of
the Company in respect to this Note that is not remedied, waived or cured for a
period of ten (10) days following knowledge by the Company of such default;
(iii) other than on terms approved beforehand by holders of at least a
majority in principal amount of all then outstanding Notes (exclusive of Notes
held by the Company or its subsidiaries or affiliates) issued pursuant to the
Note Purchase Agreement, the institution by the Company of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
federal Bankruptcy Act, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official of the
Company, or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action;
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<PAGE> 68
(iv) if, within sixty (60) days after the commencement of an action against
the Company (and service of process in connection therewith on the Company)
seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution, or
similar relief under any present or future statute, law or regulation, such
action shall not have been resolved in favor of the Company or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within sixty (60) days after the appointment without the consent
or acquiescence of the Company of any trustee, receiver or liquidator of the
Company, such appointment shall not have been vacated; and
(v) entry of a final judgment in excess of $250,000 (excluding insured
portions) against the Company that is not stayed, bonded or discharged within
sixty (60) days.
If an Event of Default shall occur and be continuing pursuant to item (i)
above, then the Holder, acting alone, may accelerate payment of this Note. If an
Event of Default shall occur and be continuing for any reason other than
pursuant to items (i) or (ii), then the holders of not less than sixty-six and
two-thirds percent (66-2/3%) in principal amount of all then outstanding Notes
(exclusive of Notes held by the Company or its subsidiaries or affiliates)
issued pursuant to the Note Purchase Agreement may elect to accelerate payment
of the Notes. If any payment due hereunder, including those due upon
acceleration, is not paid within ten (10) days after its due date, the entire
balance of this Note shall bear interest from the date of default until such
payment (including all accrued interest through the date of payment),is paid, at
the per annum rate of interest equal to the Coupon Rate plus 2%; provided,
however, that in no event shall such interest rate exceed the maximum rate
permitted by law.
3. Prepayment. With the proceeds of an Initial Public Offering (as defined
below), the Company shall be required to prepay, and the holder of this Note
shall be required to surrender to the Company, this Note at a price equal to the
Principal Amount plus all accrued and unpaid interest (the "Prepayment Price").
The Prepayment Price shall be paid in cash within 5 days following the closing
of an Initial Public Offering. An "Initial Public Offering" shall mean a public
offering of the Company's Common Stock or the Common Stock of any parent
corporation through underwriters upon effectiveness of a registration statement
filed with the Securities Exchange Commission in which the aggregate offering
proceeds (after deduction of underwriter's commissions and expenses) are not
less than $12,000,000.
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<PAGE> 69
4. Subordination. The payment of principal of (or premium, if any) and
interest on this Note expressly is subordinated to all existing and future
indebtedness and liabilities of the Company other than other subordinated notes,
and is a general, unsecured obligation of the Company.
(a) Default. If there should occur any receivership, insolvency,
assignment for the benefit of creditors, bankruptcy, reorganization or
arrangement with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation or any other marshaling of the assets and liabilities of the
Company, or if this Note shall be declared due and payable upon the occurrence
of an Event of Default with respect to any indebtedness senior to this Note
("Senior Indebtedness"), then (i) no amount shall be paid by the Company in
respect of the principal of (or premium, if any) or interest on this Note at the
time outstanding, unless and until the principal of (or premium, if any) and
interest on the Senior Indebtedness then outstanding shall be paid in full, and
(ii) no claim or proof of claim shall be filed with the Company by or on behalf
of the Holder that shall assert any right to receive any payments in respect of
the principal of (and premium, if any) and the interest on this Note, except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding. The Company shall not make any payment
upon or in respect of this Note if there occurs an event of default that
continues beyond the applicable grace period with respect to nonpayment of any
principal of (or premium, if any) or interest on any Senior Indebtedness, or the
instrument under which any Senior Indebtedness is outstanding.
(b) Effect of Subordination. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 4 to receive cash, securities
or other properties otherwise payable or deliverable to the Holder, nothing
contained in this Section 4 shall impair, as between the Company and the Holder,
the obligation of the Company, subject to the terms and conditions of this
Section 4, to pay to the Holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the Holder, upon default
hereunder, from exercising all rights, powers and remedies otherwise provided
herein or by applicable law.
(c) Subrogation. Subject to payment in full of all Senior Indebtedness
and until this Note shall be paid in full, the Holder shall be subrogated to the
rights of the holders of Senior Indebtedness (to the extent of payments or
distributions previously made to such holders of Senior Indebtedness pursuant to
the provisions of Section 4(b) above) to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness. No such payments or
distributions applicable to the Senior Indebtedness, as between the Company and
its creditors, other than the holders of Senior Indebtedness and the Holder,
shall be deemed to be a
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<PAGE> 70
payment by the Company to or on account of this Note; and for the purposes of
such subrogation, no payments or distributions to the holders of Senior
Indebtedness to which the Holder would be entitled except for the provisions of
this Section 4, as between the Company and its creditors, other than the holders
of Senior Indebtedness and the Holder, shall be deemed to be a payment by the
Company to or on account of the Senior Indebtedness.
(d) Undertaking. By its acceptance of this Note, the Holder agrees to
execute and deliver such documents as may be reasonably requested from time to
time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 4.
5. Assignment. Subject to the restrictions on transfer described in Section
7 below, the rights and obligations of the Company and the Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties.
6. Waiver and Amendment. Any provision of this Note may be amended, waived
or modified upon the written consent of the Company and holders of at least
sixty-six and two-thirds percent (66-2/3%) in principal amount of all then
outstanding Notes (exclusive of Notes held by the Company or its subsidiaries or
affiliates) issued pursuant to the Note Purchase Agreement. Notwithstanding the
foregoing, without the consent of the Holder, an amendment or waiver may not:
(a) reduce the principal amount of this Note;
(b) reduce the rate of or extend the time for payment of interest,
including defaulted interest, on this Note;
(c) reduce the principal of or extend the Maturity Date of this Note;
(d) waive a default in the payment of the principal of or the interest
on, or principal or other payment with respect to, this Note;
(e) make this Note payable in money or other than that stated in this
Note; or
(f) alter the provisions of the Note Purchase Agreement so as to
increase or decrease the percentage of holders of Notes required to consent to
any amendment thereof or of the Notes or to waive compliance with any term
thereof or of the Notes.
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<PAGE> 71
7. Transfer of this Note. The Holder understands that the Company will
instruct any transfer agent not to register the transfer of this Note unless the
conditions specified in the legend above are satisfied.
8. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery; upon confirmed transmission by telecopy or telex; or upon
deposit with the United States Post Office, by first-class mail, postage
prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to the
Holder, at the Holder's address as set forth on the signature page hereto or at
such other address as the Holder shall have furnished to the Company in writing,
or (b) if to the Company, one copy shall be sent to the attention of the
President, or at such other addresses as the Company shall have furnished to the
Holder in writing.
9. Governing Law; Venue. This Note shall be governed by and construed in
accordance with the laws of the State of Oregon, and venue for any action taken
in connection herewith or related hereto shall exclusively reside in Multnomah
County, Oregon.
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<PAGE> 72
SUBORDINATED NOTE
SIGNATURE PAGE
This Note has been executed and delivered as of the date first above
written.
G. I. JOE'S, INC.
By_______________________________________
Its______________________________________
-7-
<PAGE> 73
9% SUBORDINATED NOTE DUE 2008
<TABLE>
<CAPTION>
9% Subordinated Note
Due Note Purchase
2008 No. Investor Name Agreement
- ----------------------- ------------------------------------------------------- ----------------
<S> <C> <C>
1 James Q. and Marion M. Johnson $ 100,000
2 Gary J. and Christine C. Rood $ 100,000
3 Clifford V. Aaron $1,000,000
4 Double Ten Enterprises Limited Partnership $ 100,000
5 Gloria D. Settlemier $ 25,000
7 Thomas M. Van Domelen $ 50,000
8 Alan A. Jochim $ 50,000
9 Douglas R. McEnry $ 150,000
10 Daniel & Debra McEnry $ 150,000
11 Rudy and Patti Fascell $ 50,000
12 Gordon Harris $ 50,000
13 Wayne M. Hamersly $1,250,000
14 Peregrine Capital, Inc. $ 450,000
15 Jacob Kryszek $ 100,000
16 William Greeley $ 75,000
18 Ron Wysaske $ 100,000
19 Pat Sheaffer $ 50,000
20 TT&L Sheet Metal, Inc. Profit Sharing Plan $ 50,000
21 David Westcott $ 110,000
22 Wendell Manning $ 50,000
23 John Savelkoul $ 25,000
24 FISERV as Custodian for the Richard Huebner IRA $ 50,000
25 William Lockwood $ 25,000
26 Art Johnstone and Terri Johnstone Living Trust $ 80,000
27 Thomas McChesney $ 250,000
28 Summit Capital LLC $ 100,000
29 Tiburon Fund LP $ 750,000
30 Summit Fund LP $ 750,000
31 Stephen A. Smith $ 25,000
32 Vista Capital LLC $ 150,000
33 Washington Pacific Inc. Retirement Account $ 100,000
34 Lexington Financial LLC $ 100,000
35 Bison Investors Trust $ 200,000
36 Deanne Eakin $ 50,000
37 Dave Nelson and Associates $ 200,000
38 Mildred M. Pratt $ 100,000
</TABLE>
-1-
<PAGE> 74
<TABLE>
<CAPTION>
9% Subordinated Note
Due Note Purchase
2008 No. Investor Name Agreement
- ----------------------- ------------------------------------------------------- ----------------
<S> <C> <C>
39 Herbert L. Newmark $ 100,000
40 Merle Manning $ 80,000
41 Richard Schwartz and Marcy S $ 50,000
Schwartz as Tenants in Common
42 Steve Tubbs $ 50,000
43 Cap Hedges & Associates, Inc. Pension & Profit
Sharing Plan & Trust U/A DTD 1/1/76 $ 50,000
44 Scott Weber $ 25,000
45 Barclay M. Armitage $ 100,000
46 William Todd Armitage $ 100,000
47 George L. Johnson $ 100,000
48 Ron and Heather Killough $ 100,000
49 Greg Bennett and Dwight L. Cummins, $ 50,000
Joint Tenants in Common
50 David L. Ditchen $ 50,000
51 Brian Scott Ditchen $ 50,000
52 Lawrence M. Neher and Mary Lou Neher $ 50,000
53 Dolores E. Chenoweth $ 25,000
54 Alan A. Jochim $ 60,000
55 Mark L. Holifer $ 50,000
56 Deanne Woodring $ 50,000
57 Craig A. Nichols $ 30,000
58 Donovan W. Bollig & Mariann E. Bollig $ 25,000
Revocable Trust U/A DTD 10/31/95
59 Eakin Living Trust $ 75,000
60 PAMB INVESTMENTS $ 30,000
61 Donald A. Dole $ 15,000
62 Thomas A. Wiita and Kathryn C. Wiita, JTWROS $ 50,000
63 Patrick Terrell $ 100,000
64 Robert G. Turner $ 20,000
65 Peregrine Capital, Inc. $1,000,000
</TABLE>
-2-
<PAGE> 1
EXHIBIT 10.21
NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE LAW, AND NO INTEREST HEREIN OR THEREIN MAY
BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
(A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES,
(B) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF SAID
SECURITIES STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (C) THE
COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION.
WARRANT TO PURCHASE
No. 1 COMMON STOCK OF
ISSUED: May 8, 1998 ND HOLDINGS, INC.
ND HOLDINGS, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms and
conditions hereof, Peregrine Capital, Inc., or such person to whom this Warrant
is transferred pursuant to Section 7 hereof (the "Holder"), is entitled to
exercise this Warrant to purchase the number of fully paid and nonassessable
shares (the "Warrant Stock") of the Common Stock of ND Holdings, Inc., an Oregon
corporation (the "Company"), equal to 400,000 shares of Common Stock minus the
aggregate number of shares of the Company's Common Stock issuable to those
certain investors pursuant to the Company's Common Stock Purchase Warrants Nos.
2 through 67. The exercise price for each share of Common Stock purchasable
pursuant to this Warrant shall be $.01 per share (the "Exercise Price"). Such
number of shares and the Exercise Price are subject to adjustment as provided
herein.
<PAGE> 2
This Warrant is subject to the following additional terms and conditions:
1. Method of Exercise
1.1 Exercise of Warrant
Subject to the provisions of Section 1.4, the Holder of this Warrant may
exercise this Warrant in whole, or in part, at any time after the earliest of
(i) notice from the Company to the Holder of an Initial Public Offering (as
defined in Section 1.4), (ii) November 1, 1999 or (iii) notice from the Company
to the Holder of a sale of substantially all the assets of the Company or G.I.
Joe's, or a merger of the Company or G.I. Joe's with an unaffiliated third party
(the "Initial Exercise Date"), and prior to the Expiration Date. THIS WARRANT
SHALL EXPIRE AT 5:00 P.M., PORTLAND, OREGON TIME, ON THE FIFTH (5TH) ANNIVERSARY
OF THE DATE ISSUED ABOVE (the "Expiration Date").
1.2 Procedure for Exercise
(a) Subject to Section 1.4, the Holder may exercise this Warrant, in whole
or in part, at any time after the Initial Exercise Date, and from time to time,
at or prior to the Expiration Date, by surrendering it to the Company, together
with either (i) a duly executed and completed subscription in substantially the
form of the Subscription Notice attached hereto as Exhibit A, and a check
payable to the Company in the amount equal to the aggregate Exercise Price for
the shares of Warrant Stock being purchased, or (ii) a duly executed and
completed Conversion Notice in the form attached hereto as Exhibit B. Upon
exercise through a conversion with respect to a particular number of shares
subject to this Warrant (the "Converted Warrant Shares"), without payment by the
Holder of the Exercise Price, the Holder shall be entitled to receive that
number of shares of the Common Stock of the Company equal to the quotient
obtained by dividing the Net Value of the Converted Warrant Shares by the Fair
Market Value of a single share of Common Stock. If the above calculation results
in a number less than one (1), then no shares of the Common Stock of the Company
shall be issuable or issued pursuant to a conversion.
"Net Value" means the aggregate Fair Market Value of the Converted Warrant
Shares minus the aggregate Warrant Exercise Price for the Converted Warrant
Shares. "Fair Market Value" of the Common Stock shall mean, if this Warrant is
being exercised prior to the closing of an Initial Public Offering, the Initial
Public Offering price per share of the Common Stock. If this Warrant is not
being exercised prior to the closing of an Initial Public Offering, the Fair
Market Value of the Common Stock shall be deemed to be the higher of (i) the
shareholders' equity thereof as determined by any firm of independent public
accountants of recognized standing selected by the
-2-
<PAGE> 3
Board of Directors of the Company as of the last day of any month ending within
60 days preceding the date as of which the determination is to be made or (ii)
the fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within 15 days of the date as of which the
determination is to be made.
(b) Surrendered Warrants shall be canceled by or on behalf of the Company.
In the event of a partial exercise, the Company will forthwith issue and deliver
to the Holder a new Warrant of like tenor for the number of Warrant Shares
represented by the Warrant after giving effect to the partial exercise as set
forth above.
1.3 Common Stock Issued Upon Exercise of Warrant
As soon as practicable after this Warrant has been so exercised, and in any
event within 20 days thereafter, the Company shall issue and deliver, in the
name of the Holder, a certificate or certificates for the number of shares of
Warrant Stock to which such Holder is entitled. All Warrant Stock shall be duly
authorized, validly issued, fully paid and nonassessable. The Company shall pay
all documentary stamp taxes attributable to the initial issuance of the Warrant
Stock. Irrespective of the date of issue of certificates for the Warrant Stock,
the Holder shall be deemed to have become the holder of record of the Warrant
Stock represented thereby on the date on which the Warrant is exercised and
payment of the Exercise Price is received by the Company as provided in Section
1.2.
1.4 Public Offering
Notwithstanding anything herein to the contrary, this Warrant shall
terminate automatically on the closing of an Initial Public Offering (as defined
below). For purposes of this Section 1.4, an "Initial Public Offering" shall
mean a public offering of the Company's Common Stock or the Common Stock of G.I.
Joe's, Inc., an Oregon corporation ("G.I. Joe's") through underwriters upon
effectiveness of a registration statement filed with the Securities and Exchange
Commission in which the aggregate offering proceeds to the Company or G.I. Joe's
(after deduction of underwriter's commissions and expenses) are not less than
$12,000,000. At least 20 days prior to the closing of an Initial Public
Offering, the Company will give notice of the offering to the Holder of this
Warrant. The Holder may exercise this Warrant at any time prior to the closing
of the Initial Public Offering.
Notwithstanding anything to the contrary herein, in the event that there is
an Initial Public Offering of the Common Stock of G.I. Joe's prior to a merger
of the Company with G.I. Joe's, this Warrant shall be exercisable for the number
of fully paid and nonassessable shares of Common Stock of G.I. Joe's which will
give the
-3-
<PAGE> 4
Holder the same percentage of the fully diluted Common Stock of G.I. Joe's as
the Holder would have had in the Company if this Warrant had been exercised for
the Company's Common Stock. In such event, all references herein to Warrant
Stock shall mean such number of shares of Common Stock of G.I. Joe's. For
example, if this Warrant were exercisable for 10 shares of Common Stock and the
amount of the Company's Common Stock on a fully-diluted basis (including options
and warrants) is 100 shares, then in the event of an Initial Public Offering of
G.I. Joe's Common Stock (prior to a merger between the Company and G.I. Joe's),
this Warrant would be exercisable for 10 percent of the Common Stock of G.I.
Joe's on a fully-diluted basis (including options and warrants) immediately
prior to the Initial Public Offering.
2. Reservation of Warrant Stock
The Company covenants and agrees that it will at all times reserve and
cause G.I. Joe's to reserve such number of shares of authorized but unissued
Common Stock as necessary to permit the exercise of all of the Warrant Stock.
3. Reorganization
Upon a merger, consolidation, acquisition of all or substantially all of
the property or stock, reorganization or liquidation of the Company, including,
but not limited, to a merger with G.I. Joe's (collectively, a "Reorganization"),
as a result of which the shareholders of the Company receive cash, stock or
other property in exchange for their shares of capital stock in the Company, as
part of such Reorganization, lawful provision shall be made so that the Holder
shall thereafter be entitled to receive upon exercise of its rights to purchase
Warrant Stock, the number of shares of securities of the successor corporation
resulting from such Reorganization, to which a holder of the Warrant Stock
deliverable upon exercise of the right to purchase securities hereunder would
have been entitled in such Reorganization if the right to purchase such
securities had been exercised immediately prior to such Reorganization. In any
such case, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interest of the Holder after the
Reorganization to the end that the provisions of this Warrant (including
adjustments of the Exercise Price and the number of securities purchasable
pursuant to the terms of this Warrant) shall be applicable after that event, as
near as reasonably may be, in relation to any shares deliverable after that
event upon the exercise of the Holder's rights to purchase securities pursuant
to this Warrant.
-4-
<PAGE> 5
4. Adjustments for Stock Splits, Etc.
If the Company shall issue any shares of the same class as the Warrant
Stock as a stock dividend or subdivide the number of outstanding shares of such
class into a greater number of shares, then, in either such case, the Exercise
Price in effect before such dividend or subdivision shall be proportionately
reduced and the number of shares of Warrant Stock at that time purchasable
pursuant to this Warrant shall be proportionately increased; and, conversely, if
the Company shall contract the number of outstanding shares of the same class as
the Warrant Stock by combining such shares into a smaller number of shares, then
the Exercise Price in effect before such combination shall be proportionately
increased and the number of shares of Warrant Stock at that time purchasable
pursuant to this Warrant shall be proportionately decreased. Each adjustment in
the number of shares of Warrant Stock purchasable hereunder shall be to the
nearest whole share.
5. Notice of Adjustments
Whenever the Exercise Price or the number of securities purchasable under
the terms of this Warrant at that Exercise Price shall be adjusted pursuant to
the terms of this Warrant, the Company shall promptly notify the Holder in
writing of such adjustment, setting forth in reasonable detail the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price and number of shares of
Warrant Stock or other securities purchasable at that Exercise Price after
giving effect to such adjustment. Such notice shall be mailed (by first class
and postage prepaid) to the registered Holder.
In the event of:
(a) The taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class of
any other securities or property, or to receive any other right,
(b) Any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to any other person or any
consolidation or merger involving the company, or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
-5-
<PAGE> 6
the Company will mail to the Holder, at its last address at least ten (10) days
prior to the earlier date specified therein as described below, a notice
specifying:
(1) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right; and
(2) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining stockholders
entitled to vote thereon.
6. Fractional Shares
No fractional shares shall be issued upon the exercise of this Warrant. In
lieu of fractional shares, the Company shall pay the Holder a sum in cash equal
to the Fair Market Value (as defined in Section 1.2 hereof) of the fractional
shares on the date of exercise.
7. Restrictions on Transfer
Neither this Warrant nor the Warrant Stock may be transferred unless (a)
such transfer is registered under the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state securities or blue sky laws, (b) the
Company has received a legal opinion reasonably satisfactory to the Company to
the effect that the transfer is exempt from the prospectus delivery and
registration requirements of the Securities Act and any applicable state
securities or blue sky laws or (c) the Company otherwise satisfies itself that
such transfer is exempt from registration.
8. Legend
A legend setting forth or referring to the above restrictions shall be
placed on this Warrant, any replacement hereof or any certificate representing
the Warrant Stock, and a stop transfer restriction or order shall be placed on
the books of the Company and with any transfer agent until such securities may
be legally sold or otherwise transferred.
9. Holder as Owner
The Company may deem and treat the holder of record of this Warrant as the
absolute owner hereof for all purposes regardless of any notice to the contrary.
-6-
<PAGE> 7
10. No Shareholder Rights
This Warrant shall not entitle the Holder to any voting rights or any other
rights as a shareholder of the Company or to any other rights whatsoever except
the rights stated herein; and no dividend or interest shall be payable or shall
accrue in respect of this Warrant or the Warrant Stock until and to the extent
that this Warrant shall be exercised.
11. Securities Act Compliance
Unless the transfer of the Warrant Stock shall have been registered under
the Securities Act, as a condition of the delivery of certificates for the
Warrant Stock, the Company may require the Holder to deliver to the Company, in
writing, representations regarding the Holder's status as an "accredited
investor" as such term is defined in the Securities Act or the regulations
thereunder.
12. Construction
The validity and interpretation of the terms and provisions of this Warrant
shall be governed by the laws of the State of Oregon. The descriptive headings
of the several sections of this Warrant are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
thereof.
13. Exchange of Warrant
This Warrant is exchangeable upon the surrender hereof by the Holder at the
office of the Company for new Warrants of like tenor representing in the
aggregate the rights to subscribe for and purchase the number of shares which
may be subscribed for and purchased hereunder, each of such new Warrants to
represent the right to subscribe for and purchase such number of shares as shall
be designated by the Holder at the time of such surrender.
14. Lost Warrant Certificate
Upon receipt by the Company of satisfactory evidence of the loss, theft,
destruction or mutilation of this Warrant and either (in the case of loss, theft
or destruction) reasonable indemnification or (in the case of mutilation) the
surrender of this Warrant for cancellation, the Company will execute and deliver
to the Holder, without charge, a new Warrant of like denomination.
-7-
<PAGE> 8
15. Waivers and Amendments
This Warrant or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
16. Notices
All notices or other communications required or permitted hereunder shall
be in writing and shall be delivered by personal delivery, reputable overnight
courier service, telecopier or mailed by United States mail, first-class postage
prepaid, or by registered or certified mail with return receipt requested,
addressed as follows:
If to the Holder:
To the address last furnished
in writing to the Company by
the Holder
If to the Company:
ND HOLDINGS, INC.
9805 Boeckman Road
Wilsonville, OR 97070
Each of the foregoing parties shall be entitled to specify a different
address by giving five days' advance written notice as aforesaid to the other
parties.
17. Investment Intent
By accepting this Warrant, the Holder represents that it is acquiring this
Warrant for investment and not with a view to, or for sale in connection with,
any distribution thereof.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
ND HOLDINGS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
-8-
<PAGE> 9
EXHIBIT A
(FORM OF SUBSCRIPTION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)
SUBSCRIPTION NOTICE
The undersigned, the registered holder of Warrant ____ (the "Warrant"),
issued by ND HOLDINGS, INC. hereby (1) irrevocably subscribes for _____ shares
of Common Stock which the undersigned is entitled to purchase under the terms
and conditions of the Warrant, (2) makes payment of $__________ in full in cash
therefor as called for by the Warrant and (3) directs that the certificates for
such shares of Common Stock issuable upon exercise of the Warrant be issued in
the name of and delivered to the undersigned at the address stated below.
The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
----------------------------------
(Name) [Please Print]
----------------------------------
(Address)
----------------------------------
SIGNATURE: _______________________
Dated: _______________
<PAGE> 10
EXHIBIT B
(FORM OF CONVERSION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)
CONVERSION NOTICE
The undersigned, the registered holder of Warrant _____ (the "Warrant"),
issued by ND HOLDINGS, INC. (the "Company"), hereby (1) irrevocably elects to
convert the Warrant into such number of shares of Common Stock of the Company as
is determined pursuant to Section 1.2(a) of the Warrant, which conversion shall
be effected pursuant to the terms and conditions of the Warrant and (2) directs
that the certificates for such shares of Common Stock issuable upon exercise of
the Warrant be issued in the name of and delivered to the undersigned at the
address set forth below. If this Conversion Notice is being delivered prior to
the closing of an Initial Public Offering (as defined in the Warrant), the
exercise of the Warrant shall be conditioned upon the closing of the Initial
Public Offering, and the election to convert the Warrant shall be deemed
automatically revoked if the closing of the Initial Public Offering does not
occur with 60 days of this election.
The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
----------------------------------
(Name) [Please print]
----------------------------------
(Address)
----------------------------------
SIGNATURE: _______________________
Dated: _______________
<PAGE> 11
ASSIGNMENT
For value received __________________________ hereby sells, assigns and
transfers unto __________________________ the within Warrants, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint __________________________ attorney, to transfer said Warrants on the
books of the within-named Company, with full power of substitution in the
premises.
Dated: _____________________
------------------------------------
<PAGE> 1
EXHIBIT 10.22
NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE LAW, AND NO INTEREST HEREIN OR THEREIN MAY
BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
(A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES,
(B) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF SAID
SECURITIES STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (C) THE
COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION.
WARRANT TO PURCHASE
No. 2 COMMON STOCK OF
ISSUED: May __, 1998 ND HOLDINGS, INC.
ND HOLDINGS, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms and
conditions hereof, Blackwell Donaldson & Company, or such person to whom this
Warrant is transferred pursuant to Section 7 hereof (the "Holder"), is entitled
to exercise this Warrant to purchase the number of fully paid and nonassessable
shares (the "Warrant Stock") of the Common Stock of ND Holdings, Inc., an Oregon
corporation (the "Company"), obtained by dividing (i) $95,100 by (ii) (a) if
this Warrant is exercised immediately prior to an Initial Public Offering (as
defined in Section 1.4 hereof), the Initial Public Offering price per share of
the Common Stock, or (b) in all other cases, the price per share of stock in the
Company's or G.I. Joe's, Inc.'s ("G.I. Joe's") most recent Private Equity
Financing. A "Private Equity Financing" shall mean a financing of a minimum of
$500,000 with a party not affiliated with the Company or G.I. Joe's which has
been negotiated on an arms-length basis. The exercise price for each share of
Common Stock purchasable pursuant to
<PAGE> 2
this Warrant shall be $.01 per share (the "Exercise Price"). Such number of
shares and the Exercise Price are subject to adjustment as provided herein.
This Warrant is subject to the following additional terms and conditions:
1. Method of Exercise
1.1 Exercise of Warrant
Subject to the provisions of Section 1.4, the Holder of this Warrant may
exercise this Warrant in whole, or in part, at any time after the earliest of
(i) notice from the Company to the Holder of an Initial Public Offering, (ii)
November 1, 1999 or (iii) notice from the Company to the Holder of a sale of
substantially all the assets of the Company or G.I. Joe's, or a merger of the
Company or G.I. Joe's with an unaffiliated third party (the "Initial Exercise
Date"), and prior to the Expiration Date. THIS WARRANT SHALL EXPIRE AT 5:00
P.M., PORTLAND, OREGON TIME, ON THE FIFTH (5TH) ANNIVERSARY OF THE DATE ISSUED
ABOVE (the "Expiration Date").
1.2 Procedure for Exercise
(a) Subject to Section 1.4, the Holder may exercise this Warrant, in whole
or in part, at any time after the Initial Exercise Date, and from time to time,
at or prior to the Expiration Date, by surrendering it to the Company, together
with either (i) a duly executed and completed subscription in substantially the
form of the Subscription Notice attached hereto as Exhibit A, and a check
payable to the Company in the amount equal to the aggregate Exercise Price for
the shares of Warrant Stock being purchased, or (ii) a duly executed and
completed Conversion Notice in the form attached hereto as Exhibit B; provided,
that in the event that this Warrant is exercised immediately prior to the
closing of an Initial Public Offering, the Holder shall deliver the Conversion
Notice rather than the Subscription Notice. If this Warrant is held jointly, any
one Holder may exercise the Warrant. Upon exercise through a conversion with
respect to a particular number of shares subject to this Warrant (the "Converted
Warrant Shares"), without payment by the Holder of the Exercise Price, the
Holder shall be entitled to receive that number of shares of the Common Stock of
the Company equal to the quotient obtained by dividing the Net Value of the
Converted Warrant Shares by the Fair Market Value of a single share of Common
Stock. If the above calculation results in a number less than one (1), then no
shares of the Common Stock of the Company shall be issuable or issued pursuant
to a conversion.
"Net Value" means the aggregate Fair Market Value of the Converted Warrant
Shares minus the aggregate Warrant Exercise Price for the Converted Warrant
Shares.
-2-
<PAGE> 3
"Fair Market Value" of the Common Stock shall mean, if this Warrant is being
exercised prior to the closing of an Initial Public Offering, the Initial Public
Offering price per share of the Common Stock. If this Warrant is not being
exercised prior to the closing of an Initial Public Offering, the Fair Market
Value of the Common Stock shall be deemed to be the higher of (i) the
shareholders' equity thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within 60 days preceding the date
as of which the determination is to be made or (ii) the fair value thereof
determined in good faith by the Board of Directors of the Company as of a date
which is within 15 days of the date as of which the determination is to be made.
(b) Surrendered Warrants shall be canceled by or on behalf of the Company.
In the event of a partial exercise, the Company will forthwith issue and deliver
to the Holder a new Warrant of like tenor for the number of Warrant Shares
represented by the Warrant after giving effect to the partial exercise as set
forth above.
1.3 Common Stock Issued Upon Exercise of Warrant
As soon as practicable after this Warrant has been so exercised, and in any
event within 20 days thereafter, the Company shall issue and deliver, in the
name of the Holder, a certificate or certificates for the number of shares of
Warrant Stock to which such Holder is entitled. All Warrant Stock shall be duly
authorized, validly issued, fully paid and nonassessable. The Company shall pay
all documentary stamp taxes attributable to the initial issuance of the Warrant
Stock. Irrespective of the date of issue of certificates for the Warrant Stock,
the Holder shall be deemed to have become the holder of record of the Warrant
Stock represented thereby on the date on which the Warrant is exercised and
payment of the Exercise Price is received by the Company as provided in Section
1.2.
1.4 Public Offering
Notwithstanding anything herein to the contrary, this Warrant shall
terminate automatically on the closing of an Initial Public Offering (as defined
below). For purposes of this Section 1.4, an "Initial Public Offering" shall
mean a public offering of the Company's Common Stock or the Common Stock of G.I.
Joe's through underwriters upon effectiveness of a registration statement filed
with the Securities and Exchange Commission in which the aggregate offering
proceeds to the Company or G.I. Joe's (after deduction of underwriter's
commissions and expenses) are not less than $12,000,000. At least 20 days prior
to the closing of an Initial Public Offering, the Company will give notice of
the offering to the Holder of this Warrant. The
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<PAGE> 4
Holder may exercise this Warrant at any time prior to the closing of the Initial
Public Offering.
Notwithstanding anything to the contrary herein, in the event that there is
an Initial Public Offering of the Common Stock of G.I. Joe's prior to a merger
of the Company with G.I. Joe's, this Warrant shall be exercisable for the number
of fully paid and nonassessable shares of Common Stock of G.I. Joe's which will
give the Holder the same percentage of the fully diluted Common Stock of G.I.
Joe's as the Holder would have had in the Company if this Warrant had been
exercised for the Company's Common Stock. In such event, all references herein
to Warrant Stock shall mean such number of shares of Common Stock of G.I. Joe's.
For example, if this Warrant were exercisable for 10 shares of Common Stock and
the amount of the Company's Common Stock on a fully-diluted basis (including
options and warrants) is 100 shares, then in the event of an Initial Public
Offering of G.I. Joe's Common Stock (prior to a merger between the Company and
G.I. Joe's), this Warrant would be exercisable for 10 percent of the Common
Stock of G.I. Joe's on a fully-diluted basis (including options and warrants)
immediately prior to the Initial Public Offering.
2. Reservation of Warrant Stock
The Company covenants and agrees that it will at all times reserve and
cause G.I. Joe's to reserve such number of shares of authorized but unissued
Common Stock as necessary to permit the exercise of all of the Warrant Stock.
3. Reorganization
Upon a merger, consolidation, acquisition of all or substantially all of
the property or stock, reorganization or liquidation of the Company, including,
but not limited to, a merger with G.I. Joe's (collectively, a "Reorganization"),
as a result of which the shareholders of the Company receive cash, stock or
other property in exchange for their shares of capital stock in the Company, as
part of such Reorganization, lawful provision shall be made so that the Holder
shall thereafter be entitled to receive upon exercise of its rights to purchase
Warrant Stock, the number of shares of securities of the successor corporation
resulting from such Reorganization, to which a holder of the Warrant Stock
deliverable upon exercise of the right to purchase securities hereunder would
have been entitled in such Reorganization if the right to purchase such
securities had been exercised immediately prior to such Reorganization. In any
such case, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interest of the Holder after the
Reorganization to the end that the provisions of this Warrant (including
adjustments of the Exercise Price and the number of securities purchasable
pursuant
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<PAGE> 5
to the terms of this Warrant) shall be applicable after that event, as near as
reasonably may be, in relation to any shares deliverable after that event upon
the exercise of the Holder's rights to purchase securities pursuant to this
Warrant.
4. Adjustments for Stock Splits, Etc.
If the Company shall issue any shares of the same class as the Warrant
Stock as a stock dividend or subdivide the number of outstanding shares of such
class into a greater number of shares, then, in either such case, the Exercise
Price in effect before such dividend or subdivision shall be proportionately
reduced and the number of shares of Warrant Stock at that time purchasable
pursuant to this Warrant shall be proportionately increased; and, conversely, if
the Company shall contract the number of outstanding shares of the same class as
the Warrant Stock by combining such shares into a smaller number of shares, then
the Exercise Price in effect before such combination shall be proportionately
increased and the number of shares of Warrant Stock at that time purchasable
pursuant to this Warrant shall be proportionately decreased. Each adjustment in
the number of shares of Warrant Stock purchasable hereunder shall be to the
nearest whole share.
5. Notice of Adjustments
Whenever the Exercise Price or the number of securities purchasable under
the terms of this Warrant at that Exercise Price shall be adjusted pursuant to
the terms of this Warrant, the Company shall promptly notify the Holder in
writing of such adjustment, setting forth in reasonable detail the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price and number of shares of
Warrant Stock or other securities purchasable at that Exercise Price after
giving effect to such adjustment. Such notice shall be mailed (by first class
and postage prepaid) to the registered Holder.
In the event of:
(a) The taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class of
any other securities or property, or to receive any other right,
(b) Any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to any other person or any
consolidation or merger involving the company, or
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<PAGE> 6
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
the Company will mail to the Holder, at its last address at least ten (10) days
prior to the earlier date specified therein as described below, a notice
specifying:
(1) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right; and
(2) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining stockholders
entitled to vote thereon.
6. Fractional Shares
No fractional shares shall be issued upon the exercise of this Warrant. In
lieu of fractional shares, the Company shall pay the Holder a sum in cash equal
to the Fair Market Value (as defined in Section 1.2 hereof) of the fractional
shares on the date of exercise.
7. Restrictions on Transfer
Neither this Warrant nor the Warrant Stock may be transferred unless (a)
such transfer is registered under the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state securities or blue sky laws, (b) the
Company has received a legal opinion reasonably satisfactory to the Company to
the effect that the transfer is exempt from the prospectus delivery and
registration requirements of the Securities Act and any applicable state
securities or blue sky laws or (c) the Company otherwise satisfies itself that
such transfer is exempt from registration.
8. Legend
A legend setting forth or referring to the above restrictions shall be
placed on this Warrant, any replacement hereof or any certificate representing
the Warrant Stock, and a stop transfer restriction or order shall be placed on
the books of the Company and with any transfer agent until such securities may
be legally sold or otherwise transferred.
9. Holder as Owner
The Company may deem and treat the holder of record of this Warrant as the
absolute owner hereof for all purposes regardless of any notice to the contrary.
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<PAGE> 7
10. No Shareholder Rights
This Warrant shall not entitle the Holder to any voting rights or any other
rights as a shareholder of the Company or to any other rights whatsoever except
the rights stated herein; and no dividend or interest shall be payable or shall
accrue in respect of this Warrant or the Warrant Stock until and to the extent
that this Warrant shall be exercised.
11. Securities Act Compliance
Unless the transfer of the Warrant Stock shall have been registered under
the Securities Act, as a condition of the delivery of certificates for the
Warrant Stock, the Company may require the Holder to deliver to the Company, in
writing, representations regarding the Holder's status as an "accredited
investor" as such term is defined in the Securities Act or the regulations
thereunder.
12. Construction
The validity and interpretation of the terms and provisions of this Warrant
shall be governed by the laws of the State of Oregon. The descriptive headings
of the several sections of this Warrant are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
thereof.
13. Exchange of Warrant
This Warrant is exchangeable upon the surrender hereof by the Holder at the
office of the Company for new Warrants of like tenor representing in the
aggregate the rights to subscribe for and purchase the number of shares which
may be subscribed for and purchased hereunder, each of such new Warrants to
represent the right to subscribe for and purchase such number of shares as shall
be designated by the Holder at the time of such surrender.
14. Lost Warrant Certificate
Upon receipt by the Company of satisfactory evidence of the loss, theft,
destruction or mutilation of this Warrant and either (in the case of loss, theft
or destruction) reasonable indemnification or (in the case of mutilation) the
surrender of this Warrant for cancellation, the Company will execute and deliver
to the Holder, without charge, a new Warrant of like denomination.
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<PAGE> 8
15. Waivers and Amendments
This Warrant or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
16. Notices
All notices or other communications required or permitted hereunder shall
be in writing and shall be delivered by personal delivery, reputable overnight
courier service, telecopier or mailed by United States mail, first-class postage
prepaid, or by registered or certified mail with return receipt requested,
addressed as follows:
If to the Holder:
To the address last furnished
in writing to the Company by
the Holder
If to the Company:
ND HOLDINGS, INC.
9805 Boeckman Road
Wilsonville, OR 97070
Each of the foregoing parties shall be entitled to specify a different
address by giving five days' advance written notice as aforesaid to the other
parties.
17. Investment Intent
By accepting this Warrant, the Holder represents that it is acquiring this
Warrant for investment and not with a view to, or for sale in connection with,
any distribution thereof.
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<PAGE> 9
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
ND HOLDINGS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE> 10
EXHIBIT A
(FORM OF SUBSCRIPTION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)
SUBSCRIPTION NOTICE
The undersigned, the registered holder of Warrant ____ (the "Warrant"),
issued by ND HOLDINGS, INC. hereby (1) irrevocably subscribes for _____ shares
of Common Stock which the undersigned is entitled to purchase under the terms
and conditions of the Warrant, (2) makes payment of $__________ in full in cash
therefor as called for by the Warrant and (3) directs that the certificates for
such shares of Common Stock issuable upon exercise of the Warrant be issued in
the name of and delivered to the undersigned at the address stated below.
The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
----------------------------------
(Name) [Please Print]
----------------------------------
(Address)
----------------------------------
SIGNATURE: _______________________
Dated: _______________
<PAGE> 11
EXHIBIT B
(FORM OF CONVERSION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)
CONVERSION NOTICE
The undersigned, the registered holder of Warrant _____ (the "Warrant"),
issued by ND HOLDINGS, INC. (the "Company"), hereby (1) irrevocably elects to
convert the Warrant into such number of shares of Common Stock of the Company as
is determined pursuant to Section 1.2(a) of the Warrant, which conversion shall
be effected pursuant to the terms and conditions of the Warrant and (2) directs
that the certificates for such shares of Common Stock issuable upon exercise of
the Warrant be issued in the name of and delivered to the undersigned at the
address set forth below. If this Conversion Notice is being delivered prior to
the closing of an Initial Public Offering (as defined in the Warrant), the
exercise of the Warrant shall be conditioned upon the closing of the Initial
Public Offering, and the election to convert the Warrant shall be deemed
automatically revoked if the closing of the Initial Public Offering does not
occur within 60 days of this election.
The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
----------------------------------
(Name) [Please print]
----------------------------------
(Address)
----------------------------------
SIGNATURE: _______________________
Dated: _______________
<PAGE> 12
ASSIGNMENT
For value received __________________________ hereby sells, assigns and
transfers unto __________________________ the within Warrants, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint __________________________ attorney, to transfer said Warrants on the
books of the within-named Company, with full power of substitution in the
premises.
Dated: _____________________
------------------------------------
<PAGE> 13
EXHIBIT 10.22
COMMON STOCK PURCHASE WARRANT
<TABLE>
<CAPTION>
Warrant No. Warrantholder
- ----------- -------------
<S> <C>
67 Paulson Investment Company, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.23
NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE LAW, AND NO INTEREST HEREIN OR THEREIN MAY
BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
(A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES,
(B) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF SAID
SECURITIES STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (C) THE
COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION.
WARRANT TO PURCHASE
No. 3 COMMON STOCK OF
ISSUED: May 8, 1998 ND HOLDINGS, INC.
ND HOLDINGS, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms and
conditions hereof, James Q. and Marion M. Johnson, or such person to whom this
Warrant is transferred pursuant to Section 7 hereof (the "Holder"), is entitled
to exercise this Warrant to purchase the number of fully paid and nonassessable
shares (the "Warrant Stock") of the Common Stock of ND Holdings, Inc., an Oregon
corporation (the "Company"), obtained by dividing (i) the aggregate amount of
the Original Issue Price (as defined in the Restated Articles of Incorporation
of the Company) for each share of the Company's Series A Non-Voting Redeemable
Preferred Stock issued to the Holder by (ii) (a) if this Warrant is exercised
immediately prior to an Initial Public Offering (as defined in Section 1.4
hereof), the Initial Public Offering price per share of the Common Stock, or (b)
in all other cases, the price per share of stock in the Company's or G.I. Joe's,
Inc.'s ("G.I. Joe's") most recent Private Equity Financing. A "Private Equity
Financing" shall mean a financing of a minimum of $500,000 with a party not
affiliated with the Company or G.I. Joe's which has been negotiated on an
arms-length basis. The exercise price for each share of Common Stock purchasable
pursuant to this Warrant shall be $.01 per share (the "Exercise Price"). Such
number of shares and the Exercise Price are subject to adjustment as provided
herein.
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<PAGE> 2
This Warrant is subject to the following additional terms and conditions:
1. Method of Exercise
1.1 Exercise of Warrant
Subject to the provisions of Section 1.4, the Holder of this Warrant may
exercise this Warrant in whole, or in part, at any time after the earliest of
(i) notice from the Company to the Holder of an Initial Public Offering, (ii)
November 1, 1999 or (iii) notice from the Company to the Holder of a sale of
substantially all the assets of the Company or G.I. Joe's, or a merger of the
Company or G.I. Joe's with an unaffiliated third party (the "Initial Exercise
Date"), and prior to the Expiration Date. THIS WARRANT SHALL EXPIRE AT 5:00
P.M., PORTLAND, OREGON TIME, ON THE FIFTH (5TH) ANNIVERSARY OF THE DATE ISSUED
ABOVE (the "Expiration Date").
1.2 Procedure for Exercise
(a) Subject to Section 1.4, the Holder may exercise this Warrant, in whole
or in part, at any time after the Initial Exercise Date, and from time to time,
at or prior to the Expiration Date, by surrendering it to the Company, together
with either (i) a duly executed and completed subscription in substantially the
form of the Subscription Notice attached hereto as Exhibit A, and a check
payable to the Company in the amount equal to the aggregate Exercise Price for
the shares of Warrant Stock being purchased, or (ii) a duly executed and
completed Conversion Notice in the form attached hereto as Exhibit B; provided,
that in the event that this Warrant is exercised immediately prior to the
closing of an Initial Public Offering, the Holder shall deliver the Conversion
Notice rather than the Subscription Notice. If this Warrant is held jointly, any
one Holder may exercise the Warrant. Upon exercise through a conversion with
respect to a particular number of shares subject to this Warrant (the "Converted
Warrant Shares"), without payment by the Holder of the Exercise Price, the
Holder shall be entitled to receive that number of shares of the Common Stock of
the Company equal to the quotient obtained by dividing the Net Value of the
Converted Warrant Shares by the Fair Market Value of a single share of Common
Stock. If the above calculation results in a number less than one (1), then no
shares of the Common Stock of the Company shall be issuable or issued pursuant
to a conversion.
"Net Value" means the aggregate Fair Market Value of the Converted Warrant
Shares minus the aggregate Warrant Exercise Price for the Converted Warrant
Shares. "Fair Market Value" of the Common Stock shall mean, if this Warrant is
being exercised prior to
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<PAGE> 3
the closing of an Initial Public Offering, the Initial Public Offering price per
share of the Common Stock. If this Warrant is not being exercised prior to the
closing of an Initial Public Offering, the Fair Market Value of the Common Stock
shall be deemed to be the higher of (i) the shareholders' equity thereof as
determined by any firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company as of the last day of any
month ending within 60 days preceding the date as of which the determination is
to be made or (ii) the fair value thereof determined in good faith by the Board
of Directors of the Company as of a date which is within 15 days of the date as
of which the determination is to be made.
(b) Surrendered Warrants shall be canceled by or on behalf of the Company.
In the event of a partial exercise, the Company will forthwith issue and deliver
to the Holder a new Warrant of like tenor for the number of Warrant Shares
represented by the Warrant after giving effect to the partial exercise as set
forth above.
1.3 Common Stock Issued Upon Exercise of Warrant
As soon as practicable after this Warrant has been so exercised, and in any
event within 20 days thereafter, the Company shall issue and deliver, in the
name of the Holder, a certificate or certificates for the number of shares of
Warrant Stock to which such Holder is entitled. All Warrant Stock shall be duly
authorized, validly issued, fully paid and nonassessable. The Company shall pay
all documentary stamp taxes attributable to the initial issuance of the Warrant
Stock. Irrespective of the date of issue of certificates for the Warrant Stock,
the Holder shall be deemed to have become the holder of record of the Warrant
Stock represented thereby on the date on which the Warrant is exercised and
payment of the Exercise Price is received by the Company as provided in Section
1.2.
1.4 Public Offering
Notwithstanding anything herein to the contrary, this Warrant shall
terminate automatically on the closing of an Initial Public Offering (as defined
below). For purposes of this Section 1.4, an "Initial Public Offering" shall
mean a public offering of the Company's Common Stock or the Common Stock of G.I.
Joe's through underwriters upon effectiveness of a registration statement filed
with the Securities and Exchange Commission in which the aggregate offering
proceeds to the Company or G.I. Joe's (after deduction of underwriter's
commissions and expenses) are not less than $12,000,000. At least 20 days prior
to the closing of an Initial Public Offering, the Company will give notice of
the offering to the Holder of this Warrant. The Holder may exercise this Warrant
at any time prior to the closing of the Initial Public Offering.
Notwithstanding anything to the contrary herein, in the event that there is
an Initial Public Offering of the Common Stock of G.I. Joe's prior to a merger
of the
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<PAGE> 4
Company with G.I. Joe's, this Warrant shall be exercisable for the number of
fully paid and nonassessable shares of Common Stock of G.I. Joe's which will
give the Holder the same percentage of the fully diluted Common Stock of G.I.
Joe's as the Holder would have had in the Company if this Warrant had been
exercised for the Company's Common Stock. In such event, all references herein
to Warrant Stock shall mean such number of shares of Common Stock of G.I. Joe's.
For example, if this Warrant were exercisable for 10 shares of Common Stock and
the amount of the Company's Common Stock on a fully-diluted basis (including
options and warrants) is 100 shares, then in the event of an Initial Public
Offering of G.I. Joe's Common Stock (prior to a merger between the Company and
G.I. Joe's), this Warrant would be exercisable for 10 percent of the Common
Stock of G.I. Joe's on a fully-diluted basis (including options and warrants)
immediately prior to the Initial Public Offering.
2. Reservation of Warrant Stock
The Company covenants and agrees that it will at all times reserve and
cause G.I. Joe's to reserve such number of shares of authorized but unissued
Common Stock as necessary to permit the exercise of all of the Warrant Stock.
3. Reorganization
Upon a merger, consolidation, acquisition of all or substantially all of
the property or stock, reorganization or liquidation of the Company, including,
but not limited to, a merger with G.I. Joe's (collectively, a "Reorganization"),
as a result of which the shareholders of the Company receive cash, stock or
other property in exchange for their shares of capital stock in the Company, as
part of such Reorganization, lawful provision shall be made so that the Holder
shall thereafter be entitled to receive upon exercise of its rights to purchase
Warrant Stock, the number of shares of securities of the successor corporation
resulting from such Reorganization, to which a holder of the Warrant Stock
deliverable upon exercise of the right to purchase securities hereunder would
have been entitled in such Reorganization if the right to purchase such
securities had been exercised immediately prior to such Reorganization. In any
such case, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interest of the Holder after the
Reorganization to the end that the provisions of this Warrant (including
adjustments of the Exercise Price and the number of securities purchasable
pursuant to the terms of this Warrant) shall be applicable after that event, as
near as reasonably may be, in relation to any shares deliverable after that
event upon the exercise of the Holder's rights to purchase securities pursuant
to this Warrant.
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<PAGE> 5
4. Adjustments for Stock Splits, Etc.
If the Company shall issue any shares of the same class as the Warrant
Stock as a stock dividend or subdivide the number of outstanding shares of such
class into a greater number of shares, then, in either such case, the Exercise
Price in effect before such dividend or subdivision shall be proportionately
reduced and the number of shares of Warrant Stock at that time purchasable
pursuant to this Warrant shall be proportionately increased; and, conversely, if
the Company shall contract the number of outstanding shares of the same class as
the Warrant Stock by combining such shares into a smaller number of shares, then
the Exercise Price in effect before such combination shall be proportionately
increased and the number of shares of Warrant Stock at that time purchasable
pursuant to this Warrant shall be proportionately decreased. Each adjustment in
the number of shares of Warrant Stock purchasable hereunder shall be to the
nearest whole share.
5. Notice of Adjustments
Whenever the Exercise Price or the number of securities purchasable under
the terms of this Warrant at that Exercise Price shall be adjusted pursuant to
the terms of this Warrant, the Company shall promptly notify the Holder in
writing of such adjustment, setting forth in reasonable detail the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price and number of shares of
Warrant Stock or other securities purchasable at that Exercise Price after
giving effect to such adjustment. Such notice shall be mailed (by first class
and postage prepaid) to the registered Holder.
In the event of:
(a) The taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class of
any other securities or property, or to receive any other right,
(b) Any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to any other person or any
consolidation or merger involving the company, or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
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<PAGE> 6
the Company will mail to the Holder, at its last address at least ten (10) days
prior to the earlier date specified therein as described below, a notice
specifying:
(1) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right; and
(2) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining stockholders
entitled to vote thereon.
6. Fractional Shares
No fractional shares shall be issued upon the exercise of this Warrant. In
lieu of fractional shares, the Company shall pay the Holder a sum in cash equal
to the Fair Market Value (as defined in Section 1.2 hereof) of the fractional
shares on the date of exercise.
7. Restrictions on Transfer
Neither this Warrant nor the Warrant Stock may be transferred unless (a)
such transfer is registered under the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state securities or blue sky laws, (b) the
Company has received a legal opinion reasonably satisfactory to the Company to
the effect that the transfer is exempt from the prospectus delivery and
registration requirements of the Securities Act and any applicable state
securities or blue sky laws or (c) the Company otherwise satisfies itself that
such transfer is exempt from registration.
8. Legend
A legend setting forth or referring to the above restrictions shall be
placed on this Warrant, any replacement hereof or any certificate representing
the Warrant Stock, and a stop transfer restriction or order shall be placed on
the books of the Company and with any transfer agent until such securities may
be legally sold or otherwise transferred.
9. Holder as Owner
The Company may deem and treat the holder of record of this Warrant as the
absolute owner hereof for all purposes regardless of any notice to the contrary.
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<PAGE> 7
10. No Shareholder Rights
This Warrant shall not entitle the Holder to any voting rights or any other
rights as a shareholder of the Company or to any other rights whatsoever except
the rights stated herein; and no dividend or interest shall be payable or shall
accrue in respect of this Warrant or the Warrant Stock until and to the extent
that this Warrant shall be exercised.
11. Securities Act Compliance
Unless the transfer of the Warrant Stock shall have been registered under
the Securities Act, as a condition of the delivery of certificates for the
Warrant Stock, the Company may require the Holder to deliver to the Company, in
writing, representations regarding the Holder's status as an "accredited
investor" as such term is defined in the Securities Act or the regulations
thereunder.
12. Construction
The validity and interpretation of the terms and provisions of this Warrant
shall be governed by the laws of the State of Oregon. The descriptive headings
of the several sections of this Warrant are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
thereof.
13. Exchange of Warrant
This Warrant is exchangeable upon the surrender hereof by the Holder at the
office of the Company for new Warrants of like tenor representing in the
aggregate the rights to subscribe for and purchase the number of shares which
may be subscribed for and purchased hereunder, each of such new Warrants to
represent the right to subscribe for and purchase such number of shares as shall
be designated by the Holder at the time of such surrender.
14. Lost Warrant Certificate
Upon receipt by the Company of satisfactory evidence of the loss, theft,
destruction or mutilation of this Warrant and either (in the case of loss, theft
or destruction) reasonable indemnification or (in the case of mutilation) the
surrender of this Warrant for cancellation, the Company will execute and deliver
to the Holder, without charge, a new Warrant of like denomination.
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<PAGE> 8
15. Waivers and Amendments
This Warrant or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
16. Notices
All notices or other communications required or permitted hereunder shall
be in writing and shall be delivered by personal delivery, reputable overnight
courier service, telecopier or mailed by United States mail, first-class postage
prepaid, or by registered or certified mail with return receipt requested,
addressed as follows:
If to the Holder:
To the address last furnished
in writing to the Company by
the Holder
If to the Company:
ND HOLDINGS, INC.
9805 Boeckman Road
Wilsonville, OR 97070
Each of the foregoing parties shall be entitled to specify a different
address by giving five days' advance written notice as aforesaid to the other
parties.
17. Investment Intent
By accepting this Warrant, the Holder represents that it is acquiring this
Warrant for investment and not with a view to, or for sale in connection with,
any distribution thereof.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
ND HOLDINGS, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
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<PAGE> 9
EXHIBIT A
(FORM OF SUBSCRIPTION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)
SUBSCRIPTION NOTICE
The undersigned, the registered holder of Warrant ____ (the "Warrant"),
issued by ND HOLDINGS, INC. hereby (1) irrevocably subscribes for _____ shares
of Common Stock which the undersigned is entitled to purchase under the terms
and conditions of the Warrant, (2) makes payment of $__________ in full in cash
therefor as called for by the Warrant and (3) directs that the certificates for
such shares of Common Stock issuable upon exercise of the Warrant be issued in
the name of and delivered to the undersigned at the address stated below.
The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
________________________________________
(Name) [Please Print]
________________________________________
(Address)
________________________________________
SIGNATURE: _______________________
Dated: _______________
<PAGE> 10
EXHIBIT B
(FORM OF CONVERSION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)
CONVERSION NOTICE
The undersigned, the registered holder of Warrant _____ (the "Warrant"),
issued by ND HOLDINGS, INC. (the "Company"), hereby (1) irrevocably elects to
convert the Warrant into such number of shares of Common Stock of the Company as
is determined pursuant to Section 1.2(a) of the Warrant, which conversion shall
be effected pursuant to the terms and conditions of the Warrant and (2) directs
that the certificates for such shares of Common Stock issuable upon exercise of
the Warrant be issued in the name of and delivered to the undersigned at the
address set forth below. If this Conversion Notice is being delivered prior to
the closing of an Initial Public Offering (as defined in the Warrant), the
exercise of the Warrant shall be conditioned upon the closing of the Initial
Public Offering, and the election to convert the Warrant shall be deemed
automatically revoked if the closing of the Initial Public Offering does not
occur within 60 days of this election.
The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
________________________________________
(Name) [Please print]
________________________________________
(Address)
________________________________________
SIGNATURE: _______________________
Dated: _______________
<PAGE> 11
ASSIGNMENT
For value received __________________________ hereby sells, assigns and
transfers unto __________________________ the within Warrants, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint __________________________ attorney, to transfer said Warrants on the
books of the within-named Company, with full power of substitution in the
premises.
Dated: _____________________
________________________________________
<PAGE> 12
EXHIBIT 10.23
SCHEDULE OF COMMON STOCK PURCHASE WARRANTS
<TABLE>
<CAPTION>
Warrant No. Warrantholder
- ----------- -------------
<S> <C>
4 Gary J. and Christine C. Rood
5 Clifford V. Aaron
6 Double Ten Enterprises Limited Partnership
7 Gloria D. Settlemier
9 Thomas M. Van Domelen
10 Alan A. Jochim
11 Douglas R. McEnry
12 Daniel & Debra McEnry
13 Rudy and Patti Fascell
14 Gordon Harris
15 Wayne M. Hamersly
16 Peregrine Capital, Inc.
17 Jacob Kryszek
18 William Greeley
20 Ron Wysaske
21 Pat Sheaffer
22 TT&L Sheet Metal, Inc. Profit Sharing Plan
23 David Westcott
24 Wendell Manning
25 John Savelkoul
26 FISERV as Custodian for the Richard Huebner IRA
27 William Lockwood
28 Art Johnstone and Terri Johnstone Living Trust
29 Thomas McChesney
30 Summit Capital LLC
31 Tiburon Fund LP
32 Summit Fund LP
33 Stephen A. Smith
34 Vista Capital LLC
35 Washington Pacific Inc. Retirement Account
36 Lexington Financial LLC
37 Bison Investors Trust
38 Deanne Eakin
</TABLE>
<PAGE> 13
<TABLE>
Warrant No. Warrantholder
- ------------ -------------
<S> <C>
39 Dave Nelson and Associates
40 Mildred M. Pratt
41 Herbert L. Newmark
42 Merle Manning
43 Richard Schwartz and Marcy S. Schwartz as Tenants in Common
44 Steve Tubbs
45 Cap Hedges & Associates, Inc. Pension & Profit Sharing
Plan & Trust U/A DTD 1/1/76
46 Scott Weber
47 Barclay M. Armitage
48 William Todd Armitage
49 George L. Johnson
50 Ron and Heather Killough
51 Greg Bennett and Dwight L. Cummins, Joint Tenants in Common
52 David L. Ditchen
53 Brian Scott Ditchen
54 Lawrence M. Neher and Mary Lou Neher
55 Dolores E. Chenoweth
56 Alan A. Jochim
57 Mark L. Holifer
58 Deanne Woodring
59 Craig A. Nichols
60 Donovan W. Bollig & Mariann E. Bollig Revocable Trust
U/A DTD 10/31/95
61 Eakin Living Trust
62 PAMB INVESTMENTS
63 Donald A. Dole
64 Thomas A. Wiita and Kathryn C. Wiita, JTWROS
65 Patrick Terrell
66 Robert G. Turner
</TABLE>
<PAGE> 1
EXHIBIT 10.24
ND HOLDINGS, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is entered into as of
May 8, 1998, by and among ND HOLDINGS, INC., an Oregon corporation (the
"Company"), and the holders listed on Schedule A attached hereto (the "Holders")
of warrants (the "Warrants") to purchase shares of the Company's common stock,
no par value per share (the "Common Stock").
RECITALS
In connection with the issuance of Warrants to purchase shares of the
Company's Common Stock, the Company hereby grants the Holders certain rights
with respect to the Company as further set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement, the parties
hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 "Holder" means any person owning or having the right to acquire
Registrable Securities or any assignee thereof in accordance with Section 4.3
hereof.
1.2 "1933 Act" means the Securities Act of 1933, as amended.
1.3 "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.4 The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement or document.
1.5 "Registrable Securities" means any portion of the Common Stock issued
or issuable upon the exercise of the Warrants or of any warrant, right or other
distribution with respect to, in exchange for or in replacement of such
Registrable Securities.
<PAGE> 2
1.6 The number of shares of "Registrable Securities then outstanding" shall
be determined by the number of shares of Common Stock issuable pursuant to then
exercisable securities which upon issuance would be, Registrable Securities.
1.7 "SEC" means the Securities and Exchange Commission.
ARTICLE 2
COMPANY REGISTRATION
2.1 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its Common Stock
under the 1933 Act in connection with the public offering of such securities
solely for cash (other than a registration relating solely to the sale of
securities to participants in a Company stock or option plan, or a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities), the Company, at such time, promptly shall give each
Holder written notice of such registration. Upon the written request of any
Holder given within ten (10) days after mailing of such notice by the Company in
accordance with Section 6.5 below to the addresses of record on the stock books
of the Company, the Company, subject to the provisions of Section 2.5 below,
shall cause to be registered under the 1933 Act all of the Registrable
Securities that each such Holder has requested to be registered.
2.2 Obligations of the Company. Whenever required under this Article 2 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and use its best efforts to keep
effective such registration statement and maintain the qualifications referred
to in Section 2.2(d) below for such period, not exceeding three (3) months, as
may be necessary for the selling Holders to dispose of the Registrable
Securities being sold.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933
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<PAGE> 3
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other domestic securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
Anything in this Agreement to the contrary notwithstanding with respect to the
bearing of expenses, if any jurisdiction in which the securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by selling
shareholders, then such expenses shall be payable by Holders participating in
such underwriting pro rata to the extent required by such jurisdiction.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the 1933 Act,
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Article 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Article 2, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in
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<PAGE> 4
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.3 Furnish Information. The selling Holders shall furnish to the Company
such reasonable information regarding themselves, the Registrable Securities
held by them, and the intended method of disposition of such securities as shall
be required to effect the registration of their Registrable Securities.
2.4 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to this
Article 2 for each Holder, including, without limitation, all registration,
filing and qualification fees, printers' bills, accounting fees and the fees and
disbursements of counsel for the Company, but excluding underwriting discounts
and commissions relating to Registrable Securities and any legal expenses of the
selling Holders if such Holders have counsel separate from counsel for the
Company.
2.5 Underwriting Requirements. In connection with any offering involving an
underwriting of shares being issued by the Company, the Company shall not be
required under Section 2.1 to include any of the Holders' securities in such
underwriting unless such Holders accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it, and then only in
such quantity as will not, in the opinion of the underwriters, adversely affect
the distribution or price of the securities to be offered. The Holders may
allocate among themselves the quantity, if any, of securities which in such
underwriters' opinion may be distributed without adversely affecting such
distribution and price (or, if such Holders are unable to agree among themselves
with respect to such allocation, such allocation shall be in proportion to the
total amount of securities owned by each such selling Holder).
2.6 Delay of Registration. No Holder shall have any right to take any
action or restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Article 2.
ARTICLE 3
REGISTRATION ON REQUEST
3.1 Request. At any time or from time to time after the 12 month period
immediately following the Company's initial public offering of shares of Common
Stock, the Company shall receive from any Holder or group of Holders holding at
least a majority of the Registrable Securities (the "Initiating Holders") a
written
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<PAGE> 5
request that the Company effect any registration, qualification or compliance
with respect to shares of Registrable Securities the reasonably anticipated
aggregate price of which would exceed $2,000,000, the Company will:
(a) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders holding Registrable Securities;
and
(b) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the 1933 Act and
any other governmental requirements or regulations) as may be so requested and
as would permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request received by the
Company within twenty (20) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section:
(i) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such
jurisdiction and except as may be required by the 1933 Act,
(ii) after the Company has effected one such registration
pursuant to this Section 3.1 and such registration has been declared or
ordered effective and the securities offered pursuant to such registration
have been sold; or
(iii) within six (6) months following the effective date of a
registration statement previously filed by the Company.
Subject to the foregoing clauses (i), (ii) and (iii), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders. If, however, the Company shall furnish to the
Initiating Holders a certificate signed by the Chief Executive Officer of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
-5-
<PAGE> 6
have the right to defer such filing for a period of not more than one hundred
eighty (180) days after receipt of the request of the Initiating Holder,
provided, however, that the Company may not utilize this right more than once in
any twelve-month period.
3.2 Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 3.1, and the Company shall include such information in the written
notice referred to in Section 3.1(a). The right of any Holder to registration
pursuant to Article 3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent requested (unless otherwise mutually agreed by a
majority in interest of the Holders requesting registration) and to the extent
provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders. Notwithstanding any other
provision of this Article 3, if the managing underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then, subject to the provisions of Section 3.1, the
Company shall so advise all Holders, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders requesting inclusion in the registration by such
Holders (or, if such Holders are unable to agree among themselves with respect
to such allocation, such allocation shall be in proportion to the total amount
of securities owned by each such selling Holder). No Registrable Securities
excluded from the underwriting by reason of the managing underwriter's marketing
limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the other Holders. The Registrable
Securities and/or other securities so withdrawn shall also be withdrawn from
registration; provided, however, that if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 3.2. If the registration does not become
effective due to the withdrawal of Registrable Securities, then either (i) the
Holders requesting registration shall
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<PAGE> 7
reimburse the Company for expenses incurred in complying with the request or
(ii) the aborted registration shall be treated as effected for purposes of
Section 3.1 (b)(ii).
ARTICLE 4
GENERAL REGISTRATION PROVISIONS
4.1 Reports Under the 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the 1933 Act and any other
rule or regulation of the SEC that at any time may permit a Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its reasonable efforts to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times subsequent to 90 days after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon written request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time subsequent to 90 days after the effective date of the first
registration statement filed by the Company), the 1933 Act and the 1934 Act (at
any time after it has become subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents as are filed with the SEC by the Company, and (iii) such
other information as may be reasonably requested in availing any Holder of any
rule or regulation of the SEC which permits the selling of any such securities
without registration.
4.2 "Market Stand-Off" Agreement. In consideration for the Company agreeing
to its obligations under this Agreement, each Purchaser hereby agrees that, to
the extent requested by an underwriter of Common Stock (or other securities) of
the Company, it shall not sell, make any short sale of, loan, grant any option
on, or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any Registrable Securities during the one hundred eighty
(180)-day period following the effective date of a registration statement of the
Company filed under the 1933 Act. Each Purchaser, if requested by the Company or
its underwriter, shall execute and deliver an instrument setting forth such
agreement, although each Purchaser is hereby bound without the necessity of such
instrument on the request of the Company and the underwriter. In order to
enforce the foregoing covenant, the
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<PAGE> 8
Company may impose stop-transfer instructions with respect to the Registrable
Securities until the end of such one hundred eighty (180)-day period.
4.3 Transfer of Registration Rights. The registration and other rights of
the Holders under Articles 2 and 3 may be transferred to any transferee who
acquires, pursuant to the terms of the Warrant, the right to purchase at least
one thousand shares of Common Stock; provided, however, that the Company is
given written notice by the Holder at the time of such transfer stating the name
and address of the transferee and identifying the securities with respect to
which the rights under Articles 2 and 3 are being assigned.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification and Contribution. In the event any Registrable
Securities are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreements contained in this Section 5.1(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written
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<PAGE> 9
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors and officers, each person,
if any, who controls the Company within the meaning of the 1933 Act, any
underwriter and any other Holder selling securities under such registration
statement or any of its directors or officers or any person who controls such
Holder or underwriter, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any such director, officer, controlling
person, or underwriter or controlling person, or other such Holder or director,
officer or controlling person may become subject, under the 1933 Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or controlling person, or other Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 5.1(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
5.1 of notice of the commencement of any action (including any governmental
action), such indemnified party, if a claim in respect thereof is to be made
against any indemnifying party under this Section 5.1, will deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties. An indemnified party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of the indemnified party, unless (i) the employment of such counsel has
been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party has failed to assume the defense and employ counsel, or (iii)
the named parties to any such action (including any impleaded parties) include
both the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such
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<PAGE> 10
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and the expenses of more than one separate firm of attorneys for
all indemnified parties). The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
5.1, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 5.1.
(d) If the indemnification provided for in Subsection (a) or (b) of
this Section 5.1 is unavailable or insufficient to hold harmless an indemnified
party under such subsections in respect of any losses, claims, damages or
liabilities or action in respect thereof referred to therein, then each
indemnifying party in lieu of indemnifying such indemnified party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as is
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and selling Holders, on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or actions as well as any other relevant equitable considerations,
including the failure to give the notice required under such subsections. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact relates to information
supplied by the Company, on the one hand, or such underwriters or selling
Holders, on the other hand, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 5.1(d) were determined by pro rata
allocation (even if all of the selling Holders were treated as one entity for
such purpose) or by any other method of allocation which did not take account of
the equitable considerations referred to above in this Section 5.1(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or actions in respect thereof, referred to above in
this Section 5.1(d), shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the 1933 Act) shall
be entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
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<PAGE> 11
(e) The obligations of the Company and the selling Holders under this
Section 5.1 shall survive the exercise of the Warrants and the completion of any
offering of Registrable Securities in a registration statement under Articles 2
and 3.
ARTICLE 6 MISCELLANEOUS
6.1 Venue. This Agreement shall be governed by and construed under the laws
of the State of Oregon as applied to agreements among Oregon residents, made and
to be performed entirely within the State of Oregon. Each of the parties hereto
consents to jurisdiction and venue in the state and federal courts siting in
Portland, Oregon.
6.2 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.3 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the Holders and the Company with regard to the
subject matter hereof. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
6.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
6.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, first class, postage prepaid and addressed (i) if
to a Purchaser, at such Purchaser's address set forth on Schedule A, or at such
other address as such Purchaser may designate by ten (10) days' advance written
notice to the Company in writing, or (ii) if to the Company, one copy shall be
sent to 9805 Boeckman Road, Wilsonville, Oregon 97070 to the attention of the
President, and another copy shall be sent to Perkins Coie 1211 S.W. Fifth
Avenue, Suite 1500, Portland, Oregon 97204-3715, facsimile number (503)
727-2222, attention Patrick J. Simpson, or at such other addresses as the
Company shall have furnished to the Holder.
6.6 Amendments. The provisions of this Agreement may be amended at any time
and from time to time, and particular provisions of the Agreement may be waived,
with and only with an agreement or consent in writing signed by the
-11-
<PAGE> 12
Company and the Holders holding a majority of the Registrable Securities
outstanding as of the date of such amendment or waiver. Each Purchaser
acknowledges that by the operation of this Section, Holders holding less than
all of the outstanding shares of Registrable Securities have the right and power
to diminish or eliminate the rights of such Purchaser arising under this
Agreement.
6.7 Captions. The captions used in this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.
-12-
<PAGE> 13
COMPANY SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT
The foregoing Agreement is hereby executed effective as of the date first
above written.
COMPANY
ND HOLDINGS, INC.
By: /s/ Norm Daniels
------------------------------------
Its:
------------------------------------
HOLDERS SIGNATURE PAGES ATTACHED
-13-
<PAGE> 14
PURCHASER SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT
James Q. Johnson & Marion M. Johnson
----------------------------------------------
Print Holders Name
/s/ James Q. Johnson & Marion M. Johnson
----------------------------------------------
Signature of Purchaser (or authorized
signatory, if purchaser is not an individual
----------------------------------------------
Name and title of authorized signatory, if
Purchaser is not an individual
-14-
<PAGE> 15
SCHEDULE A
<TABLE>
<S> <C>
James Q. and Marion M. Johnson Bison Investors Trust
Gary J. and Christine C. Rood D'ann Eakin
Clifford V. Aaron Dave Nelson and Associates
Double Ten Enterprises Limited Partnership Mildred M. Pratt
Gloria D. Settlemier Herbert L. Newmark
Alan A. Jochim Merle Manning
Douglas R. McEnry Richard Schwartz and Marcy S. Schwartz as
Tenants & Common
Daniel & Debra McEnry Steve Tubbs
Rudy and Patti Fascell Scott Weber
Gordon Harris Barclay M. Armitage
Wayne M. Hamersly William Todd Armitage
Peregrine Capital, Inc. George L. Johnson
Jacob Kryszek Art Johnstone & Terri Johnstone Living Trust
William Greeley Ron and Heather Killough
Ron Wysaske Brian Ditchen
Pat Sheaffer David Ditchen
Thomas Van Domelen Gary Bennett and Dwight Cummins, JT
David Westcott Dolores Chenoweth
TT&L Sheet Metal, Inc. Pension Account Mark L. Holifer
Wendell Manning Cap Hedges & Associates, Inc. Pension & Profit
Sharing Plan & Trust ua dtd 1-1-76
John Savelkoul Lawrence M. Neher & Mary Lou Neher
William Lockwood Craig A. Nichols
Thomas McChesney Donovan W. Bollig and Mariann E. Bollig
revocable trust ua dtd 10/31/95
Summit Capital LLC Eakin Living Trust
Vista Capital LLC Deanne Woodring
Fiserv as Custodian for the Richard Huebner IRA PAMB INVESTMENTS
Stephen A. Smith Donald A. Dole
Tiburon Fund LP Thomas A. Wiita and Kathryn C. Wiita, JTWROS
Washington Pacific Inc., Retirement Account, Piper Patrick Terrell
Jaffray custodian Attn: Stephen A. Smith
Lexington Financial LLC By Katheryn Rosendahl Robert G. Turner
Summit Fund LP
</TABLE>
<PAGE> 1
EXHIBIT 10.25
Loan No.: 1910131
- --------------------------------------------------------------------------------
H Heller Financial
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made this 31st day of October, 1997, by
and between G.I. Joe's, Inc. an Oregon Sub S-Corporation ("Debtor"), whose
business address is 9805 Boeckman Road, Wilsonville, Oregon 97070 and Heller
Financial, Inc., a Delaware corporation ("Secured Party"), whose address is
Commercial Equipment Finance Division, 500 West Monroe Street, Chicago, Illinois
60661.
WITNESSETH:
1. Secure Payment. To secure payment of indebtedness in the principal sum of up
to One Million Three Hundred and 00/ 100 Dollars ($1,300,000.00), as evidenced
by a note or notes executed and delivered by Debtor to Secured Party (the
"Notes") and any obligations arising under this Agreement, and also to secure
any other indebtedness or liability of Debtor to Secured Party, direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising and no matter how acquired by Secured Party, including all
future advances or loans which may be made at the option of Secured Party (all
the foregoing hereinafter called the "Indebtedness"), Debtor hereby grants and
conveys to Secured Party a first priority continuing lien and security interest
in the personal property described on any schedule(s) now or hereafter attached
to or made a part hereof by reference hereto (the "Schedules"), all products and
proceeds (including insurance proceeds) thereof, if any, and all substitutions,
replacements, attachments, additions, and accessions thereto (all of the
foregoing hereinafter called the "Collateral.") The Schedules may be
supplemented from time to time to evidence the Collateral subject to this
Agreement.
2. Representations, Warranties and Covenants. Except as otherwise provided, each
representation and warranty made by Debtor in this Agreement shall be true,
correct and complete as of the date of this Agreement and as of the date of each
advance of funds under a Note. Debtor hereby represents, warrants and covenants
as follows:
(a) Perform Obligations. Debtor shall pay as and when due all Indebtedness
secured by this Agreement and perform all of the obligations contained
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in this Agreement according to its terms. Debtor shall use the loan proceeds for
business uses and not for personal, family, household, or agricultural uses.
(b) Perfection. This Agreement and all necessary Uniform Commercial Code
filings together create a valid, perfected and first priority continuing lien
and security interest in the Collateral, securing the payment and performance of
the Indebtedness, and all filings and other actions necessary or desirable to
create, perfect and protect such security interest have been or will be duly
taken.
(c) Collateral Free and Clear. Except as may be set forth on a Schedule,
the Collateral is and shall remain free and clear of all liens, claims, charges,
encumbrances and other security interests of any kind (other than the security
interest granted hereby). Debtor shall defend the title to the Collateral
against all persons and against all claims and demands whatsoever.
(d) Possession and Operating Order of the Collateral. Debtor shall retain
possession of the Collateral at all times and shall not sell, exchange, assign,
loan, deliver, lease, mortgage, or otherwise dispose of the Collateral or any
part thereof without the prior written consent of Secured Party. Debtor shall at
all times keep the Collateral at the location[s] specified on the Schedules
(except for removals thereof in the usual course of business for temporary
periods). At Debtor's sole cost and expense, Debtor shall keep the Collateral in
good repair and condition and shall not misuse, abuse, waste or otherwise allow
it to deteriorate, except for normal wear and tear. Secured Party may verify any
Collateral in any reasonable manner which Secured Party may consider
appropriate, and Debtor shall furnish all reasonable assistance and information
and perform any acts which Secured Party may reasonably request in connection
therewith.
(e) Insurance. Debtor shall insure the Collateral against loss by fire
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible not to exceed Fifty
Thousand and 00/100 Dollars ($50,000.00) per occurrence and without
co-insurance. In addition, Debtor shall obtain liability insurance covering
liability for bodily injury, including death and property damage, in an amount
of at least Five Million and 00/100 Dollars ($5,000,000.00) per occurrence or
such greater amount as may comply with general industry standards, or in such
other amounts as Secured Party may otherwise require. All policies of insurance
required hereunder shall be in such form, amounts, and with such companies as
Secured Party may approve; shall provide for at least thirty (30) days prior
written notice to Secured Party prior to any modification or cancellation
thereof; shall name Secured Party as loss payee or additional insured, as
applicable, and shall be payable to Debtor and Secured Party as their interests
may appear; shall waive any claim for premium against Secured Party; and shall
provide
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<PAGE> 3
that no breach of warranty or representation or act or omission of Debtor shall
terminate, limit or affect the insurers' liability to Secured Party.
Certificates of insurance or policies evidencing the insurance required
hereunder along with satisfactory proof of the payment of the premiums therefor
shall be delivered to Secured Party. Debtor shall give immediate written notice
to Secured Party and to insurers of loss or damage to the Collateral and shall
promptly file proofs of loss with insurers. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, coupled with an interest, for the
purpose of obtaining, adjusting and canceling any such insurance and endorsing
settlement drafts. Debtor hereby assigns to Secured Party, as additional
security for the Indebtedness, all sums which may become payable under such
insurance.
In the event Debtor fails to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may purchase
insurance at Debtor's expense to protect Secured Party's interests in the
Collateral. This insurance may, but need not, protect Debtor's interests. The
coverage purchased by Secured Party may not pay any claim made by Debtor or any
claim that is made against Debtor in connection with the Collateral. Debtor may
later cancel any insurance purchased by Secured Party, but only after providing
Secured Party with evidence that Debtor has obtained insurance as required by
this Agreement. If Secured Party purchases insurance for the Collateral, Debtor
will be responsible for the costs of that insurance, including interest and
other charges imposed by Secured Party in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Indebtedness. The
costs of the insurance may be more than the cost of insurance Debtor is able to
obtain on its own.
(f) If Collateral Attaches to Real Estate. If the Collateral or any part
thereof has been attached to or is to be attached to real estate, an accurate
description of the real estate and the name and address of the record owner is
set forth on the Schedules. Debtor shall, on demand of Secured Party, furnish
Secured Party with a disclaimer or waiver of any interest in any such Collateral
satisfactory to Secured Party and signed by all persons having an interest in
the real estate. Notwithstanding the foregoing, the Collateral shall remain
personal property and shall not be affixed to realty without the prior written
consent of Secured Party.
(g) Financial Statements. Debtor shall furnish to Secured Party, as soon as
practicable, and in any event within sixty (60) days after the end of each
fiscal quarter of Debtor and each guarantor of all or any part of the
Indebtedness (each, a "Guarantor"), respectively, Debtor's and each Guarantor's
unaudited financial statements including in each instance, balance sheets,
income statements, and statements of cash flow, on a consolidated and
consolidating basis, as appropriate, and
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<PAGE> 4
separate profit and loss statements as of and for the quarterly period then
ended and for the respective person's fiscal year to date, prepared in
accordance with generally accepted accounting principles, consistently applied
("GAAP"). Debtor shall also furnish to Secured Party, as soon as practicable,
and in any event within ninety (90) days after the end of each fiscal year of
Debtor and each Guarantor, respectively, Debtor's and each Guarantor's annual
audited financial statements, including balance sheets, income statements and
statements of cash flow for the fiscal year then ended, on a consolidated and
consolidating basis, as appropriate, which have been prepared by its independent
accountants in accordance with GAAP. Such audited financial statements shall be
accompanied by the independent accountant's opinion, which opinion shall be in
form generally recognized as "unqualified".
(h) Authorization. Debtor is now, and will at all times remain, duly
licensed, qualified to do business and in good standing in every jurisdiction
where failure to be so licensed or qualified and in good standing would have a
material adverse effect on its business, properties or assets. The execution and
delivery of this Agreement, the Notes the commitment executed by the parties, if
any, (to the extent not inconsistent herewith) and any other documents and
instruments executed contemporaneously with or delivered pursuant to this
Agreement and the Notes, all as amended from time to time (collectively the
"Loan Documents"), have been duly authorized by Debtor and constitute the legal,
valid, and binding obligations of Debtor, enforceable against Debtor in
accordance with their respective terms. Debtor shall preserve and maintain its
existence and shall not wind up its affairs or otherwise dissolve. Debtor shall
not, without thirty (30) days prior written notice to Secured Party, (1) change
its name or so change its structure such that any financing statement or other
record notice becomes misleading or (2) change its principal place of business
or chief executive or accounting offices from the address stated herein.
(i) Litigation. Except as disclosed by Debtor on a Schedule, there are no
judgments outstanding against or affecting Debtor, its officers, directors or
affiliates or any part of the Collateral and there are no actions, charges,
claims, demands, suits, proceedings, or investigations pending or threatened
against Debtor or otherwise affecting any part of the Collateral ("Litigation").
Debtor shall furnish to Secured Party all information regarding any material
Litigation as Secured Party shall reasonably request and in any event shall
promptly notify Secured Party in writing of any Litigation against it which if
decided against it would materially and adversely affect the finances or
operations of Debtor. For the purposes of this subsection 2(i), Five Hundred
Thousand and 00/100 Dollars ($500,000.00) shall be deemed material.
(j) No Conflicts. Debtor is not in violation of any material term or
provision of its by-laws, or of any material agreement or instrument, decree,
order, or any statute, rule, or governmental regulation applicable to it. The
execution, delivery,
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<PAGE> 5
and performance of the Loan Documents do not and will not violate, constitute a
default under, or otherwise conflict with any such term or provision or result
in the creation of any security interest, lien, charge, or encumbrance upon any
of the properties or assets of Debtor, except for the security interest created
hereunder.
(k) Compliance with Laws. Debtor shall use and maintain the Collateral in
accordance with all applicable laws, regulations, ordinances, and codes and
shall otherwise comply in all material respects with all applicable laws, rules,
and regulations and duly observe all valid requirements of all governmental
authorities, and all statutes, rules and regulations relating to its business as
now in effect and which may be imposed in the future.
(l) Taxes. Debtor has timely filed all tax returns (federal, state, local,
and foreign) required to be filed by it and has paid or established reserves for
all taxes, assessments, fees, and other governmental charges in respect of its
properties, assets, income and franchises. Debtor shall promptly file, pay and
discharge all taxes, assessments, license fees (related to the Collateral) and
other governmental charges prior to the date on which penalties are attached
thereto, establish adequate reserves for the payments of such taxes,
assessments, and other governmental charges and make all required withholding
and other tax deposits, and, upon request, provide Secured Party with receipts
or other proof that any or all of such taxes, assessments, license fees or
governmental charges have been paid in a timely fashion; provided, however, that
nothing contained herein shall require the payment of any tax, assessment, or
other governmental charge so long as its validity is being diligently contested
in good faith and by appropriate proceedings diligently conducted and Debtor has
established cash reserves therefor in accordance with GAAP. Should any stamp,
excise, or other tax, including mortgage, conveyance, deed, intangible, or
recording taxes become payable in connection with or respect of any of the Loan
Documents, Debtor shall pay the same (including interest and penalties, if any)
and shall hold Secured Party harmless with respect thereto.
(m) Environmental Laws/Compliance. Except as disclosed by Debtor on a
Schedule, Debtor (1) has not received any claim, summons, complaint, order, or
other notice that it is not in compliance with, or that any public authority is
investigating its compliance with, any federal, state, and local laws, rules,
regulations, orders, and decrees relating to pollution, hazardous substances,
waste, disposal or the protection of human health or safety, plant life or
animal life, natural resources or the environment, all as amended from time to
time (collectively, "Environmental Laws"), (2) has no knowledge of any material
violation of any Environmental Laws on or about its assets or property, and (3)
is not under any current clean up or other remediation program or order. Debtor
has obtained all environmental, health and safety permits necessary for the
operation of Debtor's business. Debtor is and shall
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<PAGE> 6
remain in compliance, in all respects, with the terms and conditions of all
permits and with all applicable Environmental Laws. Debtor shall provide Secured
Party, promptly following receipt, copies of any correspondence, notice,
complaint, order, or other document that it receives asserting or alleging a
circumstance or condition which requires or may require a cleanup, removal,
remedial action or other response by or on the part of Debtor under any
Environmental Laws, or which seeks damages or civil, criminal or punitive
penalties from Debtor for an alleged violation of any Environmental Laws. Debtor
will promptly notify Secured Party of any release, spill or material change in
the nature or extent of any hazardous substances or contaminants used,
transported or stored by Debtor or any subsidiary of Debtor, and allow no
material change in the use thereof or of Debtor's operations that would increase
in any material amount the risk of violation of any Environmental Laws without
the express prior written approval of Secured Party.
(n) Regulations. No proceeds of the loans or any other financial
accommodation hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve System.
(o) Books and Records. Debtor shall maintain, at all times, true and
complete books and records in accordance with GAAP and consistent with those
applied in the preparation of Debtor's financial statements. At all reasonable
times, upon reasonable notice, and during normal business hours, Debtor shall
permit Secured Party or its agents to audit, examine and make extracts from or
copies of any of its books, ledgers, reports, correspondence, and other records
relating to the Collateral.
(p) Setoff. Without limiting any other right of Secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted by
law, but shall not be obligated to, set off and apply against any and all
Indebtedness, any and all monies then or thereafter owed to Debtor by Secured
Party, whether or not the obligation to pay such monies owed by Secured Party is
then due. An election by Secured Party to exercise its right of setoff shall be
effective immediately upon such election even though any charge therefor is made
or entered on Secured Party's records subsequent thereto.
(q) Standard of Care; Notice of Claims. Debtor acknowledges and agrees that
Secured Party shall not be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law other than as a sole and direct result of
Secured Party's gross negligence or willful misconduct. Debtor shall give
Secured Party
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<PAGE> 7
written notice of any action or inaction by Secured Party or any agent or
attorney of Secured Party that may give rise to a claim against Secured Party or
any agent or attorney of Secured Party or that may be a defense to payment of
the Indebtedness or performance hereunder for any reason, including commission
of a tort (subject, in any event, to the first sentence of this paragraph) or
violation of any contractual duty or duty implied by law. Debtor agrees that
unless such notice is fully given as promptly as possible (and in any event
within thirty (30) days) after Debtor has knowledge, or with the exercise of
reasonable diligence should have had knowledge, of any such action or inaction,
Debtor shall not assert, and Debtor shall be deemed to have waived, any claim or
defense arising therefrom.
(r) Indemnity. Debtor shall indemnify, defend and hold Secured Party, its
parent, affiliates, officers, directors, agents, employees, consultants, persons
engaged by Secured Party to evaluate or monitor the Collateral, auditors and
attorneys harmless from and against any loss, cost, expense (including
reasonable attorneys' fees and costs and any consultants' or other experts' fees
and expenses), damage, penalty, fine, claim, lien, suit, judgment or liability
of every kind and nature arising directly or indirectly out of (i) any Loan
Document, (ii) the ownership, possession, lease, operation, use, condition,
sale, return, or other disposition of the Collateral, except to the extent the
loss, expense, damage or liability arises solely and directly from Secured
Party's gross negligence or willful misconduct, (iii) any Environmental Laws,
and (iv) the enforcement by Secured Party of its rights or remedies hereunder.
Any payments required to be made hereunder shall be due and payable on demand.
(s) Payments Set Aside. If any payment is made to Secured Party or Secured
Party enforces its security interest or exercises its right of set off, and such
payment or part, or any proceeds of such enforcement or set off are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Indebtedness or part thereof originally intended to
be satisfied, and all liens, security interests, rights and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set off had not occurred.
(t) Expenses and Attorneys' Fees. Debtor shall be liable for all charges,
costs, expenses and attorneys' fees incurred by Secured Party (including
allocated costs of internal counsel): (i) in perfecting, defending, protecting
or terminating its security interest in the Collateral, or any part thereof;
(ii) in the negotiation, execution, delivery, administration, amendment or
enforcement of the Loan Documents or the collection of any amounts due under any
Note or other Loan Document; (iii) in any lawsuit or other legal proceeding in
any way connected with
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<PAGE> 8
any of the Loan Documents, including any contract or tort or other actions, any
arbitration or other alternative dispute resolution proceeding, all appeals and
judgment enforcement actions and any bankruptcy proceeding (including any relief
from stay and/or adequate protection motions, cash collateral disputes,
assumption/rejection motions and disputes or objections to any proposed
disclosure statement or reorganization plan).
(u) Complete Information. No representation or warranty made by Debtor in
any Loan Document and no other document or statement now or hereafter furnished
to Secured Party by or on behalf of Debtor contains or will contain any
misstatement of a material fact or omit to state any material fact which would
make the statements contained therein misleading. Except as expressly set forth
in the Schedules, there is no fact known to Debtor that has or could have a
materially adverse affect on the business, operation, condition (financial or
otherwise), performance, properties or prospects of Debtor or Debtor's ability
to timely pay all of the Indebtedness and perform all of its other obligations
contained in or secured by this Agreement.
(v) Collateral Documentation. Debtor shall deliver to Secured Party prior
to any advance, satisfactory documentation regarding the Collateral to be
financed, including such invoices, canceled checks evidencing payments, or other
documentation as may be reasonably requested by Secured Party. Additionally,
Debtor shall satisfy Secured Party that Debtor's business and financial
information is as has been represented and there has been no material change in
Debtor's business, financial condition, or operations.
3. Prepayment. Upon forty-five (45) days prior written notice to Secured Party,
Debtor may prepay in whole, but not in part, the then entire unpaid principal
balance of any Note, together with all accrued and unpaid interest thereon to
the date of such prepayment, provided that in addition to such prepayment,
Debtor shall pay (i) any and all other sums then due under any of the Loan
Documents, and (ii) a prepayment fee as liquidated damages and not as a penalty,
in a sum equal to one percent (1%) of the principal balance prepaid for each
full or partial twelve (12) month period by which the date of the prepayment
precedes the scheduled date of the final installment of principal under the
Note. The prepayment fee described in clause (ii) above shall also be due upon
the acceleration of the maturity date of any Note following the occurrence of
any Event of Default.
4. Events of Default. If any one of the following events (each of which is
herein called an "Event of Default") shall occur: (a) Debtor fails to pay any
part of the Indebtedness within ten (10) calendar days of its due date,
provided, however, that Secured Party shall give notice thereof to Debtor on the
first two (2) such occasions in
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<PAGE> 9
any one calendar year and it shall not be an Event of Default hereunder in those
occasions unless Debtor fails to pay the amount due within ten (10) days of such
notice, or (b) any warranty or representation of Debtor in any Loan Document is
materially untrue, misleading or inaccurate, or (c) Debtor or any Guarantor
breaches or defaults in the performance of any other agreement or covenant under
any Loan Document, or (d) Debtor or any Guarantor breaches or defaults in the
payment or performance of any debt or other obligation owed by it to Secured
Party or any affiliate of Secured Party, and Secured Party has (without being
obligated to do so) declared such event, an Event of Default hereunder, or (e)
Debtor breaches or defaults in the payment or performance of any debt or other
obligation, whether now or hereafter existing, with an outstanding principal
balance in excess of One Million and 00/100 Dollars ($1,000,000.00), and the
same is subsequently accelerated, or (f) there shall be a change in the
beneficial ownership and control, directly or indirectly, of the majority of the
outstanding voting securities or other interests entitled (without regard to the
occurrence of any contingency) to elect or appoint members of the board of
directors or other managing body of Debtor or any Guarantor (a "change of
control"), or there is any merger, consolidation, dissolution, liquidation,
winding up or sale or other transfer of all or substantially all of the assets
of Debtor or any Guarantor pursuant to which there is a change of control or
cessation of Debtor or the Guarantor or the business of either, or (g) any money
judgment is entered or filed against Debtor or any Guarantor in excess of One
Million and 00/100 Dollars ($1,000,000.00), or (h) Debtor or any Guarantor shall
file a voluntary petition in bankruptcy, shall apply for or permit the
appointment by consent or acquiescence of a receiver, conservator,
administrator, custodian or trustee for itself or all or a substantial part of
its property, shall make an assignment for the benefit of creditors or shall be
unable, fail or admit in writing its inability to pay its debts generally as
such debts become due, or (i) there shall have been filed against Debtor or any
Guarantor an involuntary petition in bankruptcy or Debtor or any Guarantor shall
suffer or permit the involuntary appointment of a receiver, conservator,
administrator, custodian or trustee for all or a substantial part of its
property or the issuance of a warrant of attachment, diligence, execution or
similar process against all or any substantial part of its property; unless, in
each case, such petition, appointment or process is fully bonded against,
vacated or dismissed within forty-five (45) days from its effective date, but no
later than ten (10) days prior to any proposed disposition of any assets
pursuant to any such proceeding, (j) if there is a material adverse change in
the business or financial condition or prospects of Debtor, or any Guarantor,
then, and in any such event, Secured Party shall have the right to exercise any
one or more of the remedies hereinafter provided, or (k) Debtor ceases
conducting business at its store located at 120 - 31st Street SE, Puyallup,
Washington.
5. Remedies. Upon the occurrence of an Event of Default, in addition to all
rights and remedies of a secured party under the Uniform Commercial Code,
Secured Party
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may, at its option, at any time (a) declare the Indebtedness to be immediately
due and payable; (b) without demand or legal process, enter the premises where
the Collateral may be found and take possession of and remove the Collateral,
all without charge to or liability on the part of Secured Party; or (c) require
Debtor to assemble the Collateral, render it unusable, and crate, pack, ship,
and deliver the Collateral to Secured Party in such manner and at such place as
Secured Party may require, all at Debtor's sole cost and expense. DEBTOR HEREBY
EXPRESSLY WAIVES ITS RIGHTS, IF ANY, TO (1) PRIOR NOTICE OF REPOSSESSION AND (2)
A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH REPOSSESSION. Secured Party
may, at its option, ship, store and repair the Collateral so removed and sell
any or all of the Collateral at a public or private sale or sales. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or any other intended disposition thereof is
to be made, it being understood and agreed that Secured Party may be a buyer at
any such sale and Debtor may not, either directly or indirectly, be a buyer at
any such sale. The requirements, if any, for reasonable notice will be met if
such notice is mailed postage prepaid to Debtor at its address shown above, at
least five (5) days before the time of sale or disposition. After any such sale
or disposition, Debtor shall be liable for any deficiency of the Indebtedness
remaining unpaid, with interest thereon at the rate set forth in the related
Notes.
6. Cumulative Remedies/Marshaling. All remedies of Secured Party hereunder are
cumulative, are in addition to any other remedies provided for by law or in
equity, or under any other provision of any of the Loan Documents, or under the
provisions of any other document, instrument or other writing executed by Debtor
or any third party in favor of Secured Party, all of which may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of
any one remedy shall not be deemed an election of such remedy or to preclude the
exercise of any other remedy. No failure on the part of Secured Party to
exercise, and no delay in exercising any right or remedy, shall operate as a
waiver thereof or in any way modify or be deemed to modify the terms of this
Agreement or any other Loan Document or the Indebtedness, nor shall any single
or partial exercise by Secured Party of any right or remedy preclude any other
or further exercise of the same or any other right or remedy. Secured Party
shall not be under any obligation to marshal any assets in favor of Debtor, any
Guarantor or any other person or against or in payment of any or all of the
Indebtedness.
7. Assignment. Secured Party may transfer or assign all or any part of the
Indebtedness and the Loan Documents without releasing Debtor or the Collateral,
and upon such transfer or assignment the assignee or holder shall be entitled to
all the
10
<PAGE> 11
rights, powers, privileges and remedies of Secured Party to the extent assigned
or transferred. The obligations of Debtor shall not be subject, as against any
such assignee or transferee, to any defense, set-off, or counter-claim available
to Debtor against Secured Party and any such defense, set-off, or counter-claim
may be asserted only against Secured Party.
8. Time is of the Essence. Time and manner of performance by Debtor of its
duties and obligations under the Loan Documents is of the essence. If Debtor
shall fail to comply with any provision of any of the Loan Documents, Secured
Party shall have the right, but shall not be obligated, to take action to
address such non-compliance, in whole or in part, and all moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be paid by
Debtor upon demand and shall be added to the Indebtedness. Any such action by
Secured Party shall not constitute a waiver of Debtor's default.
9. Enforcement. This Agreement shall be governed by and construed in accordance
with the internal laws and decisions of the State of Illinois, without regard to
principles of conflicts of law. At Secured Party's election and without limiting
Secured Party's right to commence an action in any other jurisdiction, Debtor
hereby submits to the exclusive jurisdiction and venue of any court (federal,
state or local) having situs within the State of Illinois, expressly waives
personal service of process and consents to service by certified mail, postage
prepaid, directed to the last known address of Debtor, which service shall be
deemed completed within ten (10) days after the date of mailing thereof.
10. Further Assurance; Notice. Debtor shall, at its expense, execute and deliver
such documents and do such further acts as Secured Party may from time to time
reasonably require to assure and confirm the rights created or intended to be
created hereunder, to carry out the intention or facilitate the performance of
the terms of the Loan Documents or to assure the validity, perfection, priority
or enforceability of any security interest created hereunder. Debtor agrees to
execute any instrument or instruments necessary or expedient for filing,
recording, perfecting, notifying, foreclosing, and/or liquidating of Secured
Party's interest in the Collateral upon request of, and as determined by,
Secured Party, and Debtor hereby specifically authorizes Secured Party to
prepare and file Uniform Commercial Code financing statements and other
documents and to execute same for and on behalf of Debtor as Debtor's
attorney-in-fact, irrevocably and coupled with an interest, for such purposes.
All notices required or otherwise given by either party shall be in writing and
shall be delivered by hand, by registered or certified first class United States
mail, return receipt requested, or by overnight courier to the other party at
its address stated herein or at such other address as the other party may from
time to time designate by written notice. All notices shall be deemed given when
received, when delivery is refused or
11
<PAGE> 12
when returned for failure to be called for. Each provision of this Agreement
shall remain in full force and effect until all of the Indebtedness is fully,
finally and indefeasibly satisfied and, notwithstanding anything in this
Agreement or implied by law to the contrary, the agreements of Debtor and
Secured Party set forth in Sections 2(p), 2(r), 2(s), 2(t), 9 and 12 shall
survive the full, final and indefeasible satisfaction of the Indebtedness.
11. Joint and Several Obligation. If this Agreement is executed by more than one
person as Debtor, each such Debtor hereby acknowledges it is jointly and
severally liable for and unconditionally guarantees the prompt and full payment
and performance of all obligations of each other Debtor hereunder and under the
other Loan Documents.
12. Waiver of Jury Trial. Debtor and Secured Party hereby waive their respective
rights to a jury trial of any claim or cause of action based upon or arising in
connection with any of the Loan Documents. Debtor and Secured Party acknowledge
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on the waiver in entering into the Loan Documents,
and that each will continue to rely on the waiver in their related future
dealings. Debtor and Secured Party further warrant and represent that each has
reviewed this waiver with its legal counsel and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel.
13. Complete Agreement. The Loan Documents embody the entire agreement among the
parties hereto superseding all prior commitments, agreements, representations,
and understandings, whether written or oral relating to the subject matter
hereof, and may not be contradicted or varied by evidence of prior,
contemporaneous, or subsequent oral agreements or discussions of the parties
hereto. The Loan Documents may not be altered, modified or terminated in any
manner except by a writing duly signed by the parties thereto. Debtor and
Secured Party intend the Loan Documents to be valid and binding and no
provisions hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall remain
in full force and effect. The Loan Documents shall be binding upon the
respective successors, legal representatives, and assigns of the parties. The
Schedules are incorporated herein by this reference and made a part hereof.
12
<PAGE> 13
IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Agreement as
of the day and year first above written.
HELLER FINANCIAL, INC. G.I. JOE'S, INC.
a Delaware Corporation an Oregon Sub S-Corporation
By: /s/ Clifford A. Lehman By: /s/ Philip M. Pepin
------------------------------- ---------------------------------
Name: Clifford A. Lehman Name: Philip M. Pepin
----------------------------- --------------------------------
Title: Senior Vice President Title: Vice President
---------------------------- -------------------------------
13
<PAGE> 14
SCHEDULE
Description of Collateral
Description of Collateral (Full description including make, model and serial
number):
See Schedule A attached hereto and made a part hereof.
Place where Collateral is to be kept:
120 - 31st Street S.E., Puyallup, Washington 98373
Other liens, encumbrances or security interests to which Collateral is or may be
subject, if any:
NIA
Other Collateral
NIA
Other:
If Collateral is attached or to be attached to real estate, set forth:
Address of Real Estate (Including County, block number, lot number, etc.):
See Exhibit B attached hereto and made a part hereof.
Record Owner of Real Estate (Name and Address):
South Hill Village Limited Partnership
If the real estate at which the Collateral is to be kept is leased:
Name and Address of Lessor of Real Estate:
/s/
------------------------------------
Initials
14
<PAGE> 15
SCHEDULE A
Page 1 of 7
Schedule annexed to and made a part of a certain Security Agreement dated the
31st day of October 1997, or related documentation by and between the
undersigned.
Description of Collateral (Quantity; New/Used; Model; General Description; and
if applicable, Engine and/or Serial Number), together with all products and
proceeds (including insurance proceeds) thereof, any, and if all increases,
substitutions, replacements, attachments, additions, and accessions thereto:
Equipment located at: 120 - 31st Street S.E., Puyallup, Washington 98373
<TABLE>
<CAPTION>
Qnty. Vendor Invoice # General Description Serial Number
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2800 A & E Products Group 633902 17" Clear Sty Top w/RE
9100 14" Clear PS MB w/5" HK
500 17" Clear PS BR w/RG HK
1 Accu Time Systems Inc. 8677 S3000 Modem with 2x20LCD and
GlobTek power pack
2 Accutech Northwest 2164 Accutech Triad PC with Pentium 970714A
133 MHz CUP, 512K pipeline 970714B
Cache, 15 MB EDO Ram, WD .2 GB
Hard Drive, 14.44 MB floppy
drive, floppy lock, Diamond
Stealth 54 PCI 2 MB video, PS/2
port, 3 Com Token Ring NIC, 15x
CD ROM, Logitech trackball,
minitower case with 240 Watt
PS., Windows 95, Windows 95
keyboard, GIJ power cord, and
15" SVGA monitor
3 Accutech Receiving PC with 970714C
Pentium 133 MHz CPU, 512K 970714D
pipeline cache, 15MB EDO Ram, WD 970714E
1.2 GB hard drive, 1.444 MB
floppy drive. floppy lock,
Diamond Stealth 54 PCI 2 MB
video, PS/2 port, 3 COM token
ring NIC, Logitech trackball,
mini tower case 2/ 250 watt PS.
Windows 95, Windows 95 keyboard,
GIJ power cord, and 15" SVGA
monitor
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
SCHEDULE A
Page 2 of 7
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Accutech Min PC with Pentium 133 970714F
MHz CPU, 15K pipeline cache, 15
MB EDO RAM, WD 1.2 GB hard
drive, 1.44 MB floppy drive,
floppy lock, Diamond Stealth 54
PCI 2 MB video, PS/2 port, 3 Com
token ring NIC, 15x CD ROM,
Logitech trackball, mini tower
case w/250 watt PS, Windows 95,
Windows 95 keyboard, GIJ power
cord, and 15" SVGA monitor
3 Lexmark Optra 4+ Printer (IBM
4049-RA1)
1 MS Office 95 Professional License
1 IBM 2210-12T Router
1 Accutech Northwest 2164 IBM 8226-001 RJ45 Token Ring MAU
1 APC BK 450 UPS
1 2205 Okidata 320 Turbo Printer with 611 A22354
Serial Interface and Serial
Interface Cable for Ticketmaster
Terminal
1 Applied Handling NW Inc. 970048 Seismic Engineering Calculations
& Drawings
3 970098 Frame; Used Beams (20)
970101 44"x144" Frame with 6x6x3/8 FP
(20); Used Beams (84)
1 Ariniello, Ed 7164 Temporary Drop Box
Bon Art International M0043759 Grid Gondola (11); T-Frame Unit
8'x36" (6); T-Frame Unit 12'x36"
(8); T-Frame Unit 24'x36" (1);
T-Frame 12' (4); T-Frame
8'x36"x84" (5); T-Frame
4'x36"x72"
Burgeners Woodworking Inc. 2734 Wood Fixtures
5339 Wood Fixtures
5367 Wood Fixtures
14 Checkmate Electronics Inc. 9761 Standard Care Reader System Type
430-RCB04 - 48"
10 Choice Solutions Inc. 07510A Netsoft Portfolio Select
Classic Displays 1171 Rotating Rod Display (14); 48"
12 Bow Rack (2)
100 Commercial Design Systems 0003996 Aisle Markers
Inc.
1 0004030 Decor down payment
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
SCHEDULE A
Page 3 of 7
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Continental Store Fixtures 003684 Streater with Top Panel Bracket
Inc.
32 003702 Streater with Top Panel Bracket
1 Cummins-Allison Corp. 730012 Jetcount Cash Counter Model 4021
1 730013 Encoder with RS232 and Single
Pocket
Dahlhauser Manufacturing Co. 50098 6" Slatwall Hook (500); 8 1/2"
BR-back no bend on the end
(100); 8 1/2" BR-back (100);1/2"
BR-back no bend on the end; 12"
Can Driver (100); 14" Can Driver
(1,600); 12" Plastic Back
Scanner (500); 4" Plastic Back
Scanner (600); 6" Plastic Back
Scanner (1,000); 8" Plastic Back
Scanner (15,000); 8" Slatwall
Hook (400)
1 Darcomm D97062702 DSU/CSU S/A 7055275
1 Diamondback 440753 AVR Housing End Caps
1 Shimano HG Chin Pins
2 Bullshot Bearing Grease
1 PRK PRS-3 SLG RPR Stand w/Base
2 F-Line Gripshift Lube
2 F-Line Ecotech Degreaser
1 Diamondback 440753 Whls 4MM Ally Ferle
5 DC 11/8" Star Flngle Washer Asbly
1 DC Mnt Hot Tip End Caps
Discovery Plastics Inc. 187986 3" Chrome Stem (100); IVC-Mag
Hugger for C.S. Sign (55)
187985 7x5 1/2 Chrome Channel (280);
11x7 Chrome Stem Signholder
(100); 3" Tapered Chrome Stem
350); 5 1/2x3 1/2 Econ Slantback
Centertop 26); 7x5 Econ
Slantback Centertop (10);
5 1/2x3 1/2 Econ Slantwall (800);
7x5 1/2 Econ Slantwall (80);
2088E with retainer cable (600);
Joe's Coil (450)
242 Display Concepts 345484 Faceout Rect Tube Chrome
Eastwood Metal Products Inc. 00071436 3x12 Divider (100); 3x14 Divider
(500); 3x48 Fence (80); 6x18
Divider (25)
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
SCHEDULE A
Page 4 of 7
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
00071671 6x28 Divider (350); 6x18 Divider
(100)
1,050 Grand And Benedicts Inc. 0395159 Plastic Coated Coil
24 0397877 Black Club Rack with Pegboard
Adapters
0397878 5" Base (25) 14x22 bulletin Card
Stand (10)
0397885 3/8" Pacer Caster (38) 4-Way
Rack with Four Adjustable
Arms (55); Chrome Quad Rack
with Vertical Spider ( 55);
Adjustable Arm for Quad Rack
(220); Rectangular 2-Way
Combo Arm (14); Tri Level
Round Rack with 36" Casters
(71); 4-Way Racks with Three
Adjustable I-Slant (38);
Chrome Quad Rack with
Vertical Spider (38); Adjustable
Arm for Quad Rack (114); 16"
Slant Arms for Quad Rack (38)
0399221 24" Temp Round 3/16" Polished
(l2); 2 1/4x4 1/4 Vinyl Envelopes
(5); 3 3/16x5 11/16 Medium
Vinyl Pouch (3); 6"x9" vinyl
envelope (2)
0400188 48" Black Fish Rod Rack (15);
36" Black Net Rack (2); 48"
Black Net Rack (3)
1 Hamilton Engine Sales Inc. 211834 Power-Gard Generator Model AE8 E972196
with 7200 watt 120/240 Vac.
Single Phase 50 Cycle, 3600 RPM,
Automatic Start & Stop, Natural
Gas Fired Generator with 50 Amp
Auto Transfer Switch and Sound
Attenuated Enclosure and Battery
Charger
1 Honeywell Protection Services 107PS283-142 Security System
358PS098-142
1 Honeywell Protection Services 276PS523-722 Notifier Fire Panel
1 IBM Corporation Sm2 P4C7133 Data Cable
P4D2014 ATT Cable (6); Loot Attachment
(4)
1 P524606 Cable
Lindcraft Incorporated 7498 L-9 Black Straight Floor Stand
(95); 9' Black Connecting Pipe
(8); 10' Black Connecting Pipe
(2); Black Bar Coupler (4)
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
SCHEDULE A
Page 5 of 7
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lockwood Manufacturing Co. 38518 65" Grey Garment Rack (2) Four
Shelf Narrow Stock Truck with
Rubber Casters (4)
2 38472 65"x4" Grey Garment Rack; Pallet
Jack; Economy Lumber & Paneling
Cart (1); 24x48 Steel Platform
Truck; 30x60 Steel Platform
Truck; Four Shelf Narrow Stock
Truck with Rubber Casters (4)
4 Madix Store Fixtures T711165 W-Hooks
8 Moon International 020941 Custom Checkstand Lights
1 New Hermes Incorporated GA593636-0 1/8 Bply/Gf1ex Carb Cutter (2) 728710
IM-3 Engravograph Engravocolor
Sticks; 2 3/4 Slide; Vertical
Triple Slide; Standard Block
Cond Cap Set
1 Pipp Mobile Storage System 7373 Pipp Mobile System with Shelving
Inc.
7477 Pipp Mobile System with Shelving
and Particle Board
6 Pos Peripheral Products Inc. 1363 Symbol Tech LS2030 Scanner with
5b Cable
240 Rehrig International Inc. 129868 Black Handbasket
10 130012 6" No Seat Garden Center Cart
Robertson And Olson 5284 Misc. Construction Materials
Construction 5294
5307
Streater Inc. 34642 Miscellaneous Department Fixtures
34949
34950
35228
35745
36576
10 Thurber Technology Group 0000956 MS Exchange Cal's MOLP-A
10 MS NT MOLP-A Cal's
2 Triad Systems Corporation 97014937 Lasercat Software
1 United Bicycle Parts Inc. 29135 Axle Nut 7& Washer Kit; Bottom
Bracket Kit; Carbon Ball Bearing
Kit, Small; Bearing Retainer
Kit; Bicycle Research Spare Kit;
Brake & Derailleur Ferrule Kit;
Hex Zinc Fastener Kit; Headset
Spacer Kit; Shimano Cantilever
Kit; Shimano Axle Kit
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
SCHEDULE A
Page 6 of 7
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 United Bicycle Tool 000074046 Park Spoke Wrench (Green); Park
Spoke Wrench (Red);1/2" Pedal Tap
Set (2); Shimano Cable & Housing
Cutter; Shimano Ex Freehub
Remover; Shimano Freehub body
tool; Stein Seapost sizing Rods;
United Brass Crown Rase Setter;
1-1/8" Oversize Crown Rase Set;
United 1-1/4" Crown Rase Set;
Copper Soft Jaws - 5"; UB
Grab-It Magnet; Tap Handle for
Pedal Taps; Var Universal Crown
Race Remover; Sutherlands 6th
Edition; Minoura Steel Dishing
Tool; Park Deluxe Single-less
Base; Park Wheel Truing Jig
(Shop); Base Plate for PRS3
000074047
Vail Wire 63176 24"x84" Tri Unit with Slat Grid
1 Vermont Ski Safety Equipment 15 Vermont Release Calibrator Kit
I
1 WW Grainger Inc. 930-965716-2 HP Air Compressor; Air Blowgun
(2); 1/3" F Npt Air Chuck (2);
3/8" x9' Recoil Hose; 14.4V
Cordless Drill; 14.4V Battery;
5" Bench Grinder; 4" Utility
Vise; 30 Drawer Parts Cabinet
(3); 9 Drawer Cabinet (4); Parts
Storage Cabinet (2)
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
SCHEDULE A
Page 7 of 7
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Wintersteiger Div. Sports 68193 Black Repair Candle (3); Clear
Repair Candle (3); Clear
Sintered Base Material (2);
Black Sintered Base Material
(2); Double Ski Vise; Adjustable
Ski Rest; T-Line Board Fix;
Snowboard Adapter for SPBU (2);
Metric Tape Measure (2);
Magnetic Tool Holder (3);
Snowboard Insert Drill Bit;
Mounting Vise; Tool Retractor
(2); and held Base Extruder; 6"
Federal File (5); 8" Federal
File (5); 10" Federal File (3);
Panser File 300MM; Panser File
Holder 300MM; Bevel Sleeves;
Snowboard Bevel Sleeves; Polish
Stick (2); Pocket Deburring
Stone (3); 4" Fine Diamond
Stone; 4" Coarse Diamond Stone;
Small Gummi Stones (3) Snowboard
Metal Scraper; Single Plexi
Scraper (12); Iron; Emery Cloth;
HW-100 Base Plane; Veg Oil
Emulsion; Belt Breaking Stone;
Belt Cleaning Brush; Safety
Glasses (2); Non Abrasive
Buffing Pad (10); Brake Retainer
(10); Silicon Spray (3); Clear
Hrp Polyethylene (2); Black Hrp
Polyethylene
1 Wintersteiger Div. Sports 68330 Total Tolls Snowboard 1x 220;
Adult Ramp; Plastic Boot Inserts
(2); Mineral Oil Emulsion (2);
Melting Wax (10)
</TABLE>
HELLER FINANCIAL, INC. G.I. JOE'S, INC.
Secured Party Debtor
By: /s/ Clifford A. Lehman By: /s/ Philip M. Pepin
--------------------------------- -------------------------------
Name: Clifford A. Lehman Name: Philip M. Pepin
------------------------------- -----------------------------
Title: Senior Vice President Title: Vice President
------------------------------ ----------------------------
<PAGE> 22
EXHIBIT B
SOUTH HILL VILLAGE LIMITED PARTNERSHIP/
G.I. JOE'S, INC.
PARCEL #1:
- ---------
Commencing at the Northeast corner of the Northwest quarter of the Southwest
quarter of SECTION 3, TOWNSHIP 19 NORTH, RANGE 4 EAST of the Willamette
Meridian;
Thence along the North line of said subdivision, North 88 degrees 34 minutes 04
seconds West, 769.89 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 27.00 feet to the Southerly
margin of 31st Avenue Southeast, as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692, and the true point of beginning;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 442.03
feet;
Thence South 03 degrees 58 minutes 13 seconds East 0.22 feet to a point on a
non-tangent curve concave to the Southeast, the radius point of which bears
South 04 degrees 37 minutes 19 seconds East, 40.00 feet;
Thence Southwesterly, along said curve through a central angle of 85 degrees 17
minutes 17 seconds for an arc distance of 59.54 feet to the Easterly margin of
Meridian Street as established by City of Puyallup Vacation Ordinance No. 2406
and recorded under Auditor's Fee No. 9409130085;
Thence along said Easterly margin, South 00 degrees 05 minutes 24 seconds West
127.47 feet to the P.C. of a curve concave to the Northwest having a radius of
196.45 feet; Thence Southwesterly, along said curve through a central angle of
18 degrees 31 minutes 51 seconds for an arc distance of 63.54 feet,
Thence South 18 degrees 37 minutes 15 seconds West, 48.83 feet to the P.C. of a
curve concave to the Northwest having a radius of 268.18;
Thence Southwesterly, along said curve through a central angle of 05 degrees 12
minutes 48 seconds for an arc distance of 24.40 feet;
Thence South 23 degrees 50 minutes 03 seconds West 159.49 feet; Thence South 00
degrees 56 minutes 32 seconds West, 175.15 feet to the Northerly margin of SR
512-5N;
Thence along said Northerly margin South 40 degrees 13 minutes 03 seconds East,
132.28 feet;
Thence South 25 degrees 14 minutes 05 seconds East 64.54 feet;
Thence South 14 degrees 48 minutes 43 seconds East 70.32 feet;
Thence South 12 degrees 43 minutes 50 seconds East 46.47 feet;
Thence South 06 degrees 40 minutes 55 seconds East 242.20 feet;
Thence leaving said margin South 89 degrees 03 minutes 24 seconds East 144.21
feet;
Page 1 of 6
<PAGE> 23
EXHIBIT B
Thence South 00 degrees 54
minutes 36 seconds West 83.53 feet to a point of curvature;
Thence Southwesterly, along a curve concave to the right with a radius of 35.00
feet, through a central angle of 94 degrees 31 minutes 35 seconds for an arc
distance of 57.74 feet;
Thence North 84 degrees 31 minutes 49 seconds West 79.17 feet to a point of
curvature;
Thence Northwesterly, through a curve concave to the right with a radius of
35.00 feet, through a central angle of 99 degrees 10 minutes 32 seconds for an
arc distance of 60.58 feet to the Easterly margin of SR 161;
Thence along said Easterly margin South 14 degrees 38 minutes 43 seconds West
53.94 feet to the Northerly margin of 35th Avenue Southeast as conveyed to the
City of Puyallup by deed recorded under A.F.N. 9406200691;
Thence South 69 degrees 55 minutes 13 seconds East, along said Northerly margin,
30.27 feet;
Thence South 84 degrees 31 minutes 49 seconds East, along said Northerly margin,
119.98 feet;
Thence South 89 degrees 03 minutes 24 seconds East, along said Northerly margin,
136.24 feet;
Thence North 00 degrees 56 minutes 36 seconds East 560.00 feet;
Thence, parallel with said Northerly margin, South 89 degrees 03 minutes 24
seconds East 125.09 feet;
Thence North 00 degrees 56 minutes 36 seconds East 709.56 feet to the Southerly
margin of 31st Avenue Southeast as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692, and the true point of beginning.
EXCEPT THEREFROM the following three parcels:
Commencing at a point 30 feet North and 30 feet West of the
Southeast corner of the Northwest quarter of the Southwest
quarter of SECTION 3, TOWNSHIP 19 NORTH, RANGE 4 EAST, W.M.,
Pierce County, Washington;
Thence parallel with the South line of said subdivision, North 89 degrees 03
minutes, 24 seconds West 904 feet;
Thence North 00 degrees 56 minutes 36 seconds East 549.78 feet;
Thence parallel with the South line of said subdivision, North 89 degrees 03
minutes 24 seconds West, 126.10 feet to the true point of beginning;
Thence continue North 89 degrees 03 minutes 24 seconds West, 179.81 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 89.84 feet;
Thence South 35 degrees 23 minutes 29 seconds East, 68.32 feet;
Thence parallel with the South line of said subdivision, south 89 degrees 03
minutes 24 seconds East 139.33 feet;
Page 2 of 6
<PAGE> 24
EXHIBIT B
Thence North 00 degrees 56 minutes 36 seconds East, 144.88 feet to the true
point of beginning.
Commencing at the Northeast corner of the Northwest quarter of the Southwest
quarter of SECTION 3, TOWNSHIP 19 NORTH, RANGE 4 EAST of the Willamette
Meridian;
Thence along the North line of said subdivision, North 88 degrees 34 minutes 04
seconds West, 769.89 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 27.00 feet to the Southerly
margin of 31st Avenue Southeast, as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692;
Thence North 88 degrees 34 minutes 04 seconds West along said margin, 219.01
feet, and the true point of beginning;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 223.02
feet;
Thence South 03 degrees 58 minutes 13 seconds East, 0.22 feet to a point on a
non-tangent curve concave to the Southeast, the radius point of which bears
South 04 degrees 37 minutes 19 seconds East, 40.00 feet;
Thence Southwesterly, along said curve through a central angle of 85 degrees 17
minutes 17 seconds for an arc distance of 59.54 feet to the Easterly margin of
Meridian Street as established by City of Puyallup Vacation Ordinance No. 2406
and recorded under Auditor's Fee No. 9409130085;
Thence along said Easterly margin, South 00 degrees 05 minutes 24 seconds West
127.47 feet to the P.C. of a curve concave to the Northwest having a radius of
196.45 feet;
Thence Southwesterly, along said curve through a central angle of 18 degrees 31
minutes 51 seconds for an arc distance of 63.54 feet;
Thence South 18 degrees 37 minutes 15 seconds West, 48.83 feet to the P.C. of a
curve concave to the Northwest having a radius of 268.18;
Thence Southwesterly, along said curve through a central angle of 05 degrees 12
minutes 48 seconds for an arc distance of 24.40 feet;
Thence South 23 degrees 50 minutes 03 seconds West 159.49 feet; Thence South 00
degrees 56 minutes 32 seconds West, 175.15 to the Northerly margin of SR 512-5N;
Thence along said Northerly margin South 40 degrees 13 minutes 03 seconds East,
102.95 feet;
Thence, leaving said margin, South 89 degrees 03 minutes 24 seconds East 259.03
to a point of curvature;
Thence Northeasterly, along a 25.00 foot radius curve to the left, through a
central angle of 90 degrees for an arc distance of 39.27 feet;
Thence North 00 degrees 56 minutes 36 seconds East 672.76 feet to the Southerly
margin of 31st Avenue Southeast as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692, and the true point of beginning.
Page 3 of 6
<PAGE> 25
EXHIBIT B
Commencing at a point 30.00 feet North and 30.00 feet West of the Southeast
corner of the Northwest quarter of the Southwest quarter of SECTION 3, TOWNSHIP
19 NORTH, RANGE 4 EAST of the Willamette Meridian;
Thence parallel with the South line of said subdivision, North 89 degrees 03
minutes 24 seconds West, 1027.74 feet;
Thence North 00 degrees 56 minutes 36 seconds East, 20.00 feet to the true point
of beginning;
Thence continuing North 00 degrees 56 minutes 36 seconds East 120.79 feet;
Thence South 89 degrees 03 minutes 24 seconds East, 110.58 feet;
Thence South 00 degrees 57 minutes 45 seconds West, 120.79 feet;
Thence North 89 degrees 03 minutes 24 seconds West, 110.54 feet to the true
point of beginning.
PARCEL #2:
- ---------
Commencing at the Northeast corner of the Northwest quarter of the Southwest
quarter of SECTION 3, TOWNSHIP 19 NORTH, RANGE 4 EAST of the Willamette
Meridian;
Thence along the North line of said subdivision, North 88 degrees 34 minutes 04
seconds West, 769.89 feet;
Thence South 00 degrees 56 minutes 36 seconds West, 27.00 feet to the Southerly
margin of 31st Avenue Southeast, as conveyed to the City of Puyallup by deed
recorded under A.F.N. 9406200692;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 219.01
feet, and the true point of beginning;
Thence North 88 degrees 34 minutes 04 seconds West, along said margin, 223.02
feet;
Thence South 03 degrees 58 minutes 13 seconds East, 0.22 feet to a point on a
non-tangent curve concave to the Southeast, the radius point of which bears
South 04 degrees 37 minutes 19 seconds East, 40.00 feet;
Thence Southwesterly, along said curve through a central angle of 85 degrees 17
minutes 17 seconds for an arc distance of 59.54 feet to the Easterly margin of
Meridian Street as established by City of Puyallup Vacation Ordinance No. 2406
and recorded under Auditor's Fee No. 9409130085;
Thence along said Easterly margin, South 00 degrees 05 minutes 24 seconds West,
127.47 feet to the P.C. of a curve concave to the Northwest having a radius of
196.45 feet;
Thence Southwesterly along said curve through a central angle of 18 degrees 31
minutes 51 seconds for an arc distance of 63.54 feet;
Thence South 18 degrees 37 minutes 15 seconds West, 48.83 feet to the P.C. of a
curve concave to the Northwest having a radius of 268.18;
Thence Southwesterly, along said curve through a central angle of 05 degrees 12
minutes 48 seconds for an arc distance of 24.40 feet;
Thence South 23 degrees 50 minutes 03 seconds West, 159.49 feet;
Page 4 of 6
<PAGE> 26
EXHIBIT B
Thence South 00 degrees 56 minutes 32 seconds West, 175.15 feet to the Northerly
margin of SR 512-5N;
Thence along said Northerly margin South 40 degrees 13 minutes 03 seconds East,
102.95 feet;
Thence leaving said margin, South 89 degrees 03 minutes 24 seconds East 259.03
feet to a point of curvature;
Thence Northeasterly along a 25.00 foot radius curve to the left, through a
central angle of 90 degrees for an arc distance of 39.27 feet;
Thence North 00 degrees 56 minutes 36 seconds East 672.76 feet to the Southerly
margin of 31st Avenue Southeast as conveyed to the City of Puyallup, by deed
recorded under A.F.N. 9406200692, and the true point of beginning.
ALL Situate in the County of Pierce, State of Washington.
Page 5 of 6
<PAGE> 27
EXHIBIT B
SOUTH HILL VILLAGE LIMITED PARTNERSHIP
G.I. JOE'S, INC.
[Diagram]
Page 6 of 6
<PAGE> 1
EXHIBIT 10.26
Loan No.: 1910131-0002
- --------------------------------------------------------------------------------
H Heller Financial
PROMISSORY NOTE
$396,003.00 December 22,1997
FOR VALUE RECEIVED, G.I. Joe's, Inc., an Oregon Sub S-Corporation
("Maker"), promises to pay to the order of Heller Financial, Inc., a Delaware
corporation (together with any holder of this Note, "Payee"), at its office
located at 500 West Monroe Street, Chicago, Illinois 60661, or at such other
place as Payee may from time to time designate, the principal sum of Three
Hundred Ninety-Six Thousand Three and 00/100 Dollars ($396,003.00), together
with interest thereon at a fixed rate equal to eight and 48/100 percent (8.48%)
per annum. Principal and interest shall be payable in forty-seven (47)
consecutive monthly installments commencing February 1, 1998, and continuing on
the same day of each consecutive calendar month thereafter until this Note is
fully paid, each such installment in the amount of Nine Thousand Nine Hundred
Thirty-One and 58/100 Dollars ($9,931.59); provided, however, that in any and
all events the final installment payment hereunder shall be in the amount of the
entire then outstanding principal balance hereunder, plus all accrued and unpaid
interest, charges and other amounts owing hereunder or under the Security
Agreement (defined below). All payments shall be applied first to interest and
then to principal. Interest shall be computed on the basis of a 360 day year
comprised of 30-day months. Maker shall make an interest only initial payment on
January 1, 1998 of accrued interest from the loan disbursement date through
December 31, 1997.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.
This Note is secured by the collateral described in the Security Agreement
deed October 31, 1997, between Maker and Payee (the "Security Agreement;" and
together with all related documents and instruments, the "Loan Documents") to
which reference is made for a statement of the nature and extent of protection
and security afforded, certain rights of Payee and certain rights and
obligations of Maker, including Maker's rights, if any, to prepay the principal
balance
1
<PAGE> 2
hereof, provided, however, that in addition to any other sum payable hereunder,
under the Security Agreement or any of the other Loan Documents, in the event of
a prepayment of the principal balance hereunder, whether voluntary, following
acceleration or otherwise, Maker shall pay to Payee together with such
prepayment a Breakage Fee (defined below), which Breakage Fee, together with the
amounts payable under Section 3(ii) of the Security Agreement, if any,
represents liquidated damages to Payee for the loss of its bargain and not a
penalty. As used herein, the term "Breakage Fee" shall mean the amount, if any,
by which (A) the present value, in the aggregate, of the then remaining
installments of principal and interest due hereunder, absent the prepayment,
using a discount rate equal to (i) the yield to maturity as of the date two (2)
days prior to the date of the prepayment on United States Treasury securities
with a final maturity approximately equal to the remaining term hereof, absent
the prepayment, as published in The Wall Street Journal, plus (ii) one percent
(1.00%), exceeds (B) the then outstanding principal balance hereunder, absent
the prepayment.
Time is of the essence hereof. If payment of any installment or any other
sum due under this Note or the Loan Documents is not paid when due. Maker agrees
to pay a late charge equal to the lesser of (i) five cents (5(cent)) per dollar
on, and in addition to, the amount of each such payment, or (ii) the maximum
amount Payee is permitted to charge by law. In the event of the occurrence of an
Event of Default (as defined in the Security Agreement), then the entire unpaid
principal balance hereof with accrued and unpaid interest thereon, together with
all other sums payable under this Note or the Loan Documents, shall, at the
option of Payee and without notice or demand, become immediately due and
payable, such accelerated balance bearing interest until paid at the rate of
three and 00/100 percent (3.00%) per annum above the fixed rate set forth in the
first paragraph of this Note.
Maker and an endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby consent to any and all extensions of time,
renewals, waivers and modifications of, and substitutions or release of security
or of any party primarily or secondarily liable on, or with respect to, this
Note or any of the Loan Documents or any of the terms and provisions thereof
that may be made, granted or consented to by Payee, and agree that suit may be
brought and maintained against any one or more of them, at the election of
Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by any one or more of them.
Maker and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and, without
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisement and exemption
laws.
2
<PAGE> 3
If there be more than one Maker, all the obligations, promises, agreements
and covenants of Maker under this Note are joint and several.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S
RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKER HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO
THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN
TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Witness/Attest: G.I. JOE'S, INC.
By: /s/ PHILIP M. PEPIN
- ---------------------------------- ------------------------------------
Name: Philip M. Pepin
----------------------------------
Title: VP Finance
---------------------------------
3
<PAGE> 4
Loan No.: 1910131-0001
PROMISSORY NOTE
$929,092.82 October __, 1997
FOR VALUE RECEIVED, G.I. Joe's, Inc., an Oregon Sub S-Corporation
("Maker"), promises to pay to the order of Heller Financial, Inc., a Delaware
corporation (together with any holder of this Note, "Payee"), at its office
located at 500 West Monroe Street, Chicago, Illinois 60661, or at such other
place as Payee may from time to time designate, the principal sum of Nine
Hundred Twenty-Nine Thousand Ninety-Two and 82/100 Dollars ($929,092.82),
together with interest thereon at a fixed rate equal to eight and 89/100 percent
(8.89%) per annum. Principal and interest shall be payable in forty-eight (48)
consecutive monthly installments commencing December 1, 1997, and continuing on
the same day of each consecutive calendar month thereafter until this Note is
fully paid, each such installment in the amount of Twenty-Three Thousand
Seventy-Seven and 71/100 Dollars ($23,077.71); provided, however, that in any
and all events the final installment payment hereunder shall be in the amount of
the entire then outstanding principal balance hereunder, plus all accrued and
unpaid interest, charges and other amounts owing hereunder or under the Security
Agreement (defined below). All payments shall be applied first to interest and
then to principal. Interest shall be computed on the basis of a 360 day year
comprised of 30-day months. Maker shall make an interest only initial payment on
November 1, 1997 of accrued interest from the loan disbursement date through
October 31, 1997.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.
This Note is secured by the collateral described in the Security
Agreement dated October __, 1997, between Maker and Payee (the "Security
Agreement," and together with all related documents and instruments, the "Loan
Documents") to which reference is made for a statement of the nature and extent
of protection and security afforded, certain rights of Payee and certain rights
and obligations of Maker, including Maker's rights, if any, to prepay the
principal balance hereof; provided, however, that in addition to any other sum
payable hereunder, under the Security Agreement or any of the other Loan
Documents, in the event of a prepayment of the principal balance hereunder,
whether voluntary, following acceleration or otherwise, Maker shall pay to Payee
together with such prepayment a Breakage Fee (defined below), which Breakage
Fee, together with the amounts payable under Section 3(ii) of the Security
Agreement, if any, represents liquidated damages to Payee for the loss of its
bargain and not a penalty. As used herein, the term "Breakage Fee" shall mean
the amount, if any, by which (A) the present value, in the aggregate, of the
then remaining installments of principal and interest due hereunder, absent the
prepayment, using a discount rate equal to (i) the yield to maturity as of the
date two (2) days
1
<PAGE> 5
prior to the date of the prepayment on United States Treasury securities with a
final maturity approximately equal to the remaining term hereof, absent the
prepayment, as published in The Wall Street Journal, plus (ii) one percent
(1.00%), exceeds (B) the then outstanding principal balance hereunder, absent
the prepayment.
Time is of the essence hereof. If payment of any installment or any other
sum due under this Note or the Loan Documents is not paid when due, Maker agrees
to pay a late charge equal to the lesser of (i) five cents (5(cent)) per dollar
on, and in addition to, the amount of each such payment, or (ii) the maximum
amount Payee is permitted to charge by law. In the event of the occurrence of an
Event of Default (as defined in the Security Agreement), then the entire unpaid
principal balance hereof with accrued and unpaid interest thereon, together with
all other sums payable under this Note or the Loan Documents, shall, at the
option of Payee and without notice or demand, become immediately due and
payable, such accelerated balance bearing interest until paid at the rate of
three and 00/100 percent (3.00%) per annum above the fixed rate set forth in the
first paragraph of this Note.
Maker and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions of
time, renewals, waivers and modifications of, and substitutions or release of
security or of any party primarily or secondarily liable on, or with respect to,
this Note or any of the Loan Documents or any of the terms and provisions
thereof that may be made, granted or consented to by Payee, and agree that suit
may be brought and maintained against any one or more of them, at the election
of Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by any one or more of them.
Maker and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and, without
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisements and exemption
laws.
If there be more than one Maker, all the obligations, promises, agreements
and covenants of Maker under this Note are joint and several.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S
RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKER HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE
2
<PAGE> 6
OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED
TO THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED COMPLETED
WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Witness/Attest: G.I. JOE'S, INC.
By: /s/ PHILIP M. PEPIN
- ---------------------------------- ------------------------------------
Name: Philip M. Pepin
----------------------------------
Title: VP Finance
---------------------------------
3
<PAGE> 7
10/29/1997 Page 1
- --------------------------------------------------------------------------------
G.I. Joe's Amortization Schedule - Oct. 2001 T-Note @ 5.89%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Compound Period................: Monthly
Nominal Annual Rate............: 8.890 %
Effective Annual Rate..........: 9.261 %
Periodic Rate .................: 0.7408 %
Daily Rate ..................... 0.02469 %
</TABLE>
CASH FLOW DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Event Start Date Amount Number Period End Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Loan 10/31/1997 929,092.82 1
2 Payment 12/01/1997 23,077.71 48 Monthly 11/01/2001
</TABLE>
AMORTIZATION SCHEDULE - Normal Amortization, 360 Day Year
<TABLE>
<CAPTION>
Date Payment Interest Principal Balance
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan 10/31/1997 929,092.82
1 12/01/1997 23,077.71 7,114.16 15,963.55 913,129.27
1997 Totals 23,077.71 7,114.16 15,963.55
2 01/01/1998 23,077.71 6,764.77 16,312.94 896,816.33
3 02/01/1998 23,077.71 6,643.91 16,433.80 880,382.53
4 03/01/1998 23,077.71 6,522.17 16,565.54 863,826.99
5 04/01/1998 23,077.71 6,399.52 16,678.19 847,148.80
6 05/01/1998 23,077.71 6,275.96 16,801.75 830,347.05
7 06/01/1998 23,077.71 6,151.49 16,926.22 813,420.83
8 07/01/1998 23,077.71 6,026.09 17,051.62 796,369.21
9 08101/1998 23,077.71 5,899.77 17,177.94 779,191.27
10 09/01/1998 23,077.71 5,772.51 17,305.20 761,886.07
11 10/01/1998 23,077.71 5,644.31 17,433.40 744,452.67
12 11/01/1998 23,077.71 5,515.15 17,562.56 726,890.11
13 12/01/1998 23,077.71 5,385.04 17,692.67 709,197.44
1998 Totals 276,932.52 73,000.69 203,931.83
14 01/01/1999 23,077.71 5,253.97 17,823.74 691,373.70
15 02/01/1999 23,077.71 5,121.93 17,955.78 673,417.92
16 03/01/1999 23,077.71 4,988.90 18,088.81 666,329.11
17 04/01/1999 23,077.71 4,854.90 18,222.81 637,106.30
18 05/01/1999 23,077.71 4,719.90 18,357.81 618,748.49
19 06/01/1999 23,077.71 4,583.90 18,493.81 600,254.68
</TABLE>
<PAGE> 8
10/29/1997 Page 2
- --------------------------------------------------------------------------------
G.I. Joe's Amortization Schedule - Oct. 2001 T-Note @ 5.89%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Date Payment Interest Principal Balance
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
20 07/01/1999 23,077.71 4,446.89 18,630.82 581,623.86
21 08/01/1999 23,077.71 4,308.86 18,768.85 562,855.01
22 09/01/1999 23,077.71 4,169.82 18,907.89 543,947.12
23 10/01/1999 23,077.71 4,029.74 19,047.97 524,899.15
24 11/01/1999 23,077.71 3,888.63 19,189.08 505,710.07
25 12/01/1999 23,077.71 3,746.47 19,331.24 486,378.83
1999 Totals 276,932.52 54,113.91 222,818.61
26 01/01/2000 23,077.71 3,603.26 19,474.45 466,904.38
27 02/01/2000 23,077.71 3,458.98 19,618.73 447,285.85
28 03/01/2000 23,077.71 3,313.64 19,764.07 427,521.58
29 04/01/2000 23,077.71 3,167.22 19,910.49 407,611.09
30 05/01/2000 23,077.71 3,019.72 20,057.99 387,553.10
31 06/01/2000 23,077.71 2,871.12 20,206.59 367,346.51
32 07/01/2000 23,077.71 2,721.43 20,356.28 346,990.23
33 08/01/2000 23,077.71 2,570.62 20,507.09 326,483.14
34 09/01/2000 23,077.71 2,418.70 20,659.01 305,824.13
35 10/01/2000 23,077.71 2,265.65 20,812.06 285,012.07
36 11/01/2000 23,077.71 2,111.46 20,966.25 264,045.82
37 12/01/2000 23,077.71 1,956.14 21,121.57 242,924.25
2000 Totals 276,932.52 33,477.94 243,454.58
38 01/01/2001 23,077.71 1,799.66 21,278.05 221,646.20
39 02/01/2001 23,077.71 1,642.03 21,435.68 200,210.52
40 03/01/2001 23,077.71 1,483.23 21,594.48 178,616.04
41 04/01/2001 23,077.71 1,323.25 21,754.46 156,861.58
42 05/01/2001 23,077.71 1,162.08 21,915.63 134,945.95
43 06/01/2001 23,077.71 999.72 22,077.99 112,867.96
44 07/01/2001 23,077.71 836.16 22,241.55 90,626.41
45 08/01/2001 23,077.71 671.39 22,406.32 68,220.09
46 09/01/2001 23,077.71 505.40 22,572.31 45,647.78
47 10/01/2001 23,077.71 338.17 22,739.54 22,908.24
48 11/01/2001 23,077.71 169.47 22,908.24 0.00
2001 Totals 253,854.81 10,930.56 242,924.25
Grand Totals 1,107,730.08 178,637.26 929,092.82
</TABLE>
<PAGE> 1
EXHIBIT 10.27
PROMISSORY NOTE
$283,410.00 April ___, 1998
FOR VALUE RECEIVED, the undersigned, G.I. JOE'S, INC., an Oregon
Corporation ("Borrower") , whose mailing address is 9805 Boeckman Road,
Wilsonville, Oregon 97070, promises to pay to the order of WAYNE T. JACKSON
("Lender") , at 5250 SW Landing Square, #3, Portland, Oregon 97201, or at such
other place as may be designated from time to time in writing by the holder
("Holder") of this Promissory Note, the principal sum of TWO HUNDRED
EIGHTY-THREE THOUSAND FOUR HUNDRED TEN AND No/100THS DOLLARS ($283,410.00) in
lawful money of the United States of America, together with interest thereon,
costs, and other charges as provided in this Promissory Note (the "Note").
1. Interest. The unpaid principal balance of this Note shall be without
interest, except after maturity or default as provided herein.
2. Maturity. The entire balance of principal owing under this Note shall be
due and payable July 31, 1999 (the "Maturity Date"). In the event any amount
payable under this Note shall be due and payable on a non-business day, the
outstanding amount due shall accrue interest at the rate of 15% per annum and
shall be due and payable on the next following business day.
3. Security. Payment of this Note is secured by a Collateral Assignment and
Security Agreement of even date herewith between Borrower's President and
principal shareholder, Norm Daniels, as assignor and debtor, and Lender, as
secured party (the "Collateral Assignment"), and by a Limited Guaranty executed
by Daniels.
4. Prepayment. Borrower may prepay any portion or all of the balance of
this Note at any time without penalty, provided, however, that any partial
prepayment shall not extend the Maturity Date.
5. Default. Time is of the essence with respect to this Note. If Borrower
fails to make any payment required hereunder when due, or if an event of default
occurs under the Collateral Assignment or Limited Guaranty, such failure or
event of default shall constitute an Event of Default under this Note. Upon the
occurrence of an Event of Default, Holder may enforce any right conferred upon
Holder under this Note or the Collateral Assignment, and may pursue any other
right or remedy allowed by law or in equity. Without limitation of the
foregoing, upon the occurrence of an Event of Default, Holder shall have the
right to declare the unpaid principal balance of, and all unpaid interest, fees,
charges, and expenses owed by Borrower under, this Note immediately due and
payable without further demand or notice to Borrower.
<PAGE> 2
Holder may pursue any such rights or remedies singly, together, or successively.
Exercise of any such right or remedy shall not be deemed an election of
remedies. Failure to exercise any right or remedy shall not be deemed a waiver
of any existing or subsequent default or a waiver of any such right or remedy.
6. Additional Interest; Late Charge. Upon the occurrence of an Event of
Default, all amounts owing shall bear interest at the rate of fifteen percent
(15%) per annum until such amounts are paid in full. In addition, Borrower shall
pay to Holder a late charge equal to five percent (5%) of the amount of any
payment under this Note that is not made within ten (10) days after the due date
therefor. Such late charge shall be payable as a fee to reimburse Holder for the
additional expense of processing delinquent payments and not as a penalty.
7. Costs of Enforcement. Upon the occurrence of an Event of Default, all
reasonable costs and expenses incurred by Holder in enforcing its rights under
this Note, including, without limitation, costs of collection and attorney fees,
shall be payable by Borrower to Holder upon demand, and any payments received
with respect to this Note shall be applied first to such costs, if any.
8. Interest Limitation. Interest, fees, and charges collected or to be
collected in connection with the indebtedness evidenced by this Note shall not
exceed the maximum, if any, permitted by applicable law. If any such law is
interpreted so that any such interest, fees, or charges would exceed any such
maximum, and if Borrower is entitled to the benefit of such law, then
notwithstanding anything to the contrary contained herein, (i) such interest,
fees, or charges shall be reduced to the permitted maximum, and (ii) any sums
already collected from Borrower that exceed the permitted maximum shall be
refunded.
9. Waiver. Borrower hereby waives diligence, presentment, demand for
payment, notice of dishonor, protest, and notice of protest and any defense,
counterclaim, or right of setoff that Borrower may now or hereafter have with
respect to its obligations under this Note.
10. Notices. Any notice given under this Note shall be in writing and shall
be deemed given when delivered by personal service or two (2) business days
after placement in the U.S. Mails, certified, return receipt requested, postage
prepaid, and addressed to the address set forth for Holder and Borrower in the
first paragraph of this Note, or such other address as either party may
designate by written notice to the other in accordance with this Section.
11. Modifications. Any modification to this Note must be set forth in
writing and executed by the party or parties to be bound by such modification.
2 - PROMISSORY NOTE
<PAGE> 3
12. Assignability. The obligations of Borrower shall not be assigned
without the prior written consent of Holder, which may be withheld in Holder's
able discretion, and no assignment shall release Borrower from its obligations
hereunder. This Note shall be binding upon the heirs, personal representatives,
administrators, successors, and permitted assigns of Borrower and shall inure to
the benefit of Holder and its successors and assigns.
13. Severability. If any provision of this Note is found by a court of
competent jurisdiction to be invalid or unenforceable as written, then the
parties intend and desire that (i) such provision be enforceable to the fullest
extent permitted by law, and (ii) the invalidity or unenforceability of such
provision shall not affect the validity and enforceability of the remainder of
this Note.
14. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the state of Oregon.
Executed as of the date and year first written above.
G.I. JOE'S, INC.,
an Oregon corporation
By: /s/ NORM DANIELS
-------------------------------------
Norm Daniels,
President
3 - PROMISSORY NOTE
<PAGE> 1
EXHIBIT 10.28
PROMISSORY NOTE
$191,106.00 April __, 1998
FOR VALUE RECEIVED, the undersigned, G.I. JOE'S, INC., an Oregon
corporation ("Borrower"), whose mailing address is 9805 Boeckman Road,
Wilsonville, Oregon 97070, promises to pay to the order of DUANE MELLEN
("Lender"), at 5519 SE Bantam Ct., Milwaukie, OR 97222, or at such other place
as may be designated from time to time in writing by the holder ("Holder") of
this Promissory Note, the principal sum of ONE HUNDRED NINETY-ONE THOUSAND ONE
HUNDRED SIX AND No/100THS DOLLARS ($191,106.00) in lawful money of the United
States of America, together with interest thereon, costs, and other charges as
provided in this Promissory Note (the "Note").
1. Interest. The unpaid principal balance of this Note shall be without
interest, except after maturity or default as provided herein.
2. Maturity. The entire balance of principal owing under this Note shall be
due and payable July 31, 1999 (the "Maturity Date"). In the event any amount
payable under this Note shall be due and payable on a non-business day, the
outstanding amount due shall accrue interest at the rate of 15% per annum and
shall be due and payable on the next following business day.
3. Security. Payment of this Note is secured by a Collateral Assignment and
Security Agreement of even date herewith between Borrower's President and
principal shareholder, Norm Daniels, as assignor and debtor, and Lender, as
secured party (the "Collateral Assignment"), and by a Limited Guaranty executed
by Daniels.
4. Prepayment. Borrower may prepay any portion or all of the balance of
this Note at any time without penalty, provided, however, that any partial
prepayment shall not extend the Maturity Date.
5. Default. Time is of the essence with respect to this Note. If Borrower
fails to make any payment required hereunder when due, or if an event of default
occurs under the Collateral Assignment or Limited Guaranty, such failure or
event of default shall constitute an Event of Default under this Note. Upon the
occurrence of an Event of Default, Holder may enforce any right conferred upon
Holder under this Note or the Collateral Assignment, and may pursue any other
right or remedy allowed by law or in equity. Without limitation of the
foregoing, upon the occurrence of an Event of Default, Holder shall have the
right to declare the unpaid principal balance of, and all unpaid interest, fees,
charges, and expenses owed by Borrower under, this Note immediately due and
payable without further demand or notice to Borrower.
1 - PROMISSORY NOTE
<PAGE> 2
Holder may pursue any such rights or remedies singly, together, or successively.
Exercise of any such right or remedy shall not be deemed an election of
remedies. Failure to exercise any right or remedy shall not be deemed a waiver
of any existing or subsequent default or a waiver of any such right or remedy.
6. Additional Interest, Late Charge. Upon the occurrence of an Event of
Default, all amounts owing shall bear interest at the rate of fifteen percent
(15%) per annum until such amounts are paid in full. In addition, Borrower shall
pay to Holder a late charge equal to five percent (5%) of the amount of any
payment under this Note that is not made within ten (10) days after the due date
therefor. Such late charge shall be payable as a fee to reimburse Holder for the
additional expense of processing delinquent payments and not as a penalty.
7. Costs of Enforcement. Upon the occurrence of an Event of Default, all
reasonable costs and expenses incurred by Holder in enforcing its rights under
this Note, including, without limitation, costs of collection and attorney fees,
shall be payable by Borrower to Holder upon demand, and any payments received
with respect to this Note shall be applied first to such costs, if any.
8. Interest Limitation. Interest, fees, and charges collected or to be
collected in connection with the indebtedness evidenced by this Note shall not
exceed the maximum, if any, permitted by applicable law. If any such law is
interpreted so that any such interest, fees, or charges would exceed any such
maximum, and if Borrower is entitled to the benefit of such law, then
notwithstanding anything to the contrary contained herein, (i) such interest,
fees, or charges shall be reduced to the permitted maximum, and (ii) any sums
already collected from Borrower that exceed the permitted maximum shall be
refunded.
9. Waiver. Borrower hereby waives diligence, presentment, demand for
payment, notice of dishonor, protest, and notice of protest and any defense,
counterclaim, or right of setoff that Borrower may now or hereafter have with
respect to its obligations under this Note.
10. Notices. Any notice given under this Note shall be in writing an shall
be deemed given when delivered by personal service or two (2) business days
after placement in the U.S. Mails, certified, return receipt requested, postage
prepaid, and addressed to the address set forth for Holder and Borrower in the
first paragraph of this Note, or such other address as either party may
designate by written notice to the other in accordance with this Section.
11. Modifications. Any modification to this Note must be set forth in
writing and executed by the party or parties to be bound by such modification.
2 - PROMISSORY NOTE
<PAGE> 3
12. Assignability. The obligations of Borrower shall not be assigned
without the prior written consent of Holder, which may be withheld in Holder's
sole discretion, and no assignment shall release Borrower from its obligations
hereunder. This Note shall be binding upon the heirs, personal representatives,
administrators, successors, and permitted assigns of Borrower and shall inure to
the benefit of Holder and its successors and assigns.
13. Severability. If any provision of this Note is found by a court of
competent jurisdiction to be invalid or unenforceable as written, then the
parties intend and desire that (i) such provision be enforceable to the fullest
extent permitted by law, and (ii) the invalidity or unenforceability of such
provision shall not affect the validity and enforceability of the remainder of
this Note.
14. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the state of Oregon.
Executed as of the date and year first written above.
G.I. JOE'S, INC.,
an Oregon corporation
By: /s/ NORM DANIELS
-------------------------------------
Norm Daniels,
President
<PAGE> 1
EXHIBIT 10.29
AGREEMENT
1. Parties The parties to this Agreement are David Orkney ("Orkney"), and G. I.
Joe's, Inc., an Oregon corporation ("Company").
2. Recitals
2.1. Orkney is the Chairman of the Board of Company and is the owner of
1,236,000 shares of the common stock (the "Stock") of the Company which
represents the majority of the issued and outstanding shares of the Company's
common stock.
2.2 Contemporaneous with the execution of this Agreement, Orkney and
Company have entered into a Stock Redemption Agreement in which Orkney has
agreed to sell and Company has agreed to redeem all of the Stock ("Stock
Redemption Agreement").
2.3 The obligations under this Agreement and the Stock Redemption Agreement
are intended to be mutually interdependent and the breach of any covenant or
condition of one agreement shall be deemed a breach of the other and the
satisfaction of all conditions to close the Stock Redemption Agreement shall be
required to close this Agreement and vice versa.
3. Closing. The closing of this Agreement shall be contemporaneous with the
closing of the Stock Option Agreement (the "Closing Date").
4. Representations and Warranties of Orkney. Orkney represents and warrants to
Company as follows:
4.1 Orkney has the unrestricted right to enter into this Agreement.
4.2 This Agreement has been reviewed by Orkney's independent legal counsel
and tax advisors.
4.3 Orkney has not engaged the services of any broker or finder with
respect to this Agreement or the transactions contemplated herein, other than
his engagement of Arthur Andersen, LLP on behalf of the Company and Orkney
agrees to indemnify Company for and hold it harmless from and against all claims
for brokers or finders fees or compensation in connection with this transaction
herein provided for by any person, firm or corporation (other than Arthur
Andersen, LLP) claiming such a right because engaged by Orkney.
PAGE 1 AGREEMENT
<PAGE> 2
5. Representations and Warranties of Company. Company represents and warrants to
Orkney as follows:
5.1 Company is an Oregon corporation in good standing.
5.2 This Agreement has been duly approved by the Company's Board of
Directors and Company has full power and authority to execute and comply with
the terms and provisions of this Agreement.
5.3 No consent or approval is required to be obtained from any governmental
agency in connection with the execution and consummation of this Agreement by
Company. Consents and approval from other third parties are required to
consummate this transaction and shall be supplied by Company prior to or at
closing.
5.4 Company has not engaged the services of any broker or finder with
respect to this Agreement or the transactions contemplated herein, other than
Arthur Andersen, LLP, and Company agrees to indemnify Orkney for and hold him
harmless from and against all claims for brokers or finders fees or compensation
in connection with this transaction herein provided for by any person, firm or
corporation claiming such a right because engaged by Orkney.
5.5 Company shall pay the financial advisory fees payable to Arthur
Andersen, LLP in connection with this transaction and the Stock Redemption
transaction in accordance with the terms of the agreement between the Company
and Arthur Andersen, LLP.
5.6 Company shall offer to redeem all issued and outstanding stock of the
Company, except for that owned by Norm Daniels, on the same terms as set forth
in the Stock Redemption Agreement.
6. Employment Termination. Orkney's employment with the Company shall terminate
as of the Closing Date. As consideration for Orkney's many years of service to
the Company, Company agrees:
6.1 At closing, Company shall pay a bonus to Orkney in the amount of the
principal and interest owed by Orkney to the Company and will transfer to Orkney
as an additional bonus the 1983 Porsche vehicle which Orkney has been driving.
6.2 Company shall indemnify Orkney for claims related to his services for
or on behalf of the Company and related entities prior to closing in accordance
with the Bylaws and Articles of Incorporation of the Company in effect as of the
Closing Date.
PAGE 2 AGREEMENT
<PAGE> 3
7. Indemnification.
7.1 Orkney shall indemnify and hold Company and its affiliates and their
respective agents, officers, directors and employees from and against any and
all claims, damages, costs and expenses, including without limitation, attorneys
fees relating to or arising out of any misrepresentation, breach or warranty or
non-fulfillment of any covenant or obligation on the part of Orkney under this
Agreement.
7.2 Company shall defend, indemnify and hold harmless Orkney and its
affiliates and their respective agents, officers, directors and employees from
and against, any and all claims, damages, costs and expenses, including without
limitation, attorneys fees relating to or arising out of any misrepresentation,
breach of warranty or non-fulfillment of any covenant or obligation on the part
of Company under this Agreement.
8. Consulting Agreement. Orkney and Company agree to execute and deliver to each
other at closing, duplicate copies of a Consulting Agreement in the form of
Exhibit "A".
9. Stock Warrants. As additional consideration for Orkney's obligations under
the Stock Purchase Agreement, Company shall execute and deliver at closing,
Warrants for the purchase of common stock of the Company or its parent company,
in the form of Exhibit "B" attached.
10. Tax Matters.
10.1 Orkney shall be responsible for all state and federal income taxes due
as a result of the consideration paid to Orkney under paragraph 6, fees paid
under the Consulting Agreement and any income resulting from the Warrant
Agreement.
10.2 Company shall pay Orkney an amount equal to all income taxes arising
from the earnings allocated to his Sub Chapter "S" stock in the Company as
provided in the Stock Redemption agreement.
11. Conditions to Closing. The obligation of the parties to close the
transactions and agreements referred to herein, shall be conditioned as follows:
11.1 The simultaneous closing of the Stock Redemption Agreement.
11.2 All representations and warranties made in this Agreement shall be
true in all material respects on and as of the Closing Date as though such
representations and warranties had been made or given on the Closing Date.
PAGE 3 AGREEMENT
<PAGE> 4
11.3 Each party shall have performed all obligations and complied with all
covenants required to be performed or complied with prior to the Closing Date.
11.4 No investigation, suit, action or other proceeding shall be threatened
or pending before any court, governmental agency or other agency or authority
which in either parties reasonable opinion may have a material adverse effect on
the Company or the transaction provided for in this Agreement.
11.5 The Company shall have adopted a Plan (the "Plan") to redeem all
issued and outstanding stock of the Company (including any stock issued as a
result of the exercise of existing stock options) as described in the Disclosure
Statement, dated March 16, 1998, attached as Exhibit "C" (the "Disclosure
Statement").
11.6 The Company has redeemed all shares of stock tendered by shareholders
pursuant to the Plan and the Disclosure Statement.
11.7 The sale/purchase of certain real estate owned by the Company in
accordance with the terms of Exhibit "D" shall have closed not less than one day
prior to the Closing Date.
11.8 Company shall have delivered to Orkney documents releasing Orkney from
liability for all obligations of the Company, which Orkney has personally
guaranteed in a form reasonably acceptable to Orkney.
11.9 Company shall have received funding of a Subordinated Debenture Loan
from Peregrine Capital, Inc. ("Peregrine"), in an amount which when combined
with the proceeds from the sale of real estate described in 11.7 above will
provide sufficient funds to satisfy all of Company's obligations under the Plan.
11.10 Company shall have executed and delivered to Orkney the Stock Warrant
Agreement.
11.11 Orkney and Company have executed and delivered to each other the
Consulting Agreement.
11.12 Orkney has delivered to Company, Orkney's resignation as an officer
and director of the Company.
11.13 Norm Daniels ("Daniels") and Peregrine shall have delivered to Orkney
certificates in a form reasonably acceptable to Orkney verifying Peregrine and
Daniels have entered into binding agreements as follows:
PAGE 4 AGREEMENT
<PAGE> 5
(a) Following a redemption of a majority of the Stock, Daniels, will
contribute his shares of the Stock to a newly formed holding company
("Newco") in exchange for a 100% ownership interest in Newco.
(b) After Daniels has contributed his Stock to Newco Peregrine shall
contribute the Subordinated Debenture Loan and additional cash sufficient
to equal a combined total capital contribution to Newco of $9,500,000 to
Newco in exchange for a minority ownership interest in Newco.
(c) At some time thereafter Newco will make a capital contribution to
Company of $9,500,000. This transaction may create preemptive rights for
the remaining shareholders.
(d) Daniels and Peregrine will warrant to the Company and its
shareholders they have no plan or intent and will take no action to alter
the ownership structure of Newco which would cause the sale/purchase of
real estate as described above to be deemed for tax purposes to be a
"related party transaction", or to change the controlling interest in Newco
from Daniels to any third party.
(e) After Newco has acquired a majority of all of the outstanding
common stock of Company as described above, Newco will create a Key
Employees' Incentive Stock Option and Nonqualified Stock Option Plan to
substitute options to purchase Newco's stock for options issued to purchase
the Company's stock. This substitution of options is being proposed
pursuant to section 424 of the Internal Revenue Code of 1986 ("Code").
12. Miscellaneous
12.1 This Agreement may be amended or supplemented only by a written
agreement signed by all parties.
12.2 All matters with respect to this agreement shall be governed by the
laws of the State of Oregon.
12.3 This Agreement and any document or agreement entered into pursuant to
the terms of this Agreement (including without limitation, the Stock Redemption
Agreement) shall constitute the entire agreement between the parties and there
are no other restrictions, promises, representations, warranties, or obligations
other than those as expressly set forth referred to in such documents. This
Agreement and such documents supersede all prior agreements and understandings
between the parties.
PAGE 5 AGREEMENT
<PAGE> 6
12.4 In the event of litigation related to or arising from this Agreement,
the prevailing party shall be entitled in addition to any other remedy or relief
to recover their reasonable attorneys fees at trial or on appeal.
12.5 All representations and warranties made in this Agreement by Company
and Orkney and all obligations to be performed after the Closing Date and shall
survive the closing of this Agreement.
12.6 The Exhibits attached to and referred to in this Agreement are
incorporated into and are a part of this Agreement.
12.7 The waiver, amendment or modification of any provision of this
Agreement or any right, power or remedy under this Agreement, whether by
agreement of the parties or by custom course of dealing or trade practice shall
not be effective unless in writing and signed by the party against whom
enforcement of such waiver, amendment or modification is sought. No failure or
delay by either party in exercising any right, power or remedy with respect to
any of the provisions of this Agreement, shall operate as a waiver of such
provision with respect to such occurrences.
12.8 This Agreement shall bind and benefit the parties, their successors
and assigns.
"ORKNEY" "COMPANY"
"G. I. JOE'S, INC."
DAVID ORKNEY By: NORM DANIELS
- ---------------------------------- -------------------------------------
DAVID ORKNEY NORM DANIELS, President
PAGE 6 AGREEMENT
<PAGE> 7
EXHIBIT A
CONSULTING AGREEMENT
This Consulting Agreement, dated as of __________________, 1998, is entered
into by and between G. I. Joe's, Inc., an Oregon corporation ("Company") and
David Orkney ("Orkney").
RECITALS
Orkney has for many years been an employee, officer, director and
shareholder of Company. Pursuant to a Stock Redemption Agreement between Orkney
and Company dated March ___, 1998, (the "Stock Redemption Agreement") , Company
has agreed to redeem all of Orkney's stock in Company. In addition, Orkney has
agreed to enter into a Consulting Agreement with Company.
NOW THEREFORE, the parties agree as follows:
1. Engagement. Company hereby engages Orkney to perform consulting
services on its behalf, and Orkney agrees to provide such services to Company on
the terms set forth in this Agreement. Orkney shall assist Company with the
development and operation of its business as and when requested by the President
of Company. In no event shall Orkney be required to perform more than 20 hours
of services for Company during any calendar month.
2. Term and Compensation. The period during which Orkney shall provide
consulting services for Company shall be for a period of two years commencing on
May 1, 1998, and ending on April 31, 2000, unless otherwise renewed or extended
upon the mutual agreement of the parties. Company shall pay Orkney for his
services at the rate of $100,000 for the first year, and $50,000 for the second
year of the term of this Agreement. Company will pay Orkney a pro rata portion
of his annual compensation on its regularly scheduled payroll dates.
3. Benefits. During the first year of the term of this Agreement,
Company shall pay Orkney an automobile allowance for gasoline, maintenance and
repairs in accordance with past practices, and Company will continue to provide
Orkney with his existing office space at no charge. During such period Company
will also continue to provide Orkney with health insurance, telephone, fax,
copier, gymnasium and other benefits which he was receiving at the time of his
termination as an employee of Company, all at Company's expense. Orkney shall be
entitled to continue to store personal items presently located in Company's
distribution center
<PAGE> 8
(approximately 30 pallets) at no charge for up to three years following the date
of this Agreement.
4. Personal Artwork. Orkney shall retain ownership of various art
pieces (such as photographs, paintings and sculptures) on display at Company's
corporate offices, and may remove such pieces at will.
5. Independent Contractor. The parties acknowledge that Company shall
not have the authority to control the manner in which Orkney performs services
pursuant to this Agreement, and that Orkney shall perform such services as an
independent contractor, and not as an employee or as part of a joint venture or
partnership.
6. Construction. This Agreement shall be construed and governed in
accordance with the laws of the State of Oregon, excluding rules applicable to
the conflict of laws.
7. Attorneys Fees. If any suit or action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorney fees and costs incurred in such suit or action in any appeal
therefrom from the nonprevailing party, as fixed by the court or courts in which
such suit, action or appeal is heard.
8. Paragraph Captions. The paragraph captions are for the convenience
of the parties and shall not affect the meaning or interpretation of any
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
G. I. JOE'S, INC.
By:
- ----------------------------------- -------------------------------------
David Orkney Its:
-------------------------------------
<PAGE> 1
EXHIBIT 10.30
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, THE OREGON SECURITIES LAW OR SECURITIES LAWS OF
ANY OTHER STATE. THIS WARRANT MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE WARRANT UNDER
APPLICABLE FEDERAL AND STATE LAWS, OR AN OPINION OF COUNSEL
(IN A FORM AND FROM COUNSEL ACCEPTABLE TO THE COMPANY) THAT
SUCH REGISTRATION IS NOT REQUIRED.
G.I. JOE'S, INC.
COMMON STOCK PURCHASE WARRANT
___ Shares of Common Stock
Issue Date: ______________
Expiration Date: [ten years]
This Warrant evidences the right of David Orkney ("ORKNEY" or
"Registered Owner"), to purchase from G.I. Joe's, Inc., an Oregon corporation
(the "Company"), _______ shares of the Common Stock of the Company (the "Common
Stock"), representing 5 percent of the outstanding stock of the Company, at the
purchase price and during the period set forth below (including shares issuable
upon the exercise or conversion of all options, warrants and convertible
securities currently outstanding).
1. General Terms.
1.1 Purchase Price. The purchase price, subject to adjustment as set
forth below, shall be 70 percent of the fair market value of the shares of
Common Stock being purchased at the time of purchase. The fair market value of
the Common Stock shall be as mutually agreed upon by the Company and Orkney. If
the Company and Orkney are unable to agree upon the fair market value of the
Common Stock within 30 days following Orkney's exercise of his right to purchase
shares of the Common Stock, the fair market value shall be determined by an
appraiser who is selected by Orkney and the Company. Such appraisal shall be
completed no later than 60 days following the date of Orkney's notice of his
election to purchase the shares of Common Stock. This Warrant shall expire ten
years following the date of issuance. The purchase rights represented by this
Warrant are exercisable at any time, at the
<PAGE> 2
option of the Registered Owner in whole, or in part from time to time; provided,
however, that such purchase rights shall not be exercisable with respect to a
fraction of a share of Common Stock.
1.2 Reservation of Shares. The Company agrees at all times to reserve
or hold available a sufficient number of shares of Common Stock to cover the
shares issuable upon the exercise of this Warrant.
1.3 No Rights as a Shareholder. This Warrant shall not entitle the
Registered Owner to any voting rights or other rights as a shareholder of the
Company, or to any other rights whatsoever except the rights herein expressed,
and no dividends shall be payable or shall accrue in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until or
unless, and except to the extent that, this Warrant shall be exercised.
1.4 No Other Warrant Issuable. ORKNEY agrees that this Warrant is the
only warrant that the Company is obligated to issue to ORKNEY, and any and all
other warrants previously discussed between the Company and ORKNEY are
encompassed within this Warrant.
2. Dilution Protection. The number and class of shares for which this
Warrant may be exercised are subject to adjustment from time to time upon the
happening of certain events as hereinafter provided:
2.1 Changes in Number of Shares Outstanding. If the outstanding shares
of the Company's Common Stock are divided into a greater number of shares, the
number of shares of Common Stock purchasable upon the exercise of this Warrant
shall be proportionately increased and, conversely, if the outstanding shares of
Common Stock are combined into a smaller number of shares of Common Stock, the
number of shares purchasable upon the exercise of this Warrant shall be
proportionately reduced.
2.2 Other Changes to Capital Stock. In the event of the grant or
issuance by the Company of any additional options, warrants or convertible
securities, any change in the Company's capital stock through issuance of
additional shares of any class (other than shares issuable upon the exercise or
conversion of outstanding options, warrants, or other convertible securities
which will already have been included in the number of shares purchasable under
this Warrant), merger, consolidation, reclassification, reorganization, partial
or complete liquidation or other change in the capital structure of the Company,
including, but not limited to, any change in the Company's capital stock, then,
as a condition of the grant, issuance, merger, consolidation, reclassification,
reorganization, recapitalization or other change in the capital structure of the
Company, lawful and adequate provision shall be made
2
<PAGE> 3
so that the Registered Owner will have the right thereafter to receive upon the
exercise of this Warrant the kind and amount of shares of stock or other
securities or property to which it would have been entitled if, immediately
prior to such grant, issuance, merger, consolidation, reclassification,
reorganization, recapitalization or other change in the capital structure, the
Registered Owner had held the number of shares obtainable upon the exercise of
this Warrant. In any such case, appropriate adjustment also shall be made in the
applications of the provisions set forth herein with respect to the rights and
interest thereafter of the Registered Owner, to the end that the provisions set
forth herein shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of this Warrant.
2.3 Certificate of Change. Whenever an event occurs requiring any
adjustment to be made pursuant to Section 2.1 or 2.2, the Company shall promptly
file with its Secretary at its principal office and with its stock transfer
agent, if any, a certificate of its President, Chief Executive Officer, Chief
Financial Officer or Secretary specifying such adjustment, setting forth in
reasonable detail the acts requiring such adjustment, and stating such other
facts as shall be necessary to show the manner and figures used to compute such
adjustment. Such certificate shall be made available at all reasonable times for
inspection by the Registered Owner. Promptly after each such adjustment, the
Company shall provide a copy of such certificate by first class mail, postage
prepaid, to the Registered Owner.
2.4 Maintenance of 5 Percent Equity Interest. The increases and
reductions provided for in this Section 2 shall be made with the intent and, as
nearly as practicable, the effect that neither the percentage of the total
equity of the Company (or of any entity into which the Company merges or is
otherwise combined) obtainable on exercise of this Warrant nor the price payable
for such percentage shall be affected by any event described in this Section 2,
and that the Registered Owner shall be entitled to acquire 5 percent of the
issued and outstanding capital stock of the Company (or such other entity),
including shares issuable upon exercise or conversion of all options, warrants
and other convertible securities outstanding at the time this warrant is
exercised.
3. Mechanics of Exercise.
3.1 Requirements of Exercise. In order to exercise this Warrant, the
Registered Owner shall surrender it to the Company's principal office
accompanied by (a) written notice of exercise as to all or any portion of the
shares subject to exercise and (b) funds in the amount of the appropriate
purchase price. Such notice shall also state, if different from the Registered
Owner, the name or names in which the stock certificate shall be issued. As
promptly as practicable after the receipt of such notice
3
<PAGE> 4
and the surrender of this Warrant, the Company shall issue and shall deliver to
the Registered Owner a certificate or certificates for the number of full shares
of stock issuable upon exercise of this Warrant (or the specified portion
thereof). No fractional shares shall be issued, but instead shall be forfeited.
The exercise of this Warrant shall be effective immediately upon receipt by the
Company of this Warrant, the notice of exercise, and the payment of the exercise
price. At such date, the Registered Owner's rights as to the portion of this
Warrant exercised shall cease and the person in whose name the certificate or
certificates for shares of Common Stock are to be issued shall be deemed to have
become the owner of record of the shares represented thereby.
3.2 Partial Exercise. In the case of exercise of a portion of this
Warrant, the Company shall execute and deliver to the Registered Owner thereof,
at the expense of the Company, a new Warrant of like tenor and date for the
unexercised portion of this Warrant.
3.3 Notice of Changes to Capital Stock. In case any voluntary or
involuntary dissolution, liquidation or winding up of the Company or merger or
consolidation or similar transaction in which the Company will not be the
surviving entity shall at any time be proposed, the Company shall give at least
15 days' prior written notice thereof to the Registered Owner stating the date
on which such event is to take place and, in the event of a dissolution,
liquidation or winding up of the Company or merger, consolidation or similar
transaction in which the Company will not be the surviving entity, the date
(which shall be at least 30 days after the giving of such notice) as of which
the registered owner of the Common Stock of record shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such event.
In the event that any such dissolution, liquidation or winding up shall actually
take place, this Warrant and all rights with respect hereto shall terminate on
the date specified in such notice on which such event is to take place. Notices
pursuant to this paragraph shall be given by first-class mail, postage prepaid,
addressed to the Registered Owner at the address specified below or such other
address as the Registered Owner shall advise the Company in writing.
4. Covenants of the Company. For so long as the Warrant remains outstanding
and is held by ORKNEY, the Company makes the following covenants:
4.1 Financial Statements. The Company will furnish to ORKNEY the
Company's internally prepared annual and quarterly financial statements as soon
as practicable after the statements are available.
4.2 Notice of Meetings. The Company will give ORKNEY notice of all
meetings of the Board of Directors and shareholders of the Company and permit a
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representative of ORKNEY to attend all such meetings. The Chairman of the Board
or President of the Company may, in either's sole discretion, exclude the
representative from portions of meetings of the Board of Directors at which
confidential matters are discussed.
4.3 Termination of Covenants. The Company's covenants in this Section
4 shall automatically terminate upon the consummation of the Company's sale of
Common Stock pursuant to a firm commitment underwritten public offering of its
securities to the general public or when the Company first becomes subject to
the periodic reporting requirements of Section 2(g) or 15(d) of the Securities
Act of 1934 (the "1934 Act"), whichever event shall first occur.
5. Registration Rights.
5.1 Definition of Certain Terms. The following terms shall have the
following meanings in this Section 5:
5.1.1 "Act" shall mean the Securities Act of 1933, as amendment.
5.1.2 "Commission" shall mean the Securities and Exchange
Commission.
5.1.3 "Holder" means any person owning or having the right to
acquire Registrable Securities.
5.1.4 "Register," "registered," and "registration" shall mean a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement.
5.1.5 "Registrable Securities" shall mean (i) the Common Stock
issuable upon conversion of this Warrant and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Securities,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which such person's rights under Section 5 are not assigned.
5.1.6 "Registration Expenses" shall mean all expenses incurred by
the Company in complying with Section 5 of this Warrant, including without
limitation all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, and blue sky fees and expenses.
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5.1.7 "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities of a
Holder and all fees and disbursements of counsel for such Holder.
5.2 Company Registrations.
5.2.1 If at any time the Company determines to register any of
its capital stock for sale to the general public solely for cash on a form that
would also permit sale of the Registrable Securities, either for its own account
or the account of a security holder or holders exercising demand registration
rights, the Company will (i) promptly give to each Holder written notice thereof
and (ii) use its best efforts to include in such registrations and in any
related underwriting all Registrable Securities specified in a written request
by any Holder (which request shall state the intended method of distribution of
the Registrable Securities), received by the Company within 15 days after
receipt of such written notice from the Company by any Holder, except as set
forth in Section 5.2.2 below.
5.2.2 If the registration of which the Company gives notice under
this Section 5.2 is for a registered public offering involving an underwriting,
the Company will so advise the Holders as a part of the written notice given
such Holders pursuant to Section 5.2.1. In such event the right of any Holder to
registration pursuant to this Section 5 will be conditioned on such Holder's
participation in such underwriting and the inclusion of such Holder's shares in
the underwriting to the extent provided herein. All Holders proposing to
distribute shares through such underwriting will (together with the Company and
the other Holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 5.2, if the underwriter of the offering
determines that marketing factors require a limitation on the number of shares
to be sold for the account of security holders, the Company may exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. If less than all Registrable
Securities for which registration is sought are to be included in the
registration and underwriting, the number of Registrable Securities included
will be reduced pro rata among the Holders requesting registration based on the
number of Registrable Securities of such Holders for which registration is
sought.
5.3 Limits on Registrations. Notwithstanding any other provision of
this Section 5, the Company shall not be obligated to register any Registrable
Securities if it furnishes the Holder thereof a written opinion of counsel to
the Company that such Holder will be able to sell all the Registrable Securities
that such
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Holder in good faith wishes to sell in a three-month period pursuant to Rule 144
(or a comparable successor rule adopted by the Commission).
5.4 Indemnification.
5.4.1 The Company will indemnify each Holder distributing shares
pursuant to an underwriting provided for in Section 5.2, any officers,
directors, or partners of the Holder, if the Holder is an entity, and any person
controlling a Holder, to the extent shares of such Holder have been registered,
qualified, or for which compliance has been effected pursuant to this Section 5,
and each underwriter, if any, and each person who controls any underwriter,
against all claims, losses, damages, and liabilities or actions in respect
thereof arising out of or based on any untrue statement or alleged untrue
statement of a material fact contained in any prospectus, offering circular or
other document, including any related registration statement, notification, or
the like, incident to any such registration, qualification or compliance, or
based on any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse such Holder, each of its officers, directors, or
partners, as the case may be, and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred by each such person so indemnified in
connection with investigating or defending any such claim, loss, damage,
liability, or action; provided, however, that the Company will not be liable in
any such case to the extent any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based on written
information furnished to the Company by such Holder or underwriter specifically
for use in the prospectus or offering circular.
5.4.2 Each Holder whose shares are included in the securities for
which any such registration, qualification or compliance is being effected will
indemnify to the extent permitted by law the Company, each of its directors and
officers, each legal counsel and independent accountant of the Company, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Act, and each other shareholder whose shares are included in such
registration, and each of such other shareholder's officers and directors and
each person controlling such other shareholder, against all claims, losses,
damages, and liabilities or actions in respect thereof arising out of or based
on any untrue statement of a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such shareholder, and such directors, officers, persons, underwriters,
or control persons for any legal or any other expenses reasonably incurred by
such persons in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent,
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but only to the extent, that such untrue statement or alleged untrue statement
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance on and in
conformity with written information furnished to the Company by the Holder
furnishing the same specifically for use therein; provided, however, that the
obligations of any indemnifying Holder hereunder will be limited to an amount
equal to the proceeds to such Holder from the sale of such Holder's shares in
such registration.
5.4.3 Each party entitled to indemnification under this Section
5.4 (the "Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and will
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who will conduct the defense of such claim or litigation, is approved by
the Indemnified Party (whose approval will not unreasonably be withheld), and
the Indemnified Party may participate in such defense at such party's expense;
provided, however, that, if the Indemnified Party is advised by its counsel that
there may be differing defenses, expenses of counsel will be paid by the
Indemnifying Party, and, provided further, that the failure of any Indemnified
Party to give notice as provided herein will not relieve the Indemnifying Party
of its obligations under this Section 5.4. No Indemnifying Party, in the defense
of any such claim or litigation, will, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
5.5 Expenses.
5.5.1 All Registration Expenses incurred in connection with a
registration pursuant to Section 5.2 will be borne by the Company.
5.5.2 All Selling Expenses will be borne by the Holder or Holders
of the securities so registered apportioned on a pro rata basis.
5.5.3 Notwithstanding any other provision of this Section 5.5,
the provisions of this Section 5.5 shall be deemed amended to incorporate and
comply with the provisions of any applicable state securities laws, regulations,
and administrative policies, and the rules of the National Association of
Securities Dealers, Inc. and stock exchanges upon which the Registrable
Securities are or will be eligible for listing.
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5.6 Procedures. Whenever required under Section 5.2 to use its best
efforts to effect the registration of any of the Registrable Securities, the
Company will, as expeditiously as reasonably possible: (a) prepare and file with
the Commission a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become and remain effective; (b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to comply with the provisions
of the Act with respect to the disposition of all securities covered by such
registration statement; (c) furnish to each Holder with respect to whom
Registrable Securities are included in such registration statement such numbers
of copies of a prospectus, including a preliminary prospectus, and such other
documents as the Holder reasonably may require to facilitate the disposition of
such Registrable Securities; and (d) use its reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as reasonably are appropriate
for the distribution of the securities covered by such registration statement;
provided, however, that the Company will not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such state or jurisdiction unless the Company is
already subject to service in such jurisdiction; and, provided further, that in
connection with any proposed registration, the Company will in no event be
obligated to cause any such registration to remain effective for more than 90
days.
5.7 Information from Holders. Each Holder whose shares are included in
any registration under Section 5.2 of this Agreement will furnish in writing to
the Company such information regarding such Holder and the distribution proposed
by such Holder as the Company may request in writing and as may be required in
connection with registration, qualification or compliance referred to in Section
5.2.
5.8 Assignment. Subject to compliance with the restrictions on
transfer of this Warrant, the Registered Owner's registration rights under
Section 5 may be assigned by the Registered Owner to a transferee or assignee of
the shares if the Company is given written notice of the transfer, stating the
name and address of the transferee or assignee and identifying the securities
with respect to which such registration rights are being assigned; provided,
however, that such assignment will be effective only if immediately following
such assignment the transferee or assignee holds at least 50 percent of the
Registrable Securities.
5.9 Stand-Off Agreement. No Holder who participates in the
registration, if so requested by the Company and an underwriter of securities of
the Company, will sell or otherwise transfer or dispose of any other securities
of the
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Company held by such Holder other than pursuant to the registration statement
during the 180-day period following and including the effective date of a
registration statement; provided, however, that such Holder's agreement in this
Section 5.9 will only apply if all officers and directors of the Company enter
into similar agreements in writing in a form satisfactory to the Company and
such underwriter covering shares of Common Stock owned by such officers and
directors. The Company may impose stop transfer instructions with respect to the
securities subject to the restriction in this Section 5.9 until the end of the
180-day period.
6. Restriction on Transfer. This Warrant may not be sold, transferred,
pledged, or hypothecated without the consent of the Company, which consent shall
not unreasonably be withheld. Prior to any transfer, the proposed transferee
must agree in writing to comply with the terms of this Warrant, and the transfer
must comply with applicable federal and state securities laws. Until such time
as the Company shall have received written notification of a change in the
identity of the Registered Owner, accompanied by such supporting documentation
as the Company may require, the Company may treat the Registered Owner named
above as the absolute Registered Owner of this Warrant for all purposes.
7. Legend on Stock Certificates. At the time of the exercise of this
Warrant (or any portion thereof), a certificate or certificates representing the
shares of Common Stock (or other securities) issuable upon the exercise shall
bear substantially the following legend, if counsel to the Company deems it
appropriate, plus additional legends as may be required under applicable state
and federal securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, THE OREGON SECURITIES LAW OR
SECURITIES LAWS OF ANY OTHER STATE. THE SECURITIES MAY NOT
BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE FEDERAL AND STATE LAWS, OR AN
OPINION OF COUNSEL (IN A FORM AND FROM COUNSEL ACCEPTABLE TO
THE COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
8. Amendment. This Warrant may be amended with the written consent of the
Company and the Registered Owner. If this Warrant or the shares issued upon
exercise of this Warrant have been validly transferred by the Registered Owner,
an amendment to this Warrant may be approved by the Company and the holders of a
majority of the aggregate shares issued and issuable upon the exercise of this
Warrant.
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9. Conversion to Parent Company Shares. In the event that the undersigned
Joe's Holdings, Inc. ("Parent"), an Oregon Company which owns all of the issued
and outstanding Common Stock of the Company, at any time determines to register
any of its capital stock for sale to the general public as described Section
5.2.1 above, then the Registered Holder shall have the right to convert the
shares of capital stock of the Company which it has previously purchased
pursuant to this Warrant and the number of shares of the capital stock of the
Company which remain subject to this Warrant to shares of the Capital stock of
Parent equal to 5 percent of the capital stock of Parent outstanding at the time
of the conversion, including shares issuable upon exercise or conversion of all
options, warrants and convertible securities then outstanding, and thereafter
all of the terms of this Warrant shall apply to Parent. This provision shall be
binding on Parent and its successors and assigns.
By order of and upon authority from the Board of Directors of G.I. Joe's,
Inc.:
G.I JOE'S, INC.
By NORM DANIELS
--------------------------------------
Norm Daniels
President
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Agreed to with respect to Section 9:
JOE'S HOLDINGS, INC.
By /s/
--------------------------------------
Title
-----------------------------------
Address of Registered Owner:
David Orkney
2562 S.W. Buckingham
Portland, Oregon 97201
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