<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-18553
ASHWORTH, INC.
DELAWARE 84-1052000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2791 LOKER AVENUE WEST, CARLSBAD, CA 92008
(Address of Principal Executive Office, including Zip Code)
(619) 438-6610
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant as of January 15, 1996, was $63,341,308 based upon the last reported
sale price of the Company's Common Stock as reported by the NASDAQ National
Market System.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
COMMON STOCK, $.001 PAR VALUE 12,008,626
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF THE COMPANY
Ashworth, Inc., was incorporated in Delaware on March 19, 1987, and
changed its corporate name from Charter Golf, Inc., on April 6, 1994. The
Company designs, markets, and distributes a full line of quality sports apparel,
headwear, and shoes under the Ashworth(R) and Ashworth Harry Logan(TM) labels.
The Ashworth line is retailed in golf pro shops and resorts and in the
international market. The Ashworth Harry Logan line is distributed to better
department and specialty retail stores and in limited international markets.
The Company has wholly owned subsidiaries which own and operate the
outlet stores and distribute the Company's products in Europe. The Company also
established a wholly owned subsidiary in the Virgin Islands as a foreign sales
corporation to take advantage of certain federal income tax benefits with
respect to profits from foreign sales. Ashworth, Inc. and its wholly owned
subsidiary, Ashworth U.K., Ltd., are partners of a Luxembourg partnership,
Ashworth Inc. et Cie, formed to qualify for trademark registration in Europe
under the Madrid Convention.
NARRATIVE DESCRIPTION OF BUSINESS
At its inception, the Company began designing and marketing
classically-styled, natural fiber golfwear distributed in the United States
under the Ashworth(R) brand exclusively to golf pro shops and resorts. The
Company has redefined golfwear, restoring a sense of style to the sport that
reflects the nature of the game and the surroundings in which it is played.
Natural fibers and colors, flowing lines, a loose relaxed fit, and unprecedented
attention to quality in product and presentation are the innovations the Company
brought to golfwear which are now industry standards. Its golf lifestyle
apparel is aimed at predominantly the younger active male consumer in the
middle/upper middle income range and is priced at the middle to upper middle
price range for golf apparel.
Based in Southern California, the Company now designs, markets and
distributes men's shirts, sweaters, shorts, vests, pants, pullovers, jackets,
hats, weathergear, and accessories. In 1994 the Company began manufacturing
hats in its own production facility as part of the Ashworth(R) golfwear
collection. The Company began shipping its golf footwear line to pro shops and
resorts in early 1995, further expanding its product offering in the golf niche
market.
Recognizing the everyday use of Ashworth golfwear for casual wear, in
1994 the Company introduced its golf-inspired line of men's casual sportswear
under the Ashworth Harry Logan(TM) brand to better department stores and
specialty retail stores, creating a new niche market: golf-inspired men's casual
sportswear. Along with the international expansion for Ashworth golfwear, the
Ashworth Harry Logan sportswear collection represents the fastest growing
segment of the Company's business.
The Company discontinued the women's and kids' apparel lines after the
close of the 1995 Fall season. Management decided that the relatively small
volume of sales in these apparel lines did not justify the considerable
resources spent on design and production.
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From the solid foundations established in 1987, the Company is
emerging as an internationally recognized branded consumer products company,
both in golf with its Ashworth apparel, headwear and footwear lines and at
retail with its expanding Ashworth Harry Logan men's casual sportswear
collection.
GOLF PRO SHOPS AND RESORTS
Since its inception in 1987, the Company's core business has been the
Ashworth brand golf apparel which it markets and distributes in the United
States and internationally. In the United States, the Ashworth brand apparel is
marketed and distributed exclusively to golf pro shops, resorts, and the
corporate and tournament market. The Company utilized this niche marketing
strategy to develop the Ashworth brand name.
ASHWORTH(R) APPAREL
The Company's design focus for the Ashworth(R) apparel, headwear and
footwear is on a classic style with contemporary influences intended to develop
and maintain consumer recognition and loyalty across product lines from season
to season. Ashworth brand apparel includes Spring, Summer, Fall/Holiday, and
Holiday/Resort lines, as well as an annual basic line. The basics line consists
of 27 styles, and each of the other lines consists of between 54 and 64 styles
in various colors and sizes.
The Ashworth brand golf apparel is experiencing a lesser rate of
growth as a result of the volume the Company presently distributes to the golf
pro shop and resort market. However, the Ashworth apparel business has not yet
reached maturity as the 1995 golf industry survey indicates the Ashworth apparel
continued to be the top seller and fastest growing in its market. A survey of
the brand shares of shirts in use among approximately 4,100 golfers observed
during play in June/July/August 1995 at private and public courses nationwide
reported that the Ashworth shirt was worn by more of the golfers than any other
brand.
ASHWORTH(R) HEADWEAR
The Company designs and distributes three styles of headwear in a
variety of fabrics and colors under the Ashworth brand. The 1995 golf industry
survey also indicates that the Ashworth headwear is the fastest growing headwear
in the golf industry.
ASHWORTH(R) FOOTWEAR
The golf footwear consists of four styles in selected color ways which
are marketed and distributed in the United States and all international markets
except Japan. The initial reaction to the footwear from the golf pro shops and
other Ashworth apparel customers has been very positive.
DEPARTMENT AND SPECIALTY RETAIL STORES
The Company designs, markets, and distributes to better department and
specialty retail stores a line of golf-inspired men's casual sportswear under
the Ashworth Harry Logan trademark. The line is distinguished from its
Ashworth brand products by the designs, different distribution, and separate
sales force. The Ashworth Harry Logan brand apparel consists of Spring, Summer,
Fall, and Holiday lines, as well as an annual basics line. The basic line
consists of 18 styles, and each of the other lines consists of between 24 and 44
styles in various colors and sizes.
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The Company designed the Ashworth Harry Logan apparel in response to
the retail market demand for the Company's Ashworth golfwear, which is marketed
exclusively to golf pro shops and resorts. The Ashworth Harry Logan apparel
complements the Company's present business by leveling out the seasonal nature
of the Ashworth golfwear business and expanding its distribution in the United
States to department and specialty retail stores.
Among the Company's department store customers are Dillards,
Nordstrom, Macy's, Neiman Marcus, Marshall Fields, and Saks Fifth Avenue.
INTERNATIONAL MARKET
Ashworth apparel is marketed and distributed internationally,
primarily in Japan, the United Kingdom, Europe, Canada, the Caribbean, and
Southeast Asia. The Ashworth brand footwear is distributed in the same
international markets except Japan. The international distributors market these
products through golf pro shops, department stores, off-course golf retail
outlets, and Ashworth retail stores. At the present time, one Ashworth retail
store has been opened in Japan and four in Taiwan.
In January 1996, the Company terminated the distribution agreement
with its Europe distributor, transferring the distribution of the Europe
business, except for Switzerland, to the Company's wholly owned subsidiary,
Ashworth U.K., Ltd. The former Europe distributor will continue to serve as the
distributor in Switzerland.
FACTORY OUTLET STORES
As part of its inventory control measures, the Company operates,
through wholly owned subsidiaries, ten retail stores in California, Texas,
Nebraska, Colorado, Arizona, and Utah. It will be opening an additional store
in Las Vegas, Nevada, during fiscal 1996. In selecting the sites for the outlet
stores, management seeks to avoid directly competing with the Company's
customers. The outlet stores sell only seconds and past season overruns, with
overruns held in inventory until three to six months after the end of the
respective season before placing them in the stores.
PRODUCT DESIGN
The Company's products are designed by an in-house staff under the
direction of John Ashworth. The design staff meets regularly with the Company's
sales, marketing, and production staffs to review the status of each collection
and to discuss adjustments in line composition, fabric selection, product mix
and manufacturing. In addition, members of the design staff attend the
Company's principal trade shows in each design cycle to discuss and consult with
customers concerning current retail trends. The Company designs its products
using a variety of natural fabrics, including interlock, pique, jersey, french
terry, twill, seersucker and poplin.
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SALES AND MARKETING
The Company's domestic market for the Ashworth apparel has been
seasonal, with the highest sales volume traditionally in the period January
through August and the lowest volume in the months of September through
December. However, the addition of the Ashworth Harry Logan apparel, which is
year-round, and additional fall and winter Ashworth apparel for the European
market reduces the impact of the seasonality of the Company's business.
During the last three fiscal years, the Company had the following
domestic and international sales of Ashworth products:
<TABLE>
<CAPTION>
Year ended October 31,
1995 1994 1993
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
CONSOLIDATED SALES:
Ashworth Apparel $55,250 $51,771 $44,141
Ashworth Headwear 4,016 3,672 800
Ashworth Footwear 3,486 N/A N/A
------- ------- -------
Ashworth Brand Sales 62,752 55,443 44,941
Ashworth Harry Logan Apparel 4,414 1,287 N/A
Outlet stores 5,572 3,469 882
Ashworth U.K., Ltd. (Net of InterCo. Transfers) 1,786 640 N/A
------- ------- -------
TOTAL CONSOLIDATED SALES $74,524 $60,839 $45,823
======= ======= =======
CONSOLIDATED SALES ANALYSIS - DOMESTIC & FOREIGN:
Exports from the United States
Japan $ 7,860 $ 4,880 $ 2,717
England - Ashworth U.K., Ltd. 2,994 2,432 N/A
Other Foreign Jurisdictions 5,538 4,143 3,208
------- ------- -------
Total Exports 16,392 11,455 5,925
Ashworth U.K., Ltd., (Net of InterCo. Transfers) 1,786 640 N/A
------- ------- -------
Total Foreign Sales 18,178 12,095 5,925
Total Domestic Sales 56,346 48,744 39,898
------- ------- -------
TOTAL CONSOLIDATED SALES $74,524 $60,839 $45,823
======= ======= =======
</TABLE>
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At December 31, 1995, the Company had backlog orders of approximately
$31,007,000 compared with approximately $29,342,000 at December 31, 1994. The
amount of backlog orders at a particular time is affected by a number of
factors, including the scheduling of manufacture and shipping of the product
which, in some instances, depends on the customers' demands. Accordingly, a
comparison of backlog orders from period to period is not necessarily meaningful
and may not be indicative of eventual actual shipments during the quarter.
Orders may be changed or cancelled up to 45 days prior to the ship date of the
order. The Company's experience has been that the cancellations, rejections or
returns of orders do not materially reduce the amount of sales realized from its
backlog.
The Company advertises its Ashworth brand products through trade and
consumer golf-related periodicals. The Ashworth Harry Logan products are
advertised through trade publications and cooperative advertising programs with
its account base. In connection with the distribution in the golf pro shops,
the Company provides and sells Company-designed fixtures for the display of the
products. The fixture program for the retail market includes a full set of
fixtures, shelves, and displays constituting a "shop within a shop" presentation
of the Ashworth Harry Logan products in a dedicated retail space within the
department and men's specialty retail stores.
The Company receives valuable exposure of its Ashworth products
through television and print media coverage of golf celebrities who endorse and
wear Ashworth apparel, including golf professionals Fred Couples, Ernie Els,
John Cook, and Dave Stockton, and lead CBS golf and sports announcer Jim Nantz.
In September 1994, the Company entered into a lifetime contract with Fred
Couples who also serves on the Company's board of directors as a nonvoting
adviser. Each of these golf celebrities has agreed to endorse and wear Ashworth
products and assist in advertising and promotion programs for the Company.
The Company is the sponsor of the American Junior Golf Association and
also supports collegiate golf by providing complimentary golf apparel to
collegiate golf teams.
The Company's trading terms generally require payment from customers
within 30 days after shipment. However, in fiscal 1995, the Company continued
its incentive sales program to encourage its customers to make early placement
of minimum volume orders, under which program the Company extended its payment
terms to 60 days. The Company will have a similar sales incentive program in
fiscal 1996.
The Company's strategy for sales growth of the Ashworth products is to
continue its emphasis on (1) promoting the Ashworth and Ashworth Harry Logan
brand names; (2) increasing its average sales to existing customers, (3) adding
new customers, (4) expanding its product lines, and (5) increasing its
international marketing and sales efforts.
APPAREL COMPETITION
The golf apparel business is not dominated by any single company or
small group of companies and is highly competitive, both within the United
States and abroad. The golf shirt market is a fragmented manufacturing segment
of the golf industry. The three leading brands total 24% of the shirt market,
Ashworth being the leader with approximately 10% of this market. The Company
competes not only with golf apparel manufacturers but also with manufacturers of
apparel suitable for other sports, recreation and general leisure wear. Among
the Company's competitors are numerous companies which have substantially
greater experience, financial resources, manufacturing capabilities, and/or
larger design, sales and marketing staffs than the Company.
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The Company believes that the ability to effectively anticipate, gauge
and respond to changing consumer demand relatively far in advance, as well as
the ability to operate within substantial production and delivery constraints,
is necessary to compete successfully in the golf apparel business. Other
competitive factors include quality, price, availability of retail space and
service. As measured by sales of golf apparel, a recent survey of the golf
industry indicates that the Company is now one of the top two manufacturers in
the United States. The Company believes that its future success will depend
upon its ability to remain competitive in these areas.
PRODUCTION SOURCING
The Company sources its products in three ways: 1) the Company
purchases raw materials and then contracts the manufacturing with independent
contractors, 2) the Company purchases finished goods from private label
manufacturers made to the Company's specifications, and 3) the Company operates
an in-house manufacturing facility.
CONTRACT MANUFACTURING
Almost all of the Company's knit shirts and pullovers are manufactured
through arrangements with independent cutting and sewing contractors located in
northern San Diego county, near the Company's principal offices. Although up to
fifteen individual contractors are utilized, approximately 79% of the Company's
contract work is done with two primary contractors. The Company has no long-
term formal arrangements with these two primary contractors, but the Company
represents over 90% of their business and considers its relations with these
contractors to be excellent.
To date, the Company has experienced little difficulty in satisfying
its contract manufacturing requirements. The two primary contractors have
increased the scale and efficiency of their operations to keep pace with the
Company's growth. However, in order to continue on the present growth path, the
Company's management is aware of the need to continually develop additional
sources and capacity. The Company's production and management staff has worked
closely with the two primary contractors to plan for the additional capacity
needed through at least 1996, and will continue to do so for requirements beyond
that. The Company is also developing relationships with other similarly capable
contractors to ensure adequate capacity.
The Company purchases almost all of its fabric from mills in the
Southeastern United States. Approximately ten mills are regular suppliers, but
the Company buys approximately 72% of its fabric from three primary suppliers.
Fabric represents 75%-90% of the material cost of knit products. Quality,
availability, flexibility, and on-time delivery are as important as price in
every purchase decision.
The Company maintains close working relationships with these primary
mills and gives planning projections as needed to ensure uninterrupted supply.
Because of the Company's high quality image, brand awareness, and price point,
the Company is an important customer to even the largest mills, and the Company
considers its relationships with these mills to be excellent. The mills have
adequate capacity to supply the Company's basic fabric needs well into the
future. However, to support future growth in certain specialty fabrics,
relationships with additional mills have been started.
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The Company also purchases trim items, such as collars, buttons,
bands, linings, labels, and zippers from suppliers most of whom are located on
the east coast. One trim supplier provides approximately 79% of the Company's
needs. For the foreseeable future, management believes the Company will be able
to satisfy its raw material requirements.
The Company's product development staff designs most of its fabric at
the Company's design center on computer-aided design equipment. The colors,
yarns, and knitting specifications are then digitally sent to the mills where
they are recreated and produced.
The Company's production staff coordinates product engineering, sample
making, raw material purchasing and warehousing, and management of the
independent contractors. The Company's cutting markers are produced on in-house
computer equipment that maximizes accuracy and utilization of fabric. All raw
materials must pass a sample inspection before acceptance from the mills. The
Company's field quality control staff is physically in the major cut and sew
contractors' facilities every day to maintain the Company's quality standards.
FINISHED GOODS SOURCING
The Company sources most finished garments, other than knit shirts,
from private label manufacturers in the United States, Asia and Mexico. The
Company deals directly with the manufacturers in the United States and Mexico,
and through sourcing agents in Asia. The Company's distributors in Japan and
Europe also manufacture certain products distributed in their markets pursuant
to license agreements with the Company. All of these products are produced to
the Company's specifications.
The Company sources all of its shoes in Asia through sourcing agents,
who also perform quality control in the factories.
IN-HOUSE MANUFACTURING
The Company manufactures 95% of its headwear in its own headwear
manufacturing operation. The other 5% are headwear styles the Company's
machinery cannot produce and are purchased from private label headwear
manufacturers. The Company's headwear operation employs approximately 66 people
and has the capability of producing and embroidering 2,400 baseball style caps
per day.
The Company manufactures headwear in-house to guarantee the quality of
the hats and the logo embroidery, to guarantee uninterrupted supply, and to
increase profit margins. Operating its own headwear factory also allows the
Company to develop innovative styling and provide highly flexible customer
service.
In all three methods of production sourcing, the Company operates
under substantial time constraints in producing each of its lines. Proposed
production schedules and budgets are prepared substantially in advance of the
Company's initial commitments from customers. If the Company materially
misjudges the market for a particular line, it could be faced with excessive or
insufficient inventory. Any such misjudgment could adversely affect the
Company's operations.
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OPERATIONS
Approximately 98% of the Company's products are warehoused in and
distributed from its distribution facilities in Carlsbad. The remaining 2% are
products drop-shipped from off-shore factories directly to our international
distributors.
All products delivered to the Company's distribution facilities must
pass a quality inspection before acceptance. The Company uses a state-of-the-
art rail and trolley garment handling system designed specifically for the
garment industry. This system holds the majority of the inventory at a second
and third floor level that frees the ground floor space for order processing,
embroidery, packing and shipping functions.
The Company operates 39 multi-head, computer-controlled embroidery
machines, and embroiders either the Company's or customers' logos on 61% of its
products. The machines can produce up to 8,700 custom logos per eight-hour
shift. The Company runs a second shift to accommodate seasonal demand during
the period from January through July.
The Company's computer operations run on an IBM AS400 computer. The
Company has completed a software conversion project that will significantly
enhance the Company's management information systems. The new package is an
established, fully integrated, relational database for manufacturing companies
that has been adapted for the apparel industry.
PATENTS, TRADEMARKS AND COPYRIGHTS
The Company owns and utilizes several trademarks, principal among
which are the Ashworth word and design marks, the Golfman design marks, and
Ashworth Harry Logan word mark. The Ashworth and golfman trademarks have been
registered on the Principal Register of the United States Patent and Trademark
Office. The Company filed applications for registration of the Ashworth Harry
Logan trademark on February 1, 1995. The application process generally takes one
year to complete.
The Company has either obtained registration or is processing
applications for registration of its trademarks throughout its international
market. The application process takes from six months to two years to complete.
The Company regards its trademarks and other proprietary rights as
valuable assets and believes that they have significant value in the marketing
of its products. Although the Company believes that it has the exclusive right
to use the trademarks and intends to vigorously protect its trademarks against
infringement, there can be no assurance that the Company can successfully
protect the trademarks from conflicting uses or claims of ownership.
John L. Ashworth, an officer, director and stockholder of the Company,
has no personal rights to the Ashworth trademark and will receive no
compensation from the Company for its use of the trademark.
EMPLOYEES
At December 31, 1995, the Company had approximately 400 regular and
104 temporary full-time employees.
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ITEM 2. PROPERTIES
The Company owns two buildings located on Loker Avenue West in
Carlsbad, California, which were purchased on December 9, 1993, for $3,500,000.
The buildings have a total of approximately 77,000 square feet, consisting of
space for administrative, embroidery, warehousing and distribution functions.
The purchase was financed with a down payment of $700,000 and a mortgage of
$2,800,000 amortized over thirty years but due and payable in seven years.
The Company and its subsidiaries have the following leases for
manufacturing and distribution facilities, as well as leases for retail space
for its outlet stores:
<TABLE>
<CAPTION>
Lease Min/Current Maximum
Square Expiration Base Rent Base Rent
Location Footage Date per Month per Month
- ------------------------------------------ ----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
MANUFACTURING AND DISTRIBUTION CENTERS:
Carlsbad, CA. 47,800 10/31/00 $20,203 $24,000
Vista, CA. 42,000 10/31/97 15,960 16,800
Essex, England 5,500 10/31/03 2,974 2,974 (a)
Essex,England 5,500 10/31/03 3,346 3,346 (b)
OUTLET STORES
San Ysidro, CA 2,448 4/30/98 $ 4,280 $ 4,588
San Marcos, TX 3,000 8/31/00 4,012 4,514
Vacaville, CA 2,500 10/31/00 4,217 5,060
Gretna, NE 2,000 2/28/99 2,500 2,500
Carlsbad, CA 1,600 6/30/97 957 995
Barstow, CA 2,300 12/31/99 4,036 4,420
Phoenix, AZ 3,984 9/30/0 5,312 5,976
Park City, UT 2,257 5/31/00 2,915 3,103
Hillsboro, TX 2,700 5/31/00 4,163 4,613
Silverthorne, CO 2,250 6/30/0 3,656 4,031
</TABLE>
(a) The rate increase for years 6-10 is to be negotiated at the end of year 5.
(b) The rate increase for years 5-9 is to be negotiated at the end of year 4.
The Company also pays percentage rate based on sales for the leases on all of
the outlet stores except the Carlsbad, California, store.
The Company has also entered into leases for retail store space in Las
Vegas, Nevada, and San Marcos, Texas, outlet malls, which are under construction
and expected to completed in the summer and fall of 1996. The lease for the San
Marcos, Texas, space will replace the existing San Marcos store space.
ITEM 3. LEGAL PROCEEDINGS.
There were no material pending or threatened legal proceedings as to which
the Company or any of its subsidiaries was a party or of which any of their
property was the subject during fiscal 1995.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year covered by this report, either by proxy
solicitation or otherwise.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ National Market System under the symbol "ASHW". The following table sets
forth the high and low sale prices on the NASDAQ National Market System for the
quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1994
January 31 11 7/8 8 3/4
April 30 13 1/4 9 5/8
July 31 11 1/2 7 3/4
October 31 11 1/8 8
1995
January 31 11 1/2 7 1/8
April 30 10 7/8 7 1/2
July 31 10 5/8 7
October 31 8 7/8 5 7/8
</TABLE>
HOLDERS
There is only one class of Common Stock. As of January 15, 1996,
there were 998 stockholders of record and approximately 13,000 beneficial owners
of the Company's Common Stock.
DIVIDENDS
No dividends have been declared during the past two fiscal years with
respect to the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The statement of income data set forth below with
respect to the fiscal years ended October 31, 1995, 1994 and 1993 and the
balance sheet data at October 31, 1995 and 1994 are derived from, and should be
read in conjunction with the audited Consolidated Financial Statements included
elsewhere herein. The statement of income data set forth below with respect to
the fiscal years ended October 31, 1992 and 1991 and the balance sheet data at
October 31, 1993, 1992 and 1991 are derived from audited financial statements
not included in this Form 10-K. No dividends have been paid for any of the
periods presented.
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<TABLE>
<CAPTION>
Years Ended October 31,
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In thousands, except per share amount)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C>
Net Sales $74,524 $60,839 $45,823 $28,562 $17,023
Gross Profit 25,025 23,898 17,816 10,605 6,171
Selling, general, and
administrative expense 21,522 15,525 11,161 7,120 3,888
Income from operations 3,504 8,373 6,655 3,485 2,283
Net Income 1,401 4,860 3,946 2,020 1,244
Net income per common
and equivalent share 0.12 0.40 0.34 0.19 0.13
Weighted average common and
equivalent shares outstanding 12,112 12,224 11,766 10,910 9,396
October 31
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In thousands)
BALANCE SHEET DATA:
Working capital $29,216 $26,368 $22,128 $17,461 $ 5,422
Total assets 58,072 47,694 33,757 25,681 10,132
Long-term debt (less current portion) 5,195 5,774 2,885 1,713 741
Stockholders' equity 36,390 32,926 26,050 20,203 6,414
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
statement items expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Years Ended October 31,
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 66.4 60.7 61.1
Gross margin 33.6 39.3 38.9
Selling, general and administrative expense 28.9 25.5 24.4
Income from operations 4.7 13.8 14.5
</TABLE>
1995 COMPARED TO 1994
Consolidated net sales were $74,524,000 for fiscal 1995, an increase of
$13,685,000 over net sales of $60,839,000 in fiscal 1994. The increase was
primarily due to increased sales volume in the main areas of the Company's
business, price increases in the outlet stores, and the introduction of golf
footwear. Ashworth brand apparel sales to golf pro shops increased by only 2.3%
in the year due in large part to incomplete or late shipments resulting from the
slower than expected conversion of the Com-
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pany's Management Information System (MIS). However, total sales increased by
22.5% over fiscal 1994. An analysis of sales for the two years is shown under
Business - Sales and Marketing.
The increase in cost of sales was due primarily to the increase of the
inventory reserve. Firstly, the Company announced that it was discontinuing
the women's and kid's apparel lines. In connection with this decision, the
Company recorded an inventory reserve of $1.8 million in the second quarter. At
the end of the third quarter, the inventory reserve was increased by a further
$500,000. Lastly, at year end, after further prudent examination of both raw
material and finished goods inventories, the reserve was increased by an
additional $1.3 million. Apart from the decision to discontinue the women's and
kid's lines, the conversion to the new MIS software resulted in significant
problems in the area of forecasting and production scheduling. This resulted in
an excess of finished goods being produced for the Spring and Summer seasons.
Management believes such excess inventory can be disposed of through the
Company's outlet stores. The MIS conversion is now completed, and the Company
is better equipped to monitor inventory levels through better forecasting and
production scheduling.
Selling, general and administrative expenses increased to 28.9% of net
sales compared to 25.5% in fiscal 1994. The dollar amount increased to $21.5
million in fiscal 1995 from $15.5 million in fiscal 1994. Much of this increase
can be attributed to cost increases associated with increased sales volume.
However, items contributing to the disproportionate percentage increase were
marketing and selling expenses for the Ashworth Harry Logan and Ashworth
footwear lines, higher endorsement fees, programming costs for the MIS
conversion, severance pay in connection with workforce consolidation, and start-
up costs for three new retail outlet stores. Additionally, the reserve for bad
debts was increased during the year from $255,000 to $767,000.
Other income (expense) produced a net expense of $1,088,000 for 1995
compared to $313,000 in 1994. Increased bank borrowings in fiscal 1995 resulted
in higher interest payments of $414,000 and Ashworth U.K., Ltd. had a currency
exchange rate loss of $117,000 on its transactions with the Company in 1995
compared to a gain of $210,000 in 1994. (See Liquidity and Capital
Resources--Currency Fluctuation.)
Sales at the Company's outlet stores increased to $5.6 million in fiscal
1995 as compared to $3.5 million in 1994. The gross margin improved to 25.9% in
the year, up from 12.4% in fiscal 1994. This improvement stems from management's
decision to more aggressively price the Company's products. The outlet stores
operating loss was $313,000 in fiscal 1995, an improvement over the loss of
$616,000 in fiscal 1994.
1994 COMPARED TO 1993
Net sales were $60,839,000 for fiscal 1994, an increase of $15,016,000 over
net sales of $45,823,000 in fiscal 1993. Domestic sales increased 22% over the
prior year, foreign sales by 104% and sales through outlet stores by 293%,
resulting in a total consolidated sales increase of 33%. Foreign sales were
$12,095,000 for the year compared to $5,925,000 in 1993.
Cost of goods sold as a percentage of net sales was 61% in fiscal 1994,
the same percentage as in fiscal 1993. The Company's gross profit margin also
remained unchanged for the year at 39%. The gross margin in the final quarter
of 1994 was 33% compared to 39% for the same quarter in 1993. The lower gross
margin is attributable to increased manufacturing costs associated with special
make-ups, sales of lower margin goods, and to some increase in overhead costs.
Selling, general and administrative expenses increased to 25.5% as a
percentage of net sales from 24.4% in fiscal 1993. The dollar amount increased
to $15,525,000 in fiscal 1994 from
13
<PAGE>
$11,161,000 in fiscal 1993, primarily the result of cost increases associated
with increased sales volume, start-up costs for the Ashworth Harry Logan line
and the cost of converting to a new computer software package.
The increase in income from operations in fiscal 1994 to $8,373,000 from
$6,655,000 in fiscal 1993 resulted primarily from the strong increase in net
sales. As a percentage of net sales, income from operations decreased to 13.8%
in fiscal 1994 from 14.5% in fiscal 1993 primarily due to the increase in
selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for working capital is seasonal with the greatest
requirements from approximately October through the end of April each year. The
inventory buildup during this period is to provide product for shipment for the
primary spring/summer selling season. Working capital requirements increase
with sales growth, primarily because of the approximate two to four month gap
between the time the Company must pay its suppliers and production costs and the
time the Company receives payment from its customers. However, management
believes that cash from operations together with the bank line of credit will
be sufficient to meet the Company's working capital requirements through fiscal
1996.
Operating activities in 1995 produced a negative cash flow of $9,727,000,
compared to a negative cash flow of $500,000 in 1994. The major portion of the
increase in negative cash flow is attributed to the increase in inventory in
fiscal 1995. As discussed above under Results of Operations, the inventory
increase was primarily caused by an inability to accurately forecast sales and
production needs during the conversion of the Company's management information
system. Management believes that the Company can sell a substantial portion of
the inventory surplus in its outlet stores in fiscal 1996, converting such
surplus to cash. With the MIS conversion now completed, management believes
that, through control over the inventory, cash flows from operations will be
improved.
In October 1995, the Company's working capital financing arrangement with
its bank was extended through February 28, 1997, with a borrowing limit of
$13,000,000 for eight months of the year and $17,000,000 for the period when
inventory build-up is at its peak. This financing arrangement provides a
revolving line of credit with interest at the bank's reference (prime) rate and
is collateralized by substantially all of the assets of the Company. The line
of credit agreement contains certain financial covenants, the most restrictive
of which require the Company to maintain, as defined, a minimum tangible net
worth, a maximum debt-to-equity ratio and a maximum ratio of cash and accounts
receivable to current liabilities. The Company did not achieve the required
minimum net income for its fourth quarter in 1995, nor did it achieve the
required quick ratio or tangible net worth amount for the year. The bank has
granted a waiver for these violations, and the Company has agreed to pay a
minimal fee and enter into an amended agreement. The line of credit may also be
used to finance up to $1 million in commercial letters of credit and standby
letters of credit. At October 31, 1995, no standby letters or commercial letters
of credit were outstanding on this line of credit. As of October 31, 1995 and
January 15, 1996, the Company's outstanding balances under the line of credit
were $6,670,000 and $10,700,000, respectively.
During fiscal 1995 the Company invested $2,129,000 in personal property and
equipment, primarily embroidery machines, outlet store fixtures and fittings,
and computer equipment. For fiscal 1996 the Company has budgeted $2,300,000 for
capital equipment acquisitions. The expected additional equipment includes
primarily embroidery machines, warehouse racks, and computer equipment.
Management currently intends to use leases or other financing arrangements for
the acquisition of much of its capital equipment.
If cash from operations and debt financing are either insufficient or not
available, or if working capital requirements are greater than estimated, the
Company may be required to raise additional capital.
14
<PAGE>
There can be no assurance that the Company will continue to successfully raise
sufficient working capital to meet its requirements. Lack of sufficient working
capital could have a material adverse effect upon the Company, its business, and
its ability to grow.
CURRENCY FLUCTUATIONS
Ashworth U.K., Ltd., a wholly owned subsidiary in England, maintains its
books of account in British pounds. For consolidation purposes, the assets and
liabilities of Ashworth U.K., Ltd., are converted to U.S. dollars at the month
end exchange rate. A translation difference arises for share capital and
retained earnings, which are converted at rates other than the month end rate,
and this amount is transferred to current year earnings. The difference was not
material in fiscal 1996.
All export sales by Ashworth, Inc. are U.S. Dollar denominated, and
ordinarily, there is no currency exchange rate problem for the Company. However,
with respect to export sales to Ashworth U.K., Ltd., that subsidiary may be at
risk. The subsidiary maintains its account with Ashworth, Inc., in British
pounds, but owes Ashworth, Inc., in U.S. Dollars. At the end of every
accounting period, the debt is adjusted to pounds by multiplying the
indebtedness by the closing dollar/pound exchange rate to ensure that the
account has sufficient pounds to meet its dollar obligation. This adjustment is
a loss or gain on currency transactions and is either income or an expense in
the subsidiary's financial statement. The Company's management determined,
therefore, to accept 50,000 additional shares of Ashworth U.K. in satisfaction
of $2,088,840 (1,300,000 pounds) of that subsidiary's indebtedness to the
Company. This additional capitalization of Ashworth U.K. in the form of
cancellation of indebtedness reduced the exposure by at least half in months
when indebtedness is high due to large shipments of product.
The Company's purchases of some garments and shoes from off-shore
manufacturers are also U.S. Dollar denominated, consequently, there is no
currency exchange rate problem for the Company in connection with these
purchases.
The Company has not used derivative instruments or other arrangements to
hedge against currency fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements with respect to the Company are
submitted herewith:
1. Report of Independent Public Accountants, page F1.
2. Consolidated Balance Sheets-October 31, 1995 and 1994, pages F2 and F3.
3. Consolidated Statements of Income for the years ended October 31, 1995,
1994 and 1993, Page F4.
4. Consolidated Statements of Stockholders' Equity for the years ended October
31, 1995, 1994, and 1993, page F5.
5. Consolidated Statements of Cash Flows for the years ended October 31, 1995,
1994, and 1993, pages F6 and F7.
6. Notes to Consolidated Financial Statements, pages F8 through F16.
7. Report of Independent Public Accountants on Supplementary Schedule, page
F17.
8. Supplementary Schedule, page F18.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting and financial disclosure during the past three fiscal years.
15
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's directors and executive officers are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gerald W. Montiel 49 Chairman of the Board, President
Chief Executive Officer
John L. Ashworth 36 Senior Executive Vice President - Creative
Director
A. John Newman 59 Vice President - Finance, Treasurer, Chief Finan-
cial Officer, and Chief Accounting Officer
Mary Montiel 43 Vice President - Manufacturing & Design
Monica M. McKenzie 62 General Counsel and Secretary
Andre P. Gambucci 67 Director
John M. Hanson, Jr. 55 Director
</TABLE>
Richard H. Werschkul, formerly the Company's president and chief executive
officer, resigned effective January 15, 1996, to pursue personal and business
interests. Mr. Montiel was appointed to these positions by the board of
directors.
The directors are divided into three classes, each class as nearly equal in
number as possible, with an annual election of each class for a term of three
years. Mr. Montiel's term expires in 1996, Mr. Hanson's term in 1997, and terms
of Messrs. Ashworth and Gambucci expire in 1998. The directors serve until
their terms expire and until their successors are duly elected and qualified or
until their death, resignation or removal. The executive officers of the
Company are elected at the annual meeting of the Board of Directors and serve at
its discretion.
BUSINESS EXPERIENCE
GERALD W. MONTIEL is a founder of the Company and has been its Chairman of
the Board of Directors since the inception of the Company in March 1987. He
served as chief executive officer from 1988 to April 1995 and president from the
Company's inception to October 1993 and again from January 15, 1996, to the
present. Mr. Montiel also served as treasurer from October 1989 to December
1991 and chief financial officer from January 1990 to December 1991.
JOHN L. ASHWORTH is a founder of the Company and has been a director since
its inception. Mr. Ashworth has served as a vice president since October 1989
and currently serves as senior executive vice president - creative director. He
served as secretary from March 1987 to January 1990.
ANDRE P. GAMBUCCI has been a director of the Company since June 1991. Mr.
Gambucci was a senior vice president and director of marketing of Acordia of
Colorado, a general insurance agency and insurance brokerage firm in Colorado
Springs, Colorado, from 1982 until December 31, 1995, when he retired. He is
now a consultant for Acordia National and special assistant to the president of
American Specialty Services, an insurance company.
JOHN M. HANSON, JR. has been a director of the Company since April 1994. Mr.
Hanson has been a shareholder and officer of John M. Hanson & Company, a
professional corporation practicing accounting, from 1968 to the present. The
firm has been retained to prepare the Company's tax returns for fiscal 1995.
16
<PAGE>
A. JOHN NEWMAN has served as chief accounting officer since January 1990 and
vice president-finance, treasurer, and chief financial officer since December
1991. He also served as the company's controller from 1988 to January 1990 and
secretary from January 1990 until May 1993.
MARY MONTIEL was elected vice president - manufacturing and design in December
1994. She served as production manager from April 1991 until December 1994.
She was president and chief financial officer of Mondav Corporation, an auto
parts supplier, from 1988 to April 1991. Ms. Montiel is the sister of Gerald
Montiel, the Company's chairman of the board, chief executive officer and
president.
MONICA M. MCKENZIE has served as general counsel since April 1993 and was
elected to the position of secretary in May 1993. She was formerly a partner of
the Denver, Colorado, law firm of Gorsuch Kirgis L.L.C., the Company's outside
legal counsel.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers, directors, and persons who beneficially own more than ten percent
(10%) of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership of the Company's securities with the Securities
and Exchange Commission. To the best of the Company's information and belief,
no person beneficially owns more than ten percent of the Company's securities.
The executive officers and directors are required to furnish the Company with
information concerning their ownership of the securities and with copies of such
filings.
Based solely on a review of such information and the copies of the filings
furnished by executive officers and directors to the Company, the Company
believes that with the exception of the late filing by two months of the initial
Form 3 of Mary Montiel upon her appointment as an executive vice president, all
Section 16(a) filing requirements applicable to its executive officers and
directors were complied with during fiscal 1995.
ITEM 11. EXECUTIVE COMPENSATION.
The following information sets forth the executive compensation of the
Company's chief executive officer and each of the four most highly compensated
executive officers other than the CEO who were serving as executive officers at
the end of the last fiscal year. Since the end of the fiscal year, Mr.
Coykendall resigned effective November 1, 1995, and Mr. Werschkul resigned
effective January 15, 1996. Mr. Montiel was appointed chief executive officer
and president to fill the vacancy created by Mr. Werschkul's resignation.
17
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation All Other Compensation
----------------------------- -----------------------
Annual Awards Split 401(k)
Name and Compensation Stock Dollar Savings
Principal Position Year Salary Options Policy Plan
------------------ ---- ------------ ------- --------- -------
($) (#) ($) ($)
<S> <C> <C> <C> <C> <C>
Richard H. Werschkul 1995 242,740 200,000 0 3,088
President and Chief 1994 220,462 150,000 0 2,740
Executive Officer 1993 168,269 40,000 0 2,019
Gerald W. Montiel 1995 315,065 300,000 1,062 4,011
Chairman of the 1994 312,693 0 1,283 3,538
Board of Directors 1993 260,000 350,000 1,196 3,264
John L. Ashworth, Sr. 1995 264,741 260,000 9 3,385
Exec. Vice President - 1994 263,514 40,000 0 3,367
Creative Director 1993 175,910 295,000 0 2,287
A. John Newman 1995 160,385 0 0 2,430
Vice President - 1994 145,173 20,000 0 1,976
Finance 1993 125,000 20,000 0 1,571
Kent R. Coykendall, 1995 160,385 0 0 2,430
Vice President - 1994 145,173 20,000 0 1,976
Operations 1993 125,000 20,000 0 1,571
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATE OF STOCK
PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF
SECURITIES TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS
SARS GRANTED TO EXERCISE
EMPLOYEES OR BASE
IN FISCAL PRICE EXERCISE
NAME YEAR ($/SH) PERIOD (5%) (10%)
---- ---------- -------- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Montiel 100,000 10.50 7/01/95-6/30/00 290,096 641,036
100,000 10.50 7/01/96-6/30/01 357,100 810,139
100,000 39.5 10.50 7/01/97-6/30/02 427,455 996,153
John L. Ashworth 60,000 10.50 7/01/95-6/30/00 174,057 384,621
100,000 10.50 7/01/96-6/30/01 357,100 810,139
100,000 34.2 10.50 7/01/97-6/30/02 427,455 996,153
Richard H. Werschkul(1) 40,000 10.50 7/01/95-6/30/00 116,038 256,414
40,000 10.50 7/01/96-6/30/01 142,840 324,056
40,000 10.50 7/01/97-6/30/02 170,982 398,461
40,000 10.50 7/01/98-6/30/03 200,531 480,307
40,000 26.3 10.50 7/01/99-6/30/04 231,558 570,338
- ---------------------
</TABLE>
(1) On January 15, 1996, following Mr. Werschkul's resignation, the exercise
period for the option to purchase the 40,000 shares exercisable on 7/02/95
was extended to December 31, 1999, the exercise period for the option to
purchase 60,000 of the remaining shares was changed to commence on January
15, 1996, and expire on December 31, 1999; the remaining option for 100,000
shares was cancelled.
18
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------- ----------------- --------------- ---------------- ---------------
(#) (%) (#) ($)
<S> <C> <C> <C> <C>
Gerald W. Montiel 125,000 512,875 540,000/200,000 239,500/0
John L. Ashworth 105,000 417,750 470,000/200,000 193,850/0
Richard H. Werschkul -0- -0- 290,000/160,000 60,000/0
John Newman -0- -0- 50,000/0 15,000/0
Kent R. Coykendall -0- -0- 50,000/0 15,000/0
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company each receive annual
compensation of $10,000 plus $1,000 and expenses for attendance at each board
meeting. Such directors also receive stock options to purchase 2,000 shares of
the Company's $.001 par value Common Stock for each quarter during which they
serve as directors and 250 shares for each committee on which they serve during
each quarter. All directors receive an annual $1,000 apparel allowance. No
other arrangement exists pursuant to which any director of the Company was
compensated during the Company's last fiscal year for any service provided as a
director.
EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT AND
CHANGE OF CONTROL ARRANGEMENTS
The Company has executive employment agreements with Gerald W. Montiel
and John L. Ashworth. The agreements provide that base salary is to be
determined periodically at the discretion of the Board of Directors on the basis
of merit and the Company's financial success and progress. The Company agreed
to pay the executive an annual bonus equal to the premium due on life insurance
policies with a face value of $1,000,000 for Mr. Montiel and $2,000,000 for Mr.
Ashworth. The Company also pays the premium on a split dollar insurance policy
with a face value of $1,000,000 on the life of Mr. Montiel. The agreements also
include noncompete provisions following termination of employment for which the
Company has agreed to pay each executive compensation based upon a percentage of
his then current salary as consideration for the noncompete agreement. The
noncompete period is ten years with the noncompete consideration to be an amount
equal to 100% of the executive's then current salary for the first year and 40%
of such salary for the next nine years. In the event of the executive's death
during employment with the Company, his beneficiary or estate will receive an
amount equal to the noncompete consideration. The Company has purchased term
life insurance to provide the funds in such event. Under the terms of the
agreement, the Company may terminate the executive's employment upon 30 days
notice, and the executive may terminate his employment upon 90 days notice to
the Company.
The Company had a similar agreement with Mr. Werschkul, which agreement
was terminated upon his resignation. The Company and Mr. Werschkul entered into
a noncompete and consulting agreement, whereby Mr. Werschkul agreed to a
noncompete provision and consulting arrangement for two years for which the
Company agreed to pay him $240,000, payable during the first year in biweekly
installments. The
19
<PAGE>
Company's Compensation Committee also agreed to an extension and repricing of
certain of Mr. Werschkul's options in exchange for cancellation of 155,000
options held by him. The exercise price of all options extended and repriced
was above the closing price of the Company's stock at the date of modifications.
The Company has an agreement with Monica M. McKenzie, the Company's
General Counsel and Secretary, whereby the Company agreed to one year's
severance pay if the Company is acquired before April 12, 1996, and as a result,
her employment is terminated. Her current salary is $125,000.
The Company has key person life insurance payable to the Company on the
lives of Messrs. Montiel and Ashworth in the amount of $1,000,000 and $300,000,
respectively.
BOARD COMPENSATION COMMITTEE REPORT
The members of the Compensation Committee of the Board of Directors
during fiscal 1995 included Andre Gambucci and John M. Hanson, Jr.
Under the supervision of the Compensation Committee of the Board of
Directors, the Company has developed and implemented compensation policies
intended to attract, retain, and stimulate the performance of the Company's
executive officers, provide such officers the opportunity to acquire a
proprietary interest in the Company and an increased personal interest in the
profitability of the Company, and thus stockholders' value, and provide
competitive levels of long-term compensation for such officers. The criteria
for determining a specific officer's compensation includes length of employment,
level of responsibility, contribution to the overall success of the Company, and
individual performance with respect to achievement of the Company's goals. The
goals, which include individual, department, and Company goals, are set at the
beginning of each fiscal year and reviewed quarterly. The goals include sales,
market share, quality control, production, inventory, and earnings per share.
In reviewing management performance and compensation, the Committee also
considers management's commitment to the long-term success of the Company
through expansion of its international as well as domestic market, development
of new products, and operational improvements. Compensation of the executive
officers includes a base salary and annual and long-term incentive compensation
consisting primarily of stock options.
The compensation for the Company's chief executive officer is primarily
based upon the rate of the Company's growth from year to year in terms of sales,
expenses, and earnings per share.
This report was furnished by Mr. Gambucci and Mr. Hanson.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change
in the Company's cumulative total shareholder returns on the Company's Common
Stock with the cumulative total return of the Nasdaq Stock Market (U. S.
Companies) and Nasdaq Stocks in the same Standard Industrial Classification as
the Company (SIC 2300-2399), as published by the Center for Research in Security
Prices, University of Chicago, Chicago, Illinois.
20
<PAGE>
<TABLE>
<CAPTION>
10/31/90 10/31/91 10/31/92 10/31/93 10/31/94 10/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ashworth, Inc. 100.0 255.5 185.8 432.1 390.3 250.9
Nasdaq Stock Market
(U.S. Companies) 100.0 169.2 190.8 245.9 247.2 332.6
NASDAQ Stocks
(SIC 2300-2399 Companies)
Apparel & other finished
products - fabrics & like
materials 100.0 178.3 107.7 126.0 126.1 85.3
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compound daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10/31/90.
STOCK OPTION PLANS
AMENDED AND RESTATED NONQUALIFIED STOCK OPTION PLAN
In August 1987 the Company adopted a nonqualified stock option plan
which was subsequently amended (as amended to date, the "Plan"). The Company's
compensation committee or such other committee as the Board of Directors may
designate from time to time (the "Committee") administers the Plan and, except
for options granted to members of the Committee, selects the persons to whom
options are granted. (See 10-K for year ended October 31, 1991 for fuller
detail).
The Company has reserved 5,700,000 shares of Common Stock for issuance
upon exercise of options granted under the Plan, all of which shares have been
registered pursuant to the Securities Act and, upon issuance, will be freely
tradable without restriction, except for shares held by an "affiliate" of the
Company. Under the Plan, as of December 31, 1995, options to purchase 1,294,645
shares are outstanding, options to purchase 1,562,500 shares had been exercised,
and 2,842,855 shares were available for options to be granted at a future date.
Of the outstanding options under the Plan, options to purchase additional shares
were exercisable or will become exercisable in the fiscal years and at the
weighted average exercise prices indicated below:
<TABLE>
<CAPTION>
No. Of Exercisable as of Weighted Average
Options December 31 Exercise Price
------- ----------------- ----------------
<S> <C> <C>
1,122,145 1995 $ 7.49
62,500 1996 $ 9.82
47,500 1997 $10.02
47,500 1998 $10.02
15,000 1999 $ 8.25
</TABLE>
21
<PAGE>
FOUNDERS' NONQUALIFIED STOCK OPTION PLAN
In November 1992 the Company adopted a Founders' nonqualified stock option
plan (the "Founders' Plan") to provide a means for recognizing and rewarding
officers, directors, consultants and advisors of the Company who have played a
substantial role in the founding or early development of the Company. The
Founders' Plan is administered by a committee of directors appointed by the
Board of Directors (the "Compensation Committee") which is presently comprised
of the Company's two outside directors. The Compensation Committee has the sole
and absolute authority and discretion to interpret the Founders' Plan and to
prescribe, amend and rescind rules and regulations relating to the Founders'
Plan. The Committee may grant options at less than the fair market value of the
stock on the date of grant.
The Company has reserved 1,000,000 shares of Common Stock for issuance upon
exercise of options granted under the Plan, all of which shares have been
registered pursuant to the Securities Act and, upon issuance, will be freely
tradable without restriction, except for shares held by an "affiliate" of the
Company.
Under the Plan, as of December 31, 1995, options to purchase 570,000 shares
were outstanding, options to purchase 429,000 shares had been exercised, and
1,000 shares were available for options to be granted at a future date. All of
the outstanding options are currently exercisable at a weighted average exercise
price of $8.05.
INCENTIVE STOCK OPTION PLAN
The Company adopted the Incentive Stock Option Plan (the ISOP) in May 1993
following stockholder approval. The Company's compensation committee or such
other committee as the Board of Directors may designate from time to time (the
Committee) administers the Plan. The Committee selects the persons to whom the
options are granted from among the Company's full-time employees who are regular
salaried officers or key employees of the Company and certain other persons in
connection with offers of employment. Any options granted under the ISOP to an
employee during a calendar year in excess of $100,000 of aggregate fair market
value (determined at the time the option is granted) will not qualify as
incentive stock options under the plan.
The grant or exercise of an incentive stock option under the ISOP is not
taxable to the employee. The employee generally will be taxed when and if the
stock received on exercise of the ISO is sold at a gain. In order to receive
this tax treatment under the Internal Revenue Code, the Plan was required to be
approved by the stockholders, the options must be granted within 10 years of the
date of the Plan, an option by its terms must be exercisable only within 10
years of the date it is granted, except an option granted to an employee who
owns more than 10% of the voting power or value of the Company's stock must be
exercisable within five years of the date it is granted, the exercise price must
equal or exceed the fair market value of the Company's Common Stock on the date
of the grant, except the exercise price of options granted to employees who own
more than 10% of the voting power or value of the Company's stock must be at
least 110% of the fair market value at the time the option is granted. The
option will qualify as an incentive stock option for tax purposes only if the
optionee does not dispose of the stock received upon exercise of the option
within two years from the date the option was granted and one year from the date
the option is exercised. If the optionee does not meet the holding
requirements, any gain in the sale will be treated as ordinary income.
22
<PAGE>
The Company has reserved 3,000,000 shares of Common Stock for issuance upon
exercise of options granted under the Plan, all of which shares have been
registered pursuant to the Securities Act and, upon issuance, will be freely
tradable without restriction, except for shares held by an "affiliate" of the
Company.
Under the ISOP, as of December 31, 1995, options to purchase 1,261,292
shares were outstanding, 5,000 options to purchase shares had been exercised,
and 1,733,708 shares were available for options to be granted at a future date.
Of the outstanding options under the Plan, options to purchase additional shares
were exercisable or will become exercisable in the fiscal years and at the
weighted average exercise prices indicated below:
<TABLE>
<CAPTION>
No. Of Exercisable as of Weighted Average
Options December 31, Exercise Price
------- ----------------- ----------------
<S> <C> <C>
701,292 1995 $ 9.27
240,000 1996 $10.50
240,000 1997 $10.50
40,000 1998 $10.50
40,000 1999 $10.50
</TABLE>
Options granted under the above described stock option plans may not be
transferred by the optionee other than by will or the laws of descent and
distribution. Each option is exercisable during the lifetime of the optionee
only by such optionee or by his or her guardian or legal representative. An
optionee must exercise the options within three months after the date of
termination of employment or engagement by the Company unless the option is
extended by the Committee for an additional period. The Committee may in its
discretion permit options to be exercised for a period not to exceed the
option's stated expiration date. If an optionee dies while still employed or
engaged by the Company or at any time prior to the expiration or termination of
his or her option, the option will terminate no earlier than one year after
death or at such later date as the Committee may specify.
401(K) PLAN
The Company adopted a defined contribution savings plan (the "401(k) plan")
to provide retirement income to employees of the Company effective January 1,
1990. The 401(k) Plan is intended to be qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended. The 401(k) Plan covers all employees
who are at least 21, have been employed by the Company for at least six months,
and work at least an annualized 1000 hours per year. It is funded by voluntary
pre-tax contributions from employees up to a maximum amount equal to 15% of
annual compensation and by 50% matching contributions by the Company up to 3% of
an employee's annual compensation. (See the Company's 10-K for the period ended
October 31, 1992 for fuller details).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number and percentage of 12,008,626
issued and outstanding shares of the Company's $.001 par value Common Stock
owned beneficially, as of January 15, 1996, by (1) any person who is known to
the Company to be, or to claim to be, the beneficial owner of more than 5% of
23
<PAGE>
such Common Stock, (2) by each of the directors, (3) each of the executive
officers, and (4) all directors and officers as a group. Each person has sole
voting power and sole investment powers with respect to the shares. Information
as to beneficial ownership is based upon statements furnished to the Company by
such persons.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------------------- Percent
Name Shares Options(1)(2) Total Owned(3)
---- -------- ------------- ----------- --------
(#) (#) (#) (%)
<S> <C> <C> <C> <C>
Gerald W. Montiel 50,840 540,000 590,840 4.71
John L. Ashworth 111,609 470,000 581,609 4.66
A. John Newman -0- 50,000 50,000 *
Mary Montiel -0- 20,500 20,500 *
Monica M. McKenzie -0- 25,500 25,500 *
Andre P. Gambucci 67,500 27,500 95,000 *
John M. Hanson, Jr. -0- 17,500 17,500 *
All executive officers and
directors as a group (7 persons) 229,949 1,151,000 1,380,949 10.49
Fred Couples 518,000 575,000 1,093,000 8.69
</TABLE>
* Less than one percent.
______________
(1) Represents shares of Common Stock which may be acquired pursuant to
presently exercisable stock options, including stock options exercisable
within 60 days of January 15, 1996.
(2) Only the below indicated options have exercise prices which are less than
the market price of the Company's Common Stock on January 15, 1996
($5.625):
Mr. Montiel 50,000
Mr. Ashworth 75,000
Mr. Couples 25,000
(3) For the purpose of computing the percentage of outstanding shares owned by
each of the above persons, the shares issuable pursuant to presently
exercisable stock options held by such person are deemed to be outstanding
and have been added to the shares actually issued and outstanding, at
January 15, 1996, pursuant to Rule 13d-3(d)(1) of the Securities Exchange
Act of 1934. Such options are not deemed to be outstanding for the purpose
of computing the percentage owned by any other person, except for all
officers and directors as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
John L. Ashworth, the Company's senior executive vice president-creative
director, was extended a loan by the Company on May 1, 1995 in connection with
the exercise of an option expiring May 1, 1995. The full recourse loan is in the
principal amount of $306,000 and bears interest at a variable annual rate based
upon the Bank of America prime rate on the 1st day of each month. Interest is
payable in quarterly installments, and the principal is due and payable on April
30, 1996.
Mary Montiel, sister of Mr. Montiel, is an executive officer and employee
of the Company. In the year ended October 31, 1995, she had earned a salary of
$111,193 and was granted an option to purchase 5,000 shares of the Company's
Common Stock at $8.50, the then fair market value of such stock. She is
currently receiving an annual salary of $120,000.
24
<PAGE>
Carol Kettela, sister of Mr. Montiel, is an employee of the Company. In
the year ended October 31, 1995, she had earned a salary of $59,269 and is
currently receiving an annual salary of $60,000.
David Kettela, brother-in-law of Mr. Montiel and husband of Carol Kettela,
is an employee of the Company. In the year ended October 31, 1995, he had
earned a salary of $54,287 and is currently receiving an annual salary of
$60,000.
Michelle Zafiropoulos, daughter of Gerald W. Montiel, is an employee of the
Company. On April 6, 1995, Ms. Montiel exercised an option for 4,000 shares
held by her and received a benefit of $15,365. In the year ended October 31,
1995, she had earned a salary of $38,068 and is currently receiving an annual
salary of $72,500.
Hank Ashworth, brother of John L. Ashworth, is a sales representative of
the Company. From April 17, 1994, through October 31, 1995, he was national
sales manager for ASHWORTH core business. On December 20, 1994, Mr. Ashworth
exercised an option for 3,000 shares held by him and received a benefit of
$10,500. During the fiscal year ended October 31, 1995, he earned a salary of
$76,461 and is currently being paid commissions for sales generated by him.
Laura Gambucci, daughter of Andre Gambucci, a director, is an employee of
the Company. In the year ended October 31, 1995, she earned a salary of $73,062
and is currently receiving an annual salary of $84,000.
The Company has also entered into a promotion agreement with Fred Couples,
who owns of record or beneficially more than 5% of the Company's Common Stock.
The agreement requires Mr. Couples' exclusive endorsement and promotion of the
ASHWORTH products during his lifetime. The Company has agreed to compensate Mr.
Couples for such services, the present value of which compensation is
approximately $4.6 million. In addition, the Company has granted to Mr. Couples
the right to receive options to purchase the Company's Common Stock upon his
performance of specified services, including his participation in PGA
tournaments. The exercise price of the options will be the fair market value of
the Company's Common Stock at the time the options are granted, and the options
will be exercisable for a period of seven years. The Company has also made
certain price guaranties with respect to the options.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
Report of independent public accountants
Consolidated Balance Sheets - October 31, 1995 and 1994
Consolidated Statements of Income for the years ended October 31,
1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the years ended October 31,
1995, 1994, and 1993
Notes to Consolidated Financial Statements - October 31, 1995, 1994,
and 1993
25
<PAGE>
2. Financial Statement Schedules
Report of independent public accountants on supplementary schedules
Schedule II - Valuation and Qualifying Accounts
3. Exhibits.
See Item (c) below.
(b) Report on Form 8-K
The Company filed a Form 8-K on November 30, 1995, concerning the
resignation of its vice president of operations. No other Forms 8-K were filed
during the last quarter of the fiscal year ended October 31, 1995.
(c) Exhibits
3(a) Certificate of Incorporation as filed March 19, 1987 with the Secretary
of State of Delaware, Amendment to Certificate of Incorporation as filed
August 3, 1987 and Amendment to Certificate of Incorporation as filed
April 26, 1991 (filed as Exhibit 3(a) to Registrant's Registration
Statement dated February 21, 1992 (File No.33-45078)) and incorporated
herein by reference) and Amendment to Certificate of Incorporation as
filed April 6, 1995 (filed as Exhibit 3(a) to the Registrant's Form 10-K
for fiscal year ended October 31, 1994 (File No. 0-18553), and
incorporated herein by reference)
3(b) Bylaws of the Registrant as adopted by its Board of Directors on March
19, 1987, and amended February 13, 1991, October 15, 1993, and November
30, 1993 (filed as Exhibit 3(b) to Registrant's Form 10-K for the
fiscal year ended October 31, 1993 (File No. 0-18553) and incorporated
herein by reference).
4(a) Specimen certificate for Common Stock, par value $.001, of the
Registrant (filed as Exhibit 4(a) to Registrant's Registration Statement
dated November 4, 1987 (File No.33-16714-D)) and incorporated herein by
reference.
4(b)(1) Specimen certificate for Options granted under the Amended and
Restated Nonqualified Stock Option Plan dated March 12, 1992 (filed as
Exhibit 4(b) to Registrant's Form 10-K for the fiscal year ended October
31, 1993 (File No. 0-18553) and incorporated herein by reference).
4(b)(2) Specimen certificate for Options granted under the Founders Stock
Option Plan dated November 6, 1992 (filed as Exhibit 4(b)(2) to
Registrant's Form 10-K for the fiscal year ended October 31, 1993
(File No. 0-18553) and incorporated herein by reference).
4(c) Specimen certificate for Options granted under the Incentive Stock
Option Plan dated June 15, 1993 (filed as Exhibit 4(c) to Registrant's
Form 10-K for the fiscal year ended October 31, 1993 (File No. 0-18553)
and incorporated herein by reference).
9 Not applicable
26
<PAGE>
10(j)(1) Lease Agreement dated August 17, 1995 between Pacific Gulf
Properties, Inc., (Lessor) and the Registrant (Lessee) for an office
and distribution facility in Vista, California.
10(o)(7) Lease Agreement dated April 6, 1995, between the Registrant's wholly
owned subsidiary, Ashworth Store I, Inc. (Lessee) and R. R. Park City,
Inc., (Lessor) for the Park City, Utah, Outlet Store.
10(o)(8) Lease Agreement dated May 11, 1995, between the Registrant's wholly
owned subsidiary, Ashworth Store I, Inc. (Lessee) and Arizona Factory
Shops Partnership (Lessor) for the Phoenix, Arizona, Outlet Store.
11 Schedule computing net income per common share.
12 Not Applicable
13 Not Applicable
16 Not Applicable
18 Not Applicable
21 Subsidiaries of the Registrant
22 Not Applicable
23 Consent of Arthur Andersen LLP
24 Not Applicable
27 Article 5 Financial Data Schedule
28 Not Applicable
99 None
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders of
Ashworth, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of ASHWORTH, INC.,
(a Delaware corporation) and subsidiaries as of October 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended October 31, 1995. 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 Ashworth, Inc. and subsidiaries
as of October 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended October 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
December 18, 1995
F-1
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS-OCTOBER 31, 1995 AND 1994
-----------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,613,029 $ 5,344,244
Accounts receivable-
Trade, net of allowance for doubtful accounts
of $767,000 and $255,000 in 1995 and 1994,
respectively 10,040,200 8,697,118
Other 1,133,771 706,995
Inventories 27,845,721 18,891,063
Deferred income tax benefit 1,684,776 443,972
Income tax refund receivable 1,239,648 -
Other current assets 1,650,792 904,497
----------- -----------
Total current assets 45,207,937 34,987,889
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,200,000 1,200,000
Buildings and improvements 2,714,357 2,689,276
Production equipment 7,272,234 6,105,754
Furniture and equipment 5,473,237 4,817,871
Leasehold improvements 680,426 498,363
----------- -----------
17,340,254 15,311,264
Less--Accumulated depreciation and amortization 5,571,001 3,577,926
----------- -----------
11,769,253 11,733,338
----------- -----------
OTHER ASSETS 1,094,834 972,669
----------- -----------
$58,072,024 $47,693,896
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS-OCTOBER 31, 1995 AND 1994
-----------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 6,670,000 $ -
Current portion of long-term debt 1,557,006 1,445,500
Accounts payable 5,865,878 6,037,529
Accrued liabilities-
Income taxes - 24,364
Salaries and commissions 972,094 757,949
Other 926,857 354,326
----------- -----------
Total current liabilities 15,991,835 8,619,668
----------- -----------
LONG-TERM DEBT, net of current portion 5,195,434 5,773,504
----------- -----------
DEFERRED INCOME TAX LIABILITY 494,747 374,750
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value
authorized--50,000,000 shares; issued
and outstanding--11,901,626 shares and
11,574,468 shares at October 31, 1995
and 1994, respectively 11,902 11,575
Capital in excess of par value 23,242,390 21,085,858
Retained earnings 13,296,418 12,039,991
Deferred compensation (160,702) (211,450)
----------- -----------
36,390,008 32,925,974
----------- -----------
$58,072,024 $47,693,896
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
---------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
NET SALES $74,524,311 $60,839,179 $45,823,232
COST OF GOODS SOLD 49,498,975 36,941,376 28,007,167
----------- ----------- -----------
Gross profit 25,025,336 23,897,803 17,816,065
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 21,521,662 15,525,021 11,160,751
----------- ----------- -----------
Income from operations 3,503,674 8,372,782 6,655,314
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 62,538 85,841 120,496
Interest expense (1,050,838) (614,494) (305,493)
Other income (expense) (99,678) 215,567 59,679
----------- ----------- -----------
(1,087,978) (313,086) (125,318)
----------- ----------- -----------
Income before provision for
income taxes 2,415,696 8,059,696 6,529,996
PROVISION FOR INCOME TAXES 1,015,114 3,199,340 2,584,277
----------- ----------- -----------
Net income $ 1,400,582 $ 4,860,356 $ 3,945,719
=========== =========== ===========
NET INCOME PER COMMON AND
EQUIVALENT SHARE $.12 $.40 $.34
=========== =========== ===========
WEIGHTED AVERAGE COMMON AND
EQUIVALENT SHARES OUTSTANDING 12,111,633 12,223,721 11,765,771
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
---------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Capital in
------------------------ Excess of
Shares Amount Par Value Earnings Compensation Total
---------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
October 31, 1992 10,780,129 $10,780 $17,116,224 $ 3,233,916 $(157,570) $20,203,350
Options exercised 474,100 474 1,606,009 - - 1,606,483
Stock for services 42,000 42 304,458 - (304,500) -
Options for services - - 125,725 - (125,725) -
Amortization of deferred
compensation - - - - 294,520 294,520
Net income - - - 3,945,719 - 3,945,719
---------- ------- ----------- ----------- --------- -----------
BALANCE,
October 31, 1993 11,296,229 11,296 19,152,416 7,179,635 (293,275) 26,050,072
Options exercised 277,739 278 1,928,005 - - 1,928,283
Stock for services 500 1 5,437 - (5,438) -
Amortization of deferred
compensation - - - - 87,263 87,263
Net income - - - 4,860,356 - 4,860,356
---------- ------- ----------- ----------- --------- -----------
BALANCE,
October 31, 1994 11,574,468 11,575 21,085,858 12,039,991 (211,450) 32,925,974
Options exercised 374,761 375 2,434,941 - - 2,435,316
Treasury stock acquired
and retired (47,603) (48) (278,409) (144,155) - (422,612)
Amortization of deferred
compensation - - - - 50,748 50,748
Net income - - - 1,400,582 - 1,400,582
---------- ------- ----------- ----------- --------- -----------
BALANCE,
October 31, 1995 11,901,626 $11,902 $23,242,390 $13,296,418 $(160,702) $36,390,008
========== ======= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
---------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 72,215,663 $ 57,191,522 $ 44,473,069
Cash paid to suppliers and employees (78,166,721) (53,323,129) (40,238,798)
Interest received 50,931 88,804 113,243
Interest paid (1,050,838) (620,883) (299,104)
Income taxes paid (2,775,861) (3,835,966) (2,085,720)
------------ ------------ ------------
Net cash provided by (used in) operating activities (9,726,826) (499,652) 1,962,690
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,129,072) (6,767,392) (2,742,350)
Proceeds from sale of property, plant and equipment 2,850 - -
------------ ------------ ------------
Net cash used in investing activities (2,126,222) (6,767,392) (2,742,350)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (718,783) (648,185) (667,994)
Borrowings on line of credit 34,670,000 8,445,000 1,700,000
Payments on line of credit (28,000,000) (8,445,000) (1,700,000)
Borrowings on notes payable and long-term debt 944,586 4,170,190 1,882,333
Principal payments on notes payable and long-term debt (786,674) (539,777) (160,881)
Proceeds from issuance of common stock 2,435,316 1,928,283 1,606,483
Treasury stock acquired (422,612) - -
------------ ------------ ------------
Net cash provided by financing activities 8,121,833 4,910,511 2,659,941
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ( 3,731,215) ( 2,356,533) 1,880,281
CASH AND CASH EQUIVALENTS, beginning of year 5,344,244 7,700,777 5,820,496
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,613,029 $ 5,344,244 $ 7,700,777
============ ============ ============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 1,400,582 $ 4,860,356 $ 3,945,719
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Amortization of deferred compensation 50,748 87,263 294,520
Depreciation and amortization 2,513,760 1,868,103 1,049,596
Loss (gain) on disposal of property, plant and equipment 33,181 41,780 (2,404)
Provision for doubtful accounts and sales returns 557,756 101,272 96,278
Increase in accounts receivable (2,327,613) (3,670,229) (1,412,246)
Increase in inventories (8,954,658) (6,559,074) (2,399,003)
Increase in deferred income tax benefit (1,240,804) (153,939) (136,971)
Increase in deferred income tax liability 119,997 156,168 153,201
Increase on income tax refund receivable (1,239,648) - -
(Increase) decrease in other assets (1,230,788) (876,978) 65,658
Increase (decrease) in accounts payable (171,651) 3,442,435 29,675
Increase (decrease) in accrued income taxes (24,364) (103,386) 49,399
Increase in accrued liabilities 786,676 306,577 229,268
------------ ----------- -----------
Total adjustments (11,127,408) (5,360,008) (1,983,029)
------------ ----------- -----------
Net cash provided by (used in) operating activities $ (9,726,826) $ (499,652) $ 1,962,690
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995, 1994 AND 1993
-------------------------------
1. The Company and Summary of Significant Accounting Policies
----------------------------------------------------------
a. Business
--------
Ashworth, Inc. and subsidiaries (collectively referred to as the Company)
designs, markets, and distributes golf apparel, headwear, and footwear. The
Company's operations are located principally in the western part of the
United States.
The Company sells its products primarily on credit to golf course pro
shops, country clubs, resorts, department stores, and retail outlet stores
worldwide. The Company had aggregate foreign sales in Europe, Canada,
Mexico, Bermuda, Japan, South America, Indonesia, Thailand, Africa, Guam
and the Bahamas of approximately $18,178,000, $12,095,000 and $5,925,000 in
the years ended October 31, 1995, 1994 and 1993, respectively.
b. Inventories
-----------
Inventories are valued at the lower of cost (first-in, first-out) or
market. Cost includes materials, labor and manufacturing overhead.
Below is a summary of the components of inventory at October 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 4,317,017 $ 5,767,455
Work in process 2,839,828 1,668,014
Finished products 20,688,876 11,455,594
----------- -----------
$27,845,721 $18,891,063
=========== ===========
</TABLE>
c. Depreciation and Amortization
-----------------------------
Depreciation and amortization have been provided using straight-line and
accelerated methods over the following estimated useful lives:
Buildings and improvements 20 to 30 years
Production equipment 5 to 12 years
Furniture and equipment 5 to 7 years
Leasehold improvements Life of lease
All maintenance and repair costs are charged to operations as incurred.
When assets are sold or otherwise disposed of, the costs and accumulated
depreciation or amortization are removed from the accounts and any
resulting gain or loss is reflected in operations.
F-8
<PAGE>
d. Organization Costs
------------------
Organization and trademark costs, which are included in other assets, are
capitalized and amortized over periods ranging from two to five years.
e. Income Per Common and Equivalent Share
--------------------------------------
Income per common share amounts are computed based on the weighted average
number of shares outstanding during the year, including common stock
equivalents resulting from dilutive stock options.
f. Consolidated Statements of Cash Flows
-------------------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
g. Income Taxes
------------
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income
Taxes". This statement requires that income taxes be accounted for using
the liability method.
h. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
i. Postretirement and Postemployment Benefits
------------------------------------------
The Company does not provide postretirement or postemployment benefits to
employees. Accordingly, SFAS No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" and SFAS No. 112 "Employers'
Accounting for Postemployment Benefits" do not impact the Company's
consolidated financial statements.
j. Fair Value of Financial Instruments
-----------------------------------
Based on borrowing rates currently available to the Company for bank loans
with similar terms and maturities, the fair value of the Company's long-
term debt approximates the carrying value. Furthermore, the carrying value
of all other financial instruments potentially subject to valuation risk
(principally consisting of cash and cash equivalents, accounts receivable
and accounts payable) also approximate fair value.
k. Impact of New Accounting Pronouncements
---------------------------------------
In 1995, the Financial Accounting Standards Board issued SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and SFAS 123 "Accounting for Stock-Based
Compensation" which the Company must adopt no later than fiscal year ended
1997. Management anticipates that the impact of implementing these new
statements will not have a material effect on the Company's financial
position or results of operations. Management has not yet decided if they
will elect to adopt SFAS 123.
F-9
<PAGE>
l. Reclassifications
-----------------
Certain amounts have been reclassified in the 1994 financial statements to
conform to the 1995 presentation.
2. Equipment Under Capital Lease
-----------------------------
During the years ended October 31, 1995, 1994 and 1993, the Company acquired
$94,307, $277,720 and $648,660, respectively, of various equipment under capital
leases. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ended
October 31:
-----------
<S> <C>
1996 $ 664,428
1997 443,415
1998 188,867
1999 17,094
2000 -
----------
Total future minimum payments 1,313,804
Less--Amount representing interest 87,441
----------
Present value of future minimum
capital lease payments (Note 4) $1,226,363
==========
</TABLE>
At October 31, 1995 and 1994, the accompanying consolidated balance sheets
include the following equipment under capital leases:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Production equipment $3,034,631 $3,106,736
Furniture and equipment 431,640 431,640
---------- ----------
3,466,271 3,538,376
Less--Accumulated amortization 1,377,843 1,032,665
---------- ----------
$2,088,428 $2,505,711
========== ==========
</TABLE>
3. Line of Credit Agreement
------------------------
The Company has a $13 million working capital line of credit agreement with a
bank which expires on February 28, 1997 and is collateralized by substantially
all assets. The Company has the option to increase the line up to $17 million
for its peak inventory buildup period. The line of credit agreement contains
certain financial covenants, the most restrictive of which require the Company
to maintain, as defined, a minimum tangible net worth, a maximum debt-to-equity
ratio and a maximum ratio of cash and accounts receivable to current
liabilities. The Company did not achieve the required minimum net income for its
fourth quarter in 1995, nor did it achieve the required quick ratio or tangible
net worth amount for the year. The bank has granted a waiver for these
violations, and the Company has agreed to pay a mimimal fee and enter into an
amended agreement. The line of credit may also be used to finance up to $1
million in commercial letters of credit and standby letters of credit. At
October 31, 1995, no standby letters or commercial letters of credit were
outstanding on this line of credit.
F-10
<PAGE>
Additional information for years ended October 31, 1995, 1994 and 1993, is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Interest rate at year-end 8.75% 8.25% 6.50%
Weighted average interest rate during the year 8.90% 6.80% 6.50%
Maximum amount outstanding $10,775,000 $4,195,000 $ 750,000
Average amount outstanding $ 5,130,000 $ 610,000 $ 38,000
</TABLE>
4. Long-Term Debt
--------------
Amounts outstanding under long-term debt agreements at October 31, 1995 and
1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Installment notes bearing interest ranging from
7.58 to 8.67 percent, with due dates through
October 1, 2000 collateralized by various equipment $2,771,720 $2,591,628
Note payable to a bank, bearing interest at 8.0 percent,
payable in monthly principal and interest payments
of $20,245 through November 2000 with a balloon
payment of approximately $2.6 million payable on
November 30, 2000 collateralized by land and buildings 2,754,357 2,776,536
Capital lease obligations (Note 2) 1,226,363 1,850,840
---------- ----------
6,752,440 7,219,004
Less--Current portion 1,557,006 1,445,500
---------- ----------
Long-term debt $5,195,434 $5,773,504
========== ==========
</TABLE>
Future maturities of long-term debt at October 31, 1995, are as follows:
<TABLE>
<CAPTION>
Year Ended
October 31:
-----------
<S> <C>
1996 $1,557,006
1997 1,126,575
1998 746,581
1999 498,226
2000 197,679
Thereafter 2,626,373
----------
$6,752,440
==========
</TABLE>
5. Employees' 401(k) Plan
----------------------
The Company maintains a retirement plan covering substantially all employees.
Company contributions, which are voluntary and at the discretion of the
Company's board of directors, are currently being made at 50 percent of the
amount the employee contributes, up to three percent of compensation. The
Company's expense for the years ended October 31, 1995, 1994 and 1993, was
$113,709, $79,020 and $49,730, respectively.
F-11
<PAGE>
6. Stockholders' Equity
--------------------
a. Common Stock Options
--------------------
The Company maintains several nonqualified and incentive stock option plans
to provide incentives for selected persons to promote the financial success
and progress of the Company. As amended, the plans provide for the
Compensation Committee or such other committee that the Company's board of
directors may appoint to administer the plans. The plans provide for an
aggregate reservation of 9,700,000 shares of common stock for issuance upon
the exercise of granted options. As of October 31, 1995, the Company had
3,347,437 options outstanding under the above plans to purchase common stock
at prices ranging from $2.25 to $12.50 with expiration dates between
December 31, 1995 and April 30, 2006. A total of 4,463,063 options remained
available for grant, and 739,500 options with exercise prices ranging from
$8.25 to $11.00 were not exercisable at October 31, 1995.
The following is a summary of common stock option transactions:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Outstanding, beginning of year 2,680,761 1,935,500 1,504,600
Granted 1,076,937 1,025,000 912,000
Exercised (374,761) (277,739) (474,100)
Expired (35,500) (2,000) (7,000)
--------- --------- ---------
Outstanding, end of year 3,347,437 2,680,761 1,935,500
========= ========= =========
</TABLE>
b. Common Stock for Services
-------------------------
In January 1993, the Company entered into an agreement with a PGA
professional to endorse the Company's product from January 1, 1993 through
December 31, 1998. Upon meeting certain annual obligations, the PGA
professional will be issued 7,000 shares of the Company's common stock at
the end of each year under the agreement. If the market value of the 7,000
shares of common stock does not reach and maintain at least $14.29 per share
for at least five days during each agreement year, the PGA professional will
be entitled to receive cash per share equal to the difference between $14.29
and the highest closing market price of the Company's common stock for any
five days for that year. The Company incurred approximately $22,000, $10,000
and $17,000 in charges related to the difference in stock prices in 1995,
1994 and 1993, respectively.
c. Deferred Compensation
---------------------
During fiscal 1993, common stock was issued to a golf professional for
future services to the Company for a total value of $304,500. The service
arrangements cover a six year period and the value of the stock is being
amortized over this period. The unamortized portion of the stock is reported
as a reduction in stockholders' equity and the remainder will be amortized
to operating expenses through fiscal 1998. Additionally, during fiscal 1993,
the Company issued stock options to a golf professional and an outside
consultant for current and future services to the Company for a total value
of $125,725. This compensation was amortized over the period of the service
agreement of twelve months during 1993 and 1994.
F-12
<PAGE>
7. Operating Leases
----------------
The Company leases certain production, warehouse and outlet store facilities
under operating leases. These leases expire in various fiscal years through
2001. Rent expense for the years ended October 31, 1995, 1994 and 1993, was
$757,438, $554,795 and $527,568, respectively. Future minimum rental payments
are as follows:
<TABLE>
<CAPTION>
Year Ended
October 31:
-----------
<S> <C>
1996 $ 961,587
1997 1,029,169
1998 824,702
1999 791,970
2000 720,688
Thereafter 269,056
----------
$4,597,172
==========
</TABLE>
8. Commitments and Contingencies
-----------------------------
a. Promotion Agreements with PGA Professionals and a Television Personality
------------------------------------------------------------------------
The Company has promotional agreements with several PGA professionals and a
Television Personality. Under the terms of these agreements, the Company is
obligated to pay cash compensation and to issue options to purchase shares
of the Company's common stock. The aggregate annual cash compensation under
these agreements totals $782,000 payable in 1996 and 1997, $732,000 payable
in 1998, $707,000 payable in 1999 and $657,000 payable in the years 2000
through 2011. The number of options granted to purchase shares of the
Company's common stock will vest as follows: 200,500 in 1996, 192,500 in
1997, 167,500 in 1998, 165,000 in 1999 and 150,000 per year from years 2000
through 2011. The majority of these stock options were granted on the
understanding that the market value of the Company's common stock will
increase to certain predetermined minimum levels during certain time
periods, as defined under the various agreements. If the market value of
the Company's common stock does not increase to these predetermined minimum
levels, the Company is obligated to pay additional cash compensation to the
optionees. Obligations under this provision, if any, are accrued and
charged to operations during the period in which they arise. The Company
incurred approximately $253,000, $57,000 and $17,000 in charges related to
the difference in stock prices in 1995, 1994 and 1993, respectively.
b. Executive Employment Agreements
-------------------------------
The Company entered into employment agreements with its key executives,
effective January 1, 1995. The agreements specify the amount of annual
compensation each executive is to receive and also contain a noncompete
arrangement. These noncompete arrangements (which if based upon current
salary levels would aggregate approximately $3,268,000) are based upon a
percentage of the executive's then current salary, as defined, and are in
effect for the term of the agreements and for a period of ten years after
termination of employment. The present value of the future cash payments to
be made is accrued and charged to operations over the periods benefited. In
1995, $52,811 was accrued and charged to operations and is reflected in
other accrued liabilities on the balance sheet.
F-13
<PAGE>
c. Legal Matters
-------------
The Company is involved in litigation and other disputes arising in the
normal course of its business. In the opinion of management the Company's
liability, if any, under pending litigation or disputes would not materially
affect its financial condition or operations.
9. Related-Party Transactions
--------------------------
At October 31, 1995, the Company had a note receivable from an officer for
$320,238 which represents principal and interest and is included in other
receivables in the accompanying 1995 balance sheet.
10. Income Taxes
------------
The provision for income taxes for the years ended October 31, 1995, 1994
and 1993, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Current provision:
Federal $ 1,625,392 $2,475,245 $1,977,396
State 510,529 721,866 590,651
----------- ---------- ----------
Total 2,135,921 3,197,111 2,568,047
----------- ---------- ----------
Deferred provision (benefit):
Federal (856,889) 1,863 12,497
State (263,918) 366 3,733
----------- ---------- ----------
Total (1,120,807) 2,229 16,230
----------- ---------- ----------
$ 1,105,114 $3,199,340 $2,584,277
=========== ========== ==========
</TABLE>
The components of the Company's deferred income tax provision (benefit) for the
year ended October 31, 1995, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
Depreciation $ 119,997 $156,168 $153,201
Allowance for doubtful accounts (197,607) (7,261) (10,999)
Inventory reserves (818,252) (58,203) (86,489)
Other non-deductible accruals (232,463) (51,890) (29,987)
Other deductible capitalized costs 7,518 (36,585) (9,496)
----------- -------- --------
$(1,120,807) $ 2,229 $ 16,230
=========== ======== ========
</TABLE>
F-14
<PAGE>
The components of the Company's net deferred income tax benefit as of October
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current deferred income tax
benefit:
Allowance for doubtful
accounts $ 252,816 $ 55,209
Inventory reserves 1,109,267 291,015
Other non-deductible accruals 362,436 129,973
Other deductible capitalized
costs (39,743) (32,225)
---------- ---------
1,684,776 443,972
---------- ---------
Long-term deferred income
tax liability:
Depreciation (494,747) (374,750)
---------- ---------
$1,190,029 $ 69,222
========== =========
</TABLE>
Based on historical and current pre-tax earnings of the Company's continuing
operations, management believes it is more likely than not that the Company will
realize the deferred tax asset existing at October 31, 1995.
A reconciliation of the provision for income taxes at the statutory rate to the
Company's effective rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at the
expected statutory rate $ 837,797 34.0% $2,740,296 34.0% $2,220,198 34.0%
State income tax, net of
federal tax benefits 150,311 6.1 491,641 6.1 398,330 6.1
Non-deductible expenses 42,190 1.7 15,601 0.2 11,240 0.2
Foreign sales corporation
tax benefit (60,087) (2.4) (48,198) (0.6) (54,206) (0.8)
Other 44,903 1.8 - - 8,715 0.1
---------- -------- ---------- ------- ---------- ----
Income tax provision $1,015,114 41.2% $3,199,340 39.7% $2,584,277 39.6%
========== ======== ========== ======= ========== ====
</TABLE>
11. Statement of Cash Flows, Noncash Transactions
---------------------------------------------
The Company completed the following noncash transactions which are not reflected
in the statement of cash flows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
Capital lease equipment acquired and related capital
lease obligations $94,307 $277,720 $ 648,660
Common stock issued in payment for services,
including deferred compensation - 5,438 304,500
Stock options issued in payment for services,
including deferred compensation - - 125,725
</TABLE>
F-15
<PAGE>
12. Results by Quarter (Unaudited)
------------------------------
The unaudited results by quarter for the years ended October 31, 1995 and 1994
are shown below:
<TABLE>
<CAPTION>
Year Ended First Second Third Fourth
October 31, 1995 Quarter Quarter Quarter Quarter
- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $14,590,696 $26,438,854 $20,385,985 $13,108,776
Gross profit 5,497,664 9,035,266 7,621,185 2,871,222
Net income (1) 805,931 1,810,137 808,217 (2,023,703)
Net income per common and equivalent share .07 .15 .07 (.17)
Weighted average common and equivalent
shares outstanding 12,020,191 12,187,819 12,235,566 11,882,143
<CAPTION>
Year Ended First Second Third Fourth
October 31, 1994 Quarter Quarter Quarter Quarter
- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $11,041,377 $21,268,233 $16,959,106 $11,570,463
Gross profit 4,082,621 8,767,909 7,264,219 3,783,054
Net income (1) 719,906 2,479,671 1,527,654 133,125
Net income per common and equivalent share .06 .20 .13 .01
Weighted average common and equivalent
shares outstanding 12,181,238 12,325,780 12,185,444 12,197,910
</TABLE>
(1) The Company's gross profit in the final quarter of 1995 was lower than that
reported for the same quarter 1994 primarily because of an increase to the
inventory reserve of approximately $1.3 million. Net income was further
negatively impacted by an increase to the allowance for doubtful accounts
of approximately $224,000.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders of
Ashworth, Inc. and subsidiaries:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Ashworth, Inc. and subsidiaries'
annual report to stockholders included in this Form 10-K, and have issued our
report thereon dated December 18, 1995. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
the index of consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Orange County, California
December 18, 1995
F-17
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
<TABLE>
<CAPTION>
Additions
-----------------------
Balance Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
----------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
OCTOBER 31, 1993:
Allowance for doubtful accounts $188,000 $ 98,000 $ - $71,000 $215,000
======== ======== === ======= ========
FOR THE YEAR ENDED
OCTOBER 31, 1994:
Allowance for doubtful accounts $215,000 $101,000 $ - $61,000 $255,000
======== ======== === ======= ========
FOR THE YEAR ENDED
OCTOBER 31, 1995:
Allowance for doubtful accounts $255,000 $558,000 $ - $46,000 $767,000
======== ======== === ======= ========
</TABLE>
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASHWORTH, INC.
(REGISTRANT)
DATE: JANUARY 25, 1996 BY: /S/ GERALD W. MONTIEL
---------------------------------
GERALD W. MONTIEL
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ GERALD W. MONTIEL CHIEF EXECUTIVE OFFICER JANUARY 25, 1996
- --------------------------- (PRINCIPAL EXECUTIVE OFFICER)
GERALD W. MONTIEL PRESIDENT AND
CHAIRMAN OF THE BOARD
OF DIRECTORS
/S/ JOHN L. ASHWORTH SENIOR EXECUTIVE VICE PRESIDENT JANUARY 25, 1996
- --------------------------- AND DIRECTOR
JOHN L. ASHWORTH
/S/ A. JOHN NEWMAN VICE PRESIDENT - FINANCE, JANUARY 25, 1996
- --------------------------- TREASURER, CHIEF FINANCIAL
A. JOHN NEWMAN OFFICER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
/S/ ANDRE P. GAMBUCCI DIRECTOR JANUARY 25, 1996
- ---------------------------
ANDRE P. GAMBUCCI
/S/ JOHN M. HANSON, JR. DIRECTOR JANUARY 25, 1996
- ---------------------------
JOHN M. HANSON, JR.
<PAGE>
EXHIBIT 10(j)(1)
EARLY POSSESSION AGREEMENT
Reference is made to that Lease dated August 17, 1995 between Pacific
GulfProperties, Inc., A Maryland Corporation, as Landlord and Ashworth, Inc., A
Delaware Corporation, as Tenant at 1211 Park Center Drive, Suite B, Vista,
California 92083. Tenant is to be allowed to occupy the Premises on September 1,
1995. Rent is to begin on November 1, 1995. Landlord and Tenant agree that all
the terms and conditions of the above referenced Lease are to be in full force
and effect as of the date of Tenant's possession of the Premises. Tenant accepts
Premises in its present condition.
In the event Tenant takes possession of the Premises prior to completion of
any construction, Tenant agrees to hold Landlord harmless from any and all
claims for damages to goods, equipment or inconvenience.
Date: September 4, 1995 Date: September 8, 1995
-------------------------- ----------------------------
ACCEPTED:
LANDLORD: TENANT:
PAClFIC GULF PROPERTIES, INC. ASHWORTH, INC.
A Maryland Corporation A Delaware Corporation
By: /s/ Donald G. Herrman, EVP By: /s/ Richard Werschkul
--------------------------------- -----------------------------
Donald G. Herrman, EVP Richard Werschkul, President
By: /s/ Robert A. Dewey
---------------------------------
Robert A. Dewey Vice President
<PAGE>
[LOGO OF CM COMMERCIAL APPEARS HERE]
Industrial Real Estate Lease
(Multi-Tenant Facility)
CB Commercial Real Estate Group, Inc.
Brokerage and Management
Licensed Real Estate Brokers
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article One explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.01. Date of Lease August 17, 1995
Section 1.02. Landlord (include legal entity): Pacific Gulf Properties, Inc.,
A Maryland Corporation
Address of Landlord: 9500 7th Street, Suite L
Rancho Cucamonga, California 91730
Section 1.03. Tenant(lnclude legal entity): Ashworth, Inc., A Delaware
Corporation
Address of Tenant: 2791 Loker Avenue West, Carlsbad, California 92008
Section 1.04. Property : The Property is part of Landlord's multi-tenant real
property development known as Vista Distribution Center, Vista, California and
described or depicted in Exhibit "A" (the "Project"). The Project includes the
land, the buildings and all other improvements located on the land, and the
common areas described in Paragraph 4.05(a). The Property is (include street
address, approximate square footage and description) 1211 Park Center Drive,
Suite B, Vista, California 92083; a 42,000 square foot suite within a single
story warehouse/distribution building totaling 90,400 square feet which is part
of three buildings comprised of 356,800 square feet.
Section 1.05. Lease term: Two (2) years Zero (0) months beginning on November
1, 1995 or such other date as is specified in this Lease, and ending on October
31, 1997
Section 1.06. Permitted Uses:(See Article Five) General office, warehousing,
manufacturing and distribution of golf apparel, shoes and hats.
Section 1.07. Tenant's Guarantor: (If none, so state) N/A
Section 1.08. Brokers: (See Article Fourteen) (If none, so state)
Landlord's Broker: CB Commercial Real Estate Group, Inc.
Tenant's Broker: CB Commercial Real Estate Group, Inc.
Section 1.09. Commission Payable to Landlord's Broker (See Article Fourteen)
$ As Per Agreement
Section 1.10. Initial Security Deposit: (See Section 3.03) $ N/A
Section 1.11. Vehicle Parking Spaces Allocated to Tenant (See Section 4.05)
Approximately 47
Section 1.12. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Fifteen Thousand Nine Hundred Sixty and no/100ths Dollars
($15,960.00 per month for the first twelve (12) months, as provided in
Section 3.01, and shall be increased on the first day of the 13th month(s)
after the Commencement Date, either (i) as provided in Section 3.02, or
(ii) See Addendum - Rent Schedule. (If (ii) is completed, then (i) and Section
3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02); (ii)
Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04); (iv)
Tenant's Initial Pro Rata Share of Common Area Expenses 11 .77% (See Section
4.05); (v) Impounds for Insurance Premiums and Property Taxes (See Section
4.08); (vi) Maintenance, Repairs and Alterations (See Article Six).
Section 1.13 Landlord's Share of Profit on Assignment or Sublease: (See
Section 9.05) one hundred percent (100%) of the Profit (the "Landlord's
Share").
Section 1.14. Riders: The following Riders are attached to and made a part of
this Lease: (If none, so state)
1. Addendum
2. Option to Extend Term Lease Rider
3. Exhibits A - E
4.
5.
(copyright) 1988 Southern California Chapter 1 Initials
of the Society of Industrial -----------
and Office Realtors, Inc.
(Multi-Tenant Net Form)
<PAGE>
ARTICLE TWO: LEASE TERM
Section 2.01 Lease of Property for Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this I ease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02 Delay In Commencement. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60)-day period ends. It Tenant gives such notice, the Lease shall be canceled
and neither Landlord nor Tenant shall have any further obligations to the other.
If Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and expiration date of the
Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03 Early Occupancy. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
ail of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04 Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination pursuant to the terms of this Lease. Tenant
shall reimburse Landlord for and indemnify Landlord against all damages which
Landlord incurs from Tenant's delay in vacating the Property. If Tenant does not
vacate the Property upon the expiration or earlier termination of the Lease and
Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the Property
shall be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in effect
shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01 Time and Manner of Payment. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing. The base rent and additional rent shall be
due and payable on the First (lst) day of each and every month.
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Section 3.04. Termination; Advance Payments. Upon termination of this Lease
under Article Seven (Damage or Destruction), Article Eight (Condemnation) or any
other termination not resulting from Tenant's default, and after Tenant has
vacated the Property in the manner required by this Lease, Landlord shall refund
or credit to Tenant (or Tenant's successor) the unused portion of the Security
Deposit, any advance rent or other advance payments made by Tenant to Landlord,
and any amounts paid for real property taxes and other reserves which apply to
any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. Property Taxes.
(a) Property Taxes. Tenant shall pay all real property taxes on
the Property (including any fees, taxes or assessments against, or as a result
of, any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.08
below, such payment shall be made monthly upon receipt of billing with base rent
setting forth the monthly estimated taxes owing at least ten (10) days prior to
the delinquency date of the taxes. With such ten-day period, Landlord shall
reimburse Tenant for any real property taxes paid by Tenant covering any period
of time prior to or after the Lease Term.
(b) Definition of "Real Property Tax." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed, Landlord
shall reasonably determine Tenant's share of the real property tax payable by
Tenant under Paragraph 4.02(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord
tor such personal property taxes.
Section 4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, it any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. Insurance Policies.
(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability tor
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
(b) Property and Rental Income Insurance. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall not do or permit anything to be done which invalidates any such
insurance policies.
(c) Payment of Premiums. Subject to Section 4.08, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant monthly, upon receipt of billing with
base rent setting forth the monthly estimated insurance billings owing), except
Landlord shall pay all premiums for non-primary comprehensive public liability
insurance which Landlord elects to obtain as provided in Paragraph 4.04(a). For
insurance policies
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maintained by Landlord which cover improvements on the entire Project,
Tenant shall pay Tenant's prorated share of the premiums, in accordance with the
formula in Paragraph 4.05(e) for determining Tenant's share of Common Area
costs. It insurance policies maintained by Landlord cover improvements on real
property other than the Project, Landlord shall deliver to Tenant a statement of
the premium applicable to the Properly showing In reasonable detail how Tenant's
share of the premium was computed. If the Lease Term expires before the
expiration of an insurance policy maintained by Landlord, Tenant shall be liable
for Tenant's prorated share of the insurance premium. Before the Commencement
Date, Tenant shall deliver to Landlord a copy of any policy of insurance which
Tenant is required to maintain under this Section 4.04. At least thirty (30)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord a renewal of such policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a certificate of
insurance, executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this Section 4.04
is in full force and effect and containing such other information which Landlord
reasonably requires.
(d) General Insurance Provisions
(i) Any insurance which Tenant is required to maintain under this Lease
shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if
any such policy is canceled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case
Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant shall maintain all insurance required under this Lease with
companies holding a "General Policy Rating" of A-12 or better, as set forth
in the most current issue of "Best Key Rating Guide". Landlord and Tenant
acknowledge the insurance markets are rapidly changing and that insurance
in the form and amounts described in this Section 4.04 may not be available
in the future. Tenant acknowledges that the insurance described in this
Section 4.04 is for the primary benefit of Landlord. It at any time during
the Lease Term, Tenant is unable to maintain the insurance required under
the Lease, Tenant shall nevertheless maintain insurance coverage which is
customary and commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may change from time to time.
Landlord makes no representation as to the adequacy of such insurance to
protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain
any such additional property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers
of this mutual waiver of subrogation.
Section 4.05. Common Areas; Use, Maintenance and Costs.
(a) Common Areas. As used in this Lease, "Common Areas" shall mean all
areas within the Project which are available for the common use of tenants of
the Project and which are not leased or held for the exclusive use of Tenant
or other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord, from time to time, may change the size, location, nature and
use of any of the Common Areas, convert Common Areas into leasable areas,
construct additional parking facilities (including parking structures) in the
Common Areas, and increase or decrease Common Area land and/or facilities.
Tenant acknowledges that such activities may result in inconvenience to Tenant.
Such activities and changes are permitted if they do not materially affect
Tenant's use of the Property
(b) Use of Common Areas. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject to
such reasonable rules and regulations as Landlord may establish from time to
time. Tenant shall abide by such rules and regulations and shall use its best
effort to cause others who use the Common Areas with Tenant's express or implied
permission to abide by Landlord's rules and regulations. At any time, Landlord
may close any Common Areas to perform any acts in the Common Areas, in
Landlord's judgment, are desirable to improve the Project. Tenant shall not
interfere with the rights of Landlord, other tenants or any other person
entitled to use the Common Areas. Such activities and changes are permitted if
they do not materially affect Tenant's use of the property.
(c) Specific Provision re: Vehicle Parking. Tenant shall be entitled to use
the number of vehicle parking spaces in the Project allocated to Tenant in
Section 1.11 of the Lease without paying any additional rent. Tenant's parking
shall not be reserved and shall be limited to vehicles no larger than standard
size automobiles or pickup utility vehicles. Tenant shall not cause large
trucks or other large vehicles to be parked within the Project or on the
adjacent public streets. Temporary parking of large delivery vehicles in the
Project may be permitted by the rules and regulations established by Landlord.
Vehicles shall be parked only in striped parking spaces and not in driveways,
loading areas or other locations not specifically designated for parking.
Handicapped spaces shall only be used by those legally permitted to use them. If
Tenant parks more vehicles in the parking area than the number set forth in
Section 1.11 of this Lease, such conduct shall be a material breach of this
Lease. In addition to Landlord's other remedies under the Lease, Tenant shall
pay a daily charge determined by Landlord for each such additional vehicle.
(d) Maintenance of Common Areas. Landlord shall maintain the Common Areas
in good order, condition and repair and shall operate the Project, in Landlord's
sole discretion, as a first-class industrial/commercial real property
development. Tenant shall pay Tenant's pro rata share (as determined below) of
all costs incurred by Landlord for the operation and maintenance of the Common
Areas. Common Areas costs include, but are not limited to, costs and expenses
for the following: gardening and landscaping; utilities, water and sewage
charges; maintenance of signs (other than tenants' signs); premiums for
liability, property damage, fire and other types of casualty insurance on the
Common Areas and worker's compensation insurance; all property taxes and
assessments levied on or attributable to the Common Areas and all Common Area
improvements; all personal property taxes levied on or attributable to personal
property used in connection with the Common Areas; straight line depreciation on
personal property owned by Landlord which is consumed in the operation or
maintenance
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of the Common Areas; fees for required licenses and permits; repairing,
resurfacing, repaving, maintaining repainting, light, cleaning, refuse removal,
security and similar items; and a reasonable allowance to Landlord for
Landlord's supervision of the Common Areas (not to exceed five percent (5%) of
the gross rents of the Project for the calendar year). Landlord may cause any or
all of such services to be provided by third parties and the cost of such
services shall be included in Common Area costs. Common Area costs shall not
include depreciation of real property which forms part of the Common Areas.
(e) Tenant's Share and Payment. Tenant shall pay Tenant's annual pro rata
share of all Common Area costs (prorated for any fractional month) upon written
notice from Landlord that such costs are due and payable, and in any event prior
to delinquency. Tenant's pro rata share shall be calculated by dividing the
square foot area of the Property, as set forth in Section 1.04 of the Lease, by
the aggregate square foot area of the Project which is leased or held for lease
by tenants, as of the date on which the computation is made. Tenant's initial
pro rata share is set out in Paragraph 1.12(b). Any changes in the Common Area
costs and/or the aggregate area of the Project leased or held for lease during
the Lease Term shall be effective on the first day of the month after such
change occurs. Landlord may, at Landlord's election, estimate in advance and
charge to Tenant as Common Area costs, all real property taxes for which Tenant
is liable under Section 4.02 of the Lease, all insurance premiums for which
Tenant is liable under Section 4.04 of the Lease, all maintenance and repair
costs for which Tenant is liable under Section 6.04 of the Lease, and all other
Common Area costs payable by Tenant hereunder. At Landlord's election, such
statements of estimated Common Area costs shall be delivered monthly, quarterly
or at any other periodic intervals to be designated by Landlord. Landlord may
adjust such estimates at any time based upon Landlord's experience and
reasonable anticipation of costs. Such adjustments shall be effective as of the
next rent payment date after notice to Tenant. Within sixty (60) days after the
end of each calendar year of the Lease Term, Landlord shall deliver to Tenant a
statement prepared in accordance with generally accepted accounting principles
setting forth, in reasonable detail, the Common Area costs paid or incurred by
Landlord during the preceding calendar year and Tenant's pro rata share. Upon
receipt of such statement, there shall be an adjustment between Landlord and
Tenant, with payment to or credit given by Landlord (as the case may be) so that
Landlord shall receive the entire amount of Tenant's share of such costs and
expenses for such period.
Section 4.06. Late Charges. Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
ten percent (10%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.07. Interest on Past Due Obligations. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. It the interest rate specified in this Lease
is higher than the rate permitted by law , the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
tenants of the Project, or which constitutes a nuisance or waste. Tenant shall
obtain and pay for all permits, including a Certificate of Occupancy, required
for Tenant's occupancy of the Property and shall promptly take all actions
necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including The Occupational Safety and Health Act.
Section 5.03. Hazardous Materials. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessee or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material. In no
event, however, shall Landlord be required to consent to the installation or use
of any storage tanks on the Property.
Section 5.04. Signs and Auctions. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. Indemnity. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or
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permitted by Tenant to be done in or about the Properly, including any
contamination of the Property or any other property resulting from the presence
or use of Hazardous Material caused or permitted by Tenant; (c) any breach or
default in the performance of Tenant's obligations under this Lease; (d) any
misrepresentation or breach of warranty by Tenant under this Lease; or (e) other
acts or omissions of Tenant. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As a
material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.06. Landlord's Access. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency. Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. Quiet Possession. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 602. Exemption of Landlord from Liability. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from (a) tire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or upon other portions of the Project, or from other sources or places;
or (d) any act or omission of any other tenant of the Project. Landlord shall
not be liable for any such damage or injury even though the cause of or the
means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03. Landlord's Obligations.
(a) Except as provided in Article Seven (Damage or Destruction) and Article
Eight (Condemnation), Landlord shall keep the following in good order, condition
and repair: the foundations, exterior walls and roof of the Property (including
painting the exterior surface of the exterior walls of the Property not more
often than once every five (5) years, if necessary) and all components of
electrical, mechanical, plumbing, heating and air conditioning systems and
facilities located in the Property which are concealed or used in common by
tenants of the Project. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the interior surfaces of exterior walls.
Landlord shall make repairs under this Section 6.03 within a reasonable time
after receipt of written notice from Tenant of the need for such repairs.
Section 604. Tenant's Obligations.
(a) Except as provided in Section 603, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of
the Property (including structural, nonstructural, interior, systems and
equipment) in good order, condition and repair (including interior repainting
and refinishing, as needed). If any portion of the Property or any system or
equipment in the Property which Tenant is obligated to repair cannot be fully
repaired or restored, Tenant shall promptly replace such portion of the Property
or system or equipment in the Property, regardless of whether the benefit of
such replacement extends beyond the Lease Term; but if the benefit or useful
life of such replacement extends beyond the Lease Term (as such term may be
extended by exercise of any options), the useful life of such replacement shall
be prorated over the remaining portion of the Lease Term (as extended), and
Tenant shall be liable only for that portion of the cost which is applicable to
the Lease Term (as extended). Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor,
unless Landlord maintains such equipment under Section 6.03 above. It any part
of the Property or the Project is damaged by any act or omission of Tenant,
Tenant shall pay Landlord the cost of repairing or replacing such damaged
property, whether or not Landlord would otherwise be obligated to pay the cost
of maintaining or repairing such property. It is the intention of Landlord and
Tenant that at all times Tenant shall maintain the portion of the Property which
Tenant is obligated to maintain in an attractive, first-class and fully
operational condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section 6.04
at Tenant's sole expense. It Tenant tails to maintain, repair or replace the
Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
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Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed Ten Thousand Dollars (S10,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent; any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the occurrence
of any damage to the Property. If the Property is only partially damaged (i.e.,
less than fifty percent (50%) of the Property is untenantable as a result of
such damage or less than fifty percent (50%) of Tenant's operations are
materially impaired) and if the proceeds received by Landlord from the insurance
policies described in Paragraph 4.04(b) are sufficient to pay for the necessary
repairs, this Lease shall remain in effect and Landlord shall repair the damage
as soon as reasonably possible. Landlord may elect (but is not required) to
repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate the
Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs, except
that upon satisfactory completion of such repairs, Landlord shall deliver to
Tenant any insurance proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such election within ten
(10) days after receiving Landlord's termination notice.
(c) It the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article Seven, any rent payable during the period of such
damage, repaid and/or restoration shall be reduced according to the degree,
if any, to which Tenant's use of the Property is impaired. Except for such
possible reduction in Base Rent, insurance premiums and real property taxes,
Tenant shall not be entitled to any compensation, reduction, or reimbursement
from Landlord as a result of any damage, destruction, repair, or restoration to
the Property.
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Section 7.04. Waiver. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice within ten (10) days after the condemning authority takes
title or possession). If neither Landlord nor Tenant terminates this Lease, this
Lease shall remain in effect as to the portion of the Property not taken, except
that the Base Rent and Additional Rent shall be reduced in proportion to the
reduction in the floor area of the Property. Any Condemnation award or payment
shall be distributed in the following order: (a) first, to any ground lessor,
mortgagee or beneficiary under a deed of trust encumbering the Property, the
amount of its interest in the Property; (b) second, to Tenant, only the amount
of any award specifically designated br loss of or damage to Tenant's trade
fixtures or removable personal property; and (c) third, to Landlord, the
remainder of such award, whether as compensation for reduction in the value of
the leasehold, the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Properly caused by the
Condemnation, except that Landlord shall not be obligated to repair any damage
for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the Property or of
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, mortgage, sublease, transfer, operation of law, or
act of Tenant, without Landlord's prior written consent, except as provided in
Section 9.02 below. Landlord has the right to grant or withhold its consent as
provided in Section 9.05 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than twenty percent (20%) of the
partnership interests shall require Landlord's consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or sublease
the Property without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
Section 9.05. Landlord's Consent.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease the
Landlord's Share (stated in Section 1.13) of the Profit (defined below) on
such transaction as and when received by Tenant, unless Landlord gives
written notice to Tenant and the assignee or subtenant that Landlord's Share
shall be paid by the assignee or subtenant to Landlord directly. The
"Profit" means (A) all amounts paid to Tenant for such assignment or
sublease, including "key" money, monthly rent in excess of the monthly rent
payable under the Lease, and all fees and other consideration paid for the
assignment or sublease, including fees under any collateral agreements, less
(B) costs and expenses directly incurred by Tenant in connection with the
execution and performance of such assignment or sublease hr real estate
broker's commissions and costs of renovation or construction of tenant
improvements required under such assignment or sublease. Tenant is entitled
to recover Such costs and expenses before Tenant is obligated to pay the
Landlord's Share to Landlord. The Profit in the
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case of a sublease of less than all the Property is the rent allocable to
the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying
all amounts to be paid from any assignment or sublease of the Property
within thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt of
Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a material default of the Lease.
Section 9.06. No Merger. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. Defaults. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) It Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that it more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30)-day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for
reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. Remedies. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid BASE Rent, Additional Rent and other charges which Tenant would have paid
tor the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have 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 the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%). If Tenant has abandoned the Property, Landlord shall have the option of
(i) retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
Section 10.04. Repayment of "Free" Rent. If this Lease provides for a
postponement of any monthly rental payments, a period of "tree" rent or other
rent concession, such postponed rent or "tree" rent is called the "Abated Rent".
Tenant shall
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be credited with having paid all of the Abated Rent on the expiration of the
Lease Term if Tenant has fully, faithfully, and punctually performed all of
Tenant's obligations hereunder, including the payment of all rent (other than
the Abated Rent) and all other monetary obligations and the surrender of the
Property in the physical condition required by this Lease. Tenant acknowledges
that its right to receive credit for the Abated Rent is absolutely conditioned
upon Tenant's full, faithful and punctual performance of its obligations under
this Lease. If Tenant defaults and does not cure within any applicable grace
period, the Abated Rent shall immediately become due and payable in full and
this Lease shall be enforced as if there were no such rent abatement or other
rent concession. In such case Abated Rent shall be calculated based on the full
initial rent payable under this Lease.
Section 10.05. Automatic Termination. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. Cumulative Remedies. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant tails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the attorney-in-
fact of Tenant to execute and deliver any such instrument or document.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10)-day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. Tenant's Financial Condition. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only tor the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand tor any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include reasonable legal fees
and costs incurred for the negotiation of a
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settlement, enforcement of rights or otherwise. Furthermore, if any action for
breach of or to enforce the provisions of this Lease is commenced, the court in
such action shall award to the party in whose favor a judgment is entered, a
reasonable sum as attorneys' fees and costs. The losing party in such action
shall pay such attorneys' fees and costs. Tenant shall also indemnity Landlord
against and hold Landlord harmless from all costs, expenses, demands and
liability Landlord may incur if Landlord becomes or is made a party to any claim
or action (a) instituted by Tenant against any third party, or by any third
party against Tenant, or by or against any person holding any interest under or
using the Property by license of or agreement with Tenant; (b) for foreclosure
of any lien for labor or material furnished to or for Tenant or such other
person; (c) otherwise arising out of or resulting from any act or transaction of
Tenant or such other person; or (d) necessary to protect Landlord's interest
under this Lease in a bankruptcy proceeding, or other proceeding under Rule 11
of the United States Code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
reasonable fees or costs Landlord incurs in any such claim or actions.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties
(a) As used in this Lease, the term "Landlord" means only the current owner
or owners of the fee title to the Property or Project or the leasehold estate
under a ground lease of the Property or project at the time in question. Each
Landlord is obligated to perform the obligations of Landlord under this Lease
only during the time such Landlord owns such interest or title. Any Landlord who
transfers its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid it such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30)-day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property and the Project,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. Interpretation. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. Incorporation of Prior Agreements; Modifications. This Lease
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. Notices. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.07. Waivers. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. No Recordation. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. Binding Effect; Choice of law. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general
(copyright) 1988 Southern California Chapter 11 Initials
of the Society of Industrial -----------
and Office Realtors, Inc.
(Multi-Tenant Net Form)
<PAGE>
partner of the partnership, that he or it has full authority to sign for the
partnership and that this Lease binds the partnership and all general partners
of the partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11. Joint and Several Liability. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. Survival. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. Broker's Fees. When this Lease is signed by and delivered to
both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 108 above, if any, as provided in the written
agreement between Landlord and Landlord's Broker, or the sum stated in Section
1.09 above for services rendered to Landlord by Landlord's Broker in this
transaction.
Section 14.02. Protection of Brokers. If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the Court in such action. This Paragraph is included in this
Lease for the benefit of Landlord's Broker.
Section 14.03. Agency Disclosure; No Other Brokers. Landlord and Tenant
each warrant that they have dealt with no other real estate broker(s) in
connection with this transaction except: CB COMMERCIAL REAL ESTATE GROUP, INC.,
who represents Landlord, and CB Commercial Rea1 Fstate Group. Inc., who
represents Tenant.
In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said broker to disclose to either of them the confidential
information of the other party.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment In Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
(copyright) 1988 Southern California Chapter 12 Initials
of the Society of Industrial -----------
and Office Realtors, Inc.
(Multi-Tenant Net Form)
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on 9/11/95 PACIFIC GULF PROPERTIES, INC.
at Newport Beach, CA A Maryland Corporation
By: Donald G. Herrman
EVP
By: Robert A. Dewey,
Vice President
"TENANT"
Signed on 9/8, 1995 ASHWORTH, INC.
At Carlsbad, CA. A Delaware Corporation
By: Richard Werschkul
Its: President
By:
Its:
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF
THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS
INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN CALIFORNIA
CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS INC., ITS LEGAL
COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR AGENTS, AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR OF
THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO ADVISE THEM
ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL COUNSEL.
(copyright) 1988 Southern California Chapter 13 Initials
of the Society of Industrial -----------
and Office Realtors, Inc.
(Multi-Tenant Net Form)
<PAGE>
ADDENDUM to Lease dated August 17, 1995, between PACIFIC GULF PROPERTIES, INC.,
a Maryland Corporation, as "Landlord", and ASHWORTH, INC., A Delaware
Corporation, as "Tenant", on the premises known as 1211 Park Center Drive, Suite
B, Vista, California.
16. Trash Disposal: Tenant agrees that all trash and debris are to be deposited
in receptacles provided by Tenant at Tenant's expense within the complex and all
receptacles shall remain inside enclosures as provided by Landlord. If it is
determined that Tenant is regularly disposing of an unusually large amount of
refuse Tenant shall, within ten (10) days receipt of written notice from
Landlord and at Tenant's sole expense, provide for an additional trash bin and
pickup service at his or her leased premises. Tenant reserves the right to
stipulate location of storage for Tenant's additional receptacle. Tenant agrees
not to store any items or leave any debris outside premises in any of the common
area, including the parking lot and in the event Landlord must remove items or
debris, Landlord shall charge the cost of removing said items or debris to
Tenant, and Tenant shall pay same upon demand or be in default of this Lease as
defined in Article 10 of this Lease.
17. Governmental Authority Compliance: Tenant shall, at Tenant's expense, comply
promptly with all governmental authorities and all applicable statutes,
ordinances, rules, regulations, orders, covenants and restrictions of record,
and requirements in effect during the term or any part of the term hereof,
regulating the use by Tenant of the Premises, including compliance with the
Uniform Fire Code. Tenant shall have the sole responsibility to secure any and
all governmental approvals relating to Lessee's use of the premises, including
but not necessarily limited to an Occupancy Permit issued by the City of Vista.
Tenant shall secure such approvals promptly and hold Landlord harmless from any
costs and fees incurred in the process, and from any fines or penalties arising
from Tenant's nonconformance with applicable law or regulations.
18. Effect of Default on Free or Abated Rent: In the event of Tenant's default
under Article 10 of this Lease, any previously free or abated rent shall be due
and payable to Landlord immediately.
19. Waiver of Jury Trial: The parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matters whatsoever arising out of or in
any way related to this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Premises, the Building or the Park, and/or any claim of
injury, loss or damage.
20. Counterclaims: In the event Landlord commences any proceedings for
nonpayment of Rent, or any other sums or amounts due hereunder, Tenant shall not
interpose any counterclaim of whatever nature or description in any such
proceedings, provided, however, nothing contained herein shall be deemed or
construed as a waiver of the Tenant's right to assert such claims in any
separate action brought by Tenant or the right to offset the amount of any final
judgment owed by Landlord to Tenant.
21. Warranty or Authority: Each person executing this agreement on behalf of a
party represents and warrants that (1) such person is duly and validly
authorized to do so on behalf of the entity it purports to so bind, and (2) if
such party is a partnership, corporation or trustee, that such partnership,
corporation or trustee has full right and authority to enter into this Lease and
perform all of its obligations hereunder.
Initials:
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<PAGE>
22. Landlord's Personal Liability: The liability of Landlord (which, for
purposes of this Lease, shall include Landlord and the owner of the Building if
other than Landlord) to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the actual interest of Landlord and its present
or future partners in the Premises or the Building and Tenant agrees to look
solely to the Premises for satisfaction of any liability and shall not look to
other assets of Landlord nor seek any recourse against the assets of the
individual partners, directors, officers, shareholders, agents or employees of
Landlord; it being intended that Landlord and the individual partners,
directors, officers, shareholders, agents or employees of Landlord shall not be
personally liable in any manner whatsoever for any judgment or deficiency. The
liability of Landlord under this Lease is limited to its actual period of
ownership of title to the Building, and Landlord shall be automatically released
from further performance under this Lease and from all further liabilities and
expenses hereunder upon transfer of Lessor's interest in the Premises or the
Building. Tenant agrees to attorn to any entity purchasing or otherwise
acquiring the Premises.
23. Recordation: Tenant shall not record this Lease or a short form memorandum
hereof without the prior written consent of the Landlord.
24. Warranties of Tenant: Tenant hereby warrants and represents to Landlord, for
the express benefit of Landlord, that Tenant has undertaken a complete and
independent evaluation of the risks inherent in the execution of this Lease and
the operation of the Premises for the use permitted hereby, and that, based upon
said independent evaluation, Tenant has elected to enter into this Lease and
hereby assumes all risks with respect thereto. Tenant hereby further warrants
and represents to Landlord, for the express benefit of Landlord, that in
entering into this Lease, Tenant has not relied upon any statement, fact,
promise or representation (whether express or implied, written oral) not
specifically set forth herein in writing and that any statement, fact, promise
or representation (whether express or implied, written or oral) made at any time
to Tenant, which is not expressly incorporated herein in writing is hereby
waived by Tenant.
25. Modifications for Lender: If, in connection with obtaining financing for the
Premises or any portion thereof, Landlord's lender shall request reasonable
modification(s) to this Lease as a condition to such financing, Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially adversely affect Tenant's rights hereunder or
the use, occupancy or quiet enjoyment of Tenant hereunder.
26. Landlord as Real Estate Investment Trust: Pacific Gulf Properties, Inc.
("PGP"), is a real estate investment trust, and all rental income received by
Landlord must therefore qualify as "rents from real property" within the meaning
of Section 856(d) of the Internal Revenue Code of 1954, as amended. In order to
insure such qualification, Tenant agrees that in the event Tenant shall assign
its interest in this Lease or sublet the Premises in accordance with the
provisions of Article 9, no amount received or accrued, directly or indirectly,
with respect to such assignment or sublease shall depend in whole or part on the
income or profits of the assignee or sublessee, or any other person deriving
income from the Premises. If PGP notifies Tenant that PGP has in good faith
determined that its status as a real estate investment trust under the
provisions of the Internal Revenue Code of 1954, as heretofore or hereafter
amended, will be jeopardized because of any provision of this Lease, Landlord
may request reasonable amendments to this Lease and Tenant will not unreasonably
withhold, delay or defer its consent thereto, provided that such modifications
do not (i) increase the monetary obligations of Tenant pursuant to this Lease,
or (ii) in any other manner adversely affect its interest in the Premises.
Initials:
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<PAGE>
27. Insurance: In Addition to the liability insurance required in Article
4.04(a), Tenant shall be required to provide Worker's Compensation insurance as
required by law.
28. Condition of Premises: Landlord shall deliver the Premises to Tenant clean
and free of debris on the Commencement Date and warrants to Tenant that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating,
and loading doors, if any, in the Premises, other than those constructed by
Tenant, shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Landlord
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Tenant setting forth with specificity the nature and extent
of such non-compliance, rectify same at Landlord's expense. If Tenant does not
give Landlord written notice of a non-compliance with this warranty within
ninety (90) days after the Commencement Date, connection of that non-compliance,
other than latent defects, shall be the obligation of Tenant at Tenant's sole
cost and expense.
29. COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE: Landlord warrants
to Tenant that the improvements on the Premises comply with all applicable
covenants or restrictions of record and applicable building codes, regulations
and ordinances in effect on the Commencement Date. Said warranty does not apply
to the use to which Tenant will put the Premises or to any Alterations or
Utility Installations (as defined in Article 6.05) made or to be made by Tenant.
If the Premises do not comply with said warranty, Landlord shall, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Tenant setting forth with specificity the nature and extent of such non-
compliance, rectify the same at Landlord's expense. If Tenant does not give
Landlord written notice of non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Tenant at Tenant's sole cost and expense.
30. Acceptance of Premises: Tenant hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises and the present and future suitability of the Premises for Tenant's
intended use; (b) that Tenant has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to Tenant's occupancy of the Premises and/or the term of this Lease,
and (c) that neither Landlord, nor any of Landlord's agents, has made any oral
or written representations or warranties with respect to the said matters other
than as set forth in this Lease.
31. Monthly Base Rent: The monthly base rent shall be payable as follows during
the lease term:
November 1, 1995 through October 31, 1996 $15,960.00 per month
November 1, 1996 through October 31, 1997 $16,800.00 per month
32. Additional Rent: The additional rent as defined in Article 4.01 shall
not exceed $.08 per square foot per month of the leased premises total square
footage for the first twelve (12) months, and shall not exceed $.09 per square
foot per month of the leased premises total square footage throughout the
remaining lease term. Additional rent shall be due and payable together with,
and in addition to, the base rent on the first day of each month.
33. Options to Renew: Landlord grants to Tenant the options to renew as
specified in the "Option to Extend Term Lease Rider" attached.
Initials:
-----------
<PAGE>
34. Right of First Opportunity: Provided Tenant is not in default and has abided
by the terms and conditions of the Lease, Landlord shall grant Tenant a "Right
of First Opportunity" to lease the adjacent 28,400 square feet, known as 1211
Park Center Drive, Suite A. If Tenant does not deliver to Landlord its notice of
intent to lease the additional space within ten (10) calendar days of receipt of
Landlord's notice, then this right of first opportunity will lapse and be of no
further force and effect and Landlord will have the right to lease the
additional space to a third party. If however, a lease is not consummated to a
third party within ninety (90) days of Landlord's notice, the Tenant's right of
first opportunity shall be reinstated. This Right of First Opportunity to lease
the additional space is personal to Tenant and is nontransferable and
nonassignable in the event of a sublease.
35. Tenant Improvements: Landlord to complete the following tenant improvements
as shown on Exhibits "B" and "C":
a. Construct demising wall, as shown, on North side of premises and
complete construction and finish of existing demising wall on South side
of premises.
b. Separate electrical circuits in Suite A and Suite B and tie to respective
electrical panels.
c. Remodel office area, add additional restroom capacity as shown on Exhibit
"C", and finish in Vista Distribution Center standard paint and
floor covering colors.
36. Rules and Regulations: Tenant agrees that it will abide by, and keep and
observe all reasonable rules and regulations which Landlord may make from time
to time for the management, safety, care, and cleanliness of the grounds, the
parking and unloading of vehicles and the preservation of good order, as well as
for the convenience of other occupants or tenants of the Building and the
Industrial Center and their invitees.
37. Signs: Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Tenant may, with Landlord's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Tenant's own business so long as such signs are in a location designated by
Landlord and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Landlord (see Exhibit "E").
38. Leasing Commissions: Landlord agrees to pay CB Commercial Real Estate Group,
Inc., a leasing commission as per Schedule of Sale and Lease Commissions
Agreement dated February 3, 1995, for any expansion into the remaining portion
of 1211 Park Center Drive.
Initials:
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<PAGE>
OPTION TO EXTEND TERM LEASE RIDER
This Rider is attached to and made part of that certain Lease (the "Lease")
dated August 17, 1995 between Pacific Gulf Properties, Inc., A Maryland
Corporation, as Landlord, and Ashworth, Inc., A Delaware Corporation, as
Tenant, covering the Property commonly known as 1211 Park Center Drive, Suite B,
Vista, CA 92083 (the "Property"). The terms used herein shall have the same
definitions as set forth in the Lease. The provisions of this Rider shall
supersede any inconsistent or conflicting provisions of the Lease.
A. Option(s) to Extend Term.
1. Grant of Option.
Landlord hereby grants to Tenant three (3) option(s) (the "Option(s)") to
extend the Lease Term for additional term(s) of one (1) years each (the
"Extension(s)"), on the same terms and conditions as set forth in the Lease, but
at an increased rent as set forth below. Each Option shall be exercised only by
written notice delivered to Landlord at least one hundred twenty (120) days
before the expiration of the Lease Term or the preceding Extension of the Lease
Term, respectively. If Tenant fails to deliver Landlord written notice of
exercise of an Option within the prescribed time period, such Option and any
succeeding Options shall lapse, and there shall be no further right to extend
the Lease Term. Each Option shall be exercisable by Tenant on the express
conditions that (a) at the time of the exercise, and at all times prior to the
commencement of such Extension, Tenant shall not be in default under any of the
provisions of the Lease and (b) Tenant has not been ten (10) or more days late
in the payment of rent more than a total of three (3) times during the Lease
Term and all preceding Extensions.
2. Personal Options.
The Option(s) are personal to the Tenant named in Section 1.03 of the Lease
or any Tenant's Affiliate described in Section 9.02 of the Lease. If Tenant
subleases any portion of the Property or assigns or otherwise transfers any
interest under the Lease to an entity other than a Tenant Affiliate prior to the
exercise of an Option (whether with or without Landlord's consent), such Option
and any succeeding Options shall lapse. If Tenant subleases any portion of the
Property or assigns or otherwise transfers any interest of Tenant under the
Lease to an entity other than a Tenant Affiliate after the exercise of an Option
but prior to the commencement of the respective Extension (whether with or
without Landlord's consent), such Option and any succeeding Options shall lapse
and the Lease Term shall expire as if such Option were not exercised. If Tenant
subleases any portion of the Property or assigns or otherwise transfers any
interest of Tenant under the Lease in accordance with Article 9 of the Lease
after the exercise of an Option and after the commencement of the Extension
related to such Option, then the term of the Lease shall expire upon the
expiration of the Extension during which such sublease or transfer occurred and
only the succeeding Options shall lapse.
B. Calculation of Rent.
The Base Rent during the Extension(s) shall be determined by one or a
combination of the following methods (INDICATE METHOD UPON EXECUTION OF THE
LEASE):
[_] 1. COST OF LIVING ADJUSTMENT (Section B.1, below)
Rental Adjustment Date(s): The first day of the month(s)
of the Extension(s) of the Lease Term.
[_] 2. FAIR RENTAL VALUE ADJUSTMENT (Section B.2, below) as determined by
appraiser [_] or broker [_].
Rental Adjustment Date(s): The first day of the month(s)
of the Extension(s) of the Lease Term.
[_] 3. FIXED ADJUSTMENT
The Base Rent shall be increased to the following amounts (the
"Adjusted Base Rent(s)") on the dates (the "Rental Adjustment
Date(s)") set forth below:
<TABLE>
<S> <C>
RENTAL ADJUSTMENT DATE(S) ADJUSTED BASE RENT(S)
November 1, 1997 $ 17,220.00 Per Month
November 1, 1998 $ 18,060.00 Per Month
November 1, 1999 $ 18,480.00 Per Month
$
</TABLE>
1. Cost of Living Adjustment.
The Base Rent shall be increased on the dates specified in Section B.1, above
(the "Rental Adjustment Date(s)") by reference to the Index defined in Section
3.02 of the Lease or the substitute index described in Paragraph 3.02(b) of the
Lease, as follows: The Base Rent in effect immediately prior to the applicable
Rental Adjustment Date (the "Comparison Base Rent") shall be increased by the
percentage that the Index has increased from the month in which the payment of
the Comparison Base Rent commenced through the month in which the applicable
Rental Adjustment Date occurs. In no event shall the Base Rent be reduced by
reason of such computation.
(copyright) 1988 Southern California Chapter 1 Initials:
of the Society of Industrial -----------
and Office Realtors, Inc.
(Multi-Tenant Net Form)
<PAGE>
2. Fair Rental Value Adjustment.
The Base Rent shall be increased on the date(s) specified in Section B.2,
above (the "Rental Adjustment Date(s)") to the "fair rental value" of the
Property, determined in the following manner:
(a) Not later than one hundred (100) days prior to any applicable Rental
Adjustment Date, Landlord and Tenant shall meet in an effort to negotiate, in
good faith, the fair rental value of the Property as of such Rental Adjustment
Date. If Landlord and Tenant have not agreed upon the fair rental value of the
Property at least ninety (90) days prior to the applicable Rental Adjustment
Date, the fair rental value shall be determined by appraisal, by one or more
appraisers or brokers (herein called "Appraiser(s)"), as provided in Section
B.2(b), below. It appraiser(s) are used, such appraiser(s) shall have at least
five (5) years' experience in the appraisal of commercial/industrial real
property in the area in which the Property is located and shall be members of
professional organizations such as MAI or equivalent. If broker(s) are used,
such broker(s) shall have at least five (5) years' experience in the sales and
leasing of commercial/industrial real property in the area in which the Property
is located and shall be members of professional organizations such as the
Society of Industrial and Office Realtors or equivalent.
(b) If Landlord and Tenant are not able to agree upon the fair rental value
of the Property within the prescribed time period, then Landlord and Tenant
shall attempt to agree in good faith upon a single Appraiser not later than
seventy-five (75) days prior to the applicable Rental Adjustment Date. If
Landlord and Tenant are unable to agree upon a single Appraiser within such time
period, then Landlord and Tenant shall each appoint one Appraiser not later than
sixty-five (65) days prior to the applicable Rental Adjustment Date. Within ten
(10) days thereafter, the two (2) appointed Appraisers shall appoint a third
(3rd) Appraiser. If either Landlord or Tenant fails to appoint its Appraiser
within the prescribed time period, the single Appraiser appointed shall
determine the fair rental value of the Property. If both parties fail to appoint
Appraisers within the prescribed time periods, then the first Appraiser
thereafter selected by a party shall determine the fair rental value of the
Property. Each party shall bear the cost of its own Appraiser and the parties
shall share equally the cost of the single or third Appraiser, if applicable.
(c) For the purposes of such appraisal, the term "fair market value" shall
mean the price that a ready and willing tenant would pay, as of the applicable
Rental Adjustment Date, as monthly rent to a ready and willing landlord of
property comparable to the Property it such property were exposed for lease on
the open market for a reasonable period of time and taking into account all of
the purposes for which such property may be used. If a single Appraiser is
chosen, then such Appraiser shall determine the fair rental value of the
Property. Otherwise, the fair rental value of the Property shall be the
arithmetic average of the two (2) of the three (3) appraisals which are closest
in amount, and the third appraisal shall be disregarded. In no event, however,
shall the Base Rent be reduced by reason of such computation. Landlord and
Tenant shall instruct the Appraiser(s) to complete the determination of the fair
rental value not later than thirty (30) days prior to the applicable Rental
Adjustment Dale. If the fair rental value is not determined prior to the
applicable Rental Adjustment Date, then Tenant shall continue to pay to Landlord
the Base Rent applicable to the Property immediately prior to such Extension,
until the fair rental value is determined. When the fair rental value of the
Property is determined, Landlord shall deliver notice thereof to Tenant, and
Tenant shall pay to Landlord, within ten (10) days after receipt of such notice,
the difference between the Base Rent actually paid by Tenant to Landlord and the
new Base Rent determined hereunder.
(copyright) 1988 Southern California Chapter 2 Initials:
of the Society of Industrial -----------
and Office Realtors, Inc.
(Multi-Tenant Net Form)
<PAGE>
EXHIBIT "A"
[DRAWING OF SITE PLAN APPEARS HERE]
EXHIBIT "A"
Initials:
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<PAGE>
EXHIBIT "B"
[DRAWING OF BUILDING SQUARE FOOTAGE APPEARS HERE]
EXHIBIT "B"
Initials:
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<PAGE>
EXHIBIT "C"
[DRAWING OF SUITE B LAYOUT]
1211 Park Center Drive
Suite "B" Revised Office Layout
EXHIBIT "C"
Initials:
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<PAGE>
EXHIBIT "D"
HAZARDOUS MATERIALS DISCLOSURE
This Hazardous Materials Disclosure is incorporated by reference into the lease
dated August 17, 1995, by and between Pacific Gulf Properties, Inc., a Maryland
Corporation, as Lessor and Ashworth, Inc., a Delaware Corporation, for the
premises located at 1211 Park Center Drive, Suite B. Vista.
I, Richard H. Werschkul, acting with full authority and on behalf of, Ashworth,
Inc., a Delaware Corporation, (Lessee) represent that the following disclosure
accurately reflects the usage or nonusage of hazardous materials on the leased
Premises.
Description of Lessee's usage and business operations:
Petroleum products, chemicals, container sizes, and amounts to be utilized by
Lessee at any time during tenancy:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Method and storage locations of hazardous materials:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
List any operations discharges in or on Premises:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I, Richard H. Werschkul, certify that Ashworth, Inc. will comply fully with all
applicable environmental laws governing hazardous materials and their usage in
our operations.
Lessee: Ashworth, Inc.
By: /s/ Richard H. Werschkul
Its: President
<PAGE>
EXHIBIT "E"
[DRAWING OF LESSEE BUILDING SIGNAGE]
Typical elevation Dock Area
Lessee Building Signage
(Typical elevation Dock Area)
Individual letters and logos to be fabricated from 2" deep high-impact
polystyrene with 60 ml. styrene faces.
Size: Capital letters not to exceed 1'.4" in height.
Sign Area: 1'.4" x 18'.0" 24 maximum square feet.
Located left and right side of tenant entries (see elevation)
Typeface: Univers bold condensed italic, all caps.
Colors: Face CTM Frazee 544D dark grey.
Returns CTM Ameritone IM52E "Tokay" light grey.
All signage will be non-illuminated and Lessor approved prior to installation.
All signage is at Lessee's expense.
Initials:
-----------
<PAGE>
EXHIBIT 10(o)(7)
LEASE
ASHWORTH STORE I, INC., A DELAWARE CORPORATION
DBA ASHWORTH
THE FACTORY STORES @ PARK CITY
PARK CITY, UTAH
R.R. PARK CITY, INC.
c/o ROTHSCHILD REALTY, INC.
1251 AVENUE OF THE AMERICAS
51ST FLOOR
NEW YORK, NEW YORK 10020
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. GRANT AND TERM.............................................. 6
SECTION 1.01. LEASED PREMISES..................................... 6
SECTION 1.02. TERM................................................ 6
SECTION 1.03. OPENING............................................. 7
SECTION 1.04. ESTOPPEL CERTIFICATE................................ 7
ARTICLE II. RENT AND DEPOSIT........................................... 7
SECTION 2.01. PAYMENTS BY TENANT.................................. 7
SECTION 2.02. MINIMUM RENT........................................ 7
SECTION 2.03. PERCENTAGE RENT..................................... 7
SECTION 2.04. ADDITIONAL RENT..................................... 9
SECTION 2.05. DEPOSIT............................................. 9
SECTION 2.06. LATE CHARGE......................................... 9
ARTICLE III. PREPARATION OF LEASED PREMISES............................ 9
SECTION 3.01. LANDLORD'S WORK..................................... 9
SECTION 3.02. DELIVERY OF POSSESSION DATE......................... 10
SECTION 3.03. TENANT'S WORK....................................... 10
SECTION 3.04. ALTERATION BY TENANT................................ 10
SECTION 3.05. REMOVAL BY TENANT................................... 11
ARTICLE IV. CONDUCT OF BUSINESS........................................ 11
SECTION 4.01. USE AND TRADE NAME.................................. 11
SECTION 4.02. OPERATION OF BUSINESS............................... 12
SECTION 4.03. UTILITIES........................................... 12
SECTION 4.04. SIGN................................................ 12
SECTION 4.05. TENANT'S ADDITIONAL COVENANTS....................... 12
SECTION 4.06. STORAGE AND OFFICE SPACE............................ 13
SECTION 4.07. CARE OF PREMISES.................................... 13
SECTION 4.08. NOTICE BY TENANT.................................... 13
SECTION 4.09. RADIUS.............................................. 13
SECTION 4.10. HAZARDOUS MATERIALS................................. 13
ARTICLE V. COMMON AREA................................................. 14
SECTION 5.01. USE OF COMMON AREA.................................. 14
SECTION 5.02. COMMON AREA MAINTENANCE EXPENSES.................... 14
ARTICLE VI. REPAIRS AND MAINTENANCE.................................... 15
SECTION 6.01. REPAIRS AND MAINTENANCE BY LANDLORD................. 15
SECTION 6.02. REPAIRS AND MAINTENANCE BY TENANT................... 15
ARTICLE VII. TAXES.................................................... 16
SECTION 7.01. TENANT TO PAY PROPORTIONATE SHARE OF TAXES.......... 16
SECTION 7.02. METHOD OF PAYMENT................................... 16
ARTICLE VIII. INSURANCE, INDEMNITY AND LIABILITY....................... 16
SECTION 8.01. LANDLORD'S INSURANCE OBLIGATIONS.................... 16
SECTION 8.02. TENANT'S INSURANCE OBLIGATIONS...................... 17
SECTION 8.03. GENERAL PROVISIONS.................................. 17
SECTION 8.04. COVENANTS TO HOLD HARMLESS.......................... 18
SECTION 8.05. LIABILITY OF LANDLORD TO TENANT..................... 18
ARTICLE IX. DESTRUCTION OF LEASED PREMISES............................. 18
SECTION 9.01. CONTINUANCE OF LEASE................................ 18
SECTION 9.02. RECONSTRUCTION...................................... 19
ARTICLE X. CONDEMNATION................................................ 20
SECTION 10.01. EMINENT DOMAIN..................................... 20
SECTION 10.02. RENT APPORTIONMENT................................. 20
SECTION 10.03. TEMPORARY TAKING................................... 20
ARTICLE XI. ASSIGNMENT, SUBLETTING AND ENCUMBERING LEASE............... 20
SECTION 11.01. NO ASSIGNMENT, SUBLETTING OR ENCUMBERING OF LEASE.. 20
SECTION 11.02. LANDLORD'S RIGHTS; TENANT'S OBLIGATIONS............ 22
SECTION 11.03. TRANSFER OF LANDLORD'S INTEREST.................... 22
ARTICLE XII. SUBORDINATION AND FINANCING............................... 22
SECTION 12.01. SUBORDINATION...................................... 22
SECTION 12.02. ATTORNMENT......................................... 22
SECTION 12.03. FINANCING.......................................... 23
ARTICLE XIII. ADVERTISING AND MARKETING................................ 23
SECTION 13.01. ADVERTISING AND MARKETING FUND..................... 23
SECTION 13.02. TENANT'S CONTRIBUTION.............................. 23
ARTICLE XIV. DEFAULT AND REMEDIES...................................... 23
SECTION 14.01. ELEMENTS OF DEFAULT................................ 23
SECTION 14.02. LANDLORD'S REMEDIES................................ 24
SECTION 14.03. BANKRUPTCY......................................... 25
SECTION 14.04. ADDITIONAL REMEDIES AND WAIVERS.................... 25
SECTION 14.05. CURE OF TENANT'S FAILURE........................... 26
ARTICLE XV. RIGHT OF ACCESS............................................ 26
ARTICLE XVI. DELAYS.................................................... 26
ARTICLE XVII. END OF TERM.............................................. 26
SECTION 17.01. RETURN OF LEASED PREMISES.......................... 26
SECTION 17.02. HOLDING OVER....................................... 27
</TABLE>
2
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XVIII. COVENANT OF QUIET ENJOYMENT............................. 27
ARTICLE XIX. MISCELLANEOUS............................................. 27
SECTION 19.01. ENTIRE AGREEMENT................................... 27
SECTION 19.02. NOTICES............................................ 27
SECTION 19.03. GOVERNING LAW...................................... 27
SECTION 19.04. SUCCESSORS......................................... 27
SECTION 19.05. LIABILITY OF LANDLORD.............................. 28
SECTION 19.06. BROKERS............................................ 28
SECTION 19.07. TRANSFER BY LANDLORD............................... 28
SECTION 19.08. NO PARTNERSHIP..................................... 28
SECTION 19.09. ACCORD AND SATISFACTION............................ 28
SECTION 19.10. WAIVER OF COUNTERCLAIMS............................ 28
SECTION 19.11. WAIVER OF JURY TRIAL............................... 28
SECTION 19.12. SEVERABILITY....................................... 28
SECTION 19.13. NO WAIVER.......................................... 28
SECTION 19.14. CONSUMER PRICE INDEX............................... 29
SECTION 19.15. INTEREST........................................... 29
SECTION 19.16. RULES AND REGULATIONS.............................. 29
SECTION 19.17. GROSS SALES: LANDLORD'S TERMINATION RIGHT......... 29
SECTION 19.18. FINANCIAL STATEMENTS.............................. 29
SECTION 19.19. GENERAL RULES OF CONSTRUCTION..................... 29
SECTION 19.20. RECORDING......................................... 29
SECTION 19.21. EFFECTIVE DATE.................................... 30
SECTION 19.22. HEADINGS.......................................... 30
SECTION 19.23. RELOCATION........................................ 30
</TABLE>
EXHIBITS
Exhibit A Site Plan
Exhibit B Delivery of Possession Date Certificate
Exhibit C Landlord's Work
Exhibit D Tenant's Work
Exhibit E Tenant Sign Criteria
Exhibit F Intentionally Omitted
Exhibit G Shopping Center Rules and Regulations
3
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
LEASE
THE FACTORY STORES @ PARK CITY
A Retail Development
THIS LEASE is made as of the 6th day of April, 1995, by and between
R.R. PARK CITY, INC., A DELAWARE CORPORATION, the address of which is C/O
ROTHSCHILD REALTY, INC., 1251 AVENUE OF THE AMERICAS, 51ST FLOOR, NEW YORK, NEW
YORK 10020 ("Landlord"), and ASHWORTH STORE I, INC., A DELAWARE CORPORATION, DBA
ASHWORTH ("Tenant") the address of which is 2791 Loker Avenue, Carlsbad,
California 92008.
DATA SUMMARY
The following references furnish data to be incorporated in the specified
Sections of this Lease and shall be construed to incorporate the entire Section:
(1) Section 1.01: Description of Leased Premises:
Retail Development: THE FACTORY STORES @ PARK CITY
Store number: C - 110, CONSISTING OF APPROXIMATELY TWO THOUSAND TWO
HUNDRED FIFTY-SEVEN (2,257) SQUARE FEET OF LEASABLE AREA
(2) Section 1.02: Length of Term:
Fixturing Period: THIRTY (30) - DAY PERIOD BEGINNING ON THE DELIVERY OF
POSSESSION DATE (AS DEFINED IN SECTION 3.02)
Initial Term: FIVE (5) LEASE YEARS
Provided that Tenant shall not be in Default at the time of exercise and at
the commencement of the renewal term in question, Tenant shall have the
option to extend the Term for the following Renewal Term. All terms and
conditions of this Lease shall apply during the Renewal Term, subject to
adjustments to the Minimum Rent and Sales Break Point as set forth below;
provided, however, that Sections 3.01 and 3.02 shall not apply, it being
understood that Tenant shall be accepting the Leased Premises, the Building
and the Retail Development in their then "as is" condition; and, provided
further, that Tenant shall, prior to the commencement of the Renewal Term,
make all alterations and improvements as shall be necessary for the Leased
Premises to be in substantially the same condition as shall have existed
at the commencement of the Initial Term. Said option shall be deemed to be
exercised unless Tenant gives Landlord written notice to the contrary at
least six months prior to the expiration of the term then ending.
Renewal Term: FIVE (5) LEASE YEARS
(3) Section 2.02: Minimum Rent:
<TABLE>
<CAPTION>
Lease Year Monthly Annual annual
Initial Term Minimum Rent Minimum Rent p/sq. ft.
-------------- ------------ ------------ ---------
<S> <C> <C> <C>
1 - 3 $2,915.29 $34,983.50 $15.50
4 - 5 $3,103.38 $37,240.50 $16.50
Lease Year -
Renewal Term
------------
6 - 7 $3,385.50 $40,626.00 $18.00
8 - 10 $3,761.67 $45,140.00 $20.00
</TABLE>
4
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
(4) Section 2.03: Percentage Rent:
Lease Year - annual
Initial Term Percentage Factor Sales Break Point p/sq. ft.
------------ ----------------- ----------------- ---------
1 - 7 4% $ 789,950.00 $ 350.00
Lease Year -
Renewal Term
------------
8 - 10 4% $ 789,950.00 $ 350.00
(5) Section 2.05: Deposit: $3,637.52
(6) Section 3.01: Special provisions regarding Landlord's Work: NONE
(7) Section 3.02: Outside Delivery Date: JUNE 30, 1995
(8) Section 3.03: Special provisions regarding Tenant's Work:
Provided Tenant shall have timely and completely performed all of its
obligations hereunder with respect to Tenant's Work and shall have opened
the Leased Premises for business on or before the Commencement Date,
Landlord shall pay Tenant a Construction Allowance consisting of FIVE
DOLLARS AND ZERO CENTS ($5.00) per square foot of leasable area in the
Leased Premises or, if less, the sum of paid bona fide receipts for
fixtures and improvements installed by Tenant to Landlord's satisfaction at
the Leased Premises. The Construction Allowance shall be payable within
thirty (30) days after Tenant (i) delivers to Landlord such paid receipts
and (ii) certifies in writing to Landlord that Tenant's Work has been
completed, that all persons and entities furnishing services and/or
materials in connection with Tenant's Work have been paid in full and that
there are no liens with respect to the Retail Development as a result of
any act or omission of Tenant. In the event that this Lease shall
terminate prior to the last day of the Initial Term (as originally set
forth herein without regard to any termination right of any party), Tenant
shall reimburse Landlord for the unamortized portion of such Construction
Allowance, based on amortization over the period of such Initial Term.
(9) Section 4.01: Permitted Use: THE RETAIL SALE AT DISCOUNT OF SPORTSWEAR,
APPAREL, FOOTWEAR, HATS, AND RELATED ACCESSORIES
MANUFACTURED BY AND/OR FOR ASHWORTH AND ITS LICENSEES, OR
FOR NO OTHER PURPOSE WHATSOEVER.
Permitted Trade Name: ASHWORTH
(10) Section 4.09: Radius: 25 MILES FROM THE OUTSIDE BOUNDARIES OF THE RETAIL
DEVELOPMENT
(11) Section 13.02: Marketing Fund Contribution - first Lease Year: $2.00 PER
SQUARE FOOT
Initial Contribution: NONE
(12) Section 19.02: Tenant's Notice Address: GENERAL COUNSEL
ASHWORTH STORE I, INC.
DBA ASHWORTH
2791 LOKER AVENUE WEST
CARLSBAD, CA 92008
Tenant's Telecopier Number: (619) 438-9107
(13) Guarantor(s): NONE
Address:
5
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
WITNESSETH:
For and in consideration of the rentals reserved and of the mutual
covenants and agreements hereinafter set forth, the parties hereto do hereby
mutually agree as follows:
ARTICLE I. GRANT AND TERM
SECTION 1.01. LEASED PREMISES. Landlord, in consideration of the rent to
be paid and the covenants to be performed by Tenant, does hereby lease to
Tenant, and Tenant hereby leases from Landlord, for the Term, the Leased
Premises (the "Leased Premises") which are described in the Data Summary and
approximately located in the cross-hatched area in Exhibit A hereto, in the
retail development designated in the Data Summary or known by such other name as
Landlord may from time to time hereafter designate (the "Retail Development").
As used herein, the term "State" shall mean the state in which the Retail
Development is located, the term "Major Tenant" shall mean any tenant occupying
more than ten thousand (10,000) square feet of floor area in the Retail
Development, the term "Shopping Center" shall mean the Retail Development
excluding the areas occupied by Major Tenants and the term "Building" shall mean
the building in which the Leased Premises are located. The site plan attached
as Exhibit "A" hereto sets forth the general layout of the Retail Development.
Notwithstanding anything in this Lease to the contrary, Landlord shall have the
right, at any time and from time to time, without notice to or consent of
Tenant and without in any manner diminishing Tenant's obligations under this
Lease, to change the size, location, elevation or layout of, and/or nature of
any of the stores in, the Retail Development including the right to locate
and/or erect thereon permanent or temporary kiosks, structures and other
buildings and improvements of any type. The roof, the exterior of the walls,
floor and ceiling and the area above and beneath the Leased Premises are not
leased hereunder, and the use thereof, together with the right to install,
maintain, use, repair, and replace pipes, ducts, conduits, wires, tunnels,
sewers and structural elements leading through the Leased Premises in locations
which will not materially interfere with Tenant's use thereof and serving other
parts of the Retail Development are hereby reserved to Landlord. For all
purposes of this Lease, the leasable area of the Leased Premises is conclusively
deemed to be the square footage set forth in the Data Summary unless Tenant
notifies Landlord in writing within thirty (30) days after the delivery of
possession of the Leased Premises that the actual square footage is more than
five percent (5%) greater or less than that set forth in the Data Summary. If
Landlord and Tenant cannot agree as to the exact square footage, the leasable
area shall be determined and certified by an independent architect appointed by
Landlord and approved by Tenant. Leasable area shall include all the area
within the mid-line of interior walls that separate the Leased Premises from
other leasable areas and the exterior face of other walls, and the square
footage of any mezzanines within the Leased Premises. The certificate of such
architect as to square footage shall be binding upon both parties hereto. If
such architect shall determine, or if the parties agree, that the actual square
footage is more than five percent (5%) greater or less than that set forth in
the Data Summary, then such square footage shall be used in all calculations
based on square footage throughout this Lease, and the Minimum Rent and Sales
Break Point set forth in the Data Summary shall be adjusted by multiplying such
numbers by a fraction, the numerator of which is the leasable area so determined
or agreed upon and the denominator of which is the leasable area set forth in
the Data Summary, and Tenant shall be obligated to pay from the Commencement
Date Minimum Rent, as so adjusted, and Percentage Rent based on the Sales Break
Point, as so adjusted. If such adjustments are to be made pursuant to the
immediately preceding sentence, Landlord shall be responsible for the fees of
such independent architect; otherwise, Tenant shall be responsible therefor.
Until an ultimate determination of leasable area is made to the contrary
pursuant to this Section 1.01, Tenant shall pay all rent based on the leasable
area set forth in the Data Summary, subject to retroactive adjustment as set
forth above.
SECTION 1.02. TERM. The term of this Lease (the "Term") shall commence on
such date (the "Commencement Date") which shall be the earlier of (i) the last
day of the Fixturing Period set forth in the Data Summary or (ii) the date on
which Tenant shall open the Leased Premises for business to the public, and
shall expire at 11:59 p.m. local time on the last day of the Term set forth in
the Data Summary, unless sooner terminated in accordance with the provisions
hereof (the "Expiration Date"). For all purposes of this Lease, the first
"Lease Year" shall be the period that begins on the Commencement Date, includes
any partial calendar month in which the Commencement Date occurs, and ends on
the last day of the twelfth full calendar month after the Commencement Date.
After the first Lease Year, the term "Lease Year" shall mean a period of twelve
(12) consecutive calendar months immediately following the preceding Lease Year
except that the last Lease Year shall terminate on the date the Lease is
terminated.
6
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
SECTION 1.03. OPENING. Tenant covenants and agrees to complete its
construction within the Leased Premises in accordance with the provisions of
this Lease and to open its store for business to the public not later than the
Commencement Date.
SECTION 1.04. ESTOPPEL CERTIFICATE. Tenant shall, without charge therefor,
at any time and from time to time, within five (5) days after request therefor
by Landlord, execute, acknowledge and deliver to Landlord a written estoppel
certificate in reasonable form, certifying to Landlord or any other person(s)
designated by Landlord, as of the date of such estoppel certificate: (i) that
the Leased Premises have been delivered to Tenant in the condition required by
this Lease, and that Tenant is in possession of the Leased Premises, has
unconditionally accepted the same and is currently paying the rent in full; (ii)
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
setting forth such modifications); (iii) whether or not there are then existing
any set-offs or defenses against the enforcement of any right or remedy of
Landlord, or of any duty or obligation of Tenant hereunder (and, if so,
specifying the same in detail); (iv) the dates, if any, to which any rent has
been paid in advance; (v) that Tenant has no knowledge of any uncured defaults
on the part of Landlord under this Lease (or if Tenant has knowledge of any such
uncured defaults, specifying the same in detail); (vi) that Tenant has no
knowledge of any event having occurred that authorized Tenant to terminate this
Lease (or if Tenant has such knowledge, specifying the same in detail); (vii)
any other matters that Landlord or such other person(s) may require to be
confirmed. Any failure by Tenant to execute and deliver such certificate
without modification and within the previously stated time period shall, in
addition to Landlord's other rights set forth herein, constitute an irrevocable
power of attorney appointing and designating Landlord or its successors or
assigns as attorney-in-fact to execute and deliver such estoppel certificate as
herein provided.
ARTICLE II. RENT AND DEPOSIT
SECTION 2.01. PAYMENTS BY TENANT. Tenant shall pay to Landlord, without
demand, deductions, set-offs or counterclaims, the rent, which is defined as the
sum of the Minimum Rent, Percentage Rent and all Additional Rent, when and as
the same shall be due and payable hereunder. All rent shall be paid in United
States funds, made payable to Landlord and delivered to the offices of Charter
Oak Partners set forth in Section 19.02 hereof unless otherwise specified by
written notice from Landlord to Tenant.
SECTION 2.02. MINIMUM RENT. Tenant shall pay throughout the Term monthly
minimum rent ("Minimum Rent") for the Leased Premises in the amount set forth in
the Data Summary for the applicable Lease Year. Minimum Rent shall be payable
on or before the first day of each calendar month during the Term. The first
payment of Minimum Rent shall be paid upon Landlord's execution of this Lease
and is in addition to the deposit set forth in Section 2.05. The Minimum Rent
for any partial calendar month shall be prorated at a daily rate.
SECTION 2.03. PERCENTAGE RENT.
(a) Tenant shall pay Percentage Rent for each Lease Year, equal to the
Percentage Factor set forth in the Data Summary multiplied by all "Gross Sales"
during such Lease Year in excess of the Sales Break Point set forth in the Data
Summary for such Lease Year. "Gross Sales" shall mean the total amount of the
actual sales price, whether for cash or otherwise, of all sales of merchandise
or services arising out of or payable on account of (and all other receipts or
amounts receivable whatsoever with respect to) all the business conducted in,
on, or from the Leased Premises by or on account of Tenant or any other seller
(including sublessees, assignees, licensees and concessionaires) for cash or
otherwise, including all orders for merchandise taken or filled at the Leased
Premises, and including all deposits not refunded to customers. For purposes
of this Lease, a "sale" shall be deemed to occur, and the entire amount of the
sales price shall be included in Gross Sales, at such time as (i) the
transaction is initially reflected in the books or records of Tenant or such
other seller, or (ii) Tenant or such other seller receives all or any portion of
the sales price, or (iii) the applicable goods or services are delivered to the
customer, whichever first occurs, irrespective of whether payment is made in
installments, the sale is for cash or credit, or otherwise, or all or any
portion of the sales price has actually been paid at the time of inclusion in
Gross Sales or at any other time. There shall be no deduction allowed for
direct or indirect discounts, rebates, or other reductions on sales, unless
generally offered to the public on a uniform basis or in the case of sales to
employees. Moreover, no deduction shall be allowed for uncollected or
uncollectible credit accounts, or for trade-ins or other
7
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
credits. The term "Gross Sales" shall exclude, however, amounts received from
sales of damaged or unseasonable merchandise sold in bulk to merchants or
jobbers, proceeds from any sales tax, gross receipts tax or similar tax, by
whatever name called which are separately stated and in addition to the purchase
price, bona fide transfers of merchandise from the Leased Premises to any other
stores or warehouses of Tenant (except when made to circumvent this Section
2.03), and sales of Tenant's fixtures and equipment not in the ordinary course
of Tenant's business. Refunds given to customers for merchandise purchased at
the Leased Premises and returned or exchanged, if previously included in Gross
Sales, shall be deducted from Gross Sales.
(b) Tenant shall operate the business upon the Leased Premises so that a
duplicate sales slip, invoice or non-resettable cash register receipt, serially
numbered, or such other device for recording sales as Landlord approves, shall
be issued with each sale or transaction, whether for cash, credit or exchange.
For the purpose of permitting verification by Landlord of any amounts due as
Percentage Rent, Tenant shall keep and preserve for at least three (3) years
after the end of each Lease Year, at the Leased Premises or at Tenant's offices
within the continental United States, such duplicate sales slips and receipts,
and original or duplicate books and records (conforming to and in accordance
with generally accepted accounting principles, consistently applied), which
shall disclose all information required to determine Gross Sales ("Tenant's
Records"). Upon Landlord's request, Tenant shall send to Landlord any and all
statements, information and copies of sales and income tax reports and returns
which separately show financial data for the Leased Premises, and inventory
records and other data evidencing Gross Sales. Within ten (10) days after each
calendar month Tenant shall submit to Landlord an unaudited statement of Gross
Sales for such calendar month. All such statements shall be in such form and
with such detail as Landlord shall deem necessary or desirable. Together with
Tenant's statement of Gross Sales for the first month of a Lease Year in which
Gross Sales exceed Tenant's Sales Break Point for that Lease Year, Tenant shall
pay to Landlord as Percentage Rent that amount determined by multiplying (1) the
Percentage Factor by (2) the excess of (i) Tenant's Gross Sales during such
Lease Year through the end of such month, over (ii) Tenant's Sales Break Point
for such Lease Year. Together with Tenant's statement of Gross Sales for each
remaining month during such Lease Year, Tenant shall pay Percentage Rent
determined by multiplying (1) the Percentage Factor by (2) Tenant's Gross Sales
for that month. Within thirty (30) days after the close of each Lease Year,
Tenant shall submit to Landlord a statement certified by the chief financial
officer of Tenant setting forth the amount of Gross Sales during such Lease Year
and showing the amount of Percentage Rent required to have been paid by Tenant
for such Lease Year. If Tenant shall fail to timely deliver such annual
statement to Landlord, (a) Landlord shall have the right to examine Tenant's
Records and to prepare such annual statement on Tenant's behalf, which annual
statement shall be deemed conclusive for the Lease Year in question, and Tenant
shall pay to Landlord the cost of such preparation as Additional Rent, and (b)
in addition, Tenant shall pay to Landlord, as Additional Rent and agreed
reasonable compensation for the administrative and other costs which Landlord
may incur, Two Hundred Fifty Dollars ($250.00) per day for each violation.
Notwithstanding anything to the contrary in this Section 2.03, Landlord and/or
Landlord's designee shall have the right, during Tenant's regular business
hours, to inspect or audit at the Leased Premises or Tenant's offices within the
continental United States Tenant's Records. If such inspection or audit
determines that Percentage Rent required to have been paid exceeds the
Percentage Rent which was actually paid for any Lease Year, Tenant shall
immediately pay such excess to Landlord plus interest (as set forth in Section
19.15). If such excess shall be one percent (1%) or more of the amount actually
paid, Tenant shall pay Landlord's cost of inspection and audit. If such excess
shall be (i) three percent (3%) or more of the amount actually paid for any
Lease Year or (ii) two percent (2%) or more of the amount actually paid for any
two (2) out of five (5) Lease Years, then Tenant shall be in Default and
Landlord shall have the rights set forth in Section 14.02.
(c) In the event that any Lease Year is less than 365 days or if Tenant
shall fail to operate its business in the Leased Premises in the manner and on
each day as required pursuant to Article IV hereof, then, for the purpose of
computing the Percentage Rent for any such short Lease Year, or such Lease Year
affected by Tenant's failure to so operate, the Sales Break Point for such Lease
Year shall be adjusted by multiplying the Sales Break Point otherwise applicable
for such Lease Year by a fraction, the numerator of which shall be the actual
number of days in such short Lease Year or the actual number of days in such
Lease Year during which Tenant was open for business and operating in accordance
with Article IV, and the denominator of which shall be the number "365".
(d) In the event the Leased Premises are not open for business to the
public on the Commencement Date Tenant shall pay to Landlord as Additional Rent
an amount equal to the Minimum Rent until Tenant shall open its store for
business and operate in accordance with Article 4, with the charge for partial
months to be prorated. This remedy shall be in addition to any and all other
remedies provided for in this Lease
8
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R.R. PARK CITY, INC.
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including those set forth in Article XIV.
SECTION 2.04. ADDITIONAL RENT. All sums of money or charges of any kind or
nature other than Minimum Rent and Percentage Rent payable by Tenant to Landlord
pursuant to this Lease (including the exhibits attached hereto) are defined as
"Additional Rent" and, except as otherwise set forth herein, are due ten (10)
days after the rendering of an invoice therefor. When Tenant is required in
this Lease to pay Tenant's "proportionate share" of Common Area Maintenance
Expenses, Taxes and other costs and expenses, such proportionate share shall be
a fraction, the numerator of which is the square footage of leasable area in the
Leased Premises, and the denominator of which is the total square footage of the
leasable area in the Shopping Center, as the same shall exist on the first day
of the month in question.
SECTION 2.05. DEPOSIT. Tenant, concurrently with the execution of this
Lease, shall deposit with Landlord the amount set forth in the Data Summary,
which sum shall be held by Landlord as security for Tenant's full performance of
its obligations under this Lease, including without limitation its obligation to
pay all rent when due and to surrender the Leased Premises in the condition
required in Sections 6.02(b) and 17.01 hereof. The deposit, which shall not
bear interest to Tenant, may be applied by Landlord against any failure in
Tenant's performance of any of the terms, provisions, or conditions of this
Lease. Landlord shall return the deposit to Tenant, after deducting any sums
owed to Landlord pursuant to this Lease, upon the expiration of this Lease,
provided such termination is not a result of Tenant's Default. A mortgagee in
possession of the Leased Premises, or any successor to its interest therein,
through public or private foreclosure or the acceptance of a deed in lieu
thereof, shall have no liability to Tenant with respect to such deposit unless
such person or entity has acknowledged receipt of all or any portion of Tenant's
deposit. In the event Landlord applies the deposit in whole or in part against
a failure by Tenant, Tenant shall deposit sufficient funds to maintain the
security deposit in the amount required herein. Upon the expiration of the
Term, Landlord shall retain the deposit, or so much as has not been applied in
accordance with the provisions hereof, until all of Tenant's obligations under
this Lease have been fully satisfied whereupon the balance shall be returned to
Tenant.
SECTION 2.06. LATE CHARGE. For each payment required hereunder that is not
received on or before the tenth (10th) day after the same is due, Tenant shall
immediately pay, as Additional Rent, a service charge equal to four percent (4%)
of the amount overdue. This Section 2.06, however, shall not be construed to
extend the date for any payment required hereunder, and notwithstanding the
imposition of such service charge Landlord shall retain all of its rights under
Article XIV hereof if any payment required to be made by Tenant is not made when
due, and neither the demand for, nor collection by, Landlord of such service
charge shall be construed as a cure of such failure of Tenant. It is agreed
that such service charge is a fair and reasonable charge under the circumstances
and shall not be construed as interest on a debt payment. In the event any
charge imposed hereunder or under any other section of this Lease is determined
by a court of competent jurisdiction to be interest, then no such interest
charge shall be calculated at a rate which is higher than the maximum rate which
is allowed under the usury laws of the State, which maximum rate of interest
shall be substituted for the rate in excess thereof, if any, computed pursuant
to this Lease.
ARTICLE III. PREPARATION OF LEASED PREMISES; ALTERATIONS
SECTION 3.01. LANDLORD'S WORK. Tenant shall accept the Leased Premises in
their "as is" condition as of the date of this Lease, except that Landlord, at
its expense, shall make such improvements to the Leased Premises, as set forth
in Exhibit "C" hereto ("Landlord's Work"). All other work done by Landlord at
Tenant's request shall be at Tenant's expense and shall be paid for within five
(5) days after the presentation to Tenant of a bill for such work. Acceptance
of possession by Tenant shall be conclusive evidence that Landlord's Work has
been fully performed in the manner required, except for items which are
specifically identified by Tenant on a punch list submitted to Landlord within
thirty (30) days after the Delivery of Possession Date and for latent and
structural defects in Landlord's Work. If any of Landlord's Work is dependent
upon Tenant's Working Drawings and Specifications or other information or
materials to be supplied by Tenant, and such Working Drawings and Specifications
or other information or materials are not properly or timely furnished, then at
Landlord's option (i) Landlord may elect not to perform such portion of
Landlord's Work, or (ii) Landlord may perform such portion of Landlord's Work in
accordance with plans and specifications or other information deemed by Landlord
in its sole discretion to be appropriate or (iii) Landlord may wait for Tenant's
proper Working Drawings and Specifications or other information or materials,
whereupon (notwithstanding any other
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provision hereof) Tenant shall be required to pay Minimum Rent and Additional
Rent for a period preceding the Commencement Date that is equal to the number of
days that the Delivery of Possession Date was delayed as a result of such wait.
SECTION 3.02. DELIVERY OF POSSESSION DATE.
The Delivery of Possession Date shall be the date on which the Leased
Premises are available to Tenant for the performance of Tenant's Work
(hereinafter defined) and the installation of Tenant's fixtures and equipment
without substantial interference from Landlord. Such date shall be subsequently
confirmed in a "Delivery of Possession Date Certificate" in the form attached
hereto as Exhibit "B". Notwithstanding the foregoing, the Delivery of
Possession Date shall be deemed to have occurred when all of Landlord's Work has
been so substantially completed except for Landlord's Work that is dependent
upon work to be performed by Tenant. If Tenant fails to comply with any of the
terms, covenants or conditions of this Lease prior to the Delivery of Possession
Date and such failure continues for ten (10) days after Landlord's notice
thereof, Landlord may declare this Lease null and void and of no further force
or effect and thereafter may demise the Leased Premises free from any right or
claim of Tenant or, in the alternative may declare a Default and invoke its
rights under Section 14.02. Tenant covenants and agrees to take physical
possession of the Leased Premises on the Delivery of Possession Date.
Notwithstanding anything in this Lease to the contrary, if for any reason the
Delivery of Possession Date shall not have occurred by the Outside Delivery Date
set forth in the Data Summary, then either party shall have the right to
immediately terminate this Lease by giving ten (10) days prior written notice to
the other party prior to the Delivery of Possession Date. Upon such
termination, neither party shall have any further obligation or liability to the
other relating to this Lease.
SECTION 3.03. TENANT'S WORK.
(a) Tenant agrees, at its sole cost and expense, to perform all work set
forth in, and in accordance with, Exhibit "D" attached hereto ("Tenant's Work").
Tenant's Work, and any other work necessary to open the store for business,
shall be completed, and all approvals and certificates of occupancy hereinafter
described which are necessary to open the store for business to the public shall
be obtained, by Tenant on or before the Commencement Date. Such work shall
include the installation of fixtures and equipment and the stocking of the
Leased Premises with suitable merchandise. Tenant covenants that all such
fixtures and equipment visible to customers shall be new or otherwise acceptable
to Landlord in appearance.
(b) Tenant may enter the Leased Premises during normal working hours during
the course of Landlord's Work for the purpose of inspecting same and taking
measurements. At such time prior to the Delivery of Possession Date that
Landlord's Work has progressed sufficiently to permit Tenant to perform its work
without interfering with Landlord's Work, Landlord upon written notice to Tenant
may, but shall not be required to, permit Tenant to enter the Leased Premises in
order to begin Tenant's Work and perform such other work as may be required
under this Lease in order to ready the store for opening. Throughout the period
of Tenant's Work, Tenant shall schedule its work so as not to interfere with any
work being performed by Landlord or by any other tenant in the Retail
Development.
(c) Tenant agrees to furnish to Landlord the Working Drawings and
Specifications with respect to the Leased Premises prepared in the manner and
within the time periods required in Exhibit D. If such Working Drawings and
Specifications are not furnished by Tenant to Landlord within the required time
period in a form to permit approval by Landlord, then Landlord may avail itself
of its options under Section 3.02 or in Exhibit D. Landlord's approval of
Tenant's Working Drawings and Specifications or any modifications thereof shall
not constitute the assumption of any responsibility by Landlord for their
accuracy or sufficiency, and Tenant shall be solely responsible therefor. In
addition to conforming to the requirements specified in Exhibit D, all work
performed by Tenant shall comply with such reasonable rules and regulations as
Landlord and its representatives may make. It is further understood and agreed
that: (i) Landlord shall have no responsibility or liability whatsoever for any
loss of, or damage to, any fixtures, equipment, merchandise, or other property
belonging to Tenant or its agents, employees and contractors, installed or left
in the Leased Premises, unless such loss or damage is caused by the intentional
acts of Landlord, its agents or employees; and (ii) Tenant's entry upon and
occupancy of the Leased Premises prior to the Commencement Date shall be
governed by and subject to all the provisions, covenants and conditions of this
Lease.
SECTION 3.04. ALTERATION BY TENANT.
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(a) Tenant shall not make or cause to be made any alterations, repairs,
additions or improvements in or to the Leased Premises, floor covering, interior
or exterior lighting, plumbing fixtures, shades, canopies or awnings or make any
changes to the storefront or the mechanical, electrical, plumbing or sprinkler
systems without providing to Landlord any drawings or specifications required by
Landlord, and without Landlord's prior written consent. In the event Landlord
grants such consent, such repairs, alterations, additions or improvements shall
be performed in a good and workmanlike manner and in accordance with all
applicable legal and insurance requirements and all drawings or specifications
approved by Landlord. Any work performed by Tenant shall be subject to
Landlord's inspection and approval after completion to determine whether the
same complies with the requirements of this Lease. Tenant agrees that Landlord
shall have the right, at no expense to Landlord, to require Tenant to furnish
Landlord with payment and performance bonds guaranteeing the completion of any
repairs, alterations, additions or improvements (structural or otherwise) to be
performed by Tenant under any provision of this Lease.
(b) Prior to the commencement of any work by Tenant, Tenant shall obtain
public liability and workers' compensation and builder's risk insurance, in
amounts and coverages satisfactory to Landlord to cover every contractor,
subcontractor and materialman to be employed by Tenant, and shall deliver
duplicate originals or certificates of all such insurance to Landlord for
written approval which shall not be unreasonably withheld or delayed. Such
policies shall name Landlord as an additional insured, shall be non-cancelable
without thirty (30) days' prior written notice to Landlord and shall be with
companies reasonably satisfactory to Landlord.
(c) Tenant shall timely obtain at its sole cost all certificates and
approvals with respect to work done and installations made by Tenant that may be
required for the issuance of a certificate of occupancy for the Leased Premises,
and shall immediately deliver to Landlord a copy of all such certificates and
approvals. Promptly upon the completion of its work, Tenant shall repair, clean
and restore to their prior condition all portions of the Retail Development
affected by any work of Tenant. In the event that any mechanic's,
materialman's or other lien is filed against the Leased Premises or the Retail
Development as a result of any work or act of or on behalf of Tenant, Tenant, at
its expense, shall discharge or bond off the same within ten (10) days from the
filing thereof. If Tenant fails to discharge said mechanic's, materialman's or
other lien, Landlord may bond or pay the same without inquiring into the
validity or merits of such lien and all sums so advanced and fees incurred
(including legal fees) shall be paid by Tenant on demand as Additional Rent.
It shall be Tenant's continuing obligation to keep and maintain the Leased
Premises and all other parts of the Retail Development free from any and all
liens arising out of any work performed, materials furnished or obligations
incurred by or for Tenant. In addition, Tenant shall replace any bonds posted
by Landlord pursuant hereto with a suitable bond of equivalent amount within
seven (7) days after Landlord's demand therefor.
SECTION 3.05. REMOVAL BY TENANT. All repairs, alterations, decorations,
additions and improvements made by Tenant shall be deemed to be attached to the
leasehold and to have become the property of Landlord upon such attachment. Upon
the expiration or sooner termination of this Lease, Tenant shall not remove any
of such alterations, decorations, additions and improvements, except that trade
fixtures, furniture and equipment installed by Tenant may be removed if all
rents hereunder are paid in full and Tenant has performed all of its other
obligations hereunder. Notwithstanding the foregoing, prior to the expiration
of the Term, Landlord may designate by written notice to Tenant those
alterations, decorations, additions and improvements which shall be removed by
Tenant at the expiration or termination of this Lease and Tenant shall promptly
remove same and repair any damage to the Leased Premises caused by such removal.
ARTICLE IV. CONDUCT OF BUSINESS
SECTION 4.01. USE AND TRADE NAME. Tenant shall continuously use and occupy
the Leased Premises and operate the Leased Premises each and every day during
the Term, other than on holidays on which Landlord permits the Shopping Center
to be closed. Such use, occupancy and operation shall be solely for the
Permitted Use set forth in the Data Summary and for no other purpose and shall
include the entire area of the Leased Premises. Throughout the Term, Tenant
shall (a) operate its business in the Leased Premises under the Permitted Trade
Name specifically set forth in the Data Summary and under no other, (b) not
change the advertised name or character of the business operated in the Leased
Premises, and (c) refer to the Shopping Center by name and by its logo whenever
designating the location of the Leased Premises in all advertising, billboards,
stationery and other local media.
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SECTION 4.02. OPERATION OF BUSINESS. Tenant shall conduct its business at
all times in a high class and reputable manner, maintaining at all times a full
staff of employees and a complete stock of merchandise. Tenant shall install
and maintain at all times a display of merchandise in the display windows (if
any) of the Leased Premises and shall keep the same well lighted during all
hours that the Retail Development is open to the general public and during such
other hours as may be reasonably designated by Landlord for the Shopping Center
in general. In no event shall Tenant conduct or advertise any auction, fire,
going out of business, or bankruptcy sale in or about the Leased Premises
without Landlord's prior written consent in each instance, which consent may be
withheld by Landlord in its sole and absolute discretion. Tenant shall conduct
its business in the Leased Premises in a lawful manner during all hours
specified by Landlord for the Shopping Center and Tenant shall not do any act
tending to injure the reputation of the Shopping Center as determined by
Landlord. If any governmental license(s) or permit(s) shall be required for the
proper and lawful conduct of Tenant's business or other activity carried on in
the Leased Premises, or if a failure to procure such a license or permit might
or would in any way adversely affect Landlord or the Retail Development, then
Tenant, at Tenant's expense, shall procure and thereafter maintain such
license(s) or permit(s) and submit the same for inspection by Landlord.
Tenant, at Tenant's expense, shall at all times comply with the requirements of
such license(s) or permit(s).
SECTION 4.03. UTILITIES. Tenant, at its expense, shall arrange for and pay
all costs and charges for all utilities and services provided or used in or at
the Leased Premises, commencing with the Delivery of Possession Date and
throughout the Term. Tenant shall pay directly to the public utility companies
the cost of any installation of any and all such utility services and meters not
included in Landlord's Work. Tenant agrees to indemnify and hold harmless
Landlord from and against any and all claims arising from the installation and
maintenance of such utility services and from all costs and charges for
utilities used on or in the operation of the Leased Premises.
SECTION 4.04. SIGN. Tenant shall install and maintain one (1) sign
affixed to the front of the Leased Premises, subject to the prior written
approval of Landlord as to design and location and conforming to all applicable
legal and insurance requirements. Tenant's sign shall be consistent with the
specifications and requirements contained in Exhibit "E" attached hereto.
Tenant shall pay for all costs in connection with such sign and shall be
responsible for the cost of proper installation and removal thereof and any
damage caused to the Leased Premises or Retail Development thereby. Tenant
shall keep such sign lit during all hours that the Shopping Center is open for
business and during such other hours as are designated from time to time by
Landlord in the rules and regulations for the Shopping Center. In the event
Landlord deems it necessary to remove such sign, then Landlord shall have the
right to do so, provided, however, that if the sign has received Landlord's
prior written approval, Landlord shall replace said sign as soon as practicable.
No additional signs, graphics or appliques of any kind which can be seen from
outside the Leased Premises shall be installed or displayed in, on or about the
Leased Premises without the prior written consent of Landlord. Any interior
signs shall be tasteful and prepared in a professional manner (not hand-
lettered). Any sign or display visible from outside the Leased Premises which
does not meet the above criteria may be removed at any time by Landlord without
Landlord incurring any liability therefor.
SECTION 4.05. TENANT'S ADDITIONAL COVENANTS. Tenant covenants and agrees
that, in the operation of its business within the Leased Premises, Tenant shall:
(a) pay before delinquency any and all taxes, assessments and public charges
levied, assessed or imposed upon Tenant's business or upon Tenant's fixtures,
furnishings or equipment in the Leased Premises, or upon any leasehold interest
or personal property of any kind, owned by or placed in or about the Leased
Premises by Tenant, and pay when and as due all license fees, permit fees and
charges of a similar nature for the conduct of any business or undertaking
authorized hereunder to be conducted in or from the Leased Premises; (b) observe
all reasonable requirements promulgated by Landlord from time to time relating
to delivery vehicles, the delivery of merchandise, and the storage and removal
of trash and garbage; (c) not use any space in the Retail Development outside
the Leased Premises for sale, storage or any other undertaking; (d) not use the
plumbing facilities in the Leased Premises for any purpose other than that for
which they were constructed, nor dispose of any foreign substances therein; (e)
not use any advertising medium or sound devices which may be heard outside the
Leased Premises, nor permit any odor to emanate from the Leased Premises which
is objected to by Landlord or by any tenant or occupant of the Shopping Center
(and, upon written notice from Landlord, Tenant shall immediately cease and
desist from causing such odor); (f) keep the Leased Premises and the interior
and exterior of Tenant's storefront in a neat, clean, safe and sanitary
condition; (g) not leave any debris on or cause any
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damage to any platform, loading dock or service area or any other portion of the
common areas used by Tenant; (h) promptly comply with all present and future
laws, ordinances, orders, rules, regulations and requirements of all
governmental authorities having jurisdiction, and observe and comply with all
covenants and restrictions of record and all notices from Landlord's mortgagee,
affecting or applicable to the Retail Development, or the Leased Premises or the
cleanliness, safety, occupancy and use of the same, whether or not any such
law, ordinance, order, rule, regulation, covenant, restriction, or other
requirement is substantial, foreseen or unforeseen or ordinary or extraordinary,
or shall necessitate structural changes or improvements, or shall interfere with
the use or enjoyment of the Leased Premises; (i) not use the common areas for
display, sale, handbilling, advertising, solicitation, or any other similar
undertaking; and (j) keep the temperature within the Leased Premises at such
levels so as to prevent freezing of water in pipes and fixtures.
SECTION 4.06. STORAGE AND OFFICE SPACE. Tenant shall store or stock in the
Leased Premises only merchandise that Tenant intends to offer for retail sale in
the Leased Premises. Tenant shall use for office, clerical or other non-selling
purposes only such space in the Leased Premises as is reasonably required for
Tenant's business therein.
SECTION 4.07. CARE OF PREMISES. Tenant shall keep the Leased Premises and
the exterior and interior of Tenant's storefront orderly, neat, safe and clean.
Tenant shall not move any safe or any other heavy or bulky equipment or fixtures
into or out of the Leased Premises without Landlord's prior written consent
which shall not be unreasonably withheld. Tenant agrees that it will not place
a load on any floor exceeding the floor load per square foot which such floor
was designed to carry, and will not install, operate or maintain in the Leased
Premises any heavy equipment except in such manner as to achieve a proper
distribution of weight.
SECTION 4.08. NOTICE BY TENANT. Tenant shall give immediate notice to
Landlord of damage to or accidents in the Leased Premises or in the Building and
of defects therein or in any fixtures or equipment.
SECTION 4.09. RADIUS. In the event Tenant or any person, firm or
corporation who or which controls Tenant or is controlled by Tenant or by such
other person, firm or corporation shall directly or indirectly, either
individually or as a partner or stockholder or otherwise, own, operate, or
become financially interested in any similar or competing business during the
Term within the Radius set forth in the Data Summary, then the Gross Sales (as
defined in this Lease) of any such business or businesses within said Radius
shall be included in Tenant's Gross Sales for purposes of computing Percentage
Rent hereunder. This Section 4.09 shall not apply to any such business or
businesses which are open and are being operated by Tenant within said Radius on
the Effective Date (as defined in Section 19.21).
SECTION 4.10. HAZARDOUS MATERIALS.
(a) Notwithstanding anything to the contrary set forth below, Landlord
indemnifies and shall defend and hold harmless Tenant from and against all
claims associated with the presence of Hazardous Materials existing on the
Leased Premises as of the Delivery of Possession Date or placed on or around the
Leased Premises by Landlord, its agents, employees or contractors.
(b) Tenant represents and warrants that it shall not use nor cause to be
used any Hazardous Materials within the Leased Premises or in the Retail
Development which in any manner violates or may violate federal, state or local
laws, ordinances, rules, regulations or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials.
(c) Except as otherwise provided in Section 4.10(a) above, (i) Tenant
shall be solely responsible for and shall comply with all laws, rules,
ordinances or regulations of any governmental authority having jurisdiction over
the Leased Premises with respect to the presence or removal of Hazardous
Materials within the Leased Premises and/or compliance with any environmental
laws or ordinances relating to the Leased Premises or Tenant's use thereof,
(ii) Tenant shall be responsible for all costs including, but not limited to,
those resulting from monitoring, clean-up or compliance incurred with respect to
any Hazardous Materials placed in the Leased Premises after the Delivery of
Possession Date, and shall be responsible for all such costs incurred with
respect to any Hazardous Materials placed in, on or under the Retail Development
by Tenant or its
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agents, employees or contractors and (iii) Tenant indemnifies and shall hold
harmless Landlord from and against any and all costs, claims, suits, causes of
action, losses, injury or damage, including without limitation, personal injury
damage (including death) as well as damage to property and all sums paid for
settlement of claims, reasonable attorney's fees, consultant and expert fees
arising during or after the Term as a result of a breach of the foregoing
obligations or resulting from the presence or removal of any Hazardous Materials
that shall have existed in the Leased Premises on or before the date that Tenant
shall vacate and surrender same.
(d) As used herein, "Hazardous Materials" means any material or substance
that is toxic, ignitable, reactive, or corrosive and that is regulated by any
local government, the State or the United States government. "Hazardous
Materials" includes any and all material or substances that are defined as
"hazardous waste", "extremely hazardous waste", or a "hazardous material"
pursuant to state, federal or local governmental law.
ARTICLE V. COMMON AREA
SECTION 5.01. USE OF COMMON AREA. Landlord agrees to cause to be operated,
managed and maintained during the Term all of the common areas of the Shopping
Center. The term "common areas" shall mean the parking areas, pedestrian
sidewalks and bridges, mall areas, truckways, loading docks, delivery areas,
park areas, elevators and escalators and stairs not contained in leased areas,
public rest rooms and comfort stations, if any, and all other areas or
improvements which may be provided for the convenience and use of the occupants
and tenants of the Retail Development and their respective agents, employees,
customers and invitees and other licensees of Landlord, including, without
limitation, all roads and driveways serving the Retail Development which are
operated, maintained or repaired by Landlord or at Landlord's expense. The use
and occupancy by Tenant of the Leased Premises shall include the non-exclusive
use, in common with all others to whom Landlord has or may hereafter grant
rights to use the same (including, but not limited to, the owners, tenants and
occupants of the Shopping Center), of the common areas and of such other
facilities as may be designated by Landlord from time to time; subject, however,
to rules and regulations for the use thereof as prescribed from time to time by
Landlord. Landlord may at any time close temporarily any common area to make
repairs or changes, to prevent the acquisition of public rights in such areas
and to discourage non-customer use, provided Landlord shall use its best efforts
not to unreasonably interfere with Tenant's conduct of business. In addition
Landlord may modify, from time to time, the traffic flow pattern and layout of
parking spaces and the entrances-exits to adjoining public streets or walkways,
utilize portions of the common areas for entertainment, programs and displays
and do such other acts in and to the common areas as in its judgment may be
desirable.
SECTION 5.02. COMMON AREA MAINTENANCE EXPENSES.
(a) Tenant shall pay as Additional Rent Tenant's proportionate share of all
costs and expenses (the "Common Area Maintenance Expenses") of every kind and
nature paid or incurred by Landlord, or for which Landlord is obligated during
the Term, for operating, equipping, policing and protecting, lighting, insuring,
repairing, replacing and maintaining (i) the common areas, (ii) the Building
roofs and exteriors and other portions of the Retail Development not leased or
available for lease, and (iii) all other areas, facilities and buildings used
in the maintenance and operation of the Retail Development including any
sprinkler or other safety systems, and any central mechanical plant. Such costs
and expenses shall include, but not be limited to, the costs and expenses
incurred in the following: providing all utilities to the Retail Development
(except such costs which are paid by individual tenants), including all energy
costs; illumination and maintenance of signs, whether located on or off the
Retail Development; cleaning, lighting, snow removal and landscaping; security
control and fire protection (including a per annum sprinkler charge of $0.10
per square foot of leasable area); management fees; premiums for Landlord's
insurance described in Section 8.01 hereof; maintaining and replacing the
equipment (if any) supplying music to such areas; the reasonable depreciation of
equipment used in the operation and maintenance of such areas; compensation,
employment taxes and expenses and benefits (including premiums for workers'
compensation and other insurance) paid to or on behalf of persons directly
involved in the performance, management or administration of the work specified
in this Section 5.02; repair, maintenance and cleaning of such areas; operating
costs; and maintenance, repair and replacement of mechanical equipment including
any automatic door openers, elevators, escalators, lighting fixtures, fire
sprinkler systems, security alarm systems, and all other items of equipment used
in connection with the Retail Development or the central mechanical plant
serving the Retail Development. In the event Landlord, in its sole discretion,
elects to furnish any utilities or services to Tenant and other tenants in the
Retail Development, including heat, ventilation and air-
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conditioning, Landlord's cost therefor shall be included in Common Area
Maintenance Expenses. There shall also be added to the foregoing an amount
equal to fifteen percent (15%) of the total of all of the foregoing costs and
expenses set forth in this Section 5.02(a) to compensate Landlord for
administrative services that are performed by persons not described above.
Notwithstanding anything to the contrary contained herein, Common Area
Maintenance Expenses shall not include any expenses of repairing Landlord's
construction defects.
(b) Tenant's proportionate share of Common Area Maintenance Expenses shall
be paid in advance, in equal monthly installments during each calendar year
during the Term, in the same manner and at the same time as Minimum Rent is
payable hereunder (and without separate invoice) without deduction or diminution
of any kind, based on an amount estimated from time to time by Landlord.
Notwithstanding the above, in the event Landlord at any time determines that the
amount of Common Area Maintenance Expenses actually being paid or incurred by
Landlord exceeds the estimate upon which Tenant's proportionate share was
computed, then Tenant, following a request from Landlord, shall commence to pay
a revised amount as computed on the basis of Landlord's revised estimate.
Following each calendar year, Landlord shall furnish Tenant with a statement of
the actual amount of Tenant's proportionate share of Common Areas Maintenance
Expenses for such period. If the total amount paid by Tenant under this Section
5.02 for any calendar year shall be less than the actual amount due for such
calendar year as shown on such statement, Tenant shall pay Landlord the
difference within ten (10) days, and if the total amount paid by Tenant
hereunder for any such calendar year shall exceed the actual amount due from
Tenant for such calendar year, such excess shall be credited against the next
installment due from Tenant under this Section 5.02, or, if there are no further
amounts due Landlord under this Lease, such excess shall be promptly paid to
Tenant. Tenant's liability for its proportionate share of Common Area
Maintenance Expenses for any calendar year in which the Term begins or ends
shall be the pro-rated amount of such total expenses for such calendar year,
based upon the number of days of the Term falling within such calendar year.
ARTICLE VI. REPAIRS AND MAINTENANCE.
SECTION 6.01. REPAIRS AND MAINTENANCE BY LANDLORD. For the first twelve
(12) months only following the Delivery of Possession Date, Landlord shall, upon
written notice from Tenant of the necessity therefor, correct any defects in
Landlord's Work within the Leased Premises. In addition, Landlord, upon written
notice from Tenant of the necessity therefor, shall (a) keep in good order,
condition and repair the sewer, utility and water lines installed by Landlord
servicing the Leased Premises that are located outside of the Leased Premises,
and (b) correct any structural defects in the roof, foundation, floor slab, and
exterior walls of the Building, unless the need therefor results from the act or
neglect of Tenant, its agents, employees or contractors. All such costs and
expenses of the type incurred by Landlord under this Section 6.01 shall be
included in Common Area Maintenance Expenses.
SECTION 6.02. REPAIRS AND MAINTENANCE BY TENANT.
(a) Except for the repair and maintenance obligations of Landlord described
in Section 6.01, Tenant, at its expense, shall promptly make all repairs and
replacements and perform maintenance in and to the Leased Premises and all
equipment and fixtures therein or appurtenant thereto, that are necessary or
desirable in order to keep the Leased Premises in good order, condition and
repair and in safe, dry and tenantable condition. Without limiting the
generality of the foregoing, Tenant, at its expense, shall maintain and
promptly make any and all necessary repairs to or replacement of: (i) that
portion of any pipes, lines, ducts, wires or conduits contained within and
serving solely the Leased Premises; (ii) the storefront, including all windows,
doors, glass, window frames and door frames, that are contained in or about the
Leased Premises; (iii) Tenant's sign; (iv) the floors and floor coverings,
doors, windows, walls, partitions and ceilings in the Leased Premises; (v)
heating, ventilating, air conditioning, electrical and plumbing equipment and
fixtures serving solely the Leased Premises; and (vi) any part of the Leased
Premises or the Retail Development when repairs thereto are necessitated by any
act or omission (negligent or otherwise) of Tenant, its agents, contractors,
employees or invitees, or by the failure of Tenant to perform any of its
obligations under this Lease.
(b) Tenant shall keep and maintain the Leased Premises in a clean, sanitary
and safe condition in accordance with the laws of the State and all directions,
rules and regulations of the health officer, building inspector, the National
Fire Protection Association and other officials of governmental agencies having
jurisdiction, at the sole cost and expense of Tenant, and Tenant shall comply
with all requirements of law, ordinances, rules, regulations and orders of any
lawful authority having jurisdiction affecting the Leased Premises or Tenant's
use thereof.
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(c) Tenant, at its expense, shall install and maintain fire extinguishers
and other fire protection devices as may be required from time to time by any
agency having jurisdiction or the underwriters insuring the Building. If any
bureau, department or official of the Federal, State or local government
requires or recommends the installation of any changes, modifications or
alterations in the sprinkler system or additional sprinkler heads or other
equipment (hereinafter collectively "changes") by reason of Tenant's business or
the location of partitions, trade fixtures, or other contents of the Leased
Premises, or for any other reason, or if any such changes become necessary to
prevent the imposition of a penalty or charge against the full allowance for a
sprinkler system in the fire insurance rates set by any fire insurance company,
Tenant, at Tenant's expense, shall promptly make such changes as required.
ARTICLE VII. TAXES.
SECTION 7.01. TENANT TO PAY PROPORTIONATE SHARE OF TAXES. Tenant shall pay
as Additional Rent Tenant's proportionate share of all Taxes for Tax Years
beginning or ending during the Term. The term "Taxes" shall include all real
estate taxes, ad valorem taxes and assessments, general and special assessments,
taxes on real estate rental receipts, taxes on Landlord's gross receipts, taxes
imposed on leasehold improvements and any other tax whether now or hereafter
imposed upon or levied against real estate or upon owners of real estate as such
rather than persons generally (but not including any taxes based on net income
or any estate or inheritance tax or any transfer tax, mortgage tax or recording
fee on the sale or mortgage of the Retail Development), which are assessed or
payable with respect to or allocable to the Retail Development, including all
land and all buildings and improvements situated thereon, together with the
reasonable cost (including fees of attorneys, consultants and appraisers) of
any negotiation, contest or appeal pursued by Landlord in an effort to reduce
any such tax, assessment or charge, and all of Landlord's administrative costs
in relation to the foregoing. Tenant's liability for its proportionate share of
any Taxes for any Tax Year in which the Term begins or ends shall be subject to
a pro rata adjustment based upon the number of days of the Term falling within
such Tax Year. Tenant's obligation under this Section 7.01 shall survive the
expiration of the Term. The term "Tax Year" means each period established as
the real estate tax year by the taxing authorities having lawful jurisdiction
over the Retail Development.
SECTION 7.02. METHOD OF PAYMENT. Tenant's proportionate share of Taxes
shall be paid in equal monthly installments in the same manner and at the same
time as Minimum Rent is payable hereunder (and without separate invoice) without
deduction or diminution of any kind, based on an amount estimated from time to
time by Landlord. If at any time during a Tax Year it shall appear that
Landlord has underestimated Tenant's proportionate share of Taxes for such Tax
Year, Landlord may reestimate same and may bill Tenant for any deficiency which
may have accrued during such Tax Year and thereafter the monthly installments
payable by Tenant shall also be adjusted. Within one hundred twenty (120) days
after the Tax Year, or, if later, after Landlord's receipt of tax bills for such
Tax Year, or such reasonable (in Landlord's determination) time thereafter,
Landlord will notify Tenant of the actual amount of Taxes for the Tax Year in
question and of Tenant's proportionate share thereof, and Tenant shall pay
Landlord or Landlord shall credit to Tenant's account (or shall pay Tenant if
there are no further payments due under this Lease), within thirty (30) days of
the aforesaid notification to Tenant, the amount of any underpayment or
overpayment, as the case may be. The failure of Landlord to provide such
notification within the time prescribed above shall not relieve Tenant of its
obligations hereunder.
ARTICLE VIII. INSURANCE, INDEMNITY AND LIABILITY.
SECTION 8.01. LANDLORD'S INSURANCE OBLIGATIONS. Landlord shall maintain
during the Term fire and extended coverage insurance, with such special
endorsements as Landlord shall determine from time to time, insuring (a) all
buildings in the Retail Development (including coverage for vandalism, plate
glass breakage and related coverage as determined by Landlord), (b) the
improvements designated as Landlord's Work and (c) the improvements to the
Leased Premises provided by Tenant pursuant to this Lease (exclusive of Tenant's
merchandise, trade fixtures, furnishings, equipment, plate glass, signs and
personal property) in an amount determined by Landlord. Landlord shall also
carry a comprehensive policy of general liability insurance (including coverage
for death, personal injury and property damage, and for defamation and false
arrest) in amounts determined by Landlord and rental interruption insurance in
amounts at least equal to the total anticipated rent obligation of Tenant and
other tenants in the Retail Development for twelve (12) full months.
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THE FACTORY STORES @ PARK CITY
SECTION 8.02. TENANT'S INSURANCE OBLIGATIONS. Tenant, at its sole cost and
expense, shall maintain in effect at all times during the Term insurance
policies providing for the following coverage:
(a) Personal Property Insurance. Extended coverage insurance against fire,
vandalism, malicious mischief, sprinkler leakage and such additional perils as
now are or hereafter may be included in a standard extended coverage
endorsement from time to time in general use in the State, insuring Tenant's
merchandise, trade fixtures, furnishings, equipment, plate glass and all items
of personal property of Tenant located on or in the Leased Premises, in an
amount not less than the full replacement value thereof. Any and all proceeds
of such insurance, so long as the Lease shall remain in effect, shall be used
only to repair or replace or pay for the items so insured.
(b) Liability Insurance. A comprehensive policy of general liability
insurance, naming Landlord and any mortgagee of the Shopping Center as
additional insured, protecting against any liability occasioned on or about any
part of the Shopping Center, the Leased Premises or appurtenances thereto, or
arising from any of the acts set forth in Section 8.04 hereof against which
Tenant is required to indemnify Landlord, with such policy to be in the minimum
amount of Three Million Dollars ($3,000,000) single limit coverage. In
addition, such minimum limit may from time to time, at Landlord's option, be
increased to an amount determined by Landlord to be consistent with industry
standards.
(c) Products Liability Insurance. Products liability insurance for
merchandise offered for sale or lease from the Leased Premises, including (if
this Lease covers leased premises in which food and/or beverages are sold and/or
consumed) coverage for liability arising out of the consumption of food and/or
alcoholic beverages on or obtained at the Leased Premises, of not less than Two
Million Dollars ($2,000,000) for personal injury and death and not less than
Five Hundred Thousand Dollars ($500,000) for property damage.
SECTION 8.03. GENERAL PROVISIONS.
(a) All insurance policies herein to be maintained by Tenant shall: (i) be
issued by insurance companies reasonably satisfactory to Landlord authorized to
do business in the State; (ii) be written as primary policy coverage and not
contributing with or in excess of any coverage which Landlord may carry; and
(iii) insure and name Landlord and any mortgagee of the Shopping Center as
additional insureds as their respective interests may appear. Neither the
issuance of any insurance policy required hereunder, nor the minimum limits
specified herein with respect to Tenant's insurance coverage, shall be deemed to
limit or restrict in any way Tenant's liability arising under or out of this
Lease. Before Tenant takes possession of or commences work in the Leased
Premises, and before any such insurance policy shall expire, Tenant shall
deliver to Landlord a duplicate original or certified copy of each such policy
or renewal thereof, as the case may be, together with evidence of payment of
all applicable premiums. In the event that Tenant shall fail promptly to
furnish such evidence of any such insurance coverage Landlord, at its sole
option, shall have the right to obtain the same and pay the premiums therefor,
as set forth in Section 14.05 hereof. Such insurance may be carried under a
blanket policy covering the Leased Premises and other locations of Tenant.
Each and every insurance policy required to be carried hereunder by or on behalf
of Tenant shall provide (and any certificate evidencing the existence of each
such insurance policy shall certify) that, unless Landlord shall first have been
given thirty (30) days prior written notice thereof: (i) such insurance policy
shall not be cancelled and shall continue in full force and effect, (ii) the
insurance carrier shall not, for any reason whatsoever, fail to renew such
insurance policy, and (iii) no material changes may be made in such insurance
policy. The term "insurance policy" as used herein shall be deemed to include
any extensions or renewals of such insurance policy.
(b) Tenant shall not do or permit to be done any act or thing upon the
Leased Premises that will invalidate or conflict with any of Landlord's
insurance policies referred to in this Article VIII; and Tenant shall promptly
comply with all rules, orders, regulations, or requirements relating to such
insurance policies, and shall not do, or permit anything to be done, in or upon
the Retail Development or the Leased Premises, or bring or keep anything
therein, which shall increase the premiums for any such insurance policies. If
any act or omission of Tenant, its agents, employees or contractors shall cause
an increase in such premiums, or result in other increased costs to Landlord in
connection with such policies, then Tenant shall reimburse Landlord on demand as
Additional Rent for the amount of any such increased premiums or costs. In
particular, if Tenant uses the Leased Premises for the preparation of food,
Tenant shall reimburse Landlord on demand for any part of the premium for
insurance coverage under Section 8.01 hereof required to be paid on account of
such use of the Leased Premises.
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(c) Both parties agree that the fire and extended coverage insurance
policies to be maintained by them shall contain a waiver of subrogation, as set
forth in Section 8.04.
SECTION 8.04. COVENANTS TO HOLD HARMLESS.
(a) Landlord and Tenant mutually agree with respect to any loss generally
covered under the classification "fire and extended coverage insurance", that
the one suffering said loss releases the other, its officers, directors,
employees, and agents from any and all claims and liability or responsibility
with respect to such loss, including losses arising out of the inability to
conduct business or receive rent; and they further mutually agree that their
respective insurance companies shall have no right of subrogation against the
other on account thereof.
(b) Except arising from the negligence or willful misconduct of Landlord,
its agents or employees, Tenant hereby indemnifies and agrees to save harmless
Landlord, its officers, directors, partners, employees and agents and any
mortgagee or master lessor of the Retail Development (the "Indemnitees") from
and against any and all claims, actions, damages, liability, cost and expense,
including attorneys' fees, that (i) arise from or are in connection with the
possession, use, occupancy, management, repair, maintenance or control of the
Leased Premises, or (ii) arise from or are in connection with any act or
omission of Tenant or Tenant's agents, employees, contractors, licensees or
invitees, or (iii) result from any default, breach, violation or nonperformance
of this Lease or any provision hereof by Tenant, or (iv) result from injury to
person or property or loss of life sustained in or about the Leased Premises.
Tenant shall, at its own cost and expense, defend any and all actions, suits and
proceedings which may be brought against any Indemnitee with respect to the
foregoing, and shall pay, satisfy and discharge any and all judgments, orders
and decrees which may be received against any Indemnitee with respect to the
foregoing. Notwithstanding the foregoing, any Indemnitee shall have the right,
in its sole discretion, to defend or intervene in such litigation to protect its
interest hereunder, in which case Tenant shall continue to hold harmless such
Indemnitee and shall pay all costs, expenses and attorneys' fees incurred or
paid by such Indemnitee in connection with such litigation.
(c) Landlord hereby indemnifies and agrees to save harmless Tenant, its
officers, directors, partners, employees and agents from and against all claims,
actions, damages, liability, costs and expense, including attorneys' fees, that
arise from or are in connection with the operation, management, repair or
maintenance of the common areas, unless arising out of the acts of Tenant or its
agents, employees or contractors, or unless resulting in occurrences that take
place in the Leased Premises. Landlord, at its own cost and expense, shall
defend any and all actions, suits and proceedings which may be brought against
Tenant with respect to the foregoing.
SECTION 8.05. LIABILITY OF LANDLORD TO TENANT. Except with respect to any
damages resulting from Landlord's negligence or willful misconduct, Landlord
shall not be liable to Tenant, its agents, employees or customers, for any
damage, loss, compensation, accident, or claims whatsoever resulting from: the
necessity of repairing any portion of the Retail Development; any interruption
in the use of the Leased Premises; the use or operation (by Landlord, Tenant, or
any other person or persons whatsoever) of any elevators, heating, cooling,
electrical or plumbing equipment or apparatus; the termination of this Lease by
reason of the destruction of the Leased Premises; any fire, robbery, theft, or
any other casualty; any leakage in any part or portion of the Leased Premises or
the Retail Development; any water, wind, rain or snow that may leak into, or
flow from part of the Leased Premises or the Retail Development; any acts or
omissions of any other tenant in the Retail Development; any explosion,
casualty, utility failure or malfunction, or falling plaster; or the bursting,
stoppage or leakage of any pipes, drains, conduits, appliances or plumbing
works; or any other cause whatsoever.
ARTICLE IX. DESTRUCTION OF LEASED PREMISES.
SECTION 9.01. CONTINUANCE OF LEASE. In the event of any damage to the
Leased Premises by fire or other casualty, this Lease shall not be terminated or
otherwise affected; except that, (i) if more than twenty-five percent (25%) of
the square footage of the Leased Premises shall be so damaged during the last
three (3) years of the Initial Term (or, if applicable, any Renewal Term) and
the cost of repair or restoration exceeds Ten Thousand Dollars ($10,000.00) as
estimated by Landlord (provided, however, that Tenant may vitiate a termination
pursuant to this clause (i) if it notifies Landlord within ten (10) days of such
termination notice that it exercises its option to renew this Lease, if such
option shall exist pursuant to Article I), or (ii) if Landlord is unable to
rebuild any portion of the Retail Development due to any inability to obtain any
required governmental approval in connection therewith, or (iii) if more than
thirty-five
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percent (35%) of the floor area of the Retail Development shall be damaged or
destroyed by fire or other casualty, or (iv) if all or any part of the Retail
Development shall be damaged or destroyed at any time by the occurrence of any
risk not covered under the insurance required to be carried under Article VIII
hereof, then Landlord shall have the option to immediately terminate this Lease
by giving written notice to Tenant within (90) days after such fire or other
casualty, or if later, within forty-five (45) days after Landlord determines
that it is unable to obtain such governmental approval. Upon such termination,
(a) the entire proceeds of the insurance provided for in Section 8.01 hereof
shall be paid by the insurance company or companies directly to Landlord and
shall belong to, and be the sole property of, Landlord, (b) the portion of the
proceeds of the insurance provided for in Section 8.02 which is allocable to
equipment, fixtures and other items, which, by the terms of this Lease, belong
to the Landlord upon the termination of this Lease by whatever cause, shall be
paid by the insurance company or companies directly to Landlord, and shall
belong to, and be the sole property of, Landlord, and the balance of such
proceeds shall be paid to Tenant and (c) Landlord and Tenant shall be relieved
from any and all further liability or obligation accruing under this Lease after
the date of such termination. Tenant hereby waives any and all rights which it
may have to terminate this Lease by reason of damage to the Leased Premises by
fire or other casualty pursuant to any present or future statute or law.
SECTION 9.02. RECONSTRUCTION. If all or any portion of the Leased Premises
is damaged by fire or other casualty and this Lease is not terminated in
accordance with Section 9.01 hereof, then the damage to the Leased Premises
shall be repaired promptly upon receipt of the insurance proceeds therefor, but
in any event within six (6) months following the damage or destruction
(exclusive of events set forth in Article XVI herein) and the rent and Sales
Break Point shall be reduced in proportion to the floor area of the Leased
Premises rendered unusable. Notwithstanding anything to the contrary contained
herein, in the event that Tenant has not achieved Gross Sales in the amount of
or exceeding the Sales Break Point set forth in Section 2.03 of the Data
Summary, the Sales Break Point shall not be reduced until Tenant achieves said
sales. Payment of full rent shall commence and Tenant shall be obligated to
reopen all of the Leased Premises for business on the fifteenth (15th) day
following the date that Landlord advises Tenant that the Leased Premises are
usable, unless Tenant opens at an earlier time in the damaged area or remains
open in such area following destruction or damage, in which event there shall be
no reduction or any such reduction shall terminate as of the date of Tenant's
earlier reopening. Landlord shall be obligated to cause such repairs to be made
except that Landlord shall have the option to cause Tenant to repair and
reconstruct the improvements to the Leased Premises originally provided by
Tenant, in which event Tenant shall commence performance of its work within ten
(10) days following notice from Landlord that it has completed repairs required
of Landlord, shall diligently pursue the completion of such work and shall cause
the same to be completed as soon thereafter as possible, but in any event within
thirty (30) days following the substantial completion of Landlord's work. In
the event of such repair and reconstruction by Tenant, Landlord shall make
available to Tenant for such purpose such portion of any insurance proceeds
received by Landlord from its insurance carrier, under the policy carried
pursuant to Section 8.01 of this Lease, allocated by Landlord to such of
Tenant's improvements. Such allocation shall be in Landlord's reasonable
discretion unless Tenant has designated in writing to Landlord in advance of
such fire or casualty a reasonable replacement value of its improvements. In
the event of any such repair or reconstruction by Tenant, an architect duly
registered in the State shall be selected by Landlord and shall direct the
payment of such insurance proceeds, which shall be payable to Tenant only upon
receipt by Landlord of certificates of said architect stating that the payments
specified therein are properly payable for the purpose of reimbursing Tenant for
expenditures actually made by Tenant in connection with such work. At the
election of Landlord or Landlord's mortgagee, direct payments may be made to
contractors, material suppliers and laborers upon written certification by said
architect that such payments are due and payable. Any such insurance proceeds
in excess of Tenant's actual expenditures in restoring the damage or
destruction shall belong to Landlord. In making repairs, restoration or
reconstruction, Tenant, at its expense, shall comply with all laws, ordinances
and governmental rules or regulations, shall perform all work or cause such work
to be performed with due diligence and in a first-class manner, and shall obtain
all necessary permits. Any amount expended by Tenant in excess of such
insurance proceeds received by Landlord and made available to Tenant shall be
the sole obligation of Tenant. The party who shall actually repair or
reconstruct Tenant's improvements to the Leased Premises shall do so in
accordance with Tenant's Working Drawings and Specifications originally approved
by Landlord pursuant to Exhibit D hereof or in accordance with subsequent
working drawings and specifications previously approved by Landlord, or, at
Landlord's sole election, with new drawings prepared by Tenant and acceptable to
Landlord. In no event shall Landlord be required to repair or replace Tenant's
merchandise, trade fixtures, furnishings and equipment except if said repairs,
replacement, damage or deprivation of possession is caused by the negligence or
willful misconduct of Landlord, its agents, contractors or employees. Except as
may be specifically set forth in this Article IX, Landlord shall not be liable
or obligated to Tenant to any extent whatsoever by reason of any fire or other
casualty damage to the Leased Premises, or any damages suffered by Tenant by
reason thereof, or the deprivation of
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Tenant's possession of all or any part of the Leased Premises.
ARTICLE X. CONDEMNATION.
SECTION 10.01. EMINENT DOMAIN. If fifty percent (50%) or more of the floor
area of the Leased Premises shall be taken or condemned by any government
authority (including, for purposes of this Article, any purchase by such
government authority in lieu of a taking) then either party may elect to
terminate this Lease by giving notice to the other party not more than sixty
(60) days after the date on which such title shall vest in the authority. If
the parking facilities are reduced below the minimum parking requirements
imposed by the applicable authorities, Landlord may elect to terminate this
Lease by giving Tenant notice within one hundred twenty (120) days after such
taking. In addition, if the lease of any Major Tenant or the leases of tenants
occupying more than fifty percent (50%) of the leasable area of the Retail
Development shall terminate, pursuant to such taking, condemnation or purchase
in lieu thereof, Landlord or Tenant may terminate this Lease by written notice
to the other party within sixty (60) days after notice to Landlord of such
termination. In the case of any taking or condemnation, whether or not the term
of this Lease shall cease and terminate, the entire award shall be the property
of Landlord; provided, however, Tenant shall be entitled to any award as may be
made for trade fixtures and other equipment (not including any Tenant's Work
required or permitted under this Lease) which under the terms of this Lease
would not have become the property of Landlord; further provided, that any such
award to Tenant shall not be in diminution of any award otherwise to be made to
Landlord in the absence of such award to Tenant.
SECTION 10.02. RENT APPORTIONMENT. In the event of any such taking,
condemnation or purchase in lieu thereof the Minimum Rent and Sales Break Point
shall be reduced as of the date of vesting of title, based on the proportion
which the floor area taken from the Leased Premises bears to the entire floor
area of the Leased Premises immediately prior to such event, and all other
charges hereunder that are based on the floor area of the Leased Premises and/or
the leasable floor area in the Shopping Center shall be appropriately adjusted.
SECTION 10.03. TEMPORARY TAKING. Notwithstanding anything to the contrary
in this Article X, the requisitioning of the Leased Premises or any part thereof
by military or other public authority for purposes arising out of a temporary
emergency or other temporary situation or circumstances shall only constitute a
taking of the Leased Premises by eminent domain when the use or occupancy by the
requisitioning authority is expressly provided to continue, or shall in fact
have continued, for a period of one hundred and eighty (180) days or more. If
this Lease is not thereafter terminated under the foregoing provisions of this
Article X, then for the duration of any period of use and occupancy of the
Leased Premises by the requisitioning authority, all the terms and provisions of
this Lease and obligations of Tenant hereunder shall remain in full force and
effect, except that the Minimum Rent and Sales Break Point shall be reduced in
the same proportion that the floor area of the Leased Premises so requisitioned
bears to the total floor area of the Leased Premises, and Landlord shall be
entitled to whatever compensation may be payable from the requisitioning
authority for the use and occupation of the Leased Premises for the period
involved.
ARTICLE XI. ASSIGNMENT, SUBLETTING AND ENCUMBERING LEASE.
SECTION 11.01. NO ASSIGNMENT, SUBLETTING OR ENCUMBERING OF LEASE.
(a) Notwithstanding any references to assignees, subtenants,
concessionaires or other similar entities in this Lease, Tenant shall not (i)
assign or otherwise transfer, or mortgage or otherwise encumber, this Lease or
any of its rights hereunder, (ii) sublet the Leased Premises or any part
thereof, or permit the use of the Leased Premises or any part thereof by any
persons other than Tenant, or (iii) permit the assignment or other transfer of
this Lease or any of Tenant's rights hereunder by operation of law. Any act or
attempted act, and any instrument, in violation of the foregoing sentence,
whether voluntary or involuntary or by operation of law or otherwise, shall be
null and void and shall not confer any rights upon any purported transferee,
assignee, mortgagee, subtenant or occupant, and shall, at Landlord's option,
terminate this Lease without relieving Tenant of any of its obligations
hereunder for the balance of the stated term. Notwithstanding the foregoing,
Tenant shall be permitted to assign this Lease to any corporation that owns all
of the voting shares of Tenant or to any corporation all of the voting shares of
which are owned by Tenant or such other corporation, provided that Landlord is
given ten (10) days' written notice of such assignment, and provided further
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that the assignee shall assume in writing all of the terms of this Lease.
Without conferring any rights upon Tenant not otherwise provided in this Article
XI, neither the consent by Landlord to any assignment, transfer, or subletting
to any party nor the collection or acceptance of rent from any such party shall
be construed as a waiver or release of Tenant from any covenant or obligation
under this Lease.
(b) If Tenant is a corporation, then the sale, issuance or transfer of any
voting stock of Tenant or of any corporate entity which directly or indirectly
controls Tenant which shall result in a change in the voting control of Tenant
or the corporate entity which controls Tenant shall be deemed to be a prohibited
assignment of this Lease within the meaning of this Article XI. If Tenant is a
partnership or an unincorporated association, then the sale, issuance or
transfer of a majority interest therein, or the transfer of a majority interest
in or a change in the voting control of any partnership or unincorporated
association or corporation which directly or indirectly controls Tenant, or the
transfer of any portion or all of any general partnership or managing
partnership interest in Tenant or such other entity, shall be deemed to be a
prohibited assignment of this Lease within the meaning of this Article XI. The
foregoing provisions of this Section 11.01(b) shall not apply if the entity
which is the subject of this Section 11.01(b) is a corporation subject to the
reporting requirements of the Securities Exchange Act of 1934 or if Tenant
operates or such entity controls companies that operate at least twenty-five
other stores of similar nature and of the same trade name as Tenant.
(c) Without conferring any rights upon Tenant not otherwise provided in
this Article XI, one-half (1/2) of all rent or other payment accruing to Tenant
as the result of any assignment, transfer, sublease or other occupancy
arrangement with respect to the Leased Premises, including any lump sum or
periodic payment in any manner, which exceeds the rent then payable by Tenant
under this Lease shall be paid by Tenant to Landlord monthly as Additional
Rent. At Landlord's request from time to time, Tenant shall deliver to Landlord
a certificate specifying the full amount of any such payment of whatsoever
nature.
(d) Any reasonable costs and expenses, including attorney's fees (which
shall include the cost of any time expended by Landlord's attorneys including
in-house counsel) incurred by Landlord in connection with any proposed or
purported assignment, transfer, or sublease shall be paid by Tenant as
Additional Rent. It is understood and agreed that the restrictions set forth in
this Article are of primary importance in enabling Landlord to control the mix
of tenants in the Retail Development.
(e) Notwithstanding the foregoing, the Tenant originally executing this
Lease shall be permitted to assign this Lease if all of the following terms and
conditions are met and complied with:
1. Tenant shall not be in default under this Lease beyond applicable notice
and cure periods at the time Landlord's consent is requested or at the
effective date of the assignment or sublease.
2. The proposed assignee or subtenant shall have a financial standing at least
equal to that of the then Tenant.
3. The proposed assignee or subtenant shall not be a person or entity who has
previously defaulted under a lease with Landlord in the Shopping Center or
any of Landlord's other Shopping Centers.
4. The proposed assignee or subtenant shall be a manufacturer who sells its
own merchandise and operates a manufacturer's outlet store, and shall be
experienced in the business permitted under Section 4.01.
5. The Leased Premises shall be used by the assignee or subtenant in a manner
which is not incompatible with the then-existing "tenant mix" of the
Shopping Center.
6. The Permitted Use shall not violate any then-existing "exclusives" granted
to other tenants of the Shopping Center.
7. Tenant shall pay to Landlord a sum equal to fifty percent (50%) of (i) any
rent or other consideration paid to Tenant by the assignee or subtenant
which is in excess of the rent then being paid by Tenant to Landlord
pursuant to the terms of this Lease, and (ii) any other profit or gain
realized by Tenant from any such assignment;
8. Tenant shall pay the reasonable fee and disbursement of Landlord's
attorneys in connection with the assignment or sublease (whether proposed
or effected).
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9. In the case of an assignment, Landlord must be furnished with an executed
counterpart of the assignment in recordable form at least thirty (30) days
prior to its effective date which shall provide for the assignment of
Tenant's entire interest in this Lease, together with any prepaid rent and
security deposit hereunder, and the acceptance by the assignee of said
assignment and its assumption and agreement to perform directly for the
benefit of Landlord all of the terms and provisions of this Lease on
Tenant's part to be performed.
10. In the case of a sublease, Landlord must be furnished with an executed
counterpart of the sublease in recordable form at least thirty (30) days
prior to its effective date which shall provide that the subtenant is
subject and subordinate to the terms and provisions of this Lease and that
subtenant will perform all of the terms and provisions of this Lease on
Tenant's part to be performed, except the payment of rent, which Tenant
shall continue to be obligated to pay to Landlord.
11. Tenant will confirm in writing that it remains liable under this Lease as
though no assignment or sublease had been made.
12. Tenant shall furnish Landlord with such data in substantiation of or
relating to the foregoing as Landlord may reasonably request.
13. The proposed assignee or subtenant shall not be a person or entity with
whom Landlord currently is (or within the preceding six (6) months has
been) negotiating regarding a lease for space elsewhere in the Shopping
Center and the proposed assignee or subtenant shall not be a tenant in the
Shopping Center.
Notwithstanding the foregoing, Landlord shall also have the right to
terminate this Lease rather than consent or refuse to consent to a sublet or
assignment hereunder and Tenant shall remain liable, for all obligations of the
Lease, until Landlord finds a suitable replacement for a period not to exceed
six (6) months from the date Landlord has notified Tenant that it intends to
terminate the Lease. In addition, Tenant shall reimburse Landlord for the
unamortized portion of the Construction Allowance, if any, based on amortization
over the period of the Initial Term.
SECTION 11.02. LANDLORD'S RIGHTS; TENANT'S OBLIGATIONS. If this Lease is
transferred or assigned, as aforesaid, or if the Leased Premises or any part
thereof be sublet or occupied by any person or entity other than Tenant,
whether as a result of any act or omission by Tenant, or by operation of law,
or otherwise, and whether or not in violation of this Lease, then Landlord,
whether before or after Default by Tenant, may, in addition to, and not in
diminution of or substitution for, any other rights and remedies under this
Lease or pursuant to law to which Landlord may be entitled as a result thereof,
collect rent from the transferee, assignee, subtenant or occupant and apply the
net amount collected to the rent herein reserved, but no such transfer,
assignment, subletting, occupancy or collection shall, absent Landlord's express
written agreement to the contrary, be deemed a waiver of the covenants contained
herein or the acceptance of the transferee, assignee, subtenant, or occupant as
the tenant, or a release of Tenant from further performance of covenants on the
part of Tenant set forth in this Lease.
SECTION 11.03. TRANSFER OF LANDLORD'S INTEREST. In the event of any
transfer of Landlord's interest in the Leased Premises, including a sale or
lease, the transferor shall be automatically relieved of any and all obligations
on the part of Landlord accruing from and after the date of such transfer. Upon
delivery to a successor Landlord of any funds then in the hands of Landlord in
which Tenant has an interest, the transferor shall be released of all
obligations with respect to such funds.
ARTICLE XII. SUBORDINATION AND FINANCING.
SECTION 12.01. SUBORDINATION. Tenant agrees that this Lease shall, at the
request of Landlord, be subordinate to any ground leases, mortgages or deeds of
trust that are now, or may hereafter be, placed upon the Leased Premises and to
any and all advances to be made thereunder, and to the interest thereon, and all
renewals, replacements and extensions thereof (collectively, "Encumbrances").
Tenant agrees that upon the request of Landlord, or any ground lessor,
mortgagee, trustee or beneficiary (each of which shall be referred to in this
Article XII as a "Mortgagee"), Tenant shall execute whatever instruments may be
required to carry out the intent of this Section.
SECTION 12.02. ATTORNMENT. If, and so long as, any Encumbrance is in
effect, then at the option of the Mortgagee:
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(a) This Lease and Tenant's tenancy hereunder will continue in full force
and effect notwithstanding (i) the occurrence of an event of default under such
Encumbrance; (ii) any failure by Landlord to comply with any provision of this
Lease; (iii) any defense, counterclaim or set-off to which Tenant might be
entitled against Landlord; (iv) any delay or omission by the Mortgagee in
exercising, or any waiver by the Mortgagee of, any right or remedy under the
Encumbrance or the note which it secures ("Note"); (v) any amendment of, or
supplement to the Note or the Encumbrance which does not affect any rights of
Tenant under this Lease; or (vi) any bankruptcy, receivership, insolvency,
reorganization, composition, dissolution, liquidation, or similar proceeding
with respect to Landlord;
(b) If any such Mortgagee shall enter into and become possessed of the
Leased Premises or any part thereof through summary or other proceedings, Tenant
shall be obligated to pay to such Mortgagee the rent payable hereunder as the
same becomes payable and otherwise to comply with the provisions hereof on the
part of Tenant to be complied with; and
(c) If any such Mortgagee or any purchaser at any public or private
foreclosure sale resulting from any default under any such Encumbrance shall
enter into and become possessed of the Leased Premises or any part thereof
through summary or other proceedings, Tenant, without charge therefor, will
attorn to such Mortgagee or purchaser as the case may be, and recognize such
Mortgagee or purchaser as its Landlord under this Lease, in accordance with all
of the provisions hereof, and will promptly execute upon request of such
Mortgagee or purchaser an agreement of attornment, in recordable form.
SECTION 12.03. FINANCING. In the event any construction lender, land
lessor, or the permanent lender for the Shopping Center or the Retail
Development requires, as a condition to financing, modifications to this Lease
which do not materially alter the approved working plans, do not increase the
rent to be paid hereunder, and do not materially increase Tenant's obligations
or materially decrease Tenant's rights hereunder, Landlord shall submit to
Tenant a written amendment with such required modifications and if Tenant fails
to execute and return the same within ten (10) days after the amendment has been
submitted, then Landlord shall have the right to cancel this Lease, upon written
notice to Tenant, whereupon this Lease shall be immediately cancelled and
terminated, any money or security theretofore deposited by Tenant with Landlord
shall be returned to Tenant, and both Landlord and Tenant shall thereupon be
relieved from any and all further liability or obligation hereunder.
ARTICLE XIII. ADVERTISING AND MARKETING.
SECTION 13.01. ADVERTISING AND MARKETING FUND. Landlord shall establish on
behalf of the tenants in the Retail Development an advertising and marketing
fund (the "Marketing Fund"). The Marketing Fund shall be administered by
Landlord as agent for the tenants and shall be expended by Landlord in its
judgment for the purpose of advertising and marketing the Retail Development and
the tenants therein, including operating various events at the Retail
Development. The costs of such administration shall be charged to the Marketing
Fund. Upon written request by Tenant, Landlord shall furnish an audited
financial statement of the Marketing Fund to Tenant.
SECTION 13.02. TENANT'S CONTRIBUTION. Tenant shall contribute to the
Marketing Fund throughout the Term an amount per annum that is based on the
number of square feet of leasable area in the Leased Premises (the "Marketing
Fund Contribution"). The Marketing Fund Contribution for the first Lease Year
shall be as set forth in the Data Summary. The Marketing Fund Contribution
shall be increased for each subsequent Lease Year by a percentage equal to the
percentage increase in the Consumer Price Index ("Index") from the Previous
Index to the Current Index (as defined in Section 19.14 hereof), or seven
percent (7%), whichever shall be greater. The Marketing Fund Contribution shall
be paid to Landlord, or as Landlord may direct, in twelve (12) equal monthly
installments in the same manner as the monthly installments of Minimum Rent are
payable (and without separate invoice). In addition to the Marketing Fund
Contribution, Tenant shall also pay Landlord, within ten (10) days after the
Delivery of Possession Date, a one-time initial contribution to the Marketing
Fund in the amount set forth in the Data Summary.
ARTICLE XIV. DEFAULT AND REMEDIES.
SECTION 14.01. ELEMENTS OF DEFAULT. If any one or more of the following
events occur, said event or events shall hereby be deemed a "Default":
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(a) If Tenant fails to operate its business in compliance with Sections
4.01 and 4.02 hereof, and such failure continues for three (3) days after
written notice thereof from Landlord to Tenant;
(b) If Tenant fails to pay any rent (as defined in Section 2.03) when same
shall become due and payable hereunder or fails to furnish an estoppel
certificate as required in Section 1.04, and such failure continues for five (5)
days after written notice thereof from Landlord to Tenant;
(c) If Tenant fails to perform or observe any term or condition of this
Lease (other than as set forth in the other subparagraphs of this Section
14.01), and such failure shall continue for ten (10) days after written notice
thereof from Landlord to Tenant;
(d) If Tenant shall be given three (3) notices under Sections 14.01(a),
14.01(b) or 14.01(c) in any 24-month period, notwithstanding any subsequent cure
of the failure to perform or observe the terms or conditions of the Lease as
identified in such notices;
(e) If any execution, levy, attachment or other legal process of law shall
occur upon Tenant's goods, fixtures, or interest in the Leased Premises that is
not discharged or bonded within 15 days; or
(f) If Tenant shall be in Default as specifically provided in other
sections of this Lease.
SECTION 14.02. LANDLORD'S REMEDIES. Should a Default occur under this
Lease (whether before or during the Term), Landlord may pursue any or all of the
following:
(a) Landlord, in addition to other rights or remedies it may have, shall
have the right, by written notice to Tenant, to declare this Lease terminated
and the term ended. In such event, this Lease and the Term shall expire with
the same force and effect as though the date set forth in the notice of
termination were the date originally set forth herein and fixed for the
expiration of the Term, and Tenant shall vacate and surrender the Leased
Premises but shall remain liable for all obligations arising during the balance
of the Term, as hereafter provided as if this Lease had remained in full force
and effect. Also in such event, Landlord shall have the right to bring a
special proceeding to recover possession from Tenant holding over and/or
Landlord may, without notice, re-enter the Leased Premises either by force or
otherwise, and dispossess and by summary proceedings or by the laws of the
State or otherwise, recover possession from, Tenant and the legal
representatives of Tenant or other occupant(s) of the Leased Premises and remove
and dispose of their effects and hold the Leased Premises as if this Lease had
not been made.
(b) If this Lease is terminated or Tenant is dispossessed before the
expiration of the Term under this Section 14.02, or if Tenant shall abandon or
vacate the Leased Premises before the expiration or termination of the Term
without having paid the full rent for the remainder of the Term, Landlord shall
have the option to relet the Leased Premises for such rent and upon such terms
as Landlord may determine in its sole discretion, and, if the full rent reserved
under this Lease (and any of the costs, expenses or damages indicated below)
shall not be realized by Landlord, Tenant shall be liable for all damages
sustained by Landlord, including deficiency in rent (which, for purposes of this
Section 14.02 (b) shall include Percentage Rent based on the highest Percentage
Rent payable for any Lease Year prior to the Lease Year in which the Default
occurred. Tenant shall also be liable for Landlord's reasonable attorney's fees,
brokerage fees, construction and other tenant allowances and expenses of taking
the actions set forth in this Section 14.02, placing the Leased Premises in
first class rentable condition and re-letting the Leased Premises. Landlord, in
putting the Leased Premises in good order or preparing the same for reletting
may make such alterations, repairs or replacements in the Leased Premises as
Landlord, in its sole judgment, considers advisable and necessary for such
purpose, and the making of such alterations, repairs or replacements shall not
operate or be construed to release Tenant from liability hereunder as aforesaid.
Landlord shall in no event be liable in any way whatsoever for failure to relet
the Leased Premises, or in the event that the Leased Premises are relet, for
failure to collect the rent under such reletting, and in no event shall Tenant
be entitled to receive the excess or be entitled to receive any credit with
respect to the excess, if any, of such net rent collected over the sums payable
by Tenant to Landlord hereunder. Notwithstanding the foregoing, upon
termination of this Lease pursuant to this Section 14.02, Landlord shall make a
good faith effort to re-let the Leased Premises at prevailing market rates,
provided, however, that it shall not be obligated (i) to do so in preference to
other vacant space within the Retail Development, (ii) to re-let the Leased
Premises for any use other than as a manufacturer's retail outlet store or to
any person or entity which does not have experience and net worth reasonably
acceptable to Landlord or which would (in
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Landlord's reasonable judgment) adversely affect the tenant mix in the Shopping
Center or (iii) to market the Leased Premises in a manner different than it
markets other available retail space in the Shopping Center.
(c) Any loss of rent and other damages sustained by Landlord may be
recovered by Landlord, at Landlord's option, (i) at the time of the reletting,
(ii) in one or more separate actions, from time to time in Landlord's
discretion, as said loss of rents or damages shall accrue, or (iii) in a single
proceeding deferred until the expiration of the Term (in which event Tenant
hereby agrees that the cause of action shall not be deemed to have accrued until
the original date of expiration of the Term).
(d) Nothing contained herein shall prevent the enforcement of any claim
Landlord may have against Tenant for anticipatory breach of the unexpired Term.
In the event of a breach or anticipatory breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not provided for herein. Mention in
this Lease of any particular remedy shall not preclude Landlord from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event
Tenant is evicted or dispossessed for any cause, or in the event Landlord
obtains possession of the Leased Premises.
SECTION 14.03. BANKRUPTCY.
(a) Neither Tenant's interest in this Lease, nor any estate hereby created
in Tenant's interest nor any interest herein or therein, shall pass to any
trustee or receiver or assignee for the benefit of creditors or otherwise by
operation of law, except as may specifically be provided pursuant to the
Bankruptcy Code (11 USC (S)101 et.seq.), as the same may be amended from time to
time.
(b) Rights and Obligations Under the Bankruptcy Code.
(1) Upon filing of a petition by or against Tenant under the
Bankruptcy Code, Tenant, as debtor and as debtor-in-possession, and
any trustee who may be appointed with respect to the assets of or
estate in bankruptcy of Tenant, agree to pay monthly in advance on
the first day of each month, as reasonable compensation for the use
and occupancy of the Leased Premises, an amount equal to all
Minimum Rent, Additional Rent and other charges otherwise due
pursuant to this Lease, and to pay Percentage Rent monthly, at the
Percentage Factor for the Lease Year in which such month falls, on
all of the Gross Sales during such month in excess of one-twelfth
(1/12th) of the Sales Break Point for such Lease Year; payment of
all such Percentage Rent to be made by the twentieth (20th) day of
the succeeding month.
(2) It is understood and agreed that this Lease is a lease of real
property in a shopping center as such lease is described in Section
365 of the Bankruptcy Code, as the same may be amended from time to
time.
(3) Included within and in addition to any other conditions or
obligations imposed upon Tenant or its successor in the event of
the assumption and/or assignment of this Lease are the following:
(i) the cure of any monetary defaults (including without
limitation, default in Tenant's obligation to reimburse Landlord
for Landlord's reasonable attorneys' fees and disbursements
incurred (A) in enforcing this Lease under Section 14.05 and/or (B)
in connection with such assignment of this Lease under Section
11.01(d)) and reimbursement of pecuniary loss within not more than
thirty (30) days of assumption and/or assignment; (ii) the deposit
of an additional sum equal to not less than three (3) months'
Minimum Rent and Additional Rent to be held pursuant to the terms
of Section 2.05 of this Lease, which sum shall be determined by
Landlord, in its sole discretion, to be a necessary deposit to
secure the future performance under this Lease of Tenant or its
assignee; (iii) the use of the Leased Premises (including the
permitted trade name) as set forth in Section 4.01 of this Lease
and the quality, quantity and lines of merchandise, goods or
services required to be offered for sale are unchanged; and (iv)
the prior written consent of any mortgagee to which this Lease has
been assigned as collateral security.
SECTION 14.04. ADDITIONAL REMEDIES AND WAIVERS. The rights and remedies
of Landlord set forth herein shall be in addition to any other right and remedy
now or hereinafter provided by law, and all such rights and remedies shall be
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THE FACTORY STORES @ PARK CITY
cumulative. No action or inaction by Landlord shall constitute a waiver of a
default or termination and no waiver of default or termination shall be
effective unless it is in writing, signed by Landlord.
SECTION 14.05. CURE OF TENANT'S FAILURE. If Tenant shall fail to perform
any of its obligations hereunder (including without limitation those set forth
in Sections 6.02, 8.02 and 8.03 and the rules and regulations hereto), Landlord
shall have the right, but not the obligation, upon ten (10) days written notice
to Tenant (except in the event of an emergency, in which event no notice shall
be required), to cure such failure for the account of and at the expense of
Tenant. If Landlord has already terminated this Lease, Landlord's cure or
attempt to cure any such failure which occasioned termination of this Lease
shall not result in a waiver of such termination. Furthermore, if Landlord
shall incur legal fees and expenses to enforce this Lease, Tenant shall
reimburse Landlord for Landlord's reasonable attorneys' fees and disbursements.
Tenant agrees to promptly re-pay Landlord as Additional Rent all sums paid by
Landlord pursuant to this Article, plus a service fee of fifteen percent (15%)
thereon.
ARTICLE XV. RIGHT OF ACCESS.
Landlord may, at any reasonable time, upon prior notice to Tenant (except
in the event of an emergency, in which event no notice shall be required), enter
upon the Leased Premises and any appurtenance thereto (with workers and
materials, if required) for the purpose of: (a) inspecting the same; (b) making
such repairs, replacements or alterations which Landlord may be required to
perform as herein provided or which it may deem desirable for the Retail
Development; and (c) showing the Leased Premises to prospective purchasers,
lenders or lessees. Landlord hereby expressly reserves the right, exercisable
at any time and from time to time, to erect, use, maintain and repair pipes,
conduits, plumbing, vents, ducts and wires in, to, under and through the Leased
Premises as and to the extent that Landlord may now or hereafter deem necessary
or appropriate for the proper operation and maintenance of the Retail
Development. Landlord shall perform such work in a manner so as not to
unreasonably interfere with Tenant's operations in the Leased Premises,
considering the nature of the work to be performed. During the last six (6)
months of the Term, Landlord shall have the right to display one or more "For
Rent" signs on or about the Leased Premises.
ARTICLE XVI. DELAYS.
If Landlord or Tenant is delayed or prevented from performing any of their
respective obligations because of strikes, lockouts, labor troubles, inability
to procure materials, failure of power, governmental restrictions or reasons of
a like nature not the fault of the party delayed in performing such obligation,
then the period of such delays shall be deemed added to the time herein provided
for the performance of any such obligation and the defaulting party shall not be
liable for losses or damages caused by such delays; provided, however, that
subsequent to the Commencement Date this Article shall not affect Tenant's
obligation to pay rent or any other sums of money hereunder or any obligation of
Landlord or Tenant that can be satisfied by the payment of money, and shall not
excuse Tenant from its obligation to continuously operate its business within
the Leased Premises in accordance with the provisions of Sections 4.01 and 4.02
hereof.
ARTICLE XVII. END OF TERM.
SECTION 17.01. RETURN OF LEASED PREMISES. Upon the expiration or sooner
termination of the Term, Tenant shall quit and surrender to Landlord the Leased
Premises, broom-clean, in good order and condition, ordinary wear and tear
excepted, and shall surrender to Landlord all keys for the Leased Premises and
inform Landlord of all combinations of locks, safes and vaults, if any, in the
Leased Premises. Subject to the provisions of Section 3.05 hereof, Tenant, at
its expense, shall promptly remove all personal property of Tenant, repair all
damage to the Leased Premises caused by such removal and restore the Leased
Premises to the condition which existed prior to the installation of the
property so removed. Any personal property of Tenant not removed within ten
(10) days following the expiration or earlier termination of this Lease shall be
deemed to have been abandoned by Tenant and at Landlord's option to have become
the property of Landlord, and may be retained or, at Tenant's expense, disposed
of by Landlord, as Landlord shall desire. Tenant's obligation to observe or
perform the covenants set forth in this Section shall survive the termination of
this Lease.
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SECTION 17.02. HOLDING OVER. If Tenant shall remain in possession of the
Leased Premises after the expiration or termination of this Lease, (a) Tenant
shall be deemed to be occupying the Leased Premises as a Tenant from month-to-
month, at double the rent in effect during the last Lease Year and otherwise
subject to all of the terms and conditions of this Lease, and (b) Landlord may
exercise any other remedies it has under this Lease or at law or in equity
including an action for wrongfully holding over.
ARTICLE XVIII. COVENANT OF QUIET ENJOYMENT.
Landlord covenants that if and so long as Tenant pays the rent in full and
performs all of its obligations herein, Tenant shall at all times during the
Term peaceably have, hold and enjoy the Leased Premises, without any
interruption or disturbance from Landlord, or anyone lawfully or equitably
claiming through or under Landlord, subject to the terms hereof and any mortgage
or deed of trust to which this Lease shall be subordinate.
ARTICLE XIX. MISCELLANEOUS.
SECTION 19.01. ENTIRE AGREEMENT. This Lease, together with the annexed
Exhibits and any Addendum attached hereto, contains the entire agreement between
the parties hereto and there are no promises, agreements, conditions,
undertakings or warranties or representations, oral or written, express or
implied, between them other than as herein set forth. No change or
modification to this Lease shall be effective unless the same is in writing and
signed by both parties hereto. No alleged or contended waiver of any of the
provisions of this Lease shall be valid or effective unless in writing signed by
the party against whom it is sought to be enforced. All of the Exhibits herein
described and any Addendum attached hereto are a part of this Lease as though
set out at length herein, including without limitation Tenant's obligations set
forth in Exhibits D (Tenant's Work), E (Signage) and G (Rules and Regulations).
SECTION 19.02. NOTICES. No notice or other communication given to Tenant
or Landlord under this Lease shall be effective (a) unless and until the same is
in writing and is delivered either in person or by a national overnight air
courier providing written evidence of delivery, or (b) unless mailed by
registered or certified mail, return receipt requested, first class, postage
prepaid, in which case such notice or other communication shall be effective two
(2) days after being deposited in the U.S. mail. Any such notice or
communication shall be addressed:
(a) If to Landlord, at the address for Landlord first above written,
Attention: Property Management, with a copy to Charter Oak Partners,
8000 Towers Crescent Drive, Suite 950, Vienna, Virginia 22182, ATTN:
Legal Department or to such other address as Landlord shall designate
by giving notice thereof to Tenant.
(b) If to Tenant, at the Leased Premises or Tenant's Notice Address set
forth in the Data Summary or such other address as Tenant shall
designate by giving notice thereof to Landlord. Notwithstanding the
foregoing, any notice or other communication given by Landlord prior to
the Commencement Date may be given by telecopier to Tenant's Telecopier
Number set forth in the Data Summary (or such other number as Tenant
shall designate by giving notice thereof to Landlord), provided that a
copy of such notice is sent within five (5) days thereafter in the
manner described above.
SECTION 19.03. GOVERNING LAW. All questions with respect to the
construction of this Lease and the rights and liabilities of the parties hereto
shall be determined in accordance with the laws of the jurisdiction in which
the Shopping Center is located.
SECTION 19.04. SUCCESSORS. All rights and liabilities herein given to, or
imposed upon, the respective parties hereto shall extend to and bind their
several respective heirs, executors, administrators, successors and assigns; and
if there shall be more than one Tenant, or more than one person or entity acting
collectively as Tenant, they shall all be bound jointly and severally by the
terms, covenants and agreements herein. Any restriction on or requirement
imposed upon Tenant hereunder shall be deemed to extend to Tenant's guarantor,
Tenant's sublessees and assignees (if any) and Tenant's invitees, and it shall
be Tenant's obligation to cause the foregoing persons to comply with such
restrictions or requirements. No rights, however, shall inure to the
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benefit of any assignee or other transferee of Tenant, and no rights or benefits
shall be conferred upon any such assignee or transferee by reason of this
Section 19.04, unless such rights or benefits shall be expressly otherwise set
forth in this Lease.
SECTION 19.05. LIABILITY OF LANDLORD. Neither Landlord, Landlord's
beneficiaries, any persons or entities comprising Landlord, nor any agent of or
successor in interest to Landlord (or to such persons or entities) shall have
any personal liability for any failure by Landlord or its agents to perform any
term, covenant, or condition of this Lease applicable to Landlord. Tenant shall
look solely to the equity in the Retail Development of the then owner of the
Leased Premises for the satisfaction of any remedies of Tenant in the event of a
breach by Landlord or its agents of any of Landlord's obligations hereunder.
SECTION 19.06. BROKERS. Each of Landlord and Tenant warrants and
represents that it did not deal with any broker or agent who was instrumental in
consummating this Lease or have any arrangements with any broker or agent
applicable to this Lease. Landlord and Tenant each indemnify and agree to hold
harmless the other party against any claims for brokerage commissions or other
fees arising by reason of a breach by such party of this representation and
warranty.
SECTION 19.07. TRANSFER BY LANDLORD. Landlord shall have the right to
freely assign this Lease without notice to or the consent of Tenant.
SECTION 19.08. NO PARTNERSHIP. Notwithstanding that a portion of the rent
reserved hereunder may be a percentage of Tenant's Gross Sales, and
notwithstanding anything else to the contrary, Landlord shall not be deemed to
be a partner of Tenant or a joint venturer with Tenant.
SECTION 19.09. ACCORD AND SATISFACTION. No payment by Tenant or receipt
by Landlord of a lesser amount than the correct rent shall be deemed to be other
than a payment on account of the earliest amount due, nor shall any endorsement,
instructions or statement on any check or communication concerning any check for
payment of rent or any other amounts owed to Landlord be deemed to effect or
evidence an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of the
rent or other amount owed or to pursue any other remedy provided in this Lease
or at law.
SECTION 19.10. WAIVER OF COUNTERCLAIMS. Tenant shall not impose any
counterclaim or counterclaims in a summary proceeding or other action based on
termination or holdover, except for mandatory counterclaims.
SECTION 19.11. WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on, or in respect of, any matter whatsoever
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant hereunder, Tenant's use or occupancy of the Leased Premises
and/or any claim of injury or damage.
SECTION 19.12. SEVERABILITY. If any provision of this Lease or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Lease, or the application of such
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
SECTION 19.13. NO WAIVER. No failure by Landlord or Tenant to insist upon
the strict performance of any term, covenant, agreement, provision, condition or
limitation of this Lease to be kept, observed or performed by the other party,
and no failure by either party to exercise any right or remedy available upon a
breach of any such term, covenant, agreement, provision, condition or limitation
of this Lease, shall constitute a waiver of any such breach or of any such
term, covenant, agreement, provision, condition or limitation.
28
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
SECTION 19.14. CONSUMER PRICE INDEX. As used herein, Consumer Price Index
shall mean the Revised Consumer Price Index for the U.S. Department of Labor for
all urban consumers (all items, 1982-84 = 100). The "Previous Index" shall,
with respect to each Lease Year, refer to the Index published for the month
closest, but prior, to the first day of the immediately preceding Lease Year.
The "Current Index" shall, with respect to each Lease Year, refer to the Index
published for the month closest, but prior, to the first day of such Lease Year.
SECTION 19.15. INTEREST. Any amount due from Tenant to Landlord herein
which is not paid when due shall bear interest at a rate equal to three percent
(3%) in excess of the "prime rate" announced from time to time by Chase
Manhattan Bank, N.A., New York, New York (or, if such prime rate is unavailable,
then at the rate of three percent (3%) over the prime rate announced from time
to time by a majority of New York commercial banks) from the date due until
paid, unless otherwise specifically provided herein, but the payment of such
interest shall not excuse or cure any Default by Tenant under this Lease.
SECTION 19.16. RULES AND REGULATIONS. The Rules and Regulations of the
Shopping Center, as set forth in Exhibit G hereto and as may be amended from
time to time by Landlord, are a part of this Lease as though set out at length
herein. Tenant agrees to comply with and observe all reasonable rules and
regulations hereafter established by Landlord for the Shopping Center from time
to time. Tenant's failure to keep and observe such rules and regulations shall,
after notice pursuant to Section 14.01, constitute a Default pursuant to the
terms of this Lease.
SECTION 19.17. GROSS SALES: LANDLORD'S TERMINATION RIGHT. Intentionally
Deleted.
SECTION 19.18. FINANCIAL STATEMENTS. Upon Landlord's written request
from time to time, Tenant shall promptly furnish to Landlord financial
statements outlining Tenant's then current financial condition.
SECTION 19.19. GENERAL RULES OF CONSTRUCTION.
(a) This Lease may be executed in several counterparts and the
counterparts shall constitute one and the same instrument.
(b) Landlord may act under this Lease by its attorney or agent.
(c) Wherever a requirement is imposed on Tenant hereunder, Tenant shall
be required to perform such requirement at its sole cost and
expense unless it is specifically otherwise provided herein.
(d) (1) Wherever appropriate herein, the singular includes the
plural and the plural includes the singular.
(2) Whenever the word "including" is used herein, it shall be
deemed to mean "including, but not limited to". Whenever the word
"include" is used herein, it shall mean "include, but not be
limited to".
(3) The words "re-enter" and "re-entry" as used herein shall not
be restricted to their technical legal meaning.
(e) Anything in this Lease to the contrary notwithstanding:
(1) Any provision hereof which permits or requires a party to take
any particular action shall be deemed to permit or require, as the
case may be, such party to cause such action to be taken; and
(2) Any provision hereof which requires any party not to take any
particular action shall be deemed to require such party to prevent
such action to be taken by any person or by operation of law.
SECTION 19.20. RECORDING. Neither this Lease nor any memorandum hereof
may be recorded without the express written consent of Landlord.
29
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
SECTION 19.21. EFFECTIVE DATE. For all purposes hereof, the "Effective
Date" of this Lease shall be the date upon which this Lease shall have been
executed by both parties and physically delivered by Landlord to Tenant or its
attorney. Prior to the Effective Date, neither this Lease nor anything
hereunder contained shall be legally binding on either Landlord or Tenant, and
the submission of this Lease by Landlord to Tenant prior to such Effective Date
for examination or consideration by Tenant or discussion between Landlord and
Tenant shall not constitute a reservation of or option for the Leased Premises
or create any legal obligation or liability whatsoever on Landlord.
SECTION 19.22. HEADINGS. The headings, captions, section numbers,
article numbers and index appearing in this Lease are inserted only as a matter
of convenience and in no way define, limit, construe, or describe the scope or
intent of such sections or articles nor in any way affect this Lease.
SECTION 19.23. RELOCATION. Intentionally Deleted.
(Signature and Notary Block on Following Page)
30
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
IN WITNESS WHEREOF, and intending to be legally bound, Landlord and Tenant
have executed this Lease as of the day and year first above written.
LANDLORD:
R.R. PARK CITY, INC.,
A DELAWARE CORPORATION
WITNESS:
/s/ Lisa B. Rosenblum
- -----------------------------
By: /s/ William Neville
---------------------------------------
Name: William Neville
-------------------------------------
Its: Executive Vice President
--------------------------------------
TENANT:
ASHWORTH STORE I, INC.,
A DELAWARE CORPORATION
WITNESS:
By: /s/ Rich Werschkul
- ---------------------------- ----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
ACKNOWLEDGEMENT OF LANDLORD
STATE OF VIRGINIA )
)ss.
COUNTY OF FAIRFAX )
On this 6th day of April, 1995, before me personally appeared William Neville,
to me personally known, who, being by me duly sworn, did for himself say that he
is the Executive Vice President of R.R. PARK CITY, INC., a Delaware corporation,
the corporation named in and which executed the within instrument, and that he
signed said instrument on behalf of said corporation by authority of its board
of directors; and said Executive Vice President acknowledged before me said
instrument to be the free act and deed of said corporation.
/s/ Mary Ann Peterson
------------------------------------
Notary Public, Fairfax County,
My Commission expires: October 31, 1997
ACKNOWLEDGEMENT OF CORPORATE TENANT
STATE OF CALIFORNIA )
)ss.
COUNTY OF SAN DIEGO )
On this 5th day of April, 1995, before me personally appeared Rich Werschkul, to
me personally known, who, being by me duly sworn, did for himself say that he is
the President of ASHWORTH STORE I, INC., A DELAWARE CORPORATION, DBA ASHWORTH,
the corporation named in and which executed the within instrument, and that he
signed said instrument on behalf of said corporation by authority of its board
of directors; and said Rich Werschkul acknowledged before me said instrument to
be the free act and deed of said corporation.
/s/ Nancy C. Minkus
---------------------------------------
Notary Public, San Diego County,
My Commission expires: December 6, 1996
31
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
EXHIBIT "A"
[SITE PLAN DRAWING OF THE FACTORY STORES @ PARK CITY]
32
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
EXHIBIT "B"
DELIVERY OF POSSESSION DATE CERTIFICATE
LANDLORD: R.R. PARK CITY, INC.
TENANT: ASHWORTH STORE I, INC.
A DELAWARE CORPORATION
DBA ASHWORTH
LEASE DATE:
RETAIL DEVELOPMENT: THE FACTORY STORES @ PARK CITY
STORE NUMBER: C - 110
Landlord and Tenant confirm that the Delivery of Possession Date with respect
to the above Lease and Leased Premises is
- ---------------------------------------------------------------.
LANDLORD: TENANT:
By: By:
Its: Its:
Date: Date:
LANDLORD'S CERTIFICATION
In addition, Landlord certifies that the leasable area of the Leased Premises
is ____________________ square feet. As set forth in Section 1.01 of the Lease,
such amount shall be used for all purposes of the Lease unless Tenant notifies
Landlord to the contrary within 30 days from delivery of this Certificate to
Tenant.
33
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
EXHIBIT "C"
LANDLORD'S WORK
OUTLINE SPECIFICATION FOR SHELL AND SITE CONSTRUCTION
Landlord, at its sole cost and expense and in accordance with then existing and
applicable Federal, State and local codes shall perform the work necessary to
return the Leased Premises to Landlord's standard white box condition, as set
forth in this Exhibit C. It is understood that Landlord may use, in its
discretion, all conduits, materials, equipment and other items currently
existing on or appurtenant to the Leased Premises, and no warranty is given with
respect thereto.
A. Utility Distribution System to Tenant's Demised Premises
1. On site water supply mains combined for domestic and fire protection,
shut-off valves and fire hydrants. Interior domestic water branch
lines stubbed into or below Tenant's leased premises at a point to be
determined by Landlord. The landlord at his option may install a
single meter for multiple tenants and prorate the tenant's share of
the water costs.
2. Sanitary and storm mains to serve the Project. Sanitary drain lines
to a point in or beneath Tenant's demised premises which is nearest to
Landlord's sanitary sewer system.
3. Electrical secondary service from the utility pad mounted transformers
to electrical meter rooms. All tenant meters will be located in the
electric meter rooms with individual electric service panel installed
at the rear of each tenant space.
4. Telephone incoming feeders to telephone backboards in electrical meter
rooms. Empty conduit from telephone backboard to tenant's demised
premises at a location to be determined by landlord's architect.
5. Landlord will have the right to locate both vertically and
horizontally utility lines, air ducts, flues, duct shafts, refrigerant
lines, drains, sprinkler mains and valves and other such facilities
within Tenant's leased premises as are necessary by engineering design
and/or code requirements. These items as described above shall be
located so as to cause minimum interference with Tenant's use of the
Demised Premises. Landlord shall also have the right to locate
mechanical and other equipment on the roof over Tenant's demised
premises.
B. Landlord's Work Within Tenant's Demised Premises
1. Storefront:
a. Storefront to be designed and constructed by Landlord. 1"
insulated glass with aluminum trim, Kawneer or equal, to meet
code.
b. Landlord will provide one 3'-0" x 7'-0" glass door with aluminum
frame enclosure for each tenant space. Door will be provided
with cylinder lock and closer.
2. Interior Demising Partitions:
a. Metal studs 24" on center, with 1/2" fire rated gypsum board
extending from concrete slab to underside of roof deck or as
required by code. Demising partitions are not load bearing,
Tenant to supply his own load bearing studs or blocking for any
wall mounted Tenant fixtures.
b. Stock room and other such interior walls shall be constructed by
Tenant at Tenant's expense.
c. Exterior wall construction shall be as determined by Landlord's
Architect. Interior face of exterior masonry/concrete wall
surfaces will be left exposed. Interior face of exterior stud
wall will be drywalled, taped and sanded.
d. Demising partitions shall be taped, spackled, sanded and ready
for Tenant's finishes.
3. Floor:
EXHIBIT "C"
LANDLORD'S WORK
34
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
a. Shall be concrete slab with trowel smooth finish on granular
fill.
4. Exterior Service and Exit Doors:
a. 3'-0" x 7'-0" x 1 3/4" prime coated hollow metal service door and
frame including commercial grade hardware consisting of:
i. 1 1/2 pair of hinges, one knob latch set with privacy
button and lock cylinder and dead bolt on exterior
doors only. Tenant shall upon delivery of possession
and at it's sole expense change all lock cylinders to
insure it's own security.
ii. Hardware may vary due to code requirements. Landlord
shall provide door grilles and fire exits doors if
required by code.
iii. Where lease line of premise is coincidental with
Service or Exit corridors, Landlord will furnish and
install one hinged 3'-0" x 7'-0" x 1 3/4" prime coated
hollow metal service door and frame including
commercial grade hardware consisting of all items
listed in 4)a)i).
5. Ceiling:
a. Sales area: Acoustical tile lay-in type, typically Owens-Corning
Fiberglass or equal, white finish with white tee system.
b. Storage area: Exposed structural joists and deck or acoustical
tile lay-in type per "a" above.
c. Toilet Rooms: Finished drywall
6. Heating and Air Conditioning:
a. Provide individual heating and air-conditioning
units for each tenant space. Design standards for the heating
and air conditioning will be based on either:
i. Minimum standards set forth by the American Society of
Heating, Air Conditioning and Refrigerating Engineers
(A.S.H.A.R.E.) and/or:
ii. Design Criteria: Outdoor temperature: Summer 89/degrees/F
DB, 64/degrees/F WB; Winter -9/degrees/F DB
Indoor Temperature at sales area: Summer
78/degrees/F DB, 40% RH; Winter 72/degrees/F DB
Indoor Temperature at stock area: Summer
85/degrees/F DB; Winter 68/degrees/F DB
b. Tenant's distribution system, ducts, variable air, volume boxes,
electric heating coils, ceiling diffusers, grilles, registers,
thermostats etc. will be designed to accommodate Landlord's work
described in this exhibit. Modifications required by
partition(s), other than toilet room, and tenant work shall be
the responsibility of the tenant.
c. Stock area heating may be by rooftop unit or unit heater as
determined by Landlord's engineer.
7. Electrical:
a. Electric service available for tenant will be sized at 15 watts
per square foot for retail spaces, and 45 watts per square foot
for restaurants; 120/208 service will be provide.
b. Larger power may be available. Any service modification due to
larger power is at the tenant's expense.
c. Tenant must make application for permanent electric service,
meter, etc. with local electrical utility company. Any utility
company charges and/or deposits shall be tenant's responsibility.
Landlord may at Landlord's sole option pay these fees. Tenant
shall reimburse landlord prior to delivery of possession of
demised premises.
d. One (1) duplex base receptacle at twenty feet on center along
side walls of the sales area only. One additional outlet will be
installed adjacent to the electrical
EXHIBIT "C"
LANDLORD'S WORK
35
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
panel.
e. Furnish and install 2'x4' fluorescent lay in light fixtures at
the rate of 1 fixture per 100 square feet of sales area. Provide
2'x4' fixtures or 8' fluorescent industrial type fixtures in
stock area at the rate of 1 per 300 square feet. All lighting
will be switched at service panel.
f. Incandescent fixture with outlet in toilet room above lavatory.
g. One (1) single sign outlet located in front of each tenant space
in canopy. Sign, installation and electrical connections
provided by tenant. Sign will be wired to tenant's meter.
h. All necessary electrical connections for heating and air
conditioning equipment and hot water heater.
8. Plumbing:
a. Install water and sewer service from exterior of building to
toilet room. Toilet room to include: One lavatory, one water
closet, and one six gallon hot water heater.
EXHIBIT "C"
LANDLORD'S WORK
36
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
EXHIBIT "D"
TENANT'S WORK
SECTION I: GENERAL PROVISIONS
Tenant at its sole cost and expense shall perform all work, other than that
specifically to be performed by Landlord as set forth in Exhibit "C", required
to complete the Leased Premises to a finished condition ready for the conduct of
business therein.
All of Tenant's Work within the Leased Premises performed pursuant to this
Section I, for the purpose of the Lease to which this Exhibit "D" is attached
(the "Lease"), shall be deemed to be improvements made to the Leased Premises by
Tenant.
Where Landlord's approval is required in this Exhibit D, such approval may be
given by its agent, Charter Oak Partners, or by such agent's architect,
engineer, project manager or other authorized representative.
Capitalized terms herein, where appropriate, shall have the meanings ascribed to
them in the Lease.
Any Tenant's Work done by Landlord at Tenant's request shall require a fully
executed change order prior to commencement of such work and will carry a fee to
Landlord of 15% of the total cost of the work. Landlord's charge for such work
shall be paid upon presentation to Tenant of a bill for such work. If not paid
at that time, interest will accrue at 18% per annum.
Tenant's Work shall conform to procedures and schedules as set forth in Sections
II, III and IV of this Exhibit "D" and shall include without limitation the
following:
LANDLORD'S APPROVAL OF TENANT'S WORKING DRAWINGS AND SPECIFICATIONS AND ALL
PLANS SHALL ONLY MEAN THAT THEY COMPLY WITH LANDLORD'S MINIMUM REQUIREMENTS AND
NOT THAT THEY COMPLY WITH ANY OR ALL LAWS OR ARE OTHERWISE WITHOUT DEFECT.
NOTWITHSTANDING ANY SUCH APPROVAL BY LANDLORD, COMPLIANCE WITH LAW SHALL BE
SOLELY TENANT'S RESPONSIBILITY.
A. General Design Criteria, as set forth in Section II of this Exhibit "D".
B. Store Design Drawings, Working Drawings & Specifications as set forth in
Section III of this Exhibit "D".
C. Construction, as set forth in Section IV of this Exhibit "D".
D. Architectural Finishes
1. Walls and Partitions: All interior partitions, other than as provided
in Exhibit "C" shall be as required by code.
2. Doors: All interior doors and hardware other than as provided in
Exhibit "C" shall be as required by code.
3. Floors and coverings: Tenant shall fill in rear ten (10) feet of
Leased Premises to match Landlord's construction and install floor
covering as required by code subject to Landlord's approval.
4. Interior Surfaces: All interior painting, decorating, paneling,
wallpaper, peg board etc. on all walls and columns.
5. Signs: Electrical hook-up and sign panel backgrounds shall be in
accordance with Exhibit "E"
6. Trade fixtures, equipment and furnishings. No fixtures will be
allowed to be attached to or hung from demising partitions and/or roof
structure without adequate structural provisions being made by Tenant
as approved by Landlord or its representative.
7. Displays: Display window backs, display window floors, display window
ceilings and display window lighting fixtures and power for same.
EXHIBIT "D"
TENANT'S WORK
37
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
E. Structural
1. Any such work by Tenant shall meet or exceed original structural
design and specifications of Landlord's architect and structural
engineer and shall leave all finishes unimpaired. Tenant must retain
any contractor, engineer etc. such that all guarantees, warranties,
and professional liability remain unchanged and in full effect from
original building. All modifications must be approved by Landlord, in
writing, prior to any work being implemented.
F. Plumbing
1. All plumbing work and fixtures within the Leased Premises except as
provided for in Exhibit "C".
G. Mechanical
1. Any additional heating, ventilating, air conditioning and distribution
systems (ducts, registers, ceiling diffusers, thermostats, grilles,
etc.) that may be required by Tenant, or necessitated by Tenant's
Work, and/or by applicable code. No mechanical work will be allowed
to commence until the appropriate engineering drawings are prepared
and approved in writing by Landlord. All equipment shall bear U.L.
label.
H. Electrical
1. Electric service, lighting, fixtures, outlets, wiring, except as
provided for in Exhibit "C".
I. Miscellaneous Items
1. Telephone and communications systems.
2. Burglar alarms and/or warning systems.
3. Tenant's store signs and controlling time clocks.
4. Emergency generator and emergency lights.
5. Fire extinguishers.
6. All curbs, lintels, flashing, counter flashing, pipes, ducts, vent
caps, air filters, exhaust hoods, louvers, etc. as necessary for
Tenant's equipment requiring openings through the roof and/or exterior
walls, except as provided in Exhibit "C", must be approved in writing
by Landlord. Tenant to pay Landlord for all work performed by
Landlord incident to the foregoing. Any cutting, patching or flashing
of the roof for Tenant's equipment must be performed at Tenant's
expense by Landlord's roofing contractor responsible for the roof
guarantee. Tenant shall employ Landlord's roofing contractor directly
for any required roof modifications.
7. The design of all work and installation undertaken by Tenant shall be
subject to the approval of Landlord. All work undertaken by Tenant
shall be at Tenant's expense and shall not damage or weaken the
structural strength of the Building or any part thereof and shall be
done in a first-class workmanlike manner and in accordance with all
applicable codes.
8. Tenant's Work a) shall not be awarded to Landlord's contractor without
Landlord's written consent, and b) may only be awarded to a reputable
and bondable contractor licensed to do business in the State and
Municipality.
9. Tenant shall satisfy Landlord that adequate arrangements have been
made to insure full payment of all persons and entities furnishing
labor and materials in connection with Tenant's Work.
SECTION II: PROCEDURES AND SCHEDULES FOR THE DESIGN CRITERIA
The criteria and/or outline specifications as set forth herein represent minimum
standards for the design, construction and finish of the Leased Premises by
Tenant. Tenant shall coordinate its work with work of others or with existing
conditions occurring within the Leased Premised and shall make changes from time
to time as required to accommodate such work or conditions.
A. Jurisdiction and Codes: The Project is being developed in and under the
jurisdiction of City of Park City, State of Utah and the County of Summit.
All design and construction work shall comply with all applicable statutes,
ordinances, regulations, laws and codes including but not limited to the
following: The National Electric Code; The Guide of the American Society of
Heating, Refrigerating and Air Conditioning Engineers; requirements of the
Landlord's fire
EXHIBIT "D"
TENANT'S WORK
38
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
insurance underwriter, the requirements pertaining to any
services and utilities furnished by local utility companies and all
applicable State and County Ordinances and OSHA regulations.
B. Permits and Approvals: Prior to the commencement of all construction,
Tenant shall, at its expense, obtain and post in a prominent place within
the Leased Premises all building and other governmental permits necessary
for the performance of Tenant's Work. Landlord's written approval shall be
obtained by Tenant prior to the undertaking of any construction work which
deviates from Tenant's working drawings and specifications as approved by
Landlord, or the undertaking of any modifications whatsoever to the
Building shell and/or utilities and other work not explicitly shown on said
working drawings and specifications. Landlord's approval of the foregoing
shall not constitute the assumption of any responsibility by Landlord for
the accuracy or sufficiency thereof, and Tenant shall be solely responsible
therefor.
C. Standard Project Details: Standard project details as issued by Landlord's
architect and as they pertain to Tenant's Work shall govern with respect to
such work. Such details shall be incorporated into Tenant's working
drawings and specifications for the Leased Premises.
D. Materials: Only new, first-class materials shall be used in the
construction of the Leased Premises.
E. Field Conditions: Tenant will verify conditions pertaining to the Leased
Premises from time to time prior to and after commencement of construction
of the Leased Premises. TENANT IS RESPONSIBLE FOR CONFIRMING ALL
DIMENSIONS OF THE LEASED PREMISES PRIOR TO PREPARATION OF WORKING DRAWINGS
AND START OF CONSTRUCTION. ANY DIMENSIONS FURNISHED TO TENANT BY LANDLORD
ARE FOR DESIGN REFERENCE ONLY.
SECTION III: PROCEDURES AND SCHEDULES FOR THE COMPLETION OF PLANS AND
SPECIFICATIONS
All working drawings and specifications and other material to be furnished by
Tenant shall be addressed to Charter Oak Partners, 8000 Towers Crescent Drive,
Suite 950, Vienna, Virginia 22182, Attention: Development Department; or such
other address(es) as Landlord provides to Tenant.
Tenant shall engage an architect registered in the State whose qualifications
and credibility are acceptable to Landlord to prepare the working drawings and
specifications for the Leased Premises.
If Tenant can not obtain an architect or if the architect's qualifications as
judged by Landlord are inadequate, Landlord may at its discretion assign an
architect to work at Tenant's direction and expense to produce the necessary
drawings and documents.
A. Space Layout Drawings: Following the execution of the Lease Landlord shall
furnish Tenant with two (2) sets of prints of Space Layout Drawings. These
documents give technical information criteria relative to the Leased
Premises. ALL DIMENSIONS OF THE LEASED PREMISES MUST BE CONFIRMED BY
TENANT.
B. Working Drawings, Specifications, Load Calculations and Completed Load Data
Sheets
1. Within thirty days from receipt of the Space Layout Drawings from
Landlord, Tenant shall submit to Landlord and to Landlord's architect,
working drawings, mechanical and electrical load data sheets,
specifications and fixture layout prepared by Tenant's architect in
the form of two (2) sets of blue line drawings and one (1)
reproducible set of prints. The fees for Tenant's architect shall be
paid by Tenant. Tenant shall also furnish to Landlord, within the
time requirement set forth in Exhibit E, Tenant's sign shop drawings
prepared by Tenant's sign contractor.
2. Working drawings, specifications and fixture layout shall be prepared
in strict compliance with the requirements set forth in Section I of
this Exhibit "D".
3. Working drawings drawn to the scales specified below shall include but
not be limited to the following:
a. Key plan
b. Floor plan at 1/4" scale
c. Overall section at 1/8" (minimum) scale
d. Reflected ceiling plan at 1/4" scale
e. Interior elevations of walls at 1/4" scale
f. Finish and color schedule
EXHIBIT "D"
TENANT'S WORK
39
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R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
g. Plumbing plans at 1/4 " scale (if required)
h. HVAC plans at 1/4" scale (if required)
i. Electrical plans at 1/4" scale
j. Electrical diagrams as required
k. Fixture Layout
4. Within ten (10) days after receipt of working drawing and
specifications. Landlord shall return to Tenant one (1) set of prints
of store working drawings with its suggested modifications and/or
approval. If working drawings are not approved, said working drawings
shall be revised by Tenant and two (2) sets of reproducible prints of
the revised drawings shall be submitted to Landlord for approval
within ten (10) days of receipt by Tenant of the returned working
drawings.
5. If upon receipt of approved working drawings and specifications
bearing Landlord's comments, Tenant wishes to take exception thereto,
Tenant may do so in writing by certified or registered mail addressed
to Charter Oak Partners, 8000 Towers Crescent Drive, Suite 950,
Vienna, Virginia 22182, within ten (10) days from date of receipt of
such comments. Unless such action is taken it will be deemed that all
comments made by Landlord on such working drawings and specifications
are acceptable to and approved by Tenant.
SECTION IV: PROCEDURES AND SCHEDULES FOR TENANT'S CONSTRUCTION OF THE LEASED
PREMISES
A. Commencement of Construction
1. Tenant shall not start construction within the Building until receipt
of the Delivery of Possession Date Certificate if specified in the
Lease Section 3.02, and the working drawings and specifications which
have been approved in writing by Landlord.
B. General Requirements
1. Tenant shall prior to the commencement of construction submit to
Landlord the following information:
a. The names and addresses of the general, plumbing, mechanical and
electrical contractors Tenant intends to engage.
b. The actual commencement date of construction and the estimated
date of completion of construction work, fixturing work and the
date of project opening.
c. Evidence of insurance as called for herein. Tenant shall secure,
pay for and maintain or cause its contractors to secure, pay for
and maintain during the continuance of construction and fixturing
work within the Leased Premises all of the insurance policies
required and in the amounts set forth herein. Tenant shall not
permit its contractor(s) to commence any work until all required
insurance has been obtained and certified copies of polices have
been delivered to Landlord. Insurance policies shall name
Landlord, its architect and its general contractor as additional
insured. Certificates of insurance shall provide that no change
or cancellation of such insurance coverage shall be undertaken
without thirty (30) days written notice to Landlord. Tenant's
contractor shall deliver the necessary insurance certificates to
Landlord prior to commencing work.
2. All contractors engaged by Tenant shall be bondable, licensed
contractors, possessing good labor relations, capable of
performing quality workmanship and working in harmony with
Landlord's general contractor and other contractors on the job.
All work shall be coordinated with the general project work.
3. Tenant's contractor and construction shall comply in all respects
with applicable Federal, state and or local statutes, ordinances,
regulations, laws and codes. All required building and other
permits in connection with the construction and completion of the
Leased Premises shall be obtained and paid for by Tenant.
4. Tenant's work shall be subject to the inspection and
approval of Landlord.
5. Upon the completion of Tenant's Work all facilities shall be in
full use without defects.
EXHIBIT "D"
TENANT'S WORK
40
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
6. All work performed by Tenant shall be performed so as to cause a
minimum of interference with other tenants and the operation of
the Retail Development. Tenant will take all precautionary steps
to protect its facilities and the facilities of others affected
by Tenant's Work and properly police same. Construction
equipment and materials are to be located in confined areas and
truck traffic is to be routed in and from the site as directed by
Landlord so as not to burden the construction and/or operation of
the Retail Development.
7. Tenant must upon written notice from Landlord immediately replace
any contractor, vendor etc. which is the cause/reason for any
union, licensing or other regulatory dispute.
8. No approval by Landlord is valid unless in writing.
APPROVAL BY LANDLORD OF TENANT'S PLANS OR SPECIFICATIONS SHALL
UNDER NO CIRCUMSTANCES BE CONSTRUED TO INCREASE THE SCOPE OF
LANDLORD'S WORK BEYOND THAT SPECIFICALLY SET FORTH IN EXHIBIT C
(OR, IF APPLICABLE, C-1) TO THE LEASE, NOTWITHSTANDING ANY
EXPRESSION TO THE CONTRARY BY LANDLORD OR TENANT SET FORTH IN
SUCH PLANS, SPECIFICATIONS OR ELSEWHERE. ANY CHANGE IN THE SCOPE
OF LANDLORD'S WORK FROM THE DUTIES SPECIFICALLY SET FORTH IN
EXHIBIT C (OR IF APPLICABLE, EXHIBIT C-1) TO THE LEASE SHALL BE
ACCOMPLISHED ONLY BY A DOCUMENT SPECIFICALLY TITLED AS AN
"AMENDMENT" TO SUCH EXHIBIT(S), EXECUTED BY LANDLORD.
9. Landlord shall have the right to perform on behalf of and for the
account of Tenant subject to reimbursement by Tenant any of
Tenant's work which Landlord deems necessary to be done on an
emergency basis and which pertains to structural components or
the general utility systems for the Retail Development or the
erection of temporary barricades and temporary signs during
construction.
10. Landlord shall have the right to order any tenant or tenant's
contractor who willfully violates the requirements of Section IV
to cease work and to remove itself, its equipment, and its
employees from the Retail Development.
C. Temporary Facilities During Construction
1. Utility costs or charges for any service to the Leased Premises shall
be the responsibility of Tenant from the Delivery of Possession Date.
2. If required during construction, Landlord will provide temporary
electrical service in an area designated by Landlord. Tenant shall
request in writing permission to connect temporary lines to the power
source for service to the Leased Premises. When Tenant's permanent
service and/or electrical meter is installed Tenant shall cease to
use Landlord's temporary service.
3. Tenant is responsible for its own trash disposal during initial
construction, Tenant fixturing and merchandise stocking. Tenant shall
break down boxes and place trash in containers. Tenant shall not
permit trash to accumulate within its area or in any area adjacent to
its space. Should the situation develop and Landlord be forced to
remove Tenant's trash, the cost for such service will be paid by
Tenant.
D. Owner's Certificates of Acceptance
1. Upon completion of Tenant's Work Tenant shall be issued a Certificate
of Acceptance. The issuing of such a Certificate shall be contingent
upon all of the following:
(a) Tenant shall have satisfactorily completed the work to be
performed by Tenant under Section I of this Exhibit "D" in
accordance with good workmanship and the working drawings and
specifications therefor as approved by Landlord.
(b) Tenant shall have furnished Landlord with Waivers or releases of
Lien and sworn statements in such form as may be required by
Landlord from all persons performing labor and/or supplying
materials in connection with such work showing that all of said
persons have been compensated in full.
(c) Tenant shall have reimbursed Landlord for the cost of any
Tenant's Work done for Tenant by Landlord and all other sums owed
by Tenant to Landlord pursuant to the Lease and Exhibits thereto.
(d) Tenant shall have submitted a statement wherein Tenant agrees to
indemnify Landlord and, if applicable, Landlord's designated
escrow agent against any and
EXHIBIT "D"
TENANT'S WORK
41
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
all liens against the Leased Premises or any claims by any
material suppliers, contractors or subcontractors.
(e) Tenant shall provide to Landlord warranties, one (1) year
minimum, on all work and equipment as required by the
Tenant Design Criteria Handbook, and required by the Landlord's
architect.
(f) Tenant shall have furnished Landlord with a copy of the
Certificate of Occupancy.
(g) Tenant shall have executed an Estoppel Letter which will be
prepared by Landlord.
E. Landlord's Rights to Correct Deficiencies in Tenant's Construction
1. Landlord may, but shall not be obligated to, correct any of the items
in Tenant's construction which have not been furnished or completed in
accordance with the requirements of this Lease and Tenant's working
drawings. Landlord shall not undertake the doing of any such work
until it shall have furnished Tenant with a final punch list of
deficient items and shall have permitted Tenant thirty (30) days to
correct same. Tenant shall reimburse Landlord upon demand for any
obligations thereby incurred.
F. Insurance
1. Tenant's General Contractor's and Subcontractor's Required Minimum
Coverage and Limits of Liability:
(a) Worker's Compensation. Employer's Liability Insurance with
limits of not less than $100,000.00 and as required by the law of
the State, and any insurance required by any applicable employee
benefit act or other statute.
(b) Comprehensive General Liability Insurance (including Contractor's
Protective Liability) in an amount not less than $1,000,000.00
per person and $1,000,000.00 per occurrence whether involving
personal injury liability (or death resulting therefrom) or
property damage liability or a combination thereof. Such
insurance shall provide for explosion and collapse coverage and
contractual liability coverage and shall insure the general
contractor and/or subcontractors against any and all claims for
personal injury, including death resulting therefrom and damage
to the property of others and arising from its operations at the
Retail Development, whether such operations are performed by the
general contractor, subcontractor or any of their subcontractors
or by anyone directly or indirectly employed by any of them.
(c) Comprehensive Automotive Liability Insurance including the
ownership, maintenance and operations of any automotive equipment
owned, hired, and not-owned in the following amount:
(i) Bodily injury, each person $1,000,000.00
(ii) Bodily injury, aggregate $1,000,000.00
(iii) Property damage liability $ 100,000.00
Such insurance shall insure the general contractor and/or
subcontractors against any and all claims for bodily injury
including death resulting therefrom and damage to the property of
others.
2. Tenant's Protective Liability Insurance
Tenant shall provide Owner's Protective Liability Insurance
which will insure Tenant against any and all liability to third
parties or for damage due to bodily injury or death resulting
therefrom and property damage to others which may arise from work
in the completion of the Leased Premises and any other liability
for damages which the general contractor and or subcontractors
are required to insure under any provisions herein. Landlord and
Landlord's architect shall be named as additional insureds. Said
insurance shall be provided in minimum amount as follows:
(i) Bodily injury, each person $1,000,000.00
(ii) Bodily injury, occurrence $1,000,000.00
(iii) Property damage each occurrence $ 100,000.00
3. Tenant's Builders Risk Insurance
Tenant shall provide or cause to be provided a completed Value
Form "All
EXHIBIT "D"
TENANT'S WORK
42
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
Physical Loss" Builder's Risk coverage on its work in
the Leased Premises as it relates to the Building, naming
Landlord, its general contractor and all subcontractors as
additional insureds as their respective interest may appear
within a radius of one hundred (100) feet of the Leased Premises.
EXHIBIT "D"
TENANT'S WORK
43
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
EXHIBIT "E"
TENANT SIGN CRITERIA
SECTION I: GENERAL PROVISIONS
In the Exhibit "E" any reference to "Demised Premises" shall mean the Leased
Premises and any reference to "Project" shall mean the Retail Development as
those terms are defined in the Lease.
Tenant, at its sole cost and expense, shall perform all work other than that to
be performed by Landlord as set forth in Exhibit "C". Tenant is required to
complete the Tenant Signage to a finished condition ready for the conduct of
business.
A. Tenant is required to identify the premises by a sign within the Project
naming the Tenant. The nature of this sign is described in the guidelines
and limitations listed below.
B. Cost incurred in design, construction and installation, as well as
maintenance shall be the responsibility of the Tenant.
C. Approval of signs shall be solely the right of the Landlord, and Tenant
must submit all proposals for signage to the Landlord for approval in the
form of working drawings before manufacturing or further assembly begins.
Submission shall be to Charter Oak Partners, 8000 Towers Crescent Drive,
Suite 950, Vienna, Virginia 22182, in the form of shop drawings (provide
reproducible copy) with all pertinent details necessary to construction and
installation included. Submission shall be a minimum of forty-five (45)
days before proposed installation date, and Tenant is expected to have sign
manufactured and ready for installation within thirty (30) days of approval
by Landlord. Sign must be available for inspection by Landlord or
Landlord's agent before installation at Project site. Landlord reserves
the right to reject signs not conforming to approved drawings regardless of
stage of completion or installation.
D. Notwithstanding anything herein contained to the contrary, Tenant shall
have the right to replace any existing sign(s) of said Tenant as long as
such replacement meets the criteria listed within this Exhibit and Tenant
has received Landlord's prior written approval.
E. No other signs of any type or purpose, permanent or temporary, shall be
permitted to be displayed upon facade, storefront or within eight (8) feet
behind an unobstructed window. Landlord shall be the sole judge of what
constitutes an unobstructed window. Removal of signage of any type
installed without Landlord approval shall be mandatory before said sign
shall be considered for installation by Landlord.
F. Landlord shall not be required to approve signage that does not meet the
criteria expressed here, and scheduled openings shall not be reason to
approve signage which Landlord otherwise considers unsuitable for
manufacture or installation. Tenant agrees not to hold Landlord liable for
any damage caused to Tenant due to signage or lack of signage as a result
of these criteria or the withholding of approval by Landlord.
G. Signage shown on other drawings and plans submitted for reasons that are
not specifically for signage evaluation shall not constitute approval of
signage, even if such drawings and plans have been approved.
H. In the event that Tenant is unable to supply satisfactory signage design by
the scheduled opening of Tenant's store, Landlord shall have the option of
providing such design. In such a case, Tenant agrees to pay all expenses
involved in the design, manufacture, and installation of said signage, and
Tenant agrees to waive rights to reject said signage, and agrees not to
oppose installation of said signage.
I. Landlord will provide under canopy signage, one (1) per tenant, as shown on
the Tenant space layout drawing. Sign shall be two faced non-illuminated
suspended from the canopy soffit perpendicular to the storefront.
Tenant's Work, with respect to signage shall conform to procedures and schedules
as set forth in Exhibit "D" and shall include without limitation the following:
A. SIGNAGE DESIGN
1. The canopy sign shall occupy a space on the canopy facade designated
by the project architect. The length of the sign shall be limited to
a maximum of 60% of the canopy frontage length as determined by
extending the lease line through the canopy. The individual letters
will have a maximum letter height of 24 inches. These figures are
maximum. In general, signs shall be mounted on the canopy facade and
centered above
EXHIBIT "E"
TENANT SIGN CRITERIA
44
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
the doorway. Variations of this criteria shall be by prior written
approval of Landlord only and shall be solely at the discretion of
Landlord.
2. Signage shall be limited to the permitted trade name of the store. No
trademarks or logos shall be permitted.
3. Signs will be required to conform to the following specifications:
a) Letters shall be individually mounted with internal illumination
provided by neon type tubing diffused by plastic facing material
to match Rohm & Haas plexiglass #2283 Red.
b) Letters shall be formed of steel or aluminum side returns, back
and trim with porcelain or baked enamel finish to match Rohm &
Haas plexiglass #2418 dark brown.
c) Letters shall be 4"-4 1/2" in depth.
d) All letters for the project will be the same character style,
and will be selected by the project architect. This information
will be supplied on the Tenant's space layout drawing.
B. SIGNAGE CONSTRUCTION
1. A variety of fabrication materials shall be considered, although
construction shall be guaranteed for a period of at least five (5)
years against peeling, cracking, crazing, blistering or any other
degradation of surface or materials. Manufacturers shall be held
responsible for the condition of finished surface, construction and
operation for a period of five (5) years.
2. All electrical signs shall carry approval of Underwriters Laboratories
on all components parts and on the complete display. Maximum
brightness of lit signs shall be fifty (50) foot Lambert measured one
(1) foot from the source of light. No blinking, moving, or flashing
lights shall be allowed.
3. No exposed raceways, ballast boxes or electrical transformers will be
permitted except as required to be exposed by local building codes.
4. Landlord will not be responsible for signs improperly installed or
manufactured, and those signs not meeting code requirements shall be
removed at Tenant's expense and built to code specifications before
reinstallation. Signs meeting Landlord's criteria but not meeting
local code requirements shall be the responsibility of Tenant, and
Tenant agrees not to hold Landlord liable for costs due to conflict
between Landlord's criteria and code, should such conflict arise under
present code or due to future changes in code.
5. ALL ILLUMINATED SIGNS SHALL CONFORM TO NEC ARTICLE 600, SHALL MEET
ALL APPLICABLE CODES AND CARRY THE UL LABEL.
45
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
EXHIBIT "F"
INTENTIONALLY OMITTED
EXHIBIT "F"
OPENING AND TEMRINATION DATE DECLARATION
46
<PAGE>
R.R. PARK CITY, INC.
THE FACTORY STORES @ PARK CITY
EXHIBIT "G"
SHOPPING CENTER RULES AND REGULATIONS
A. Tenant, its employees and/or outside agents, shall not solicit business of
any kind in the parking lot or other common areas, nor shall Tenant, its
employees or outside agents distribute any handbills or other advertising
matter in or on the parking lot or other common areas, in or on automobiles
parked therein.
B. Tenant shall not operate any instrument or apparatus or equipment which
emits any odor or causes any noise or sound outside the Demised Premises
and/or which may be deemed offensive in nature (such as loudspeakers,
televisions, phonographs, radios or flashing lights).
C. Tenant shall not install, or permit to be installed, devices of any type on
the roof of building, without approval from Landlord.
D. Tenant shall not obstruct the passageways, driveways, sidewalks, corridors,
exits and entries used in common with other tenants.
E. Tenant shall open and close store per hours designated by the Landlord.
Physical inventory closings shall be reported to Landlord or Landlord's on-
site manager (if any) in writing at least seven (7) days in advance.
F. Tenant shall keep its sales floor areas and facade sign illuminated each
and every day of the term during all hours that the Shopping Center shall
be open and during all other hours as Landlord shall designate, in its
reasonable discretion, for tenants generally.
G. Tenant shall place all trash, refuse, waste and garbage, including boxes,
paper, styrofoam packing, etc., into garbage containers in the rear of
Shopping Center, on at least a daily basis. No trash, refuse or waste is
to be kept within the Leased Premises or placed outside any dumpsters for
any reason. All plastic bags should be put in a bag and stapled before
being placed in any dumpster. Lids on containers shall be closed at all
times. All pallets shall be removed from the Leased Premises immediately
or stored in Tenant's stockroom until they can be promptly removed. All
trash, refuse and waste materials shall be removed regularly from the
Leased Premises. No burning of trash, refuse or other waste material shall
occur.
H. Tenant shall cause all loading, unloading and deliveries of any kind to be
made at the rear of the Shopping Center. NO deliveries can occur in front
of the Shopping Center or from the parking lot area.
I. Tenant shall not permit any carrier, transfer truck, trailer etc. to park
in its loading, unloading area, or any part of the common areas any longer
than needed to load or unload, and in no event longer than 48 hours.
Transfer trucks or trailers remaining longer than is reasonably necessary
to unload may be towed away by Landlord at Tenant's expense.
J. Tenant window displays and other displays in or about the Leased Premises
shall be professionally designed and installed. No signs may be affixed to
or displayed in the storefront windows.
K. Tenant will be responsible for insuring that its employees and contractors
park their vehicles in the employee parking areas designated by Landlord
from time to time and cooperate with Landlord during various times of the
year in regard to parking in the rear of the Shopping Center. Within five
(5) days of Landlord's request, Tenant shall furnish Landlord with license
numbers of employees' and contractors' vehicles. If any vehicle is parked
by an employee or contractor of Tenant in a non-employee parking area,
Landlord shall have the right to cause the vehicle to be towed to a
location designated by Landlord, and Tenant shall be obligated to reimburse
Landlord for all towing charges, but in no event less than $25.00. Tenant
shall hold harmless Landlord and defend Landlord, its agents and employees
against any and all claims of the employee, contractor and/or owner of the
vehicle towed.
L. Tenant, at its expense, shall maintain at all times a service contract on
the HVAC serving the Leased Premises, which shall require (i) all air
conditioning filters to be changed at least five (5) times per year and
(ii) the air conditioning system to be professional inspected and generally
serviced at least twice per year. Tenant shall provide Landlord with a
copy of all such service contracts. All HVAC service contractors shall be
required to check in at the management office before and after each service
call. If Tenant does not comply with the foregoing, then in addition to
all other rights and remedies set forth in this Lease, Landlord shall be
entitled to enter into a service contract on Tenant's behalf, and/or have
Tenant's HVAC units serviced, as set forth in Section 14.05 of the Lease.
EXHIBIT "G"
RULES AND REGULATIONS
47
<PAGE>
EXHIBIT 10(o)(8)
LEASE AGREEMENT
between
ARIZONA FACTORY SHOPS PARTNERSHIP
and
ASHWORTH STORE I, INC.
t/a ASHWORTH FACTORY STORE
1
<PAGE>
INDEX - LEASE AGREEMENT
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
ARTICLE I DEFINITIONS & ATTACHMENTS..................... 1
Section 1.1 - Certain Defined Terms
Section 1.23 - Attachments
ARTICLE II PREMISES...................................... 5
Section 2.1 - Demised Premises; Quiet Enjoyment
Section 2.2 - Measurement of Premises
ARTICLE III TERM.......................................... 5
Section 3.1 - Term
Section 3.2 - Expiration
Section 3.3 - Holding Over
ARTICLE IV USE........................................... 6
Section 4.1 - Prompt Occupancy and Use
Section 4.2 - Storage and Office Areas
Section 4.3 - Tenant's Trade Name
Section 4.4 - Operating Hours
ARTICLE V RENTAL........................................ 6
Section 5.1 - Rentals Payable
Section 5.2 - Annual Basic Rental
Section 5.3 - Annual Percentage Rental
Section 5.4 - Gross Sales Defined
Section 5.5 - Statements of Gross Sales
Section 5.6 - Tenant's Records; Examination
Section 5.7 - Payment of Rental
Section 5.8 - Advance Rental
Section 5.9 - Competing Business
ARTICLE VI TAXES......................................... 9
Section 6.1 - Tenant to Pay Proportionate Share of Taxes
Section 6.2 - Payment of Proportionate Share of Taxes
Section 6.3 - Other Taxes Payable by Tenant
ARTICLE VII IMPROVEMENTS.................................. 10
Section 7.1 - Landlord's Improvements
Section 7.2 - Tenant's Improvements
Section 7.3 - Ready for Occupancy Defined
Section 7.4 - Effect of Opening for Business
Section 7.5 - Mechanic's Liens
Section 7.6 - Tenant's Leasehold Improvements and Trade Fixtures
ARTICLE VIII OPERATIONS.................................... 11
Section 8.1 - Operations by Tenant
Section 8.2 - Signs and Advertising
Section 8.3 - Painting and Displays by Tenant
Section 8.4 - Trash Service
Section 8.5 - Environmental Matters
ARTICLE IX REPAIRS AND ALTERATIONS....................... 14
Section 9.1 - Repairs to be Made by Landlord
Section 9.2 - Repairs to be Made by Tenant
Section 9.3 - Alterations by Tenant
Section 9.4 - Changes and Additions to Shopping Center and
Development Area
Section 9.5 - Roof, Walls and Interior of Premises
ARTICLE X COMMON AREAS.................................. 15
Section 10.1 - Use of Common Areas
Section 10.2 - Management and Operation of Common Areas
Section 10.3 - Employee Parking Areas
Section 10.4 - Tenant to Pay Proportionate Share of
Landlord's Operating Costs
Section 10.5 - Landlord's Operating Costs Defined
ARTICLE XI PROMOTION AND ADVERTISING..................... 16
Section 11.1 - Promotion Fund; Program
Section 11.2 - Tenant's Contribution to Promotion Fund
ARTICLE XII UTILITIES..................................... 17
Section 12.1 - Water, Electricity, Telephone and Sanitary
Sewer
Section 12.2 - Fire Protection Sprinkler System
Section 12.3 - Discontinuance and Interruptions of Utility
Services
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
ARTICLE XIII INDEMNITY AND INSURANCE.......................... 18
Section 13.1 - Indemnities
Section 13.2 - Landlord Not Responsible for Acts of Others
Section 13.3 - Tenant's Insurance
Section 13.4 - Tenant's Contractor's Insurance
Section 13.5 - Policy Requirements
Section 13.6 - Increase in Insurance Premiums
Section 13.7 - Waiver of Right of Recovery
Section 13.8 - Tenant to Pay Proportionate Share of Insurance
Costs
ARTICLE XIV DAMAGE AND DESTRUCTION........................... 19
Section 14.1 - Obligations to Repair and Reconstruct
Section 14.2 - Landlord's Option to Terminate Lease
ARTICLE XV CONDEMNATION...................................... 20
Section 15.1 - Effect of Taking
Section 15.2 - Condemnation Awards
ARTICLE XVI ASSIGNMENT AND SUBLETTING......................... 21
Section 16.1 - Landlord's Consent Required
Section 16.2 - Transfer of Corporate Shares
Section 16.3 - Acceptance of Rent from Transferee
ARTICLE XVII DEFAULT........................................... 21
Section 17.1 - Event of Default Defined
Section 17.2 - Remedies
Section 17.3 - Damages
ARTICLE XVIII SUBORDINATION AND ATTORNMENT...................... 23
Section 18.1 - Subordination
Section 18.2 - Mortgagee's Unilateral Subordination
Section 18.3 - Attornment
ARTICLE XIX NOTICES........................................... 23
Section 19.1 - Sending of Notices
Section 19.2 - Notice to Mortgagees
ARTICLE XX BANKRUPTCY OR INSOLVENCY.......................... 24
Section 20.1 - Tenant's Interest Not Transferable
Section 20.2 - Termination
Section 20.3 - Tenant's Obligations to Avoid Creditors'
Proceedings
Section 20.4 - Rights and Obligations Under the
Bankruptcy Code
ARTICLE XXI MISCELLANEOUS..................................... 25
Section 21.1 - Parties' Option to Terminate Lease
Section 21.2 - Estoppel Certificates
Section 21.3 - Inspections by Landlord
Section 21.4 - Memorandum of Lease
Section 21.5 - Remedies Cumulative
Section 21.6 - Successors and Assigns
Section 21.7 - Compliance with Laws and Regulations
Section 21.8 - Captions and Headings
Section 21.9 - Joint and Several Liability
Section 21.10 - Broker's Commission
Section 21.11 - No Discrimination
Section 21.12 - No Joint Venture
Section 21.13 - No Option
Section 21.14 - No Modification
Section 21.15 - Severability
Section 21.16 - Third Party Beneficiary
Section 21.17 - Corporate, Partnership Tenants
Section 21.18 - Applicable Law
Section 21.19 - Performance of Landlord's Obligations
by Mortgagee
Section 21.20 - Waiver of Counterclaims and Trial by Jury
Section 21.21 - Exculpation
Section 21.22 - Security Interest
Section 21.23 - Survival
Section 21.24 - Additional Rent
Section 21.25 - Financial Statement
Rider to Lease Agreement
Schedule "A" - Drawing Showing Location of Landlord's Building
Schedule "A2" - Drawing Showing Location of the Premises
Schedule "B" - Description of Landlord's Work and Tenant's Work
Schedule "C" - Design Criteria for Tenant Improvements
Schedule "D" - Form of Estoppel Certificate
Schedule "E" - Agreement of Subordination, Non-Disturbance and
Attornment
</TABLE>
ii
<PAGE>
ASHWORTH.LSE
04/28/95
LEASE AGREEMENT
This Lease Agreement ("Lease") made as of the Effective Date (as hereafter
defined), by ARIZONA FACTORY SHOPS PARTNERSHIP, an Arizona general partnership
("Landlord"), and ASHWORTH STORE I, INC., a Delaware corporation ("Tenant").
WITNESSETH:
THAT FOR AND IN CONSIDERATION of the mutual covenants and agreements herein
contained, the parties hereto do hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ATTACHMENTS
Section 1.1 Certain Defined Terms. As used herein, the terms set forth
below shall have the meanings indicated. Other terms are defined elsewhere in
this Lease.
A. "DEVELOPMENT AREA" means all those certain parcels of land, situated in
New River, County of Maricopa, State of Arizona, owned, leased or
operated by Landlord, or by any affiliate of Landlord, as a part of or
in support of the Shopping Center.
B. "SHOPPING CENTER" means the retail shopping center development located
Northwest of the intersection of Interstate 17 and Desert Hills Road,
New River, Arizona, and known as Arizona Factory Shops.
C. "LANDLORD'S BUILDING" means the structure constructed or to be
constructed by Landlord in the location shown on Schedule "A", as the
same may be altered, reduced, expanded or replaced from time to time.
D. "EXPANSION" means each expansion of the Shopping Center, following the
initial construction of Landlord's Building, whereby the total floor
area of the Shopping Center is increased by ten percent (10%) or more
of the floor area contained in the Shopping Center as initially
constructed.
E. "LANDLORD'S FLOOR AREA" means the aggregate number of square feet of
leasable floor area in Landlord's Building, excluding Common Areas,
mezzanine areas, areas used for management and promotion offices, areas
used for governmental facilities and, at Landlord's option, excluding
any area of more than 20,000 square feet leased to a single tenant
("Major Tenant").
F. "TENANT'S FLOOR AREA" means that portion of Landlord's Floor Area which
constitutes the Premises, as measured in accordance with Section 2.2.
G. "COMMON AREAS" means those areas, improvements and facilities which may
from time to time be furnished, operated, or managed by Landlord, or by
any designee of Landlord, in or near the Development Area for the
nonexclusive general common use of tenants and other occupants of the
Shopping Center, their officers, agents, employees and customers.
H. "DEFAULT RATE" means an annual rate of interest equal to the lesser of
(i) the maximum rate of interest for which Tenant may lawfully contract
in the State in which the Shopping Center is situate, or (ii) 18%.
I. "GRAND OPENING DATE" means the date and time designated from time to
time by Landlord for the initial opening for business of the Shopping
Center.
J. "PREMISES" means the portion of Landlord's Building depicted on
Schedule "A-2" having the following approximate dimensions: Width:
irregular; Depth: irregular; Floor Area: 4,070 SQUARE FEET (the
"Approximate Floor Area"). The actual dimensions of the floor area of
the Premises shall be determined by measurement pursuant to Section
2.2. For purposes of Sections 5.3 through 5.7 only, the term "Premises"
shall include, in addition to the premises referred to above, the
premises at which each Competing Business is conducted.
<PAGE>
K. "PERMITTED USE" means the sale at discount of Ashworth brand men's and
women's sportswear, accessories and other merchandise manufactured by
Ashworth, Inc.
L. "ADVANCE RENTAL" Intentionally omitted.
M. "PROMOTION FUND CONTRIBUTION" means the sum of Two Dollars ($2.00)
multiplied by the number of square feet contained in Tenant's Floor
Area.
N. "TENANT NOTICE ADDRESS" means 2791 Loker Avenue West, Carlsbad, CA
92008, and telecopier number (619) 438-9107, Attention: General Counsel
"TENANT BILLING ADDRESS" means 2791 Loker Avenue West, Carlsbad, CA
92008.
O. "TENANT TRADE NAME" means ASHWORTH FACTORY STORE.
P. "OPENING CONTRIBUTION" means the sum of Two Dollars ($2.00) multiplied
by the number of square feet contained in Tenant's Floor Area. See
Section 11.2.
"EXPANSION CONTRIBUTION" means the sum of One Dollar ($1.00) multiplied
by the number of square feet contained in Tenant's Floor Area.
Q. "SPRINKLER CONTRIBUTION RATE" means the sum of Twenty Cents ($0.20)
multiplied by the number of square feet contained in Tenant's Floor
Area. See Section 12.2.
R. "TERM" means a period of FIVE (5) YEARS plus the length of time from
the date hereof to the Rental Commencement Date, commencing and ending
as provided in Section 3.1.
S. "ANNUAL BASIC RENTAL" means a sum equal to the product of the following
applicable figure multiplied in each case by the number of square feet
contained in Tenant's Floor Area.
<TABLE>
<CAPTION>
<S> <C>
RENTAL YEARS 1-2 $16.00
RENTAL YEAR 3 $17.00
RENTAL YEARS 4-5 $18.00
</TABLE>
T. "ANNUAL PERCENTAGE RENTAL" means a sum equal to FOUR PERCENT (4%) (the
"Percentage") of the amount by which annual Gross Sales exceed the
product of TWO HUNDRED FIFTY DOLLARS ($250.00) multiplied by the number
of square feet contained in Tenant's Floor Area. The product of these
items is hereinafter sometimes referred to as Tenant's "Breakpoint".
U. "RIDER" means the "Rider to Lease", if any, attached following the
execution pages of this Lease Agreement, the terms of which shall be
fully incorporated into this Lease. The words "this Lease" shall
include this Lease Agreement, the Rider and all exhibits and schedules
attached hereto and thereto.
V. "RENTAL COMMENCEMENT DATE" means the earlier of (a) the first day on
which the Premises are Ready for Occupancy or (b) Tenant's opening of
its business in the Premises.
W. "COMPETING BUSINESS" means each business in which Tenant or any
Associate of Tenant has any ownership, participation, or financial
interest, directly or indirectly, whether as a stockholder, partner,
co-venturer, lender, manager, contractor, employee, consultant, agent
or otherwise, and which business (i) is in competition with or similar
to the business conducted by Tenant at the Shopping Center, and (ii) is
located in a factory outlet center located within a distance of thirty
(30) miles from that point in the outermost boundary of the Shopping
Center which is closest to the premises at which such similar or
competing business is conducted. The term "Competing Business" shall
not apply to any business described in the foregoing sentence which is
open and in operation as of the date of this Lease.
X. "LANDLORD'S WORK" means the work to be performed by Landlord pursuant
to the Work Schedules to complete the Premises.
Y. "TENANT'S WORK" means the work to be performed by Tenant pursuant to
the Work Schedules to complete the Premises.
Z. "METROPOLITAN AREA" means the Phoenix, Arizona, metropolitan area.
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AA. "ASSOCIATE OF TENANT" means any natural person, firm, corporation,
association or other entity which has any ownership, participation
or other financial interest in Tenant or in which Tenant has any
ownership, participation or other financial interest, including,
but not limited to, any stockholder, officer, director or partner
of Tenant, any subsidiary or parent corporation of Tenant, any
person or entity controlling, controlled by or under common
control with Tenant, and any franchisor or franchisee of Tenant.
BB. "OPERATING HOURS" means (i) the hours from 9:00 a.m. until 9:00
p.m., Monday through Saturday, and from 12:00 p.m. until 6:00 p.m.
Sunday, except Thanksgiving Day and Christmas Day, or (ii) such
other hours of operation as may from time to time be required by
Landlord and approved by tenants and occupants of fifty percent
(50%) or more of Landlord's Floor Area.
CC. "PROPORTIONATE SHARE" means, with respect to Taxes and Landlord's
Operating Costs and Landlord's insurance costs, an amount equal to
(i) the total amount of the item in question, multiplied by (ii) a
fraction, the numerator of which is the total number of square
feet contained in Tenant's Floor Area, and the denominator of
which is the total number of square feet contained in Landlord's
Floor Area.
DD. "STATE" means the state in which the Development Area is located.
EE. "PLANS" means the plans and specifications for completion of the
improvements to the Premises to be prepared by Tenant in
accordance with Tenant's obligations under the Work Schedules and
revised as required by Landlord. Upon any final approval by
Landlord of such Plans, the term "Plans" shall mean the Plans in
the form so approved.
FF. "SUBMISSION DATE" means the date by which Tenant is required to
submit its initial Plans to Landlord which shall be the date
FORTY-FIVE (45) DAYS following the date hereof.
GG. "OPERATING YEAR" means each twelve (12) consecutive month period
or portion thereof occurring during the Term designated by
Landlord with respect to which Landlord estimates, bills to
tenants and determines annual Landlord's Operating Costs.
HH. "PROMOTION YEAR" means the period of twelve (12) consecutive
months following the Grand Opening Date and each successive twelve
(12) month period or portion thereof occurring during the Term.
II. "TAX YEAR" means each twelve (12) month period (deemed, for the
purpose of Article VI, to have 365 days) established as the real
estate tax year by the taxing authorities having lawful
jurisdiction over the Development Area. In the event of varying
tax years being utilized by multiple taxing authorities, Landlord
shall be entitled to select the period to be used as the Tax Year.
JJ. "LAWS" means all federal, state and local common law, statutes,
rules, codes, ordinances and regulations, and all rulings and
orders of all federal, state and local courts and other
governmental agencies and authorities.
KK. "ADJUSTMENT" means the adjustment between Landlord and Tenant of
any overpayment or deficiency in payment by Tenant of Annual
Percentage Rental or of Tenant's Proportionate Share of Taxes or
of Landlord's Operating Costs or of Landlord's insurance costs.
Any required Adjustment shall be made, as the case may be, by (i)
Tenant's payment to Landlord of any deficiency, or (ii) by
Landlord's crediting to Tenant's account any overpayment or, if
such Adjustment is made at the end of the Term, Landlord's
reimbursement to Tenant of such overpayment less any amounts due
from Tenant.
LL. "LANDLORD NOTICE ADDRESS" means "Arizona Factory Shops Partnership
c/o Prime Retail, L.P., 100 East Pratt Street, Baltimore, Maryland
21202, Attn: Office of the General Counsel, telecopier number
(410) 234-1761.
MM. "EFFECTIVE DATE" means the latest date appearing immediately under
the signature of either Landlord or Tenant at the end
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of this Lease, which Effective Date shall be the date this Lease
is made and shall be the first day of the Term. The words "the
date hereof", "the date of this Lease", or words of similar import
referring to the date on which this Lease is made shall mean the
Effective Date.
NN. "WORK SCHEDULES" means, collectively, Schedules "B" and "C"
referred to in Section 1.2, including all modifications and
amendments thereto agreed to by Landlord and Tenant in writing and
all drawings and documents prepared pursuant thereto.
OO. "RENTAL YEAR" means each twelve (12) consecutive calendar month
period or portion thereof occurring during the Term with respect
to which Annual Basic Rental and Annual Percentage Rental are
payable, provided that the first Rental Year shall commence on the
Rental Commencement Date and shall end at the close of the twelfth
(12th) full calendar month following the Rental Commencement Date.
PP. "FORCE MAJEURE" means any labor dispute, Act of God, war, riot,
unavailability of services or materials, governmental action or
other occurrence beyond the reasonable control of Landlord or
Tenant, as the case may be, which delays such parties performance
of any of its obligations under this Lease. Except where this
Lease states expressly that performance by either party of a
specific obligation is subject to delay by Force Majeure, timely
performance by such party of its obligations shall not be subject
to any Force Majeure.
QQ. "MORTGAGE" means any lease of land and/or buildings affecting the
Premises, and any mortgage, deed of trust or other security
interest affecting the Premises, whether in existence on the date
hereof or created hereafter.
RR. "MORTGAGEE" means the party or parties having the benefit of any
Mortgage, whether as lessor, mortgagee, trustee, beneficiary,
noteholder or otherwise.
SS. "CONSUMER PRICE INDEX" means the Consumer Price Index, which is
presently announced monthly by the Bureau of Labor Statistics,
U.S. Department of Labor, and which index is computed on a base
period index of 1982-84 = 100. This index is the overall summary
Consumer Price Index entitled "All Items." In the event that the
Bureau of Labor Statistics changes the base period index for its
summary Consumer Price Index (now 1982-84 = 100), the parties
agree to continue to use the 1982-84 = 100 base period index if
the Bureau of Labor Statistics continues to announce a consumer
price index based on the present base period index as well as a
later base period index. In any event, the base used by any new
index, or as revised on the existing index, shall be reconciled to
the 1982-84 base period index. If the Consumer Price Index shall
no longer be published by the Bureau of Labor Statistics, then
another index generally recognized as authoritative shall be
substituted by Landlord. If and to the extent this Lease expressly
provides that Annual Basic Rental, Annual Percentage Rental,
Additional Rental, or any item constituting part of any of the
foregoing, is to be adjusted for changes in the Consumer Price
Index (any item subject to such adjustment being herein referred
to as an "Adjustment Item") such adjustment shall be made as
follows. The amount of the Adjustment Item shall be adjusted, as
of the beginning of each year for which the adjustment is to be
made ("Adjustment Year"), to equal the amount which is the greater
of (a) the amount of such Adjustment Item for the year immediately
preceding the Adjustment Year, or (b) the product obtained by
multiplying (i) the amount of such Adjustment Item for the year
immediately preceding the Adjustment Year by (ii) a fraction, the
numerator of which is the Current Consumer Price Index and the
denominator of which is the Prior Year Consumer Price Index. As
used herein, (A) the term "Current Consumer Price Index" means the
Consumer Price Index published for the calendar month immediately
preceding the calendar month in which the subject Adjustment Year
commences, and (B) the term "Prior Year Consumer Price Index"
means the Consumer Price Index published for the calendar month
immediately preceding the calendar month in which the year
immediately preceding the subject Adjustment Year commenced. In
each case, if the Consumer Price Index is not published for any
calendar month referred to above,
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then the Consumer Price Index published for the calendar month
closest thereto shall apply.
Section 1.2 Attachments. The following documents are attached hereto, and
such documents, as well as all drawings and documents prepared pursuant thereto,
shall be deemed to be a part hereof: SCHEDULE "A" - Drawing Showing Location of
Landlord's Building; SCHEDULE "A2" - Drawing Showing Location of the Premises;
SCHEDULE "B" - Description of Landlord's Work and Tenant's Work; SCHEDULE "C" -
Design Criteria for Tenant Improvements; SCHEDULE "D" - Form of Estoppel
Certificate; and SCHEDULE "E" - Agreement of Subordination, Non-Disturbance and
Attornment.
ARTICLE II
PREMISES
Section 2.1 Demised Premises; Quiet Enjoyment. Landlord hereby leases to
Tenant, and Tenant hereby rents from Landlord, the Premises for the Term and at
the Rental hereinafter described. Landlord warrants that so long as Tenant is
not in default hereunder, Tenant shall have peaceful and quiet use and
possession of the Premises, subject to the terms and conditions of this Lease,
any Mortgage, and all matters of record or other agreements to which this Lease
is or may hereafter be subordinated.
Section 2.2 Measurement of Premises. On or before the Rental Commencement
Date, Landlord shall measure the Premises in the manner hereafter provided and
shall give Tenant notice of the Floor Area so determined. The Premises shall be
measured (a) with respect to the front and rear width thereof, from the center
of the demising wall of the adjacent tenant premises, or, if not adjoining any
other tenant premises, from the exterior face of the adjacent exterior or
corridor wall, and (b) with respect to the depth thereof, from the front lease
line (as designated on the Lease Outline Drawings to be prepared by the Landlord
pursuant to the Work Schedules) to the center of the demising wall of the
adjacent tenant premises, or, if not adjoining any other tenant premises on the
rear wall, to the exterior face of the rear exterior wall, or corridor wall; and
in no case shall there be any deduction for columns or other structural elements
or mechanical systems (including equipment and related duct work) within any
tenant's premises. Tenant may request that Landlord's architect or engineer re-
measure the Premises and certify the same to the parties. If, after Tenant's
request for re-measurement, the revised Floor Area pursuant to such re-
measurement is less than the Floor Area as originally measured by Landlord, then
Landlord shall pay the cost of the re-measurement. If said revised Floor Area
is equal to or greater than the Floor Area as originally measured by Landlord,
then Tenant shall pay for the cost of re-measurement or shall reimburse Landlord
for same, as the case may be. The Floor Area, as determined by Landlord, shall
be deemed to be Tenant's Floor Area for all purposes of this Lease and shall be
binding on the parties. Landlord warrants that Tenant's Floor Area determined
by measurement pursuant to this Section shall be within ten percent (10%) of the
Approximate Floor Area.
ARTICLE III
TERM
Section 3.1 Term. The Term of this Lease shall commence on the date
hereof, and shall be for the number of years set forth under the definition of
"Term," plus the length of time from the date hereof to the Rental Commencement
Date. In the event this Lease has at any time been renewed, the word "Term"
shall include, collectively, the period referred to in the preceding sentence
and the period of any such renewal, the words "Initial Term" shall mean the
period referred to in the preceding sentence, and the words "Renewal Term" shall
mean the period of the renewal. Unless this Lease expressly grants any renewal
right to Tenant, Tenant shall have no right to renew this Lease beyond the Term
referred to in the first sentence of this Section. Landlord and Tenant agree,
upon demand of the other, to execute a declaration certifying the Rental
Commencement Date and the termination date of the Term as soon as the Rental
Commencement Date has been determined.
Section 3.2 Expiration. This Lease shall expire at the end of the Term
without the necessity of any notice from either Landlord or Tenant to terminate
the same, and Tenant hereby waives notice to vacate or quit the Premises and
agrees that Landlord shall be entitled to the benefit of all Laws respecting the
summary recovery of possession of the Premises from a tenant holding over to the
same extent as if statutory notice had been given. For the period of three (3)
months prior to the expiration of the Term, Landlord shall have the right to
display on the exterior of the Premises a "For Rent" sign (not to exceed one
foot by one foot in size) and during such period Landlord may show the Premises
and all parts thereof to prospective tenants during normal business hours.
Section 3.3 Holding Over. If Tenant does not surrender the Premises at
the end of the Term, the tenancy under this Lease shall become week-to-week upon
all the terms and conditions contained in this Lease, except
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that all Rental shall be at a rate twice the Rental in effect during the last
month of the Term. Such tenancy shall be terminable by either party on seven
(7) days' written notice to the other party.
For a period of sixty (60) days following the Termination Date, provided
Landlord and Tenant are engaged in good faith negotiations for a renewal or
extension of this Lease, the provisions of this Section 3.3. shall be waived
with regard to the change in the terms regarding the payment of Rental, and
during such 60-day period, Tenant shall continue to pay the Rental which was due
and payable under the Lease at the end of the Term.
ARTICLE IV
USE
Section 4.1 Prompt Occupancy and Use. Tenant shall occupy the Premises from
and after the Rental Commencement Date and thereafter will continuously use the
Premises for the Permitted Use and for no other purpose whatsoever. Tenant will
sell all merchandise from the Premises at discount prices that are at least
thirty percent (30%) less than the Manufacturer's Suggested Retail Price.
Section 4.2 Storage and Office Areas. Tenant shall use no more than ten
percent (10%) of Tenant's Floor Area for storage and office purposes.
Section 4.3 Tenant's Trade Name. Tenant shall conduct business in the
Premises only in Tenant's Trade Name.
Section 4.4 Operating Hours. Tenant shall cause its business to be
conducted and operated in such manner as shall assure the transaction of a
maximum volume of business at the Premises. The continuous occupancy and use of
the Premises by Tenant is of the essence to this Lease. Tenant shall cause the
Premises to be open daily for business during all Operating Hours. If Tenant
shall fail to cause its business to be operated during the hours required by the
preceding sentence, or as otherwise required by Landlord, in addition to any
other remedy available to Landlord under this Lease, Tenant shall pay to
Landlord, as liquidated damages for such breach, a sum equal to One Hundred
Dollars ($100.00) for each hour or portion thereof during which Tenant shall
fail to so operate. If Tenant requests Landlord's approval of the operation of
the Premises for periods differing from the Operating Hours, and if Landlord
approves such request, Tenant shall pay for all additional costs reasonably
incurred by Landlord in connection with Tenant's operation of the Premises
during such different hours.
ARTICLE V
RENTAL
Section 5.1 Rentals Payable. Tenant covenants and agrees to pay to
Landlord as rental ("Rental") for the Premises, the sum of the following: (a)
Annual Basic Rental; (b) Annual Percentage Rental; (c) all additional sums,
charges or amounts of whatever nature which Tenant is required to pay to
Landlord in accordance with the provisions of this Lease, whether or not such
sums, charges or amounts are referred to as additional rental (collectively
referred to as "Additional Rental"); and (d) all sales tax imposed on payments
due Landlord under this Lease, should any governmental taxing authority levy,
assess or impose any tax, excise or assessment (other than income or franchise
tax) upon or against the rentals payable by Tenant to Landlord, either by way of
substitution for or in addition to any existing tax on land, buildings or
otherwise. Tenant shall be responsible for and shall pay any tax, excise or
assessment or shall reimburse the Landlord for the amount thereof, as the case
may be. Annual Basic Rental and Tenant's Breakpoint shall be reduced
proportionately for any Rental Year of less than twelve (12) calendar months.
Subsequent to the date that Tenant initially opens for business in the Premises,
Tenant's Breakpoint shall be reduced by one-three hundred sixtieth (1/360th) for
each day or portion thereof that Tenant does not operate its business in the
Premises pursuant to Article IV.
Section 5.2 Annual Basic Rental. Annual Basic Rental shall be payable,
beginning on the Rental Commencement Date, in equal monthly installments in
advance on the first day of each full calendar month during the Term. The first
such payment shall include also any prorated Annual Basic Rental for the period
from the Rental Commencement Date to the last day of the month immediately prior
to the first full calendar month after the Rental Commencement Date.
Section 5.3 Annual Percentage Rental. Tenant shall be under no obligation
to make any payments of Annual Percentage Rental in any Rental Year until Tenant
has achieved the Breakpoint set forth in Section 1.1.T. of this Lease for that
Rental Year. Upon achieving such Breakpoint in any Rental Year, Tenant shall
thereupon make monthly payments of Annual Percentage Rental payable on or before
the fifteenth (15th) day following the close of each full calendar month during
the term, Based on Gross Sales for such period. Monthly payments of Annual
Percentage Rental shall be calculated by multiplying the
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amount of Gross Sales for the month in question by the percentage specified in
Section 1.1.T., the first such payment to include also any prorated Annual
Percentage Rental for the period from the date Tenant's Gross Sales reach the
Breakpoint set forth in Section 1.1.T. to the first day of the next full
calendar month in the Term. If necessary, as soon as practicable after the end
of each Rental year, the Annual Percentage Rental paid or payable for such
Rental Year shall be adjusted between Landlord and Tenant, each party hereby
agreeing to make such adjustment and to pay to the other, on demand, such amount
as may be necessary to effect adjustment to the agreed Annual Percentage Rental.
Section 5.4 "Gross Sales" Defined. "Gross Sales" means the actual sales
prices of all goods, wares and merchandise sold, leased, licensed or delivered
and the actual charges for all services performed by Tenant or by any subtenant,
licensee or concessionaire in, at, from, or arising out of the use of the
Premises, whether for wholesale, retail, cash or credit, or otherwise, without
reserve or deduction for inability or failure to collect. Gross Sales shall
include, without limitation, sales and services (a) where the orders therefor
originate in, at, from, or arising out of the use of the Premises, whether
delivery or performance is made from the Premises or from some other place; (b)
made or performed by mail, telephone, telecopy, telegraph or other form of
order; (c) made or performed by means of mechanical or other vending devices in
the Premises; (d) which Tenant or any subtenant, licensee, concessionaire or
other person in the normal and customary course of its business, would credit or
attribute to its operations at the Premises or any part thereof. Any deposit
not refunded shall be included in Gross Sales. Each installment or credit sale
shall be treated as a sale for the full price in the month during which such
sale is made, regardless of whether or when Tenant receives payment therefor.
No franchise or capital stock tax and no income or similar tax based on income
or profits shall be deducted from Gross Sales.
The following shall not be included in Gross Sales: (i) any exchange of
merchandise between stores of Tenant where such exchange is made solely for the
convenient operation of Tenant's business and not for the purpose of
consummating a sale made in, at, or from the Premises, or for the purpose of
depriving Landlord of the benefit of a sale made in, at, or from the Premises,
or for the purposes of depriving Landlord of the benefit of a sale which would
otherwise be made in or at the Premises; (ii) returns to shippers or
manufacturers; (iii) cash or credit refunds to customers or transactions (not to
exceed the actual selling price of the item returned), otherwise included in
Gross Sales; (iv) sales of trade fixtures, machinery and equipment after use
thereof in the conduct of Tenant's business; (v) amounts collected and paid by
Tenant to any government for any sales or excise tax; and (vi) the amount of any
discount on sales to bona fide employees of Tenant employed at the Premises.
Section 5.5 Statements of Gross Sales. Within fifteen (15) days after the
close of each calendar month of the Term, beginning with the first full calendar
month after the Rental Commencement Date, Tenant shall deliver to Landlord a
written report signed by Tenant or by an authorized officer or agent of Tenant,
certifying the Gross Sales made in such calendar month.
Within sixty (60) days after the close of each Rental Year and after the
termination of the Lease, Tenant shall deliver to Landlord a statement of Gross
Sales for the preceding Rental Year which shall reflect all Gross Sales for such
Rental Year. The annual statement shall be accompanied by the signed
certificate of the chief financial officer of Tenant stating that: (i) he has
examined the report of Gross Sales for such Rental Year; (ii) his examination
included such tests of Tenant's books and records as necessary or appropriate
under the circumstances to account for all Gross Sales; (iii) such report
presents accurately and completely all Gross Sales for such Rental Year; and
(iv) the Gross Sales as so reported conform with and are computed in compliance
with the definition of Gross Sales contained in Section 5.4 hereof. Such annual
report and accompanying certification are hereinafter referred to as the "Annual
Certified Statement."
If Tenant fails to timely deliver the Annual Certified Statement to
Landlord for any Rental Year, Landlord may elect either to exercise its rights
under Section 5.6(b), or to estimate Tenant's annual Gross Sales for such Rental
Year. In making such estimate Landlord may take into account such factors as
Landlord deems relevant, provided that in any event Landlord may base its
estimate on the average monthly Gross Sales as reported by Tenant for the twelve
(12) month period immediately preceding such estimate, or determined by prior
examination under Section 5.6(b). Landlord's estimate shall be binding on
Tenant and determinative of annual Gross Sales and Annual Percentage Rental due
for the Rental Year in question.
Section 5.6 Tenant's Records; Examination. (a) For the purpose of
permitting verification by Landlord of any amounts due as Rental, Tenant will
(i) cause the business upon the Premises to be operated so that a duplicate
sales slip, invoice or non-resettable cash register receipt, serially numbered,
or such other device for recording sales as Landlord approves, shall be issued
with each sale or transaction, whether for cash,
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credit or exchange; and (ii) keep and preserve, at the Tenant Notice Address,
for at least three (3) years after each Rental Year, a general ledger, receipt
and disbursement journals, and such sales records and other supporting
documentation, together with original or duplicate books and records, which
shall disclose all information required to determine Gross Sales.
(b) At any time and from time to time after five (5) days notice to Tenant,
Landlord or any Mortgagee, their agents and accountants shall have the right to
examine any and all of Tenant's books and records relating to Gross Sales and
operations at the Premises. If such examination reveals that the Gross Sales
reported by Tenant for any period was less than Tenant's actual Gross Sales for
such period, Tenant shall pay to Landlord within ten (10) days after demand any
deficiency in Annual Percentage Rental together with interest at the Default
Rate from the date such portion of Annual Percentage Rental was due.
Furthermore, if the examination reveals that actual Gross Sales for any period
vary by more than three percent (3%) from the Gross Sales reported by Tenant for
such period, or if in the judgment of Landlord Tenant's records are inadequate
to accurately and completely reflect Gross Sales, then (i) Landlord may estimate
Tenant's Gross Sales, in the manner provided in Section 5.5, for any period or
periods with respect to which Tenant's records are inadequate and Tenant shall
pay within ten (10) days after demand any deficiency in Annual Percentage Rental
together with interest at the Default Rate as above provided; (ii) Tenant shall
pay within ten (10) days after demand all costs incurred by Landlord in
connection with the examination of Tenant's records (provided Tenant shall in
any event pay such costs if the examination results from Tenant's failure to
timely submit any Annual Certified Statement); and (iii) within fifteen (15)
days after notice from Landlord, Tenant shall demonstrate to Landlord's absolute
satisfaction that it has implemented a record keeping system adequate to reflect
and to permit Landlord to verify Gross Sales. Notwithstanding anything herein
to the contrary, if Landlord reasonably determines that any deficiency in
Tenant's records or discrepancies in Gross Sales reported by Tenant is a result
of any bad faith by Tenant, or if Tenant fails to timely deliver its monthly
statement of Gross Sales on more than five (5) occasions during the Term, or
fails to timely deliver its Annual Certified Statement on more than two (2)
occasions during the Term, Landlord shall have the right immediately to declare
an Event of Default.
Section 5.7 Payment of Rental. Tenant shall pay all Rental to Landlord
when due and payable, without any setoff, deduction or prior demand therefor
whatsoever. If Tenant shall fail to pay any Rental within seven (7) days after
notice from Landlord of such failure, Tenant shall be obligated to pay a late
charge equal to the greater of One Hundred Dollars ($100.00) or five percent
(5%) of any Rental payment not paid when due to reimburse Landlord for its
additional administrative costs. In addition, any Rental which is not paid
within seven (7) days after the same is due shall bear interest at the Default
Rate from the first day due until paid. All Additional Rental which shall be
due shall be payable, unless otherwise provided herein, with the next
installment of Annual Basic Rental.
Rental, reports and statements required of Tenant shall be paid and
delivered to Landlord at the management office of Landlord in the Shopping
Center or at such other place as Landlord may from time to time designate in a
notice to Tenant. Any payment by Tenant or acceptance by Landlord of Rental in
a lesser amount than due shall be treated as a payment on account. The
acceptance by Landlord of a check for a lesser amount with an endorsement or
statement thereon, or upon any letter accompanying such check, that such lesser
amount is payment in full, shall be given no effect, and Landlord may accept
such check without prejudice to any other rights or remedies which Landlord may
have against Tenant. If on more than one (1) occasion during the Term any check
for Rental shall not be honored by the bank on which it is drawn, Landlord may
thereafter require that all future payments from Tenant be made by certified
check.
Section 5.8 Advance Rental. Intentionally Omitted.
Section 5.9 Competing Business. Upon the opening for business of a
Competing Business as described in Section 1.1.W., Landlord or Landlord's
authorized representative or agent shall have the right at all reasonable times
during the Term and for a period of at least two (2) years after the expiration
of the Term, to inspect, audit, copy and/or make extracts of the books, source
documents, records and accounts pertaining to such other Competing Business, in
accordance with the provisions of Section 5.6., for the purpose of determining
or verifying any Rental due Landlord pursuant to Section 5.3. Moreover, in the
event Tenant fails to supply to Landlord sales records with respect to any such
Competing Business, Landlord shall have the right to estimate the sales for such
Competing Business based upon Tenant's Gross Sales in the Premises, and the
additional Annual Percentage Rental generated from the inclusion of such
estimated sales in Tenant's Gross Sales shall be deemed Rental to be paid by
Tenant in accordance with the provisions of Section 5.3.
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ARTICLE VI
TAXES
Section 6.1 Tenant to Pay Proportionate Share of Taxes. Tenant shall pay
for each Tax Year during the Term, as Additional Rental, its Proportionate Share
of all Taxes. "Taxes" means, collectively, all real estate taxes, ad valorem
taxes and assessments, general and special assessments, taxes on real estate
rental receipts, taxes on Landlord's gross receipts, or any other tax imposed
upon or levied against real estate or upon owners of real estate as such rather
than persons generally, including taxes imposed on leasehold improvements which
are assessed against Landlord, payable with respect to or allocable to the
Shopping Center, including all land, Landlord's Building, and all other
buildings and improvements situated thereon, together with the reasonable cost
(including reasonable fees of attorneys, consultants and appraisers) of any
negotiation, contest or appeal pursued by Landlord in an effort to reduce any
such tax, assessment or charge, and all of Landlord's reasonable administrative
costs in relation to the foregoing. For the Tax Year in which the Term
commences or terminates, the provisions of this Section shall apply, but
Tenant's Proportionate Share of Taxes for such year shall be subject to a pro
rata adjustment based upon the number of days of such Tax Year falling within
the Term.
Section 6.2 Payment of Proportionate Share of Taxes. Tenant's
Proportionate Share of Taxes shall be paid by Tenant in equal monthly
installments in such amounts as are estimated and billed for each Tax Year by
Landlord, each such installment being due on the first day of each calendar
month. At any time during a Tax Year, Landlord may re-estimate Tenant's
Proportionate Share of Taxes and adjust Tenant's monthly installments payable
thereafter during the Tax Year to reflect more accurately Tenant's Proportionate
Share of Taxes as re-estimated by Landlord. Within one hundred twenty (120)
days after Landlord's receipt of tax bills for each Tax Year with respect to
which no Abatement was in effect, Landlord will deliver to Tenant a statement of
the amount of Taxes with respect to such Tax Year and the amount of Tenant's
Proportionate Share thereof. Any overpayment or deficiency in Tenant's payment
of its Proportionate Share of Taxes for such Tax Year shall be Adjusted within
thirty (30) days after Tenant's receipt of such statement. If Landlord fails to
make, within the period indicated above, the appropriate adjustment with respect
to any overpayment by Tenant, then the amount owed Tenant shall accrue interest
at the same rate as the Default Rate until properly credited to Tenant's
account. The failure of the Landlord to provide such certification within the
time prescribed above shall not relieve Tenant of any of its obligations
hereunder.
Upon reasonable notice, Landlord shall make available for Tenant's
inspection (which inspection shall be at Tenant's sole cost and expense and
shall only be performed once per Rental Year) at the management office in the
Shopping Center, during normal business hours, Landlord's records relating to
Taxes for the preceding twelve (12) month period.
Section 6.3 Other Taxes Payable by Tenant. In addition to Tenant's
Proportionate Share of Taxes, Tenant shall pay, prior to the time the same
become delinquent, to the appropriate taxing authority, any and all sales,
excise and other taxes levied, imposed or assessed with respect to the operation
of Tenant's business and with respect to its inventory, furniture, trade
fixtures, apparatus, equipment, and all leasehold improvements installed by
Tenant or by Landlord on behalf of Tenant (except to the extent such leasehold
improvements shall be covered by Taxes referred to in Section 6.1) and any other
property of Tenant.
ARTICLE VII
IMPROVEMENTS
Section 7.1 Landlord's Improvements. Upon final approval of Tenant's
Plans as hereafter provided, and subject to delays due to any Force Majeure,
Landlord will, as promptly as reasonably possible perform Landlord's Work.
Failure of Landlord to complete Landlord's Work within any deadline therefor
will not give rise to any claim for damages by Tenant against Landlord or
against Landlord's contractor or permit Tenant to rescind or terminate this
Lease, except as otherwise provided in Section 21.1.
Section 7.2 Tenant's Improvements. Not later than the Submission Date,
Tenant shall provide Landlord with its initial Plans. Landlord shall promptly
review the initial Plans and any revisions thereof and shall notify Tenant of
any required changes. If Tenant fails to submit its initial Plans by the
Submission Date or fails to submit any revised Plans by the dates required by
Landlord or if Landlord reasonably determines that the Plans are so inconsistent
with the Schedules as to not permit approval by Landlord, then, in any of such
events, if such failure continues for more than ten (10) days after notice from
Landlord, Landlord may at its option terminate this Lease by written notice to
Tenant in which event this Lease shall terminate as of the date fifteen (15)
days after Landlord's notice. No deviation from the final Plans approved by
Landlord shall be made by Tenant without Landlord's
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prior written consent. Approval of the Plans by Landlord shall not constitute
the assumption of any responsibility by Landlord or Landlord's architect for
their accuracy, efficiency, sufficiency or compliance with any Laws, and Tenant
shall be solely responsible for such items.
Prior to the Rental Commencement Date, Tenant shall, at its sole cost and
expense, complete all of Tenant's Work. Tenant will be permitted by Landlord to
enter the Premises for the purpose of performing Tenant's Work and for the
purpose of installing its fixtures and other equipment, provided Tenant shall
have (a) obtained Landlord's written approval of the Plans, (b) deposited with
Landlord all policies or certificates of insurance required by this Lease, and
(c) deposited with Landlord all deposits required by the Work Schedules.
Tenant's Work shall be conducted so as not to unreasonably interfere with
Landlord's construction activities or with the activities and operations of
other tenants and occupants of the Shopping Center, and Tenant shall otherwise
comply, at its expense, with all other obligations of Tenant under the Work
Schedules, and shall perform all other duties and obligations imposed by this
Lease.
Section 7.3 "Ready For Occupancy" Defined. The Premises shall be "Ready
for Occupancy" as of the date on which the first of the following shall have
occurred: (a) Landlord and Tenant shall have substantially completed all of
Landlord's Work and Tenant's Work, respectively, except for final installation
of the sprinkler system and the completion of routine "punchlist" items; or (b)
thirty (30) calendar days after the date Landlord notifies Tenant that Tenant is
authorized to enter the Premises to perform Tenant's Work and to fixture the
Premises and otherwise make the Premises ready for the opening of business.
Section 7.4 Effect of Opening For Business. By opening the Premises for
business, Tenant shall be deemed to have accepted the Premises as then
constructed and agreed that all of Landlord's Work has been fully performed,
except for any written "punchlist" items agreed upon by Landlord and Tenant to
be performed after the Rental Commencement Date, except, however, that Landlord
shall repair (i) any apparent defect in work performed by Landlord and which is
brought to Landlord's attention within thirty (30) days from the date Tenant
takes possession of the Premises, and (ii) any latent defect in work performed
by Landlord and is brought to Landlord's attention within twelve (12) months
from the date Tenant takes possession of the Premises.
Section 7.5 Mechanic's Liens. No work performed by Tenant pursuant to
this Lease, whether in the nature of erection, construction, alteration or
repair, shall be deemed to be for the immediate use and benefit of Landlord so
that no mechanic's or other lien shall be allowed against the estate of Landlord
by reason of any consent given by Landlord to Tenant to improve the Premises.
Tenant shall place such contractual provisions as Landlord may request in all
contracts and subcontracts for Tenant's improvements assuring Landlord that no
mechanic's liens will be asserted against Landlord's interest in the Premises or
the property of which the Premises are a part. Tenant shall pay promptly all
persons furnishing labor or materials with respect to any work performed by
Tenant or its contractor on or about the Premises. In the event any mechanic's
or other lien shall at any time be entered, or any petition or proceeding
therefor filed, against the Premises by reason of work, labor, services or
materials performed or furnished, or alleged to have been performed or furnished
to Tenant or to anyone holding the Premises through or under Tenant, Tenant
shall forthwith cause the same to be discharged of record or bonded to the
satisfaction of Landlord. If Tenant shall fail to cause such lien forthwith to
be so discharged or bonded after being notified of the filing thereof, then, in
addition to any other right or remedy of Landlord, Landlord may bond or
discharge the same by paying the amount claimed to be due, and the amount so
paid by Landlord, including reasonable attorneys' fees incurred by Landlord
either in defending against such lien or in procuring the bonding or discharge
of such lien, together with interest thereon at the Default Rate, shall be due
and payable by Tenant to Landlord as Additional Rental.
Section 7.6 Tenant's Leasehold Improvements and Trade Fixtures. All
leasehold improvements installed in the Premises at any time, whether by or on
behalf of Tenant or by or on behalf of Landlord, and all trade fixtures and
apparatus installed in the Premises and initially paid for by Landlord, shall
not be removed from the Premises at any time, unless such removal is consented
to in advance by Landlord; and at the expiration of this Lease (either on the
Termination Date or upon such earlier termination as provided in this Lease),
all such leasehold improvements and such trade fixtures and apparatus shall be
deemed to be part of the Premises, shall not be removed by Tenant when it
vacates the Premises, and title thereto shall vest solely in Landlord without
payment of any nature to Tenant.
All trade fixtures and apparatus (as distinguished from leasehold
improvements and trade fixtures and apparatus initially paid for by Landlord)
paid for by Tenant and installed in the Premises shall remain the property of
Tenant and shall be removable at any time, including upon the expiration of the
Term; provided that Tenant shall repair any damage to the Premises caused
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by the removal of said trade fixtures and apparatus and shall restore the
Premises to substantially the same condition as existed prior to the
installation of said trade fixtures and apparatus.
ARTICLE VIII
OPERATIONS
Section 8.1 Operations by Tenant. Tenant will at its expense (a) keep the
inside and outside of all glass in the doors and windows of the Premises clean;
(b) keep all the walls and interior and exterior store surfaces of the Premises
clean; (c) replace promptly any cracked or broken glass of the Premises with
glass of like kind and quality; (d) maintain the Premises in a clean, orderly
and sanitary condition and free of insect, rodents, vermin and other pests; (e)
keep all garbage, trash, rubbish and other refuse in rat-proof containers within
the interior of the Premises until removed; (f) deposit such garbage, trash,
rubbish and refuse, on a daily basis, in designated receptacles provided by
Landlord; (g) keep all mechanical apparatus free of vibration and noise which
may be transmitted beyond the Premises; (h) light the show windows of the
Premises and exterior signs and turn the same off to the extent required by
Landlord; (i) maintain sufficient and seasonal inventory and have sufficient
number of personnel to maximize sales volume in the Premises; (j) comply with
and observe all rules and regulations reasonably established by Landlord from
time to time which apply generally to all retail tenants in the Shopping Center;
and (k) conduct its business in all respects in a manner consistent with the
quality and standards of operation of the Shopping Center as determined by
Landlord.
Tenant will not (1) place or maintain any merchandise, trash, refuse or
other articles in any vestibule or entry of the Premises, on the footwalks or
corridors adjacent thereto or elsewhere on the exterior of the Premises so as to
obstruct any driveway, corridor, footwalk, parking area, mall or any other
Common Areas; (m) use or permit the use of any objectionable advertising medium
such as, without limitation, loudspeakers, phonographs, public address systems,
sound amplifiers, reception of radio or television broadcasts within the
Shopping Center, which is in any manner audible or visible outside of the
Premises; (n) permit undue accumulations of or burn garbage, trash, rubbish or
other refuse within or without the Premises; (o) cause or permit odors, which
are in Landlord's opinion objectionable, to emanate or to be dispelled from the
Premises; (p) solicit business in the parking area or any other Common Areas;
(q) distribute handbills or other advertising matter to, in or upon any
automobiles parked in the parking areas or in any other Common Areas; (r) permit
the parking of vehicles so as to unreasonably interfere with the use of any
driveway, corridor, footwalk, parking area, mall or other Common Areas; (s)
receive or ship articles of any kind outside the designated loading areas for
the Premises; (t) use the mall, corridor or any other Common Area adjacent to
the Premises for the sale or display of any merchandise or for any other
business, occupation or undertaking; (u) conduct or permit to be conducted any
auction, fictitious fire sale, going out of business sale, bankruptcy sale,
unless directed by a court order, or other similar type of sale in or connected
with the Premises (but this provision shall not restrict the absolute freedom of
Tenant in determining its own selling prices, nor shall it preclude the conduct
of periodic seasonal, promotional or clearance sales); (v) use or permit the use
of any portion of the Premises for any unlawful purpose or for any activity of a
type which is not generally considered appropriate for regional factory outlet
discount centers conducted in accordance with good and generally accepted
standards of operations; (w) place a load upon any floor which exceeds the floor
load which the floor was designed to carry; (x) operate its heating or air-
conditioning in such a manner as to drain from the Common Areas or from the
premises of any other tenant or other occupant of the Shopping Center; (y) use
or operate any vending devices or machines, video games, or electronic amusement
devices or equipment; or (z) sell, distribute, display or offer for sale any
roach clip, water pipe, bong, toke, coke spoon, cigarette papers, hypodermic
syringe or other paraphernalia commonly used in the ingestion of illicit drugs,
or any pornographic, lewd, suggestive, or "adult" newspaper, book, magazine,
film, picture, representation or merchandise of any kind.
Section 8.2 Signs and Advertising. Tenant will not place or suffer to be
placed or maintained on the exterior of the Premises any sign, advertising
matter or any other thing of any kind, and will not place or maintain any
decoration, letter or advertising matter on the glass of any window or door of
the Premises unless the same is placed and maintained in accordance with the
terms of the Work Schedules. Tenant will, at its sole cost and expense,
maintain such sign, decoration, lettering, advertising matter or other thing as
may be permitted hereunder in good condition and repair at all times.
Section 8.3 Painting and Displays by Tenant. Tenant will not paint or
decorate any part of the exterior of the Premises, or any part of the interior,
without first obtaining Landlord's written approval. Subject to the other
provisions of this Section, Landlord shall not unreasonably withhold its consent
to any painting or decoration of the interior of the Premises. Tenant
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will install and maintain at all times, subject to the other provisions of this
Section, displays of merchandise in the show windows (if any) of the Premises.
All articles, and the arrangement, style, color and general appearance thereof,
in the interior of the Premises including, without limitation, window displays,
advertising matter, signs, merchandise and store fixtures, shall be in keeping
with the character and standards of the Shopping Center, as determined by
Landlord. Landlord reserves the right to require Tenant to correct any non-
conformity.
Section 8.4 Trash Service. Tenant shall keep any garbage, trash, rubbish
or other refuse in rat-proof containers within the interior of the Premises and
shall deposit such garbage, trash, rubbish and refuse, on a daily basis, in
designated receptacles and/or compactors provided by Landlord. Landlord shall
provide a trash removal service for the Shopping Center from designated
receptacles and/or compactors, and, in each Rental Year, Tenant shall reimburse
Landlord monthly, as Additional Rental, for all reasonable costs related to
Landlord's service to remove trash from the Shopping Center, including the costs
of maintaining, repairing and replacing the trash receptacles and compactors.
Section 8.5 Environmental Matters. (a) For purposes of this Section 8.5,
the following terms are defined as follows:
(i) "Claim" shall mean and include any demand, cause of action, proceeding
or suit (a) for damages (actual, consequential or punitive), losses, injuries
to person or property, damages to natural resources, fines, penalties,
interest, contribution or settlement, or (b) for the costs of site
investigations, feasibility studies, information requests, health or risk
assessments or Response actions, and (c) for enforcing insurance, contribution
or indemnification agreements.
(ii) "Environmental Law" shall mean and include all federal, state, and
local statutes, ordinances, regulations, and rules relating to environmental
quality, health, safety, contamination and clean-up, including, without
limitation, the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Clean Water
Act, 33 U.S.C. Section 1251 et seq., and the Water Quality Act of 1987; the
Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), 70 U.S.C.
Section 136 et seq.; the Marine Protection, Research, and Sanctuaries Act, 33
U.S.C. Section 1401 et seq.; the National Environmental Policy Act, 42 U.S.C.
Section 4321 et seq.; the Noise Control Act, 42 U.S.C. Section 4901 et seq,;
the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq.; the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et
seq., as amended by the Hazardous and Solid Waste Amendments of 1984; the Safe
Drinking Water Act, 42 U.S.C. Section 300f et seq.; the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 et seq., as amended by the Superfund Amendments and
Reauthorization Act, the Emergency Planning and Community Right-to-Know Act,
and Radon Gas and Indoor Air Quality Research Act; the Toxic Substances Control
Act ("TSCA"), 15 U.S.C. Section 2601 et seq.; the Atomic Energy Act, 42 U.S.C.
Section 2011 et seq., and the Nuclear Waste Policy Act of 1982, 42 U.S.C.
Section 10101 et seq.; and state super-lien and environmental clean-up
statutes, with implementing regulations and guidelines. Environmental Laws
shall also include all state, regional, county, municipal, and other local
laws, regulations, and ordinances insofar as they are equivalent or similar to
the federal laws recited above or purport to regulate Hazardous Materials.
(iii) "Hazardous Materials" shall mean and include the following,
including mixtures thereof: any hazardous substance, pollutant, contaminant,
waste, by-product or constituent regulated under CERCLA; oil and petroleum
products and natural gas, natural gas liquids, liquefied natural gas, and
synthetic gas usable for fuel; pesticides regulated under FIFRA; asbestos and
asbestos-containing materials; PCBs and other substances regulated under TSCA;
source material, special nuclear material, by-product material, and any other
radioactive materials or radioactive wastes, however produced, regulated under
the Atomic Energy Act or the Nuclear Waste Policy Act; chemicals subject to the
OSHA Hazard Communication Standard, 29 C.F.R. (S) 1910.1200 et seq.; and
industrial process and pollution control wastes whether or not hazardous within
the meaning of RCRA.
(iv) "Manage" shall mean to generate, manufacture, process, treat, store,
incorporate into the Premises, use, re-use, refine, recycle, reclaim, blend or
burn for energy recovery, incinerate, accumulate speculatively, transport,
transfer, dispose of, or abandon Hazardous Materials.
(v) "Release" or "Released" shall mean any actual or threatened spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of Hazardous Materials into the
environment, as "environment" is defined in CERCLA.
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(vi) "Response" or "Respond" shall mean action taken in compliance with
Environmental Laws to correct, remove, remediate, cleanup, prevent, mitigate,
monitor, evaluate, investigate, assess or abate the Release of a Hazardous
Material.
(b) During the term of this Lease, Tenant shall at its own cost comply
with all Environmental Laws applicable to Tenant or to the Premises, provided;
however, Tenant shall have no obligation to Respond to any violation of
Environmental Laws existing on the date hereof or the date that possession of
the Premises is delivered to Tenant for any purpose, including the performance
of Tenant's Work, nor shall Tenant have any obligation to Respond to any breach
of Environmental Laws that does not arise by reason of the acts or omissions of
Tenant or its subtenants or any other party whose use of, occupancy of or
presence in the Premises is by, through or under Tenant, and the contractors,
agents, employees, and invitees of any of the foregoing. Tenant shall not
conduct or authorize the Management of any Hazardous Materials on the Premises,
including installation of any underground storage tanks, without prior written
disclosure to and approval by Landlord, except that Tenant may keep and use on
the Premises inflammable fluids, explosives, and substances which may be
Hazardous Materials provided the same are reasonably necessary for the operation
of Tenant's business in a manner which is customary for similar businesses and
so long as Tenant does not keep such substances in such quantities or for such
duration as would violate Environmental Laws or require any permits or other
regulatory authorization to be obtained or, if such permits or other
authorization must be obtained, so long as Tenant properly obtains and furnishes
to Landlord copies thereof; Tenant shall not take any action that would subject
the Premises to permit requirements under RCRA for storage, treatment or
disposal of Hazardous Materials; Tenant shall not dispose of Hazardous Materials
in violation of Environmental Laws in dumpsters provided by Landlord for
Tenant's use; Tenant shall not discharge Hazardous Materials into drains or
sewers located on the Premises in violation of Environmental Laws or reasonable
rules and regulations established by Landlord in accordance with the express
provisions of this Lease; Tenant shall not cause or allow the Release of any
Hazardous Materials in violation of Environmental Laws on, to, or from the
Premises; and Tenant shall, to the extent required by Environmental Laws and at
its own cost, arrange for the lawful transportation and off-site disposal of all
Hazardous Materials that it generates.
During the term of this Lease, Tenant shall promptly provide Landlord with
copies of all summons, citations, directives, information inquiries or requests,
notices of potential responsibility, notices of violation or deficiency, orders
of decrees, Claims, complaints, investigations, judgments, letters, notices of
environmental liens or response actions in progress, and other communications,
written or oral, actual or threatened, from the United States Environmental
Protection Agency, Occupational Safety and Health Administration, State
Environmental Protection Agency, or other federal, state, or local agency or
authority, or any other entity or individual, concerning (a) any Release of a
Hazardous Material on, to, or from the Premises; (b) the imposition of any lien
on the Premises; or (c) any alleged violation of or responsibility under
Environmental Laws.
Landlord and Landlord's agents and employees shall have the right upon 48
hours prior notice, which may be verbal, to enter the Premises and/or conduct
appropriate inspections or tests, at Landlord's sole cost and expense, in order
to determine Tenant's compliance with Environmental Laws.
If at any time during the term of the Lease, Tenant shall be required to
undertake any Response, Tenant shall, upon written request by Landlord, provide
Landlord with the results of appropriate reports and tests, with transportation
and disposal contracts for Hazardous Materials, with any permits issued under
Environmental Laws, and with any other applicable documents to demonstrate that
Tenant complies with all Environmental Laws relating to the Premises.
If Tenant's Management of Hazardous Materials at the Premises (a) gives
rise to liability or to a Claim under any Environmental Law, (b) causes a
significant public health effect, or (c) creates a nuisance, Tenant shall
promptly take all applicable action in Response.
ARTICLE IX
REPAIRS AND ALTERATIONS
Section 9.1 Repairs to be Made by Landlord. Subject to Article XIV,
Landlord, at its expense, will make, or cause to be made (a) repairs to any
electrical, mechanical, sprinkler and other systems serving the Premises if and
to the extent such systems were installed by Landlord and serve tenant premises
in addition to the Premises; and (b) structural repairs to the exterior walls,
structural roof and structural floor which collectively enclose the Premises
(excluding, however, all doors, door frames, storefronts, windows and glass) and
the structural columns which enclose or are located in the Premises; provided
Tenant shall give Landlord notice of the necessity for such repairs; and
provided further that such repairs are not necessitated by
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any act or omission of Tenant, its agents, concessionaires, officers, employees,
licensees, invitees or contractors in which case the cost of such repairs shall
be the obligation of Tenant.
Section 9.2 Repairs to be Made by Tenant. Tenant, at its expense, will
maintain and make all repairs and replacements to the Premises and to all
systems, installations, equipment and facilities therein, other than those
repairs required to be made by Landlord pursuant to the provisions of Section
9.1 and except where such repairs are covered under warranty. Tenant, at its
expense, shall contract for periodic maintenance for the heating, ventilating
and air conditioning unit(s) and exhaust system (if applicable) serving the
Premises with a reputable service company approved by Landlord. Upon request,
Tenant shall supply Landlord with a copy of all such contracts. Tenant will
surrender the Premises in as good condition as when received, excepting
depreciation caused by ordinary wear and tear and damage by casualty (other than
such damage by casualty caused by the act or omission of Tenant, its agents,
concessionaires, officers, employees, contractors, licensees or invitees).
Section 9.3 Alterations by Tenant. Tenant will not make any alterations,
renovations, penetrations, improvements or installations of any kind in, on, or
to the Premises or any part thereof (collectively, "Alterations") unless and
until Tenant shall have submitted to Landlord plans and specifications therefor,
prepared at Tenant's expense by an architect or other duly qualified person, and
shall have obtained Landlord's written approval thereof. In the case of any
Alterations involving (i) the storefront or signs, (ii) structural elements,
(iii) mechanical, electrical or other systems serving or affecting portions of
the Shopping Center other than or in addition to the Premises, (iv) cutting or
drilling or (v) or other Alterations which are in Landlord's reasonable judgment
material and/or detrimental to the Premises, Landlord may withhold its approval
in its sole and absolute discretion. In the case of other Alterations,
Landlord's approval shall not be unreasonably withheld. If such approval is
granted, Tenant shall cause the work described in such plans and specifications
to be performed, at its expense, promptly, and in a good and workmanlike manner
by duly licensed contractors approved by Landlord, without interference with or
disruption to the operations of tenants or other occupants of the Shopping
Center, and in compliance with all Laws.
Section 9.4 Changes and Additions to Shopping Center and Development Area.
Landlord reserves the right at any time and from time to time (a) to make, and
permit others to make, changes to Landlord's Building, the Shopping Center and
the Development Area, including additions to, subtractions from, rearrangement
of, alterations of, modifications or supplements to the building areas,
walkways, parking areas, driveways or other Commons Areas; (b) to construct, and
to permit others to construct, other buildings and improvements in the Shopping
Center and the Development Area and to make alterations thereof or additions
thereto and to build additional stories on any such building or buildings and to
build any building or buildings adjoining same; and (c) to convey or lease
portions of the Shopping Center and the Development Area to others; provided
that the foregoing shall not deny access to or visibility of the Premises or
materially interfere with the conduct of Tenant's business in the Premises.
Section 9.5 Roof, Walls, Interior of Premises. Without limiting
Landlord's rights under Section 9.4, Landlord shall have the exclusive right (a)
to use all or any part of the roof and the side and rear walls of the Premises
and the areas above the finished ceiling or below the floor of the Premises for
any purpose; (b) to erect additional stories or other structures over all or any
part of the Premises; (c) to erect in connection with the construction thereof
temporary scaffolds and other aids to construction on the exterior of the
Premises; and (d) to install, maintain, use, repair and replace within the
Premises, pipes, ducts, conduits, wires and all other mechanical equipment
serving other parts of the Shopping Center; provided that the foregoing shall
not deny access to or visibility of the Premises or materially interfere with
the conduct of Tenant's business in the Premises.
ARTICLE X
COMMON AREAS
Section 10.1 Use of Common Areas. Landlord grants to Tenant and its
agents, employees and customers, a nonexclusive license to use, beginning on the
Rental Commencement Date, the Common Areas in common with others during the
Term, subject to all provisions of this Lease governing the use, maintenance and
control thereof.
Notwithstanding anything to the contrary contained herein, Tenant's
construction personnel shall be permitted to use the Common Areas from the date
Landlord notifies Tenant that Tenant is authorized to enter the Premises to
perform Tenant's Work to the Rental Commencement Date, so long as Tenant's
construction personnel do not interfere with Landlord's construction activities
in the Common Areas.
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Section 10.2 Management and Operation of Common Areas. Landlord will
operate and maintain or will cause to be operated and maintained the Common
Areas in a manner deemed by Landlord to be reasonable and appropriate, and
Landlord will have the right (a) to establish, modify and enforce reasonable
rules and regulations with respect to the Common Areas; (b) to enter into,
modify and terminate easements and other agreements pertaining to the use and
maintenance of the parking areas and other Common Areas; (c) to enforce parking
charges (by operation of meters or otherwise) with appropriate provisions for
parking ticket validation by tenants; (d) to close all or any portion of said
parking areas or other Common Areas to such extent as may, in the opinion of
Landlord, be necessary to prevent a dedication thereof or the accrual of any
rights to any person or to the public therein; (e) to close temporarily any or
all portions of the Common Areas; and (f) to do and perform such other acts in
and to said areas and improvements as Landlord shall determine to be advisable.
Section 10.3 Employee Parking Areas. Tenant and its employees shall park
their cars only in such areas as may be designated for that purpose by Landlord.
Tenant shall furnish Landlord with State automobile license numbers used by
Tenant or its employees within five (5) days after taking possession of the
Premises and shall thereafter notify Landlord by the first day of each January,
April, July and October of any changes in such information. If Tenant or its
employees shall fail to park their cars in the designated parking areas,
Landlord shall have the right to charge Tenant, as Additional Rental, the sum of
Ten Dollars ($10.00) per day per car parked in violation of this Section.
Tenant shall notify its employees in writing of the provisions of this Section.
Section 10.4 Tenant to Pay Proportionate Share of Landlord's Operating
Costs. Tenant will pay Landlord, as Additional Rental, Tenant's Proportionate
Share of Landlord's Operating Costs for each Operating Year. Such Proportionate
Share shall be paid by Tenant in monthly installments in such amounts as are
estimated and billed by Landlord for each Operating Year, each installment being
due on the first day of each calendar month. At any time during each Operating
Year, Landlord may re-estimate Tenant's Proportionate Share of Landlord's
Operating Costs and adjust Tenant's monthly installments payable thereafter
during such Operating Year to reflect more accurately Tenant's Proportionate
Share of Landlord's Operating Costs as re-estimated by Landlord. Within one
hundred twenty (120) days after the end of each Operating Year, Landlord shall
deliver to Tenant a statement of Landlord's Operating Costs for such Operating
Year and the amount of Tenant's Proportionate Share thereof. Any overpayment or
deficiency in Tenant's payment of its Proportionate Share of Landlord's
Operating Costs for such Operating Year shall be Adjusted within thirty (30)
days after Tenant's receipt of such statement. If Landlord fails to make,
within the period indicated above, the appropriate adjustment with respect to
any overpayment by Tenant, then the amount owed Tenant shall accrue interest at
the same rate as the Default Rate until properly credited to Tenant's account.
Failure of Landlord to provide the statement called for hereunder within the
time prescribed shall not relieve Tenant of its obligations hereunder.
Upon reasonable notice, Landlord shall make available for Tenant's
inspection (which inspection shall be at Tenant's sole cost and expense and
shall only be performed once per Rental Year) at the management office in the
Shopping Center, during normal business hours, Landlord's records relating to
Landlord's Operating Costs for the preceding twelve (12) month period.
Section 10.5 "Landlord's Operating Costs" Defined. The term "Landlord's
Operating Costs" includes all the costs and expenses reasonably incurred by or
on behalf of Landlord in operating and maintaining the Shopping Center
including, without limitation, all costs and expenses of the following: (a)
operating, maintaining, repairing, and replacing signs, security systems,
lighting, and similar fixtures or equipment; (b) operating, maintaining,
repairing, and managing any parking facilities and park or pedestrian resting
areas in the Development Area; (c) cleaning, painting, policing and providing
security for the Common Areas (including cost of uniforms, equipment and
employment taxes); (d) installing and renting of signs; (e) repairing,
maintaining and replacing sprinkler systems; (f) removing snow and ice from the
Common Areas, and removing trash and debris from the Common Areas to Landlord's
receptacles and compactors; (g) regulating traffic; (h) purchasing, repairing,
maintaining and replacing machinery and equipment used in the operation and
maintenance of the Common Areas, and paying all personal property taxes and
other charges incurred in connection with such equipment; (i) repairing or
replacing pavement, curbs, walkways, landscaping, fountains, pools, drainage
systems, pipes, ducts, conduits, and similar items and lighting facilities; (j)
planting, replanting and replacing trees, flowers, shrubbery and planters in the
Development Area; (k) providing music or entertainment services and loudspeaker
systems for the Shopping Center, including furnishing electricity therefor; (l)
providing water services, if any, furnished by Landlord for the nonexclusive use
of all tenants; (m) providing parcel pick-up and delivery services to the
Shopping Center; (n) maintaining reserves for repair, maintenance and
replacement of the Common Areas and its equipment; (o) costs of providing light
and power to the Common Areas; and (p) administrative costs (including salaries
and benefits)
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attributable to personnel involved in the daily accounting (including auditing
fees related to the operation of the Shopping Center), maintenance and
management of the Shopping Center and an overhead cost equal to fifteen percent
(15%) of the total costs and expenses of operating and maintaining the Common
Areas, provided such administrative and overhead costs shall not include
depreciation of improvements accounted for by Landlord for federal income tax
purposes. Landlord's Operating Costs shall not include costs for construction
of capital improvements in the nature of additions to the Shopping Center, as
distinguished from repairs to and replacements of existing improvements,
provided that, upon construction of any such capital improvements all costs in
the nature of Landlord's Operating Costs relating to such improvements shall be
deemed part of "Landlord's Operating Costs."
Whenever the terms of the Lease allow Landlord the right to charge Tenant
its Proportionate Share of Landlord's Operating Costs, all such costs shall be
incurred in a commercially reasonable manner, consistent with the operation of a
first-class factory outlet center.
ARTICLE XI
PROMOTION AND ADVERTISING
Section 11.1 Promotion Fund; Program. Landlord will maintain a bank
account, separate from all of its other bank accounts, into which Landlord shall
deposit the Promotion Fund Contribution paid by Tenant as well as similar
contributions which Landlord may receive from time to time from other tenants of
the Shopping Center. The aggregate of such funds on hand from time to time are
referred to herein as the "Promotion Fund". The Promotion Fund shall be used by
Landlord to pay reasonable costs and expenses associated with the formulation
and carrying out by Landlord or its designee of a program for the promotion and
advertising of the Shopping Center, including, without limitation, the salary of
a promotion and advertising director and related administrative personnel, rent
and insurance. Such program may include, without limitation, tabloids, direct
mail pieces, special events, shows, displays, signs, marquees, decor, seasonal
events, institutional advertising, promotional literature and other activities.
Tenant hereby authorizes Landlord to use Tenant's trade name and a brief
description of Tenant's business in connection with the promotion and
advertising program.
Notwithstanding anything to the contrary contained above, Landlord agrees
to only use Tenant's trade name and description of Tenant's business in
connection with the promotion and advertising program after receiving written
consent from Tenant.
Within one hundred twenty (120) days after the close of each Promotion
Year, after written request from Tenant, Landlord will deliver to Tenant a
statement which sets forth the expenditures made from the Promotion Fund for the
previous Promotion Year.
Section 11.2 Tenant's Contributions to Promotion Fund. Tenant shall pay
to Landlord the Promotion Fund Contribution for each Promotion Year in monthly
installments as billed by Landlord for each Promotion Year, each installment
being due on the first day of each month. The Promotion Fund Contribution
shall be adjusted annually, as of the first day of each Promotion Year, for any
change in the Consumer Price Index. The annual Promotion Fund Contribution due
from Tenant for the first Promotion Year falling within the Term shall be
prorated if the Rental Commencement Date occurs after the commencement of such
Promotion Year. At the time of execution by Tenant of this Lease, Tenant also
shall pay to Landlord the Opening Contribution. Within ten (10) days after
notice from Landlord of the scheduled opening for business of each Expansion
containing at least 75,000 square feet, Tenant also shall pay to Landlord the
applicable Expansion Contribution (provided, however, that Tenant shall not be
obligated to pay the Expansion Contribution for the opening of Phase II of the
Shopping Center if Phase II opens within the twelve (12) month period following
the Grand Opening of the Shopping Center). The Opening Contribution and any and
all Expansion Contributions shall be used by the Landlord for costs of promotion
and advertising with respect to the initial opening for business of the Shopping
Center and any Expansion thereof, respectively.
Within one hundred twenty (120) days after the close of each Promotion
Year, after written request from Tenant, Landlord will deliver to Tenant a
statement which sets forth the expenditures made from the Promotion Fund for the
previous Promotion Year.
ARTICLE XII
UTILITIES
Section 12.1 Water, Electricity, Telephone and Sanitary Sewer. Landlord
will provide at points in or near the Premises the facilities necessary to
enable Tenant to obtain for the Premises water, electricity, telephone and
sanitary sewer service, as more specifically described in the
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Work Schedules. Landlord, at its sole discretion, shall have the right, from
time to time, to alter the method and source of supply of such utilities to the
Premises, provided that the foregoing shall not diminish the availability of
such utilities in the Premises. Tenant agrees to execute and deliver to
Landlord such documentation as may be required to effect such alterations.
Tenant shall arrange with the appropriate public utility or authority, in
Tenant's name and at its expense, for the supply of utility services to the
Premises and shall pay all charges therefor. Tenant will not overload the
electrical wiring serving the Premises or within the Premises, and will install
at its expense, subject to the provisions of this Lease governing alterations by
Tenant, any additional electrical wiring which may be required in connection
with Tenant's operations.
Section 12.2 Fire Protection Sprinkler Systems. Landlord will provide,
install and maintain a fire protection sprinkler system in the Premises as more
specifically described in Schedule "B," which system shall remain the property
of Landlord. Tenant shall pay Landlord, as Additional Rental, for providing
such fire protection sprinkler system an amount determined by multiplying the
Sprinkler Contribution Rate by Tenant's Floor Area, said annual sum to be
payable in twelve (12) equal monthly installments, in advance on the first day
of each calendar month.
Section 12.3 Discontinuance and Interruptions of Utility Services.
Landlord shall not be liable to Tenant in damages or otherwise if any utility
shall become unavailable from any public utility company, public authority or
any other person or entity (including Landlord) supplying or distributing such
utility, or for any interruption in any utility service (including, without
limitation, any water, heating, ventilation, or air-conditioning) and the same
shall not constitute a termination of this Lease or an eviction of Tenant;
except if such utility becomes unavailable due to Landlord's non-payment of
bills.
Notwithstanding anything to the contrary contained in the printed Section
12.3, if Landlord shall discontinue supplying any utility service which Landlord
may elect or be required to supply to the Premises, or if such utility service
shall be stopped or interrupted for other than that which is caused by non-
payment by Tenant of the charges therefor or Tenant's other acts or omissions,
and Tenant is thereby unable to operate its business at the Premises, then the
charge or charges for any such service so discontinued, stopped or interrupted
shall be abated until such service is restored by Landlord.
Additionally, if any utility to the Premises should become unavailable for
a period in excess of five (5) consecutive days and such unavailability is
directly caused by the negligence of Landlord, all Rental shall abate until
utility service to the Premises is restored.
ARTICLE XIII
INDEMNITY AND INSURANCE
Section 13.1 Indemnities. To the extent permitted by law, Tenant shall
and does hereby indemnify Landlord and agrees to save it harmless and, at
Landlord's option, defend it from and against any and all claims, actions,
damages, liabilities and expenses (including reasonable attorneys' and other
professional fees) judgements, settlement payments, and fines paid, incurred or
suffered by Landlord in connection with loss of life, personal injury and/or
damage to property or the environment suffered by third parties arising from or
out of the occupancy or use by Tenant of the Premises or any part thereof or any
other part of the Shopping Center, occasioned wholly or in part by any act or
omission of Tenant, its officers, agents, contractors, employees or invitees, or
arising, directly or indirectly, wholly or in part, from any conduct, activity,
act, omission, or operation involving the use, handling, generation, treatment,
storage, disposal, other management or Release of any Hazardous Materials, in,
from or to the Premises, whether or not Tenant may have acted negligently with
respect to such Hazardous Materials. Tenant's obligations pursuant to this
Section shall survive any termination of this Lease with respect to any act,
omission or occurrence which took place prior to such termination.
To the extent permitted by law, Landlord shall and does hereby indemnify
Tenant and agrees to save it harmless from and against any and all claims,
actions, damages, liabilities and expenses (including reasonable attorneys' and
other professional fees) in connection with loss of life, personal injury and/or
damage to property suffered by third parties arising from or out of the use of
any portion of the Common Areas by Landlord, occasioned wholly or in part by any
act or omission of Landlord, its officers, agents, contractors or employees.
Section 13.2 Landlord Not Responsible for Acts of Others. Landlord shall
not be responsible or liable to Tenant, or to those claiming by, through or
under Tenant, for any loss or damage which may be occasioned by or through the
acts or omissions of persons occupying space adjoining the Premises or any part
of the premises adjacent to or connecting with the
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Premises or any other part of the Shopping Center, or otherwise, or for any loss
or damage resulting to Tenant, or those claiming by, through or under Tenant, or
its or their property, from the breaking, bursting, stoppage or leaking of
electrical cable and wires, or water, gas, sewer or steam pipes. To the maximum
extent permitted by law, Tenant agrees to use and occupy the Premises, and to
use such other portions of the Shopping Center as Tenant is herein given the
right to use, at Tenant's own risk.
Section 13.3 Tenant's Insurance. At all times after the Premises are made
available to Tenant for performance of Tenant's Work, Tenant will carry and
maintain, at its expense: (a) public liability insurance, including insurance
against assumed or contractual liability under this Lease, with respect to the
Premises, providing protection with limits for each occurrence of not less than
Two Million Dollars ($2,000,000); (b) all-risk casualty insurance, written at
replacement cost value and with replacement cost endorsement, covering all of
Tenant's personal property in the Premises (including, without limitation,
inventory, trade fixtures, floor coverings, furniture and other property
removable by Tenant under the provisions of this Lease) and all leasehold
improvements installed in the Premises by Landlord for Tenant's benefit, or by
Tenant, including any items originally paid for by any tenant finish allowance
given to Tenant, pursuant to the Work Schedules or otherwise; and (d) if and to
the extent required by any Laws, worker's compensation or similar insurance in
form and amounts required by such Laws. If, by reason of changed economic
conditions or changes to insurance limits applicable to the shopping center
industry generally or the Permitted Use in particular, the insurance amounts set
forth above become inadequate in Landlord's good faith judgment, Tenant shall
increase such amounts to limits as may be requested by Landlord consistent with
standard insurance practice.
Section 13.4 Tenant's Contractor's Insurance. Tenant shall require any
contractor of Tenant performing work on the Premises to carry and maintain, at
no expense to Landlord: (a) comprehensive general liability insurance, including
contractors liability coverage, contractual liability coverage, completed
operations coverage, broad form property damage endorsement and contractor's
protective liability coverage, providing protection with limits for each
occurrence of not less than Two Million Dollars ($2,000,000); and (b) worker's
compensation or similar insurance in form and amounts required by any Laws.
Section 13.5 Policy Requirements. The company or companies writing any
insurance which Tenant is required to carry and maintain or cause to be carried
and maintained, as well as the form of such insurance, shall at all times be
subject to Landlord's reasonable approval provided that such insurance shall in
no event provide coverages less than required under this Lease and all such
companies shall be licensed and admitted to do business in the State and shall
have a Rating Classification of at least A and Financial Size category of at
least Class XII in Best's Insurance Reports. Public liability and all-risk
casualty insurance policies evidencing such insurance shall name Landlord or its
designee as additional insured or loss payee as required by Landlord and shall
also contain a provision by which the insurer agrees that such policy shall not
be canceled except after thirty (30) days' written notice to Landlord or its
designee. Each such policy, or a certificate thereof, shall be deposited with
Landlord by Tenant promptly upon commencement of Tenant's obligation to procure
the same.
Section 13.6 Increase in Insurance Premiums. Tenant will not do or omit
to do or suffer to be kept, anything in, upon or about the Premises which will
violate Landlord's policies of hazard or liability insurance or which will
prevent Landlord from procuring such policies in companies acceptable to
Landlord or will cause the premium rates for any such insurance to be increased
beyond the minimum rate from time to time otherwise applicable. In the event of
any breach of this Section, in addition to any other remedies available to
Landlord, Tenant will pay, as Additional Rent, the amount of any such increase
upon Landlord's demand.
Section 13.7 Waiver of Right of Recovery. Neither Landlord nor Tenant
shall be liable to the other or to any insurance company (by way of subrogation
or otherwise) insuring the other party for any loss or damage to any building,
structure or other tangible property, or losses under worker's compensation laws
and benefits, even though such loss or damage might have been occasioned by the
negligence of such party, its agents or employees. However, if by reason of the
foregoing waiver, either party shall be unable to obtain any such insurance,
such waiver shall be deemed not to have been made by such party.
Section 13.8 Tenant to Pay Proportionate Share of Insurance Costs. In
each Rental Year, Tenant will pay Landlord, as Additional Rental, Tenant's
Proportionate Share of Landlord's cost of maintaining all insurance with respect
to the Shopping Center including, without limitation, liability insurance for
personal injury, death and property damage, casualty insurance, theft insurance,
rent insurance, worker's compensation insurance, insurance covering liability
for defamation and claims of false arrest, and plate glass. Such insurance may
be carried in such amounts and coverages and with such companies as Landlord
shall reasonably determine.
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Such Proportionate Share shall be paid by Tenant in monthly installments in
such amounts as are estimated and billed by Landlord during each twelve (12)
month period commencing and ending on dates designated by Landlord, each
installment being due on the first day of each calendar month. Within one
hundred twenty (120) days, or such reasonable time (in Landlord's determination)
after the end of each such twelve (12) month period, Landlord shall deliver to
Tenant a statement of such insurance costs for such twelve (12) month period.
Any overpayment or deficiency in Tenant's payment of its Proportionate Share of
such insurance costs shall be adjusted between Landlord and Tenant and Tenant
shall pay Landlord or Landlord shall credit Tenant's account (or, if such
adjustment is at the end of the Term, Landlord shall pay Tenant), as the case
may be, within thirty (30) days after receipt of such statement, such amounts as
may be necessary to effect such adjustment. If Landlord fails to make, within
the period indicated above, the appropriate adjustment with respect to any
overpayment by Tenant, then the amount owed Tenant shall accrue interest at the
same rate as the Default Rate until properly credited to Tenant's account. Upon
reasonable notice, Landlord shall make available for Tenant's inspection at
Landlord's office, during normal business hours, Landlord's records relating to
such insurance costs for such preceding twelve (12) month period. Failure of
Landlord to provide the statement called for hereunder within the time
prescribed shall not relieve Tenant of its obligations hereunder.
Landlord warrants that it maintains and covenants that it will at all times
maintain all risks casualty insurance covering Landlord's Building in an amount
equal to at least eighty percent (80%) of its full replacement value, or such
greater percent as is necessary to prevent the application of the co-insurance
provisions.
ARTICLE XIV
DAMAGE AND DESTRUCTION
Section 14.1 Obligations to Repair and Reconstruct. If the Premises are
damaged by fire or other casualty (any of such causes being referred to herein
as a "Casualty"), but the Premises shall not be rendered wholly or partially
untenantable, Landlord shall cause the damage to the Premises, to the extent of
Landlord's Work (excluding the matters referred to in the last sentence of this
paragraph), to be repaired as nearly as practicable to its condition prior to
the Casualty and there shall be no abatement of Rental. If, as a result of a
Casualty (or as a result of Landlord's demolition of Landlord's Building
following a Casualty for the purpose of reconstruction), the Premises shall be
rendered wholly or partially untenantable, then Landlord shall cause the damage
to the Premises to be repaired as set forth in the preceding sentence, and
Annual Basic Rental and Additional Rental (other than any Additional Rental due
Landlord by reason of Tenant's failure to perform any of its obligations
hereunder) shall be abated proportionately on a square foot basis as to the
portion of the Premises rendered untenantable during the period of such
untenantability. Anything herein to the contrary notwithstanding, Landlord
shall not be liable for interruption to Tenant's business or for damage to or
replacement or repair of Tenant's personal property (including, without
limitation, inventory, trade fixtures, floor coverings, furniture and other
property removable by Tenant under the provision of this Lease) or of any
leasehold improvements installed in the Premises by, for or on behalf of Tenant
pursuant to the Work Schedules or otherwise, unless such Casualty is occasioned
by any negligent act or omission of Landlord.
Tenant shall repair, restore, replace, or rebuild the Premises, to the
extent of Tenant's Work (and all work referred to in the last sentence of the
preceding paragraph), as nearly as practicable to its condition prior to the
Casualty. Tenant shall complete performance of its work under this Section and
have the Premises reopened for business within thirty (30) days after Landlord
notifies Tenant that the Premises are ready for Tenant to commence its work
under this Section, and any abatement of Rental shall terminate as of such date.
In the event Landlord elects to rebuild the Premises and this Lease shall
not be terminated by Landlord as herein provided, notwithstanding anything
herein to the contrary, in the event Landlord does not commence construction of
the work necessary to rebuild the Premises within six (6) months following the
occurrence of such Casualty or complete the rebuilding of the Premises within
twelve (12) months following the occurrence of such Casualty, then Tenant may
elect to terminate this Lease upon thirty (30) days prior written notice to
Landlord, which notice shall be given no earlier than the expiration of the six
(6) month or twelve (12) month period, as applicable, and no later than thirty
(30) days after expiration of such six (6) month or twelve (12) month period, as
applicable. In the event Tenant does not exercise the foregoing option to
terminate this Lease within the applicable time period, then such option shall,
upon expiration of the applicable period, become null and void and be of no
further force or effect.
Section 14.2 Landlord's Option to Terminate Lease. Notwithstanding Section
14.1, (a) if any damage to the Premises or Landlord's
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Building is not fully covered by Landlord's insurance; (b) if the Premises are
rendered wholly or partially untenantable during the last two (2) years of the
Term; or (c) if Landlord's Building is damaged to the extent of fifty percent
(50%) or more of Landlord's Floor Area, then in any of such events, Landlord may
elect to terminate this Lease by giving to Tenant notice of such election within
ninety (90) days after the occurrence of the fire or other casualty causing the
damage. If such notice is given, the rights and obligations of the parties
shall cease as of the date of such notice, and Rental (other than Additional
Rental due Landlord by reason of Tenant's failure to perform any of its
obligations hereunder) shall be adjusted as of the date of such termination.
ARTICLE XV
CONDEMNATION
Section 15.1 Effect of Taking. If the whole or any part of the Premises
shall be taken under the power of eminent domain, this Lease shall terminate,
but only as to the part so taken, on the date Tenant is required to yield
possession thereof to the condemning authority. Landlord and Tenant (to the
same extent as their repair and replacement obligations under Section 14.1)
shall make such repairs, replacements and alterations as may be necessary in
order to restore the part not taken to a useful condition and Annual Basic
Rental, Additional Rental (other than any Additional Rental due Landlord by
reason of Tenant's failure to perform any of its obligations hereunder) shall be
abated, and Tenant's breakpoint shall be reduced, in the same proportion on a
square foot basis as the portion of Tenant's Floor Area so taken bears to
Tenant's Floor Area. If the aforementioned taking renders the remainder of the
Premises untenantable for the Permitted Use, either party may terminate this
Lease as of the date when Tenant is required to yield possession by giving
notice to that effect within thirty (30) days after such date.
Section 15.2 Condemnation Awards. All compensation awarded for any taking
of the Premises or the Shopping Center or any interest in either shall belong to
and be the property of Landlord, Tenant hereby assigning to Landlord all rights
with respect thereto; provided, however, nothing contained herein shall prevent
Tenant from applying for reimbursement from the condemning authority (if
permitted by law) for moving expenses, or the expense of removal of Tenant's
trade fixtures, or loss of Tenant's business good will, but if and only if such
action shall not reduce the amount of the award or other compensation otherwise
recoverable from the condemning authority by Landlord and/or the owner of the
fee simple estate in the Shopping Center.
ARTICLE XVI
ASSIGNMENT AND SUBLETTING
Section 16.1 Landlord's Consent Required. Tenant will not assign this
Lease, in whole or in part, nor sublet all or any part of the Premises, nor
license concessions or lease departments therein, nor pledge or encumber by
mortgage or other instruments its interest in this Lease without Landlord's
prior written consent, which consent may be withheld by Landlord in its sole and
absolute discretion. This prohibition includes any subletting or assignment
which would otherwise occur by operation of law, merger, consolidation,
reorganization, transfer or other change of Tenant's corporate or proprietary
structure, or an assignment or subletting to or by a receiver or trustee in any
federal or state bankruptcy, insolvency, or other proceedings. Consent by
Landlord to any assignment or subletting shall not constitute a waiver of the
foregoing prohibition with respect to any subsequent assignment or subletting.
Tenant shall pay and reimburse to Landlord the reasonable costs and expenses
incurred by Landlord to cover Landlord's administrative cost, overhead and
counsel fee in connection with any permitted assignment or subletting and any
and all additional reasonable costs and expenses incurred hereunder.
Tenant shall have the right to sublet the Premises to a bona fide
franchisee or to any parent, subsidiary or affiliate corporation of Tenant
without Landlord's prior written approval, provided that (i) such sublessee
continues to operate the business conducted in the Premises under the same
Tenant Trade Name and in the same manner as Tenant and agrees expressly to be
bound by all other provisions of this Lease, (ii) Tenant remains liable under
all of the terms and conditions of the Lease, and (iii) Tenant provides Landlord
with a copy of the sublease agreement within thirty (30) days after execution of
such agreement.
So long as Ashworth Store I, Inc. is Tenant under this Lease, and is not in
default of any of the terms and conditions thereof, Landlord will not
unreasonably withhold consent to an assignment of this Lease for any of the then
remaining portion of the unexpired Term, to any business entity acquiring all or
substantially all of the assets of Tenant, including this Lease and Tenant's
interest in all other Ashworth Factory stores, provided: (i) the net assets of
the assignee shall not be less than the net assets of Tenant at the time of the
signing of this Lease; (ii) such assignee continues
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to operate the business conducted in the Premises under the Tenant Trade Name or
a trade name acceptable to Landlord and in the same manner as Tenant and
pursuant to all of the provisions of this Lease; (iii) such assignee shall have
recognized experience in successfully operating a similar, first-class business
in a factory outlet shopping center; (iv) such assignee shall assume in writing
all of Tenant's obligations under this Lease; and (v) Tenant or Tenant's
Guarantor continues to remain liable for the performance of all terms, including
but not limited to, payment of Rental due under this Lease.
Section 16.2 Transfer of Corporate Shares. If Tenant is a corporation or
is a partnership one or more of the general partners of which is a corporation
(other than a corporation the outstanding voting stock of which is listed on
NASDAQ or a "National Securities Exchange," as defined in the Securities
Exchange Act of 1934), and if at any time after execution of this Lease any part
or all of the corporate shares of Tenant or of any such general partner shall be
transferred by sale, assignment, bequest, inheritance, operation of law or other
disposition (including, but not limited to, such a transfer to or by a receiver
or trustee in federal or state bankruptcy, insolvency, or other proceedings) so
as to result in a change in the present control of any said corporation by the
person or persons owning a majority of said corporate shares as of the date
hereof, such transfer shall constitute an assignment for purposes of Section
16.1.
Notwithstanding anything to the contrary contained in this Section 16.2,
Landlord's consent to transfer of stock shall not be required in connection with
any transfer of stock if the stock of Tenant (or Tenant's parent corporation) is
listed on NASDAQ or a "National Securities Exchange".
Section 16.3 Acceptance of Rent from Transferee. The acceptance by
Landlord of the payment of Rental following any assignment or other transfer
prohibited by this Article XVI shall not be deemed to be a waiver of any right
or remedy of Landlord hereunder.
ARTICLE XVII
DEFAULT
Section 17.1 "Event of Default" Defined. Any one or more of the following
events shall constitute an "Event of Default": (a) the sale of Tenant's
interest in the Premises under attachment, execution or similar legal process,
or, if Tenant is adjudicated bankrupt or insolvent, and such adjudication is not
vacated within thirty (30) days; (b) the admission in writing by any guarantor
of Tenant's obligations under this Lease ("Tenant's Guarantor"), if any, of its
inability to pay its debts when due; (c) the appointment of a receiver or
trustee for the business or property of Tenant or Tenant's Guarantor, if any,
unless such appointment shall be vacated within thirty (30) days after its
entry; (d) the making by Tenant or Tenant's Guarantor, if any, of an assignment
for the benefit of its creditors, or if in any other manner Tenant's interest in
this Lease shall pass to another by operation of law; (e) the failure of Tenant
to pay any Rental or other sum of money within seven (7) days after written
notice from Landlord that the same is due hereunder (provided that any invoice,
bill or other statement of account rendered to Tenant in the ordinary course of
Landlord's billing or otherwise shall be adequate written notice for purposes of
this provision); (f) the ceasing by Tenant, in whole or in part at any time
after the Rental Commencement Date, to use the Premises or any part thereof for
operating the business of Tenant therein as provided in this Lease (herein
referred to as "abandonment") and the failure by Tenant to have recommenced
operation of its business at the Premises, fully stocked with merchandise and
fully staffed and otherwise in compliance with Article IV within ten (10) days
after notice from Landlord, provided that if any abandonment occurs on more than
one (1) occasion during the Term, then an Event of Default shall be deemed to
have occurred immediately upon such abandonment; (g) the failure by Tenant to
cure any default in the performance or observance of its covenants under
Sections 13.3, 13.4 or 13.5 (relating to Indemnity and Insurance) or under
Section 14.1 (relating to Damage and Destruction) or under Sections 16.1 or 16.2
(relating to Assignments and Subletting) or under Section 21.7 (relating to
Compliance with Laws and Regulations to the extent such default could result in
any fine, penalty, citation or other liability being imposed on Landlord),
within fifteen (15) days after notice thereof from Landlord, or, in the case of
any default under Section 21.7 referred to above, within such shorter time as
may be necessary to avoid any fine, penalty, citation or other liability being
imposed on Landlord; (h) failure by Tenant to cure any default in the
performance or observance of any other covenants on its part under this Lease
within thirty (30) days after notice thereof from Landlord, unless such default
is of such nature that it cannot be cured within such thirty (30) day period, in
which case no Event of Default shall occur so long as Tenant shall commence the
curing of the default within such thirty (30) day period, shall thereafter
diligently prosecute the curing of same, and shall cure such default within
sixty (60) days after the giving of notice thereof by Landlord; or (i) the
occurrence of any event described as an "Event of Default" elsewhere in this
Lease in which case there shall be no requirement of notice or opportunity to
cure except such, if any, as may be expressly provided with respect to such
Event of Default.
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Section 17.2 Remedies. Following the occurrence of an Event of
Default, Landlord, without notice to Tenant in any instance (except where
expressly provided for below) may do any one or more of the following. Landlord
may: (a) perform, on behalf and at the expense of Tenant, any obligation of
Tenant under this Lease which Tenant has failed to perform, the reasonable cost
of which performance by Landlord together with interest thereon at the Default
Rate from the date of such expenditure shall be deemed Additional Rental and
shall be payable by Tenant to Landlord upon demand; (b) terminate this Lease and
the tenancy created hereby by giving notice of such election to Tenant, and
reenter the Premises by summary proceedings, or otherwise, and remove Tenant and
all other persons and property from the Premises, and store such property in a
public warehouse or elsewhere at the cost of and for the account of Tenant
without Landlord being liable of trespass or for any loss or damage occasioned
thereby; and (c) exercise any other legal or equitable right or remedy it may
have.
Notwithstanding anything in this Lease to the contrary and regardless
whether an Event of Default shall have occurred, (i) Landlord may exercise the
remedy described in Section 17.2(a) without any notice to Tenant if Landlord, in
its good faith judgment, believes it, the Shopping Center or any other tenant or
occupant thereof would be materially injured by failure to take rapid action or
if the unperformed obligation of Tenant constitutes an emergency; and (ii) if
substantially the same default by Tenant occurs on more than one (1) occasion
during the Term, upon each such reoccurrence Tenant shall have only one-half
(1/2) of the number of days which otherwise would be allowed to cure such
default and Landlord also may charge Tenant a reasonable default processing fee,
not to exceed Five Hundred Dollars ($500) per default. All costs and expenses
incurred by Landlord, including, without limitation, reasonable attorneys' fees,
in enforcing any of its rights and remedies under this Lease shall be deemed to
be Additional Rental and shall be repaid to Landlord by Tenant upon demand.
Section 17.3 Damages. If this Lease or Tenant's possessory interest
pursuant thereto is terminated by Landlord pursuant to Section 17.2, Tenant
nevertheless shall remain liable for (a) all Rental due and all damages which
Landlord reasonably sustained to the date of such termination, and all
reasonable costs, fees and expenses, including reasonable attorneys' fees,
incurred by Landlord in pursuit of its remedies hereunder and/or in connection
with any bankruptcy proceedings of Tenant or Tenant's Guarantor, if any, and/or
in connection with renting the Premises to others from time to time
(collectively, "Termination Damages") plus (b) additional damages ("Liquidated
Damages") which shall be calculated in accordance with the next paragraph. In
calculating Liquidated Damages, for each Rental Year following termination
(including the Rental Year in which such termination occurs) (A) Annual
Percentage Rental and Additional Rental payable shall be conclusively presumed
to be equal to the average Annual Percentage Rental and annual Additional Rental
payable with respect to each Rental Year, or portion thereof (on an annualized
basis), preceding termination; and (B) Annual Basic Rental payable shall be at
the rate stated in this Lease. Such Termination Damages shall be payable to
Landlord in one lump sum on demand, together with interest at the Default Rate
until paid.
Liquidated Damages shall be (i) an amount equal to the Rental which,
but for termination of this Lease, would have become due during the remainder of
the Term, less the amount of Rental, if any, which Landlord shall receive during
such period from others to whom the Premises may be rented (other than any
Additional Rental received by Landlord as a result of any failure of such other
person to perform any of its obligations to Landlord), in which case such
Liquidated Damages shall be computed and payable in monthly installments, in
advance, on the first day of each calendar month following termination of the
Lease and continuing until the date on which the Term would have expired but for
such termination, and any suit or action brought to collect any such Liquidated
Damages for any month shall not in any manner prejudice the right of Landlord to
collect any Liquidated Damages for any subsequent month by a similar proceeding;
or (ii) upon any reletting of the Premises, an amount equal to the present worth
(as of the date of such termination) of Rental which, but for termination of
this Lease, would have become due during the remainder of the Term, less the
fair rental value of the Premises, as determine by an independent real estate
appraiser named by Landlord, in which case such Liquidated Damages shall be
payable to Landlord in one lump sum on demand and shall bear interest at the
Default Rate until paid. For purposes of this clause (ii), "present worth"
shall be computed by discounting such amount to present worth at a discount rate
equal to one percentage point above the discount rate then in effect at the
Federal Reserve Bank nearest to the location of the Shopping Center.
If this Lease is terminated pursuant to Section 17.2, Landlord may
relet the Premises or any part thereof, alone or together with other premises,
for such period or periods (which may be greater or less than the period which
otherwise would have constituted the balance of the Term) and on such terms and
conditions (which may include concessions for free rent and alterations of the
Premises) as Landlord, in its discretion, may determine, but Landlord shall have
no duty to relet the Premises and shall not be liable for, nor shall Tenant's
obligations hereunder be diminished by reason of, any failure
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by Landlord to relet the Premises or any failure by Landlord to collect any rent
due upon such reletting.
Notwithstanding the foregoing, Landlord agrees to use its reasonable
efforts to relet the Premises so as to mitigate damages, however, in so
mitigating damages, Landlord shall not be required to relet the Premises in
prejudice to other vacant spaces.
ARTICLE XVIII
SUBORDINATION AND ATTORNMENT
Section 18.1 Subordination. Unless a Mortgagee shall otherwise
elect, as provided in Section 18.2, Tenant's rights under this Lease are and
shall remain subject and subordinate to the operation and effect of each
Mortgage. Tenant's acknowledgment and agreement of subordination provided for
in this Section is self-operative and no further instrument of subordination
shall be required; however, Tenant shall execute such further assurances thereof
as shall be requisite or as may be requested from time to time by Landlord or a
Mortgagee. Notwithstanding such subordination, Tenant acknowledges that
Mortgagee may, upon foreclosure, sell the property encumbered by the Mortgage
subject to the Lease.
Simultaneously with execution of this Lease, Tenant shall execute and
deliver to Landlord the Agreement of Subordination, Non-Disturbance and
Attornment attached to this Lease as Schedule E.
Section 18.2 Mortgagee's Unilateral Subordination. If a Mortgagee
shall so elect by notice to Tenant or by the recording of a unilateral
declaration of subordination, this Lease and Tenant's rights hereunder shall be
superior and prior in right to the Mortgage of which such Mortgagee has the
benefit, with the same force and effect as if this Lease had been executed,
delivered and recorded prior to the execution, delivery and recording of such
Mortgage, subject, nevertheless, to such conditions as may be set forth and any
such notice of declaration.
Section 18.3 Attornment. If any person shall succeed to all or part
of Landlord's interest in the Premises, whether by purchase, foreclosure, deed
in lieu of foreclosure, power of sale, termination of lease, or otherwise, and
if so requested or required by such successor in interest, Tenant shall attorn
to such successor, and execute such evidence confirming same, as such successor
in interest shall reasonably request.
ARTICLE XIX
NOTICES
Section 19.1 Sending of Notices. Any notice, request, demand,
approval or consent permitted or required to be given under this Lease shall be
in writing and shall be delivered in person with signed receipt or sent by
Federal Express or by United States registered or certified mail, return receipt
requested, with all postage or delivery charges prepaid, addressed, if intended
for Landlord (including payment of Rental and reports required of Tenant under
this Lease), at the Landlord Notice Address, with a copy to Landlord's
management office at the Shopping Center, or if intended for Tenant, to Tenant
at the Tenant Notice Address. Either party may, at any time, change its address
for the above purposes by sending a notice to the other party stating the change
and setting forth the new address. Items forwarded pursuant to this Section
shall be deemed conclusively to have been received by the addressee, if
delivered in person as of the date of the delivery receipt, if forwarded by
Federal Express as of the business day next following the date shown on the
sender's receipt from Federal Express, and if by United States registered or
certified mail as of the business day next following the date deposited in the
United States mail.
Landlord and Tenant may send notices via telecopier transmittal, but
such item shall not be deemed conclusively to have been received by the
addressee until a hard copy of same is: (a) if delivered in person, as of the
date of the delivery receipt, (b) if forwarded by Federal Express, as of the
business day next following the date shown on the sender's receipt from Federal
Express, and (c) if by United States registered or certified mail, as of the
business day next following the date deposited in the United States mail.
Section 19.2 Notice to Mortgagees. If any Mortgagee shall notify
Tenant that it is the holder of a Mortgage affecting the Premises, no notice,
request or demand thereafter sent by Tenant to Landlord shall be effective
unless and until a copy of the same shall also be sent to such Mortgagee in the
manner prescribed in the above Section and to such address as such Mortgagee
shall designate.
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ARTICLE XX
BANKRUPTCY OR INSOLVENCY
Section 20.1 Tenant's Interest Not Transferable. Neither Tenant's
interest in this Lease, nor any estate hereby created in Tenant nor any interest
herein or therein, shall pass to any trustee, except as may specifically be
provided pursuant to 11 U.S.C. 101 et seq. (the "Bankruptcy Code"), or to any
receiver or assignee for the benefit of creditors or otherwise by operation of
law except as may specifically be provided pursuant to the Bankruptcy Code.
Section 20.2 Termination. In the event the interest or estate
created in Tenant hereby shall be taken in execution or by other process of law,
or if Tenant's Guarantor, if any, or his executors, administrators, or assigns,
if any, shall be adjudicated insolvent or bankrupt pursuant to the provisions of
any state law, or if a receiver or trustee of the property of Tenant or Tenant's
Guarantor, if any, shall be appointed by reason of the insolvency or inability
of Tenant or Tenant's Guarantor, if any, to pay its debts, or if any assignment
shall be made of the property of Tenant or Tenant's Guarantor, if any, for the
benefit of creditors, then, and in any such events, this Lease and all rights of
Tenant shall automatically cease and terminate with the same force and effect as
though the date of such event were the date originally set forth herein and
fixed for the expiration of the Term, and Tenant shall vacate and surrender the
Premises but shall remain liable as herein provided.
Section 20.3 Tenant's Obligation to Avoid Creditors' Proceedings.
Tenant or Tenant's Guarantor, if any, shall not cause or give cause for the
appointment of a trustee or receiver of the assets of Tenant or Tenant's
Guarantor, if any, and shall not make any assignment for the benefit of
creditors, or become or be adjudicated insolvent. The allowance of any petition
under any insolvency law, except under the Bankruptcy Code, or the appointment
of a trustee or receiver of Tenant or Tenant's Guarantor, if any, or of the
assets of either of them, shall be conclusive evidence that Tenant caused, or
gave cause, therefor, unless such allowance of the petition, or the appointment
of a trustee or receiver, is vacated within thirty (30) days after such
allowance or appointment. Any act described in this Section 20.3 shall be
deemed a material breach of Tenant's obligations hereunder, and this Lease shall
thereupon automatically terminate. Landlord does, in addition, reserve any and
all other remedies provided in this Lease and under all laws.
Section 20.4 Rights and Obligations Under the Bankruptcy Code. (a)
Upon the filing of a petition by or against Tenant under the Bankruptcy Code,
Tenant, as debtor and as debtor in possession, and any trustee who may be
appointed, agrees as follows: (i) to perform each and every obligation of
Tenant under this Lease, including, but not limited to, the manner of use and
operation as provided in Article IV and Article VIII until such time as this
Lease is either rejected or assumed by order of the United States Bankruptcy
Court; (ii) to pay monthly in advance on the first day of each month, as
reasonable compensation for use and occupancy of the Premises, an amount equal
to the monthly installment of Annual Basic Rental and other charges otherwise
due pursuant to this Lease and to pay Annual Percentage Rental monthly at the
percentage set forth in this Lease for the Rental Year in which such month falls
on all sales during such month in excess of one-twelfth (1/12th) of the
breakpoint for such Rental Year, with payment of all such percentage rent to be
made by the tenth (10th) day of the succeeding month; (iii) to reject or assume
this Lease within sixty (60) days of the appointment of such trustee under
Chapter 7 of the Bankruptcy Code or within one hundred twenty (120) days (or
such shorter term as Landlord, in its sole discretion, may deem reasonable, so
long as notice of such period is given) of the filing of a petition under any
other Chapter of the Bankruptcy Code; (iv) to give Landlord at least forty-five
(45) days' prior written notice of any proceeding related to any assumption of
this Lease; (v) to give at least thirty (30) days' prior written notice of any
abandonment of the Premises, with any such abandonment to be deemed a rejection
of this Lease and an abandonment of any property not previously moved from the
Premises; (vi) to do all other things of benefit to Landlord otherwise required
under the Bankruptcy Code; (vii) to be deemed to have rejected this Lease in the
event of the failure to comply with any of the above; and (viii) to have
consented to the entry of an order by an appropriate United States Bankruptcy
Court providing all of the above, waiving notice and hearing of the entry of
same.
(b) No default of this Lease by Tenant, either prior to or subsequent
to the filing of such a petition, shall be deemed to have been waived unless
expressly done so in writing by Landlord. It is understood and agreed that this
is a lease of real property in a shopping center and that, therefore, Section
365(b)(3) of the Bankruptcy Code is applicable to any proposed assumption of
this Lease in a bankruptcy case. Included within and in addition to any other
conditions or obligations imposed upon Tenant or its successor in the event of
assumption and/or assignments are the following: (i) the cure of any monetary
defaults and the reimbursement of any pecuniary loss immediately upon entry of a
court order providing for assumption and/or assignment; (ii) the deposit of a
sum equal to three (3) months rent to be
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held by Landlord as a security deposit; (iii) the use of the Premises as set
forth in Article IV and the quality, quantity and/or lines of merchandise of any
goods or services required to be offered for sale are unchanged; (iv) the
debtor, debtor in possession, trustee, or assignee of such entity demonstrates
in writing that it has sufficient background including, but not limited to,
substantial retailing experience in shopping centers of comparable size and
financial ability to operate a retail establishment of the Premises in the
manner contemplated in this Lease, and meets all other reasonable criteria of
Landlord as did Tenant upon execution of this Lease; (v) the prior written
consent of any Mortgagee to which this Lease has been assigned as collateral
security; and (vi) the Premises, at all times, remains a single store and no
physical changes of any kind may be made to the Premises unless in compliance
with the applicable provisions of this Lease. Any person or entity to which
this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall
be deemed without further act or deed to have assumed all of the obligations
arising under this Lease on and after the date of such assignment. Any such
assignee shall, upon demand, execute and deliver to Landlord an instrument
confirming such assumption.
ARTICLE XXI
MISCELLANEOUS
Section 21.1 Parties' Option to Terminate Lease. Notwithstanding any
provisions herein to the contrary, if for any reason whatsoever the Premises
shall not be Ready for Occupancy on or before the date nine (9) months after the
date of this Lease, Landlord or Tenant may elect to terminate this Lease by
giving notice of such election to the other party at any time thereafter but
prior to the date the Premises become Ready for Occupancy. If such notice is
given, this Lease and the rights and obligations of the parties hereunder shall
thereupon cease and terminate without need for the execution of any further or
other instrument, but, if Landlord shall request, Tenant shall execute an
instrument, in recordable form, whereby Tenant releases and surrenders all
right, title and interest which it may have in and to the Premises under this
Lease or otherwise.
Section 21.2 Estoppel Certificates. At any time and from time to
time, within ten (10) days after Landlord shall request the same, Tenant will
execute, acknowledge and deliver to Landlord and to such Mortgagee or other
party as may be designated by Landlord, a certificate in the form attached
hereto as Schedule "D," with respect to the matters set forth on Schedule "D,"
and such other matters relating to this Lease or the status of performance of
obligations of the parties hereunder as may be reasonably requested by Landlord.
In the event that Tenant fails to provide such certificate within ten (10) days
after request by Landlord therefor, Tenant shall be deemed to have approved the
contents of any such certificate submitted to Tenant by Landlord and Landlord is
hereby authorized to so certify.
Section 21.3 Inspections by Landlord. Landlord, its agents,
employees and contractors shall have the right to enter all parts of the
Premises after forty-eight (48) hours prior notice (unless Landlord determines
in good faith that an emergency exists, in which case no prior notice shall be
required), to inspect the same and to enforce or carry out any provision of this
Lease.
Section 21.4 Memorandum of Lease. The parties hereby agree that,
upon the request of either party, each will execute, acknowledge and deliver in
short form a memorandum of this Lease in recordable form. Recording, filing and
like charges and any stamps, charges for recording, transfer or other tax shall
be paid by the party requesting such recordation. In the event of termination
of this Lease, within thirty (30) days after written request from Landlord,
Tenant agrees to execute, acknowledge and deliver to Landlord an agreement
removing such short form of lease from record.
Section 21.5 Remedies Cumulative. No reference to any specific right
or remedy shall preclude Landlord from exercising any other right or from having
any other remedy or from maintaining any action to which it may otherwise be
entitled at law or in equity. No failure by Landlord to insist upon the strict
performance of any agreement, term, covenant or condition hereof, or to exercise
any right or remedy consequent upon a breach thereof, and no acceptance of full
or partial rent during the continuance of any such breach shall constitute a
waiver of such breach. No waiver by Landlord of any breach by Tenant under this
Lease or of any breach by any other tenant under any other lease of any portion
of the Shopping Center shall affect or alter this Lease. Except to the extent
this Lease expressly provides otherwise as to a specified matter, any consent or
approval of Landlord with respect to any matter in connection with this Lease
may be granted or withheld by Landlord in its sole and absolute discretion.
No reference to any specific right or remedy shall preclude Tenant
from exercising any other right or from having any other remedy or from
maintaining any action to which it may otherwise be entitled at law or in
equity. No failure by Tenant to insist upon the strict performance of any
agreement, term, covenant or condition hereof, or to exercise any right or
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remedy consequent upon a breach thereof, shall constitute a waiver of any such
breach, agreement, term, covenant or condition. No waiver by Tenant of any
breach by Landlord under this Lease shall affect this Lease in any way
whatsoever.
Section 21.6 Successors and Assigns. This Lease and the covenants
and conditions herein contained shall inure to the benefit of and be binding
upon Landlord, Tenant and their respective successors and assigns; provided,
however, no rights shall inure to the benefit of any assignee or successor of
Tenant to the extent such assignee or successor acquired any purported interest
herein in violation of Article XVI. Upon any sale or other transfer by Landlord
of its interest in the Premises, and assumption of possession of the Premises by
the transferee, such transferee shall be solely responsible for all obligations
of Landlord under this Lease accruing thereafter.
Section 21.7 Compliance with Laws and Regulations. Except to the
extent compliance action is necessitated by Landlord's violation of any Laws or
of any rules, orders or regulations referred to in clause (b) hereof (in which
event Tenant shall cooperate with Landlord, at Landlord's expense, in correcting
such violation), Tenant, at its sole cost and expense, shall comply with and
shall cause the Premises to comply with (a) all Laws affecting the Premises or
any part thereof, or the use thereof, including, but not limited to, those which
require the making of any unforeseen or extraordinary changes, whether or not
any such Laws which may be hereafter enacted involve a change of policy on the
part of the governmental body enacting the same, and (b) all rules, orders and
regulations of the National Board of Fire Underwriters or Landlord's fire
insurance rating organization or other bodies exercising similar functions in
connection with the prevention of fire or the correction of hazardous conditions
which apply to the Premises.
Section 21.8 Captions and Headings. The table of contents and the
article and section captions and headings are for convenience of reference only
and in no way shall be used to construe or modify the provisions set forth in
this Lease.
Section 21.9 Joint and Several Liability. If two (2) or more
individuals, corporations, partnerships or other business association (or any
combination of two (2) or more thereof) shall sign this Lease as Tenant, the
liability of each such individual, corporation, partnership or other business
association to pay rental and perform all other obligations hereunder shall be
deemed to be joint and several, and all notices, payments and agreement given or
made by, with or to any one of such individuals, corporations, partnerships or
other business associations shall be deemed to have been given or made by, with
or to all of them. In like manner, if Tenant shall be a partnership or other
business association, the members of which are by law subject to personal
liability, the liability of each such member shall be joint and several.
Section 21.10 Broker's Commission. Each of the parties represents
and warrants that it has not engaged any broker, agent or finder which is
entitled to any brokerage commissions, finders' fees or other compensation in
connection with the execution of this Lease, and agrees to indemnify the other
against, and hold it harmless from, all liability, including, without
limitation, attorneys' fees, arising from any such claim by any person alleged
to have been engaged by the indemnifying party.
Section 21.11 No Discrimination. Tenant will not discriminate in the
conduct and operation of its business in the Premises against any person or
group of persons because of the race, creed, color, sex, age, national origin or
ancestry of such person or group of persons.
Section 21.12 No Joint Venture. Any intention to create a joint
venture or partnership relation between the parties hereto is hereby expressly
disclaimed. The provision of this Lease in regard to the payment by Tenant and
the acceptance by Landlord of Annual Percentage Rental is a reservation for rent
for the use of the Premises and not a participation by Landlord in the income or
profits of Tenant as such.
Section 21.13 No Option. The submission of this Lease to Tenant for
examination does not constitute a reservation of or option for the Premises, and
this Lease shall become effective only upon execution and delivery thereof by
both parties.
Section 21.14 No Modification. This writing is intended by the
parties as a final expression of their agreement and as a complete and exclusive
statement of the terms thereof, all negotiations, considerations and
representations between the parties having been incorporated herein. No course
of prior dealings between the parties or their officers, employees, agents or
affiliates shall be relevant or admissible to supplement, explain or vary any of
the terms of this Lease. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement between the parties or
their affiliates shall not be relevant or admissible to determine the meaning of
any of the terms of this Lease. No representations,
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understandings, or agreements have been made or relied upon in the making of
this Lease other than those specifically set forth herein. This Lease can be
modified only by a writing signed by both Landlord and Tenant.
Section 21.15 Severability. If any term or provision, or any portion
thereof, of this Lease, or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, 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 held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Lease shall
be valid and be enforced to the fullest extent permitted by law.
Section 21.16 Third Party Beneficiary. Nothing contained in this
Lease shall be construed so as to confer upon any other party the rights of a
third party beneficiary except rights contained herein for the benefit of a
Mortgagee.
Section 21.17 Corporate, Partnership Tenants. In the event Tenant is
a corporation or a partnership, Tenant and the persons executing this Lease on
behalf of Tenant, hereby covenant and warrant that: Tenant is a duly
constituted corporation or partnership which will be qualified to do business in
the State as of the Effective Date; Tenant has taken all necessary corporate or
partnership action to approve its execution of this Lease; and such persons are
duly authorized by the board of directors or managing partner of such entity to
execute and deliver this Lease on behalf of such entity.
Section 21.18 Applicable Law. This Lease and the rights and
obligations of the parties hereunder shall be construed in accordance with the
laws of the State, without regard to principles of conflict of laws.
Section 21.19 Performance of Landlord's Obligations by Mortgagee.
Tenant shall accept performance of any of Landlord's obligations hereunder by
any Mortgagee.
Section 21.20 Waiver of Counterclaims and Trial by Jury. Landlord and
Tenant hereby mutually waive any and all rights which either may have to a trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
Lease. Tenant shall not impose any counterclaim or counterclaims in summary
proceeding or other action based on termination or holdover, except to the
extent that Tenant's failure to make such claim in such proceeding would, as a
matter of law, preclude Tenant from raising such claim in any other proceeding
or forum.
Notwithstanding anything to the contrary contained herein, Tenant
shall be obligated to waive its right to a jury trial only in the instance where
Tenant has failed to pay any Rental due under this Lease.
Section 21.21 Exculpation. If Tenant shall recover any judgment
against Landlord in connection with this Lease, such judgment shall be satisfied
out of the Landlord's interest in the Shopping Center, including Landlord's
rental income from the Shopping Center, including Landlord's rental income from
the Shopping Center, the proceeds of sale received upon the execution of such
judgment and levy thereon against the right, title and interest of Landlord in
the Shopping Center and any insurance or condemnation proceeds received by
Landlord because of damage to, or condemnation of, the Shopping Center and
available for use by Landlord. Neither Landlord nor any of the partners
comprising Landlord shall be personally liable for any deficiency. The
covenants of this Lease shall run with the land and all personal liability of
Landlord shall cease in the event of sale or transfer of its interest.
If Tenant claims or asserts that Landlord has violated or failed to
perform a covenant of Landlord not to unreasonably withhold or delay Landlord's
consent or approval, Tenant 's sole remedy shall be an action for specific
performance, declaratory judgment or injunction and in no event shall Tenant be
entitled to any money damages for a breach of such covenant and in no event
shall Tenant claim or assert any claim for any money damages in any action or by
way of set off, defense or counterclaim and Tenant hereby specifically waives
the right to any money damages or other remedies.
Section 21.22 Security Interest. Intentionally Omitted.
Section 21.23 Survival. To the extent any covenants or obligations
of either party hereunder, either by the express terms of this Lease or by
reasonable implication, are intended to survive termination of this Lease, the
same shall survive such termination.
Section 21.24 Additional Rent. Any amounts to be paid by Tenant to
Landlord pursuant to the provisions of this Lease, whether such payments are to
be periodic and recurring or not, shall be deemed to be "additional
27
<PAGE>
rent" and otherwise subject to all provision of this Lease and of law as to the
default of the payment of rent.
Section 21.25 Financial Statement. Upon execution of this Lease by
Tenant and thereafter within ten (10) days after written request from Landlord,
Tenant shall deliver to Landlord a copy of the audited financial statement or
annual report of Tenant for the most recently completed fiscal period.
IN WITNESS WHEREOF, the parties hereto intended to be legally bound
hereby have executed this Lease under seal as of the Effective Date.
THIS LEASE MUST BE EXECUTED FOR TENANT, (A) IF A CORPORATION, BY THE
PRESIDENT OR VICE-PRESIDENT AND BE ATTESTED BY THE SECRETARY OR ASSISTANT
SECRETARY, UNLESS THE BYLAWS OR A RESOLUTION OF THE BOARD OF DIRECTORS SHALL
PROVIDE THAT OTHER OFFICERS ARE AUTHORIZED TO EXECUTE THIS LEASE, IN WHICH EVENT
A CERTIFIED COPY OF THE BYLAWS OR RESOLUTION, AS THE CASE MAY BE, MUST BE
FURNISHED; (B) IF A PARTNERSHIP WITH A CORPORATION AS ITS MANAGING GENERAL
PARTNER, BY THE OFFICERS OF SUCH CORPORATION IN THE MANNER STATED UNDER CLAUSE
(A); OR (C) IF A PARTNERSHIP WITH AN INDIVIDUAL AS ITS MANAGING GENERAL PARTNER,
BY SUCH INDIVIDUAL AND WITNESSED BY ANOTHER PARTNER THEREOF. THE CORPORATE SEAL
OF ANY CORPORATE TENANT OR OF ANY TENANT CORPORATE SIGNATORY MUST BE AFFIXED.
THE INDIVIDUALS SIGNING THIS LEASE ON BEHALF OF TENANT THEREBY PERSONALLY MAKE
THE COVENANTS AND WARRANTIES CONTAINED IN SECTION 21.17.
ATTEST: TENANT:
ASHWORTH STORE I, INC.
/s/ MONICA M. MCKENZIE By:/s/ RICHARD H. WERSCHKUL
- --------------------------------- ___________________________(SEAL)
Monica M. McKenzie, Secretary Richard H. Werschkul
Title: President
-------------------------
Date: 5/2/95
-------------------------
(CORPORATE SEAL)
TENANT ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
) S.S.
COUNTY OF SAN DIEGO )
Before me, a Notary Public of the State aforesaid, personally appeared
Richard H. Werschkul, known to me (or proved to me) to be the person whose name
is subscribed to the foregoing instrument, and known to me to be the President
of ASHWORTH STORE I, INC., a Delaware corporation, and acknowledged to me that
he executed said instrument for the purposes and consideration therein
expressed, and as the act of said ASHWORTH STORE I, INC. Given under my hand and
official seal this 2nd day of May, 1995.
/s/NANCY C. MINKUS
____________________
Notary Public
My Commission Expires:
12-6-96
- ----------------------
(NOTARY PUBLIC SEAL)
28
<PAGE>
ATTEST: LANDLORD:
ARIZONA FACTORY SHOPS PARTNERSHIP, an
Arizona general partnership
By: Arizona Factory Shops Limited
Partnership, a Delaware limited
partnership
By: Prime Retail, L.P., its
general partner
By: Prime Retail, Inc., its
general partner
/s/J. ???????? By: /s/WILLIAM H. CARPENTER, JR.
_________________________ ------------------------------------
Assistant Secretary Name: William H. Carpenter, Jr.
Title: President
Date: May 11, 1995
LANDLORD ACKNOWLEDGEMENT
STATE OF MARYLAND )
) S.S.
COUNTY OF BALTIMORE)
Before me, a Notary Public of the State aforesaid, personally appeared
William H. Carpenter, Jr., known to me to be the person whose name is subscribed
to the foregoing instrument, and known to me to be the President of Prime
Retail, Inc., a Maryland corporation, which is the General Partner of Prime
Retail, L.P., a Delaware limited partnership, which is the General Partner of
Arizona Factory Shops Limited Partnership, which is the General Partner of
Arizona Factory Shops Partnership, an Arizona general partnership and
acknowledged to me that he, as the authorized officer of said corporation, and
in such capacity, executed said instrument for the purposes and consideration
therein expressed, and as the act of said corporation. Given under my hand and
official seal this 15th day of May, 1995.
/s/Angela N. Citho
------------------------------------
Notary Public
My Commission Expires:
2/8/99
- ------------------------------
29
<PAGE>
RIDER TO LEASE AGREEMENT
THIS RIDER TO LEASE AGREEMENT (this "Rider") is made as of the
Effective Date by and between ARIZONA FACTORY SHOPS PARTNERSHIP, an Arizona
general partnership ("Landlord"), and ASHWORTH STORE I, INC., a Delaware
corporation ("Tenant"). This Rider is a part of that certain Lease Agreement
(the "Lease") to which it is attached and which Lease is dated of even date
herewith.
1. Tenant Allowance. Landlord agrees to pay Tenant an allowance not to exceed
Five Dollars ($5.00) multiplied by Tenant's Floor Area toward the documented
cost of Tenant's leasehold improvements in the Premises (the "Allowance").
Provided Tenant has complied with all terms and conditions of the Lease,
payment of the Allowance shall be made within sixty (60) calendar days after
the last to occur of:
(a) Completion of the improvements required to be made by Tenant to obtain
an unconditional, permanent Certificate of Occupancy;
(b) The Rental Commencement Date;
(c) The date Tenant opens its store in the Premises;
(d) The execution by Tenant and delivery to Landlord of this Lease and (if
required) the certificate described in Section 21.2 of the Lease;
(e) The delivery to Landlord of copies of receipted bills for such work;
and
(f) The execution by Tenant and each of its contractors, suppliers and
materialmen and the delivery to Landlord of a valid and enforceable
waiver of lien in form and substance satisfactory to Landlord for all
work, labor, services or material performed or furnished by, through or
under such contractor, supplier or materialman for Tenant in respect of
the Premises including such waiving party's sworn affidavit that all
contractors, suppliers or materialmen of such waiving party have been
paid in full.
Landlord shall have the right to deduct from the Allowance at time of
payment any outstanding sums due and payable to Landlord which Tenant has
failed to pay within the time required for payment under the Lease.
2. Option to Renew. Provided that Tenant is not in default in the payment of
Rental or in the performance of any other obligation under the Lease, and
Tenant's Gross Sales during the twelve (12) month period immediately
preceding the date Tenant must notify Landlord of its intention to renew
exceed the applicable Breakpoint, Tenant shall have the right to renew the
Lease for one (1) additional term (the "Renewal Term") of five (5) years,
following the end of the original Term, provided that Tenant gives Landlord
written notice of its intention to renew for the Renewal Term not later than
ninety (90) days prior to the expiration of the original Term. Any renewal of
the Lease shall be upon the same terms and conditions as the original Lease
except that (a) Annual Basic Rental for the Renewal Term shall be increased
at the beginning of the Renewal Term to, for Rental Years 6-7, Nineteen
Dollars ($19.00), for Rental Year 8, Twenty Dollars ($20.00) and for Rental
Years 9-10, Twenty-one Dollars ($21.00) multiplied in each case by Tenant's
Floor Area; (b) upon adjustment of the Annual Basic Rental at the
commencement of the Renewal Term, the Tenant's Breakpoint shall be increased
to an amount equal to Three Hundred Dollars ($300.00) multiplied by Tenant's
Floor Area; and (c) Tenant shall have no further right to renew the Lease
beyond the Renewal Term.
IN WITNESS WHEREOF, the parties hereto intending to be legally bound
hereby have executed this Rider as of the day and year first above written.
WITNESS: TENANT:
ASHWORTH STORE I, INC.
/s/MONICA M. MCKENZIE By: /s/RICHARD H. WERSCHKUL (SEAL)
________________________________ _________________________________
Monica M. McKenzie, Secretary Richard H. Werschkul
Title: President
_________________________________
Date: 5/2/95
_________________________________
(CORPORATE SEAL)
<PAGE>
ATTEST: LANDLORD:
ARIZONA FACTORY SHOPS PARTNERSHIP,
an Arizona general partnership
By: Arizona Factory Shops Limited
Partnership, a Delaware
limited partnership
By: Prime Retail, L.P., its
general partner
By: Prime Retail, Inc., its
general partner
T. ?????????? By: /s/WILLIAM H. CARPENTER, JR.
- -------------------------------- --------------------------------
Assistant Secretary Name: William H. Carpenter, Jr.
Title: President
Date: May 11, 1995
--------------------------------
2
<PAGE>
[DRAWING APPEARS HERE]
[SCHEDULE "A" DRAWING SHOWING LANDLORD'S BUILDING]
A PROJECT OF: [LOGO]
PRIME RETAIL L.P.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21201
For Leasing info contact:
(800)628-9467 (410)234-0782
<PAGE>
[DRAWING APPEARS HERE]
SCHEDULE "A2"-Drawing showing location of the Premises
TENANT: Ashworth Factory Store
LEASE SPACE NO: 815
AREA (SF): 4070
NOTES:
1. This exhibit is purely diagrammatic and only for the purpose of indicating
the location of the Demised Premises.
2. Dimensions indicated for the Demised Premises are measured:
(1) from the center of party walls, (2) to the exterior face of
exterior walls, and (3) to the exterior face of walls dividing
the Demised Premises from any and all common area as the
case may be.
3. Cross hatching indicates the Demised Premises.
4. All dimensions and square footage are approximate.
A PROJECT OF: [LOGO]
PRIME RETAIL L.P.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21201
For Leasing info contact:
(800)628-9467 (410)234-0782
<PAGE>
SCHEDULE B - WHITE BOX
DESCRIPTION OF LANDLORD'S WORK AND TENANT'S WORK
A. GENERAL
These specifications are prepared to aid Tenant in preparing and executing
Tenant's improvement plan. Tenant should refer to the building plans and
specifications indicated on the Lease Outline Drawing (L.O.D.) provided by
Landlord, and confirm all measurements and as-built conditions with Landlord's
tenant coordinator, and by visual inspection of the Premises before starting
construction. In cases where these requirements are in conflict with Landlord's
completed building plans or completed buildings, information in the completed
building plans or completed building shall take precedence over these
requirements. Prior to starting construction, Tenant shall provide completed
working drawings and specifications for the construction of the Premises, in a
preliminary and then final submission in order to receive Landlord's written
approval. Tenant's contractor must be approved by Landlord prior to the start of
construction.
B. LANDLORD'S WORK
1. Demising Partitions
Partitions between Tenant and exit/service corridors shall be one (1)
hour rated construction with 5/8" drywall on both sides where
applicable. Demising partitions between Tenant and other tenants shall
be one (1) hour rated dry wall/metal stud construction. Dry wall will
be installed on both sides of the partition and shall extend from the
finished floor slab to the underside of the steel structure and/or
existing ceiling. All walls will be taped, spackled, sanded smooth, and
ready for tenant's paint finish. Tenant shall provide all other
interior drywall partitions and finishes above and beyond the perimeter
walls. Exterior walls, other than demising walls between tenants, shall
not be provided with drywall.
2. Stockroom Partition
As indicated on the L.O.D., furnish and install a partition from floor
to acoustical ceiling, consisting of 3 5/8" steel studs with 5/8"
gypsum board on both sides, taped, sanded, and ready for Tenant's
finish. One 3'0" hollow core door with standard passage hardware into
stockroom will be provided. Location of partition wall must not
interfere with fire sprinkler head locations. Stock room location
cannot interfere with emergency exit requirements.
3. Storefront
Furnish and install a prefinished glass and aluminum storefront, with
double doors, including standard construction lockset hardware, doors
to be in location shown on L.O.D.
A gypsum board and metal stud bulkhead will be installed above the
storefront and across the interior front of the Premises.
4. Storefront Display Platform
Landlord will frame and install a wooden display platform along
Tenant's storefront, ready for Tenant finish.
5. Floor Slabs
Four inch (4") average concrete slab on grade designed to support a
live load of 75 pounds per square foot. No depressions, recesses, or
penetrations in floor system will be permitted without prior written
permission from Landlord.
6. Egress Door
An exterior service door or a service corridor egress door, if any,
with construction hardware, only if required by the jurisdictional
authorities or Landlord's insurance carrier. The location of such
egress door, if any, shall be as indicated on the L.O.D.
7. Fire Protection Sprinklers
A fire protection sprinkler system, including feed and/or cross mains
and branch lines, installed in a grid pattern, shall be located within
the Premises, at an elevation indicated on the L.O.D. The quantity of
base building standard fire protection sprinkler heads provided by
Landlord shall be the minimum required by code or governing agencies up
to a maximum coverage of one (1) head per 140 square feet of Tenant's
Floor Area. Additional installation or relocation of sprinkler heads
required due to Tenant layout, storerooms, offices, dressing rooms,
etc. shall be performed by Landlord at Tenant's expense.
<PAGE>
8. Suspended Ceiling
Standard 2' x 4' white ceiling tile with 5/8" white T-Bar grid. Ceiling
at height of ten (10) feet.
9. HVAC Equipment
Landlord-supplied HVAC system in accordance with applicable codes
including thermostat. All roof top units and air distribution systems
for Tenant's spaces will be designed, furnished and installed by
Landlord. Additional roof top curbs or penetrations shall be by
Landlord at Tenant's expense.
Internal loading exceeding that referenced above and requiring
additional equipment and/or revised design shall be by Landlord at
Tenant's expense.
10. Electrical
(a) Landlord will provide individually metered 227/480 volts, 3-phase
electrical service for distribution within the Premises.
(b) Surface and wall-mounted duplex convenience outlets installed
within the Premises, one per 30 linear feet of demising partition wall,
or as otherwise required by code.
(c) Recessed 2' x 4' fluorescent light fixtures at the approximate rate
of one fixture per 90 square feet of leased area in the sales area and
one (1) 8' fixture per 100 square feet in stockrooms. Stockroom
lighting will be exposed fluorescent strip lighting.
(d) Landlord will provide track along interior storefront bulkhead.
Track head fixtures to be purchased by Tenant.
(e) Emergency lighting and exit signs per code.
11. Utilities
(a) Electrical - Individually metered per space. Tenant will obtain
meter from local power company. Tenant must make application for
permanent power prior to taking possession of the Premises.
(b) Telephone - An empty telephone conduit (with pull string) shall be
installed from the Premises to a telephone room located within the
common area of the building. Individual telephone backboards,
switchgear, wiring, equipment installation or services is not supplied
by Landlord.
(c) Gas - Landlord may arrange with the local utility providing gas
service to bring gas service to a service/metering point in the
Shopping Center. Any available gas service, including the quantity
thereof, will depend upon the availability of gas provided to
Landlord's Building by the utility company. Landlord makes no warranty
as to the quantity of gas available. Landlord reserves the right to
allocate gas service within Landlord's Building if the utility company
limits the quantities of gas supplied to Landlord's Building. Tenants
requiring gas shall arrange with the local utility providing gas
service for a service meter at the point indicated on the Lease Outline
Drawing.
12. Bathroom
One bathroom, or minimum required by code, including sink, toilet, hot
water heater, exhaust fan, VCT/BASE, mirror, and toilet paper
dispenser.
13. Pre-Opening Services
Pre-Opening Services in the Premises are provided to Tenant by
Landlord. Pre-Opening Services include:
(a) Pre-Opening Utility Services. Power during normal working hours
only until Tenant's permanent power system is available or for 45 days,
whichever comes first. Tenant's electrical contractor shall be required
to provide ground fault protection for power equipment needed in the
Premises.
(b) Pre-Grand Opening Trash Removal. Construction and/or merchandising
trash deposited by Tenant at the service door of the Premises shall be
removed daily by Landlord. This service will be provided only to
tenants constructing and/or merchandising their Premises on or before
the Grand Opening Date. Tenants not constructing and/or merchandising
until after the Grand Opening Date shall be responsible for removal of
such trash at Tenant's expense.
2
<PAGE>
(c) Tenant Coordination Services. Landlord will provide a tenant
coordinator to facilitate the coordination of work between Landlord and
Tenant. This service will be provided by at least one on-site
coordinator until 30 days after the Grand Opening; thereafter tenant
coordination services may be performed through Landlord's home office.
(d) Tenant Store Plan Review. Landlord will review plans provided by
Tenant for improvements to the Premises for compliance with the design
criteria.
(e) Sign Coordination. Landlord will coordinate the fabrication and
installation of Tenant's signs.
(f) Tenant Sign Plan Review. Landlord will review sign plans prepared
by Tenant for compliance with the sign criteria.
C. TENANT'S WORK
1. Interior Partitions
All interior partitions except those indicated in Landlord's Work
Section B, shall be by Tenant at Tenant's expense. Includes all drop
walls, curtain walls, lowered ceilings, soffitted areas, light covers,
platform finish and store fixtures.
2. Electrical
(a) All fluorescent or incandescent lighting fixtures other than those
supplied by Landlord. Bare lamp fluorescent or incandescent fixtures
may only be used in stockrooms.
(b) Additional electrical panel requirements, outlets, light fixtures
and lamping, including conduit, wiring and connections from light
fixtures to "J" boxes.
(c) Any increase in the amount, number or locations of electrical
service or fixtures above Landlord's Work for electrical service or
distribution due to Tenant's use or equipment shall be by Tenant at
Tenant's expense.
(d) Individually metered per space. Tenant will obtain meter from local
power company. Tenant must make application for permanent power prior
to taking possession of the Premises.
3. Display Platform Finish
Tenant is required to finish Landlord installed display platform with
one of the following materials: stone, ceramic tile or prefinished
wood. Said finish must be approved by Landlord. Carpet and VCT will not
be allowed.
4. Finishes
All custom wall finishes (paint, slatwall, wallpaper, etc.) and floor
finishes. Carpeting and/or quality floor coverings such as ceramic
tile, stone or wood are suggested for use in Tenant's public area.
Tenants are encouraged to use upgraded finishes in keeping with the
overall quality of the Shopping Center.
5. Heating, Ventilation, and Air Conditioning (HVAC)
Special or additional heating, ventilation and air conditioning
requirements and/or equipment over Landlord's improvements needed to
meet requirements for Tenant's use or equipment.
6. Signs
All interior and exterior signs, the size, design and locations shall
conform to Landlord's requirements as specified in Schedule C. PLANS
WITH SPECIFICATIONS AND CAMERA-READY ARTWORK FOR ALL SIGNS SHALL BE
SUBMITTED FOR APPROVAL BY LANDLORD BY A DATE DESIGNATED BY LANDLORD.
SIGNS SHALL BE FABRICATED AND INSTALLED BY LANDLORD AT TENANT'S
EXPENSE. (See Section E.1.)
7. Cash Wraps
All cash wraps, counter, cabinetry, store fixtures, etc. are to be
supplied and installed by Tenant.
8. Other
All other items of work which are not expressly made a part of
Landlord's Work shall be Tenant's Work, to be performed at Tenant's
expense.
3
<PAGE>
D. PROCEDURES FOR TENANT'S WORK
1. Plans and Specifications
After receipt of Landlord's L.O.D., Tenant shall promptly prepare plans
and specifications for the interior improvements to the Premises
showing in detail the nature and scope of work to be completed by
Tenant. Tenant must verify the L.O.D.
2. Approval of Tenant's Plans
Tenant will furnish Landlord with a complete set of reproducible plans
and specifications for Tenant's improvements and work to be sealed by a
licensed architect, if required by local authorities. The plans and
specifications shall include, but not be limited to, details as to
colors, material types, and other such information as shall be required
by Landlord and or the local building department to ensure that
Tenant's improvements and work shall be of a first-class design and
quality. NO WORK SHALL BEGIN ON THE PREMISES BY TENANT UNTIL LANDLORD
HAS APPROVED TENANT'S PLANS AND SPECIFICATIONS IN WRITING.
The following applies if Tenant is not using Landlord's building contractor for
its Tenant improvements:
3. Contractor
NO WORK SHALL BEGIN ON THE PREMISES BY TENANT UNTIL LANDLORD HAS
APPROVED TENANT'S GENERAL CONTRACTOR AND RECEIVED SUCH GENERAL
CONTRACTOR'S INSURANCE CERTIFICATE NAMING LANDLORD AND LANDLORD'S
ENTITIES AND SUCCESSORS AS ADDITIONAL INSURED. A COMPLETE LIST OF
SUBCONTRACTORS ALONG WITH A COPY OF THE BUILDING PERMIT SHALL BE
DELIVERED TO LANDLORD PRIOR TO COMMENCING ANY WORK. Tenant's general
contractor shall work in conjunction with Landlord's building
contractor so that Tenant's contractor does not interfere or delay the
construction process for Landlord's building. Tenant's contractor must
perform the work in such a manner as not to cause harm to Landlord's
Work, delay the progress of such work or create conflicts with labor
organizations.
Landlord reserves the right to remove the Tenant's general contractor
if any such labor problems arise. Tenant's contractor is responsible
for full coordination with Landlord's tenant coordinator and compliance
with all established policies and procedures.
4. Permits
Tenant's Work must comply with all applicable building codes and local
ordinances, and Tenant shall be responsible for securing all required
permits before commencing such work. Tenant shall provide Landlord's
tenant coordinator with copies of all such permits. Permits shall be
Tenant's sole responsibility.
5. Special Requirements for Roof and Floor Penetrations
Any work, including cutting, venting or duct installation, which
involves cutting into, or penetrating in any manner, the existing roof
or floor, structure and/or roofing or flooring material MUST BE
PERFORMED BY LANDLORD'S CONTRACTOR AT TENANT'S EXPENSE. Tenant shall
not permit his contractor or any subcontractor to perform such work.
Tenant shall be liable for all damage resulting from unauthorized roof
penetrations and their consequent effect on the integrity of the roof
and its guarantee by the manufacturer or contractor. Certain roof,
floor and wall penetrations may require structural improvements to be
determined by Landlord's structural engineer and performed by
Landlord's contractor.
6. Insurance
Tenant should make early arrangements with an insurance company to
provide the coverages required within the Lease. PRIOR TO START OF
TENANT'S WORK, LANDLORD MUST RECEIVE THE CERTIFICATE OF INSURANCE
REQUIRED UNDER THE TERMS OF THE LEASE.
7. Notice of Non-responsibility
Landlord shall have the right to post and record a notice of non-
responsibility for work being performed by Tenant within the premises
as permitted by law. Tenant shall give Landlord prompt written notice
of the commencement of Tenant's Work.
8. Bonds or Other Security
Landlord shall have the right to require Tenant to furnish a payment
bond or other security in form satisfactory to Landlord
4
<PAGE>
for the prompt and faithful payment of all costs and expenses incurred
in the performance of Tenant's Work.
9. Certificate of Occupancy
Upon completion of Tenant's Work, Tenant shall provide Landlord with a
copy of the Certificate of Occupancy issued by the appropriate
governmental agency for occupancy of the premises.
10. Tenant is responsible for obtaining all required building permits.
11. Submittals shall be forwarded to:
Prime Retail, L.P.
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
Attention: Director of Tenant Coordination
E. WORK PERFORMED BY LANDLORD FOR TENANT
1. Signage
(a) Awning Signage. Landlord will paint and install Tenant's signage on
Landlord's awning, if an awning is required as per Schedule C, at a
cost to Tenant of $400.00 per awning.
(b) Blade Sign Bracket. Landlord will furnish and install a bracket for
each blade sign as described in Schedule C at a cost to Tenant of
$300.00 per bracket.
The work and services in the Premises as described in (c) and (d) below
will be provided to Tenant by Landlord at Landlord's actual cost plus
15% for administration. The cost of such work will be payable to
Landlord as follows: Fifty percent (50%) deposit upon return of signed
work order from Tenant with the balance to be invoiced upon completion
of said work. Any amount owed Landlord which is not paid within thirty
days (30) of invoice date shall bear interest at an annual rate equal
to the lesser of (i) 18% or (ii) the maximum rate of interest allowed
in the State in which the Premises are located until paid. No work will
begin until Landlord receives signed work order and deposit.
(c) Neon Sign. Fabrication, installation, wiring, taxes and permit fees
for Tenant's neon sign(s), if a neon sign is required as per Schedule C
and the Lease Outline Drawing.
(c) Blade Sign. Fabrication, installation, taxes and permit fees for
Tenant's blade sign(s).
2. Modification of Sprinklers
In the event Tenant's store design requires a modification of the
existing sprinkler grid as provided to code in Landlord's vanilla box,
Landlord will furnish, install or modify the existing sprinkler heads
for Tenant. The unit cost for this work will be One Hundred Dollars
($100.00) per each sprinkler head. This price is only effective up to
the Grand Opening Date.
IN NO EVENT WILL TENANT BE ALLOWED TO MODIFY THE SPRINKLER SYSTEM. ONLY
LANDLORD'S SPRINKLER CONTRACTOR, AT TENANT'S EXPENSE, WILL BE ALLOWED
TO MODIFY THE SPRINKLER SYSTEM.
3. Additional Work
Additional work in the Premises, if required by Tenant (such as
alterations to Landlord's base building, installation of Tenant's
equipment on the roof, manual labor, etc.) shall be accomplished by
Landlord at Landlord's actual cost, plus fifteen percent (15%) (unless
otherwise noted) cost of administration only upon receipt of a signed
work order from Tenant, and the cost of any such item of work will be
payable to Landlord as follows: fifty percent (50%) deposit upon return
of the signed work order from Tenant with the balance to be invoiced
upon completion of said improvement. Any amount owed Landlord which is
not paid within thirty (30) days of receipt of invoice shall bear
interest at the Default Rate until paid. No work will begin until
Landlord receives the required 50% deposit.
5
<PAGE>
SCHEDULE C
DESIGN CRITERIA FOR TENANT IMPROVEMENTS
A. DESIGN AND CONSTRUCTION CRITERIA
1. Landlord has installed exterior storefronts of painted aluminum framing
and 1/4" glass. Tenants are not to alter the storefronts in any way.
2. Landlord will also provide a gypsum board and metal stud bulkhead
immediately behind the top of the storefront. Tenants shall paint the
bulkhead and leave it exposed. On the bulkhead, the Tenant is required
to mount track light fixtures in Landlord supplied track as required
herein in the lighting criteria.
3. All electrical conduit shall be concealed where possible in all areas
exposed to the public. Exposed conduit shall be painted to match the
background color.
4. Tenants are encouraged to have unique and creative merchandise displays
up to their ceilings, after reviewing design, loads, and suspension
details with Landlord.
5. All interior and exterior windows and storefronts are to display
brightly illuminated merchandise at all times. All merchandise in the
storefronts and windows shall be oriented to the outside. Merchandise
not unpacked from its boxes of shipping containers shall not be allowed
in the store merchandising area.
6. Tenants shall allow the interior of the Premises to be visible (through
their displays) from the street. All exterior doors to Tenant spaces
are to remain operable during operating hours.
7. All Tenant construction shall be non-combustible material. Treated,
fire-resistant materials will be permitted, where approved by
jurisdictional authorities.
8. No depressed floor slabs will be permitted.
9. All elements, except Landlord-built storefronts, which are part of the
individual storefront must be well maintained by Tenant. Only details
that specify durable materials designed in a manner so as not to hamper
maintenance of the Shopping Center and minimize maintenance by the
individual stores will be acceptable.
10. Any penetrations planned by Tenant through the ceiling or the floor of
the Premises must be approved by Landlord, in writing, at the time of
plan preparation.
11. No fastening to or suspension from the underside of the floor or roof
structure is permitted without Landlord's prior written approval. Such
approval will not be given prior to review of appropriate loading
information.
12. No wall-mounted fixtures will be permitted other than those approved in
writing by Landlord. Tenant acknowledges that the stud and drywall
demising walls are not designed to support wall-mounted fixtures.
Concrete exterior walls may be used for mounting fixtures.
13. No load shall be imposed upon any floor area of the Premises in excess
of the design live load of seventy-five pounds (75 lbs.) per foot
uniformly distributed.
B. LIGHTING CRITERIA
The aim of the lighting guidelines set out below is to control the location,
quantity, and quality of light fixtures necessary for promoting merchandise
and creating attractive stores. All lighting must be reviewed and approved by
Landlord, and must conform to the following guidelines:
1. Tenants are required to install track light fixtures in Landlord
installed track along the full width of the storefront and above all
exterior windows to guarantee brilliant illumination of Tenant's
merchandise. Only Landlord specified and approved fixtures are to be
used on the track. Fixtures shall be mounted twenty-four inches (24")
on center or closer.
2. Tenants are also encouraged to install track lighting within the sales
area to enhance and illuminate Tenant's merchandise.
3. No Tenant lighting shall be installed outside of the Premises except as
allowed or required by the signage criteria.
<PAGE>
4. All fluorescent fixtures in Tenant's sales area shall be as per
Landlord's standard fixtures. Tenants are encouraged to creatively
utilize other sources of illumination in their store design.
5. H.I.D. lighting shall not be used unless approved by Landlord.
6. Low voltage type lighting is recommended for high impact on
merchandise.
7. All showcase and display cases must be adequately lighted and
ventilated as per code. Direct visual exposure of lamps is not
acceptable.
8. All storefront lighting and interior and exterior signage illumination
shall be on 7-day, 24-hour time clocks, in accordance with the
operating hours of the Shopping Center.
9. No strobe, spinner or chase type lighting shall be used.
C. GENERAL SIGNAGE CRITERIA
1. All Tenant signage must receive Landlord's approval. Signing shall be
limited to name, logo, and decorative treatment.
2. No animated components, flashing lights, chasers, formed plastic or
injection molded plastic are permitted.
3. Channel letters with plexiglass faces are permitted for Tenant's neon
signage at locations designated for each Tenant on the Lease Outline
Drawing.
4. No signmaker's labels, underwriters or other identification shall be
permitted on the exposed surface of signs, except those required by
local ordinance.
5. Exposed conduit, tubing or raceways, as well as transformers or other
equipment shall only be permitted at locations approved by Landlord.
6. Postal numbers, if required on storefront, will be designed and
installed by Landlord at Tenant's expense.
7. Electrical service to Tenant's sign shall be a part of Tenant's
operating cost.
8. All sign illumination shall be on a 7-day, 24-hour time clock set in
accordance with the Shopping Center operating hours.
9. No advertisements, notices, sale signs or other lettering other than
the permanent display of store name or logo shall be affixed or
exhibited on the storefront or be visible from the mall or common area,
without specific written approval of Landlord.
10. All state and local sign permit fees, if any, shall be the
responsibility of Tenant.
D. STOREFRONT SIGNAGE
1. All tenants are encouraged to paint their name and/or logo only,
directly on the inside face of the glass section of their storefront.
Such signage shall be of letters and graphics only, without opaque
backgrounds and must be submitted to Landlord for approval. Decals are
not allowed. All exceptions must also be submitted for Landlord
approval.
E. EXTERIOR SIGNAGE
1. All tenants are required to design and maintain exterior signage in
particular locations and styles as required by Landlord. Said sign will
be of one or more of the designs as shown on the signage diagrams to be
attached hereto or supplied to tenant. Such sign will be fabricated and
installed by Landlord at Tenant's expense. Tenant to provide camera-
ready artwork. The sign will be mounted to the exterior of the Premises
as indicated on the L.O.D.
2. Tenants with awnings are required to submit photo-ready artwork of
their store name and/or logo, in order for Landlord to apply this
artwork to the face of those awnings shading Tenant's windows. Landlord
will fabricate and install aid awning signage at Tenant's expense.
SPECIFIC CRITERIA DIAGRAMS TO BE ATTACHED.
2
<PAGE>
SCHEDULE "D"
TENANT ESTOPPEL CERTIFICATE
RE: Lease between ARIZONA FACTORY SHOPS PARTNERSHIP, an Arizona general
partnership ("Landlord"), and ASHWORTH STORE I, INC. ("Tenant"); dated ______,
1995; and more particularly described in the aforesaid Lease.
The undersigned, as Tenant under the above referenced Lease, hereby
certifies as follows:
1. That the above Lease has not been modified, supplemented, or
amended in any way except by agreement dated _________________, 199 (as so
modified, supplemented or amended, "Lease").
2. That the Lease is in full force and effect.
3. That the Lease represents the entire agreement between the parties
as to the leasing of the Premises.
4. That all conditions under the Lease to be performed by Landlord
prerequisite to the full effectiveness of the Lease have been satisfied, and on
this date, Tenant has no claims against Landlord and there are no existing
defenses or offsets which the Tenant has against the enforcement of the Lease by
the Landlord, except as described below.
5. That the initial term of the Lease began on ____________, 1993 and
expires on __________________, (including renewal options.)
6. That the Tenant entered into occupancy of the Premises on
_________________, 1993.
7. That the Tenant has exercised the following renewal options:
_________________________________________________________.
8. That the minimum rental obligation of the Tenant under the Lease
is in effect and is $__________________ per year/month.
9. That no rental has been paid for the period after
_______________________________________________.
10. That the Tenant has no notice or knowledge of any assignment,
hypothecation or pledge by Landlord of the rent payable under the Lease, except
as described below.
11. That from and after the date hereof, the undersigned will not pay
any rent under said Lease more than thirty (30) days in advance of its due date;
will not surrender or consent to the modification of any of the terms of said
Lease, nor to the termination thereof by the Land, and will not seek to
terminate said Lease by reason of any act or omission of the Landlord until the
undersigned shall have given written notice of such act or omission to the
holder of such note and mortgage (at such holder's last address furnished the
undersigned) and until a reasonable lapse of time shall have elapsed following
the giving of such notice during which period such holder shall have the right
but shall not be obligated, to remedy such act or omission.
IN WITNESS WHEREOF, the undersigned Tenant has executed this
Certificate the date written below.
------------------------------
Tenant
------------------------------
Date
<PAGE>
SCHEDULE "E"
Prepared by, recording requested by,
and when recorded return to:
FRU-CON DEVELOPMENT CORPORATION
15933 Clayton Road
P.O. Box 100
Ballwin, Missouri 63022-0100
Attn: Ms. Peggy H. Morris
AGREEMENT OF SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT
THIS AGREEMENT OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT (the
"Agreement") is made as of the ___ day of ______________, 199__, by and among
ASHWORTH STORE I, INC., a Delaware corporation, ("Lessee") having an address at
2791 Loker Avenue West, Carlsbad, California 92008, and FRU-CON CONSTRUCTION
CORPORATION, a Missouri corporation ("Lender"), having an address at 15933
Clayton Road, P.O. Box 100, Ballwin, Missouri 63022-0100, Attention:
President.
RECITALS
A. Under that certain Lease dated as of
_______________________________ (the "Lease"), ARIZONA FACTORY SHOPS
PARTNERSHIP, an Arizona general partnership ("Lessor"), did lease, let, and
demise a portion (the "Premises") of the Property (as hereinafter defined), as
described in the Lease to Lessee for the period of time and upon the covenants,
terms and conditions therein stated.
B. Lessor heretofore entered into a Loan Agreement, dated as of
February 23, 1995 (the "Loan Agreement"), with Lender pursuant to which Lender
provided financing (the "Loan") for the real estate described on Exhibit 1
hereto together with the building and improvements thereon (the "Property"), and
the Premises located on the Property (the Property and all parking and other
amenities built or to be built in connection therewith being hereinafter
collectively called the "Project").
C. In connection with the Project, Lender has made the Loan and other
financial accommodations to or for the benefit of Lessor, which are secured by,
among other things, a mortgage or deed of trust encumbering the Property, dated
as of February 23, 1995 and recorded in the official records of the County of
Maricopa, State of Arizona (the "Mortgage").
D. The parties hereto desire to confirm that the Lease is subordinate
to the lien of the Mortgage on the Property, establish additional rights of
quiet and peaceful possession for the benefit of Lessee and further to define
the covenants, terms and conditions precedent to such additional rights.
NOW, THEREFORE, in consideration of the Recitals set forth above that
are hereby made a part hereof and the covenants, terms, conditions, agreements
and demises herein contained, and in consideration of other good and valuable
consideration, each to the other, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto agree, covenant and warrant as follows:
1. Lender and Lessee do hereby covenant and agree that the Lease and
any modifications and amendments subsequently approved by Lender or any
modification or amendment for which Lender's approval is not required
(collectively, the "Approved Amendments") and all rights, options, liens or
charges created thereby are and shall continue to be subject and subordinate in
all respects to the Mortgage and the lien created thereby, to any advancements
made thereunder, and to any consolidation, extensions, modifications or renewals
thereof.
2. Subject to the observance and performance by Lessee of all of the
covenants, terms and conditions of the Lease or any Approved Amendment on the
part of Lessee to be observed and performed, and further subject to the
provisions of Paragraphs 6 and 7 of this Agreement, Lender hereby covenants that
in the event it obtains title to the Property by foreclosure, by deed in lieu of
foreclosure or otherwise, and thereafter obtains the right of possession of the
Premises, that the Lease and all Approved Amendments shall continue in full
force and effect, and Lender shall recognize the Lease and all Approved
Amendments and Lessee's rights thereunder, and shall thereby establish direct
privity of estate and contract between Lender and Lessee with the same force and
effect and with the same relative priority in time and right as though the Lease
and all Approved Amendments were directly made from Lender in favor of Lessee.
3. Lessee agrees to give Lender, by registered or certified mail,
return receipt requested, a copy of any notice of default served upon Lessor.
Lessee further agrees that if Lessor shall have failed to cure such default
within the time period provided for in the Lease, then Lender shall be entitled
(but shall not be obligated) to cure such default within thirty (30) days after
the expiration of any cure period granted to Lessor under the Lease; provided,
however, that if a nonmonetary default cannot be cured within such time, and if
such default does not involve a condition that renders all or a material part of
the Premises untenantable or materially interferes with Lessee's use of the
Premises, and Lender is diligently pursuing such cure, then Lender shall have
<PAGE>
such additional time as is reasonably necessary to cure such default (including
the time necessary to foreclose or pursue other proceedings in order to gain
possession of the Property). It is specifically agreed that Lessee shall not,
as to Lender, be entitled to require cure of any such default.
4. In the event the interests of Lessor under the Lease shall be
transferred to Lender by reason of foreclosure, deed in lieu of foreclosure or
otherwise, and provided Lender complies with the terms of Paragraph 2 hereof,
Lessee hereby covenants and agrees to make full and complete attornment to
Lender as substitute lessor upon the same terms, covenants and conditions as
provided in the Lease, except for provisions that are impossible for Lender to
perform, so as to establish direct privity of estate and contract between Lender
and Lessee with the same force and effect and relative priority in time and
right as though the Lease and any Approved Amendment, together with all
guarantees of Lessee's obligations under the Lease, if any, were originally made
directly between Lender and Lessee, except as limited by the provisions of
Paragraphs 6 and 7 of this Agreement. Lessee shall thereafter make all payments
directly to Lender and shall waive as against Lender only any defaults of Lessor
(whether curable or non-curable) that occurred prior to Lender gaining right of
possession to the Premises and becoming substitute lessor, except as limited by
the provisions of Paragraphs 6 and 7 of this Agreement. Lessee waives all
joinder and/or service of any and all foreclosure actions by Lender under the
Mortgage upon the Property, and of any actions at law by Lender to gain
possession of the Property. It shall not be necessary, except as required by
law, for Lender to name Lessee as a party to enforce its rights under the
Mortgage, or any other instrument evidencing or collateralizing the Loan, or to
prosecute any action at law to gain possession of the Property and, unless
required by law, Lender agrees not to name Lessee in any such proceeding. If
the interests of Lessor under the Lease shall be transferred by reason of
foreclosure of the Mortgage, deed in lieu of foreclosure of otherwise, to any
party other than Lender (a "Transferee"), then Lessee hereby covenants and
agrees to make full and complete attornment to such Transferee as substitute
lessor, upon the same terms and conditions as provided for herein in the case of
attornment to Lender, provided such Transferee complies with the terms of
Paragraph 2 hereof.
5. The provisions of this Agreement shall be covenants running with
the Property and shall be binding upon and inure to the benefit of the
respective parties hereto and their respective heirs, legal representatives,
beneficiaries, successors and assigns, including without limitation, any person
who shall obtain, directly or by assignment or conveyance, (a) any interest in
the Mortgage; (b) any certificate of purchase following foreclosure of the
Mortgage; (c) any certificate of redemption following such foreclosure; or (d)
any interest in the Premises, whether through foreclosure or otherwise.
Furthermore, the provisions of this Agreement shall be binding upon any
guarantor of Lessee's obligations under the Lease.
6. Notwithstanding anything contained herein to the contrary, or
anything to the contrary in the Lease or in any modifications or amendments
thereto, Lessee hereby covenants and agrees that Lender and any assignees shall
not be:
(a) Liable for any act or omission of Lessor, including, without
limitation, any delay in opening the Project or the Premises for occupancy and
any failure to complete construction of the Premises or the Project;
(b) Subject to any offsets or defenses that Lessee might have as to
Lessor, except as specifically provided in the Lease;
(c) Required or obligated to credit Lessee with any rent or additional
rent for any rent that Lessee might have paid Lessor more than one month in
advance, other than any overpayments of estimated monthly payments, as provided
for in the Lease, unless Lender shall have approved such prepayment in writing;
(d) Bound by any amendments or modifications of the Lease made without
Lender's prior written consent, other than exercise of rights, options or
elections contained in the Lease, including, without limitation, options to
extend the term of the Lease;
(e) Bound to or liable for refund of all or any part of any security
deposit by Lessee with Lessor for any purpose unless and until all such security
deposit shall have been delivered by Lessor to, and actually received by,
Lender. In the event of receipt of any such security deposit, Lender's
obligations with respect thereto shall be limited to the amount of such security
deposit actually received by Lender, and Lender shall be entitled to all rights,
privileges and benefits of Lessor set forth in the Lease with respect thereto;
(f) Required or obligated to open the Premises for initial occupancy
by Lessee or the Project for initial occupancy by tenants generally, or to
complete construction of the Project or the Premises, or to undertake any other
obligation that Lessor may have with respect to construction or opening of the
Premises for initial occupancy by Lessee or of the Project for initial occupancy
by tenants generally; or
2
<PAGE>
(g) Personally liable to pay any amounts hereunder or in connection
with the Lease, it being expressly acknowledged by Lessee that any amounts
otherwise owing by Lender or any successor or assignees shall be collectible
only out of their respective interests in the Property and all such personal
liability is hereby expressly and irrevocably waived and released by Lessee.
7. Lessee covenants and agrees as follows for the benefit and reliance
of Lender:
(a) That it shall not, without the express written consent of Lender:
(i) Cancel, terminate or surrender the Lease, except as provided
therein or in any Approved Amendment or hereafter consented to by Lender, and
then only after Lender has unsuccessfully attempted to pursue its rights and
remedies as provided herein; or
(ii) After the date hereof, enter into any agreement with Lessor,
its successors or assigns, that grants any concession with respect to the Lease
or that reduces the rent called for thereunder; or
(iii) After the date hereof, create any offset or claims against
rents, or prepay rent more than one month beyond the then current rental period.
(b) That neither this Agreement nor anything to the contrary in the
Lease or in any Approved Amendment shall, prior to Lender's acquisition of
Lessor's interest in and possession of the Property, and if later, the
completion of construction of the Project and the Premises and opening thereof
for occupancy by tenants generally and by Lessee, respectively, operate to give
rise to or create any responsibility or liability for the control, care,
management or repair of the Premises upon Lender, or impose responsibility for
the carrying out by Lender of any of the covenants, terms and conditions of the
Lease or of any Approved Amendment, nor shall said instruments operate to make
Lender responsible or liable for any waste committed on the Premises by any
party whatsoever, or for dangerous or defective conditions of the Premises, or
for any negligence in the management, upkeep, repair or control of the Premises
resulting in loss, injury or death to any Lessee, licensee, invitee, guest,
employee, agent or stranger. Notwithstanding anything to the contrary in the
Lease, but subject to the limitation in Paragraph 6(g) of this Agreement,
Lender, its successors and assigns or a purchaser under the terms of the
Mortgage, shall be responsible for performance of those covenants and
obligations of the Lease accruing on and after Lender's acquisition of Lessor's
interest in and possession of the Property and if later, the completion of
construction of the Project and the Premises and opening thereof for occupancy
by tenants generally and by Lessee, respectively.
(c) That in the event Lender gains title to the Property and becomes
substitute lessor, it is agreed that Lender may assign its interest as
substitute lessor without notice to, the consent of, or assumption by Lender of
any liability to, any other party hereto.
(d) That it will deliver to Lender, within ten (10) days of request
therefor, any estoppel certificates required to be delivered, while the Mortgage
is of record, pursuant to the Lease.
8. Any notices to Lessee, Lessor or Lender hereunder shall be
effective on the third business day after mailing to such party by certified
mail, postage prepaid, return receipt requested, addressed as follows:
LESSEE:
ASHWORTH STORE I, INC.
2791 Loker Avenue West
Carlsbad, California 92008
ATTN: General Counsel
WITH A COPY TO:
ATTN: Chief Financial Officer
LENDER:
FRU-CON CONSTRUCTION CORPORATION
15933 Clayton Road
P.O. Box 100
Ballwin, Missouri 63022-0100
Attention: President
LESSOR:
ARIZONA FACTORY SHOPS PARTNERSHIP
c/o Prime Retail, L.P.
100 East Pratt Street, Nineteenth Floor
Baltimore, Maryland 21202
Attention: General Counsel
3
<PAGE>
or as to each party, to such other address as the party may designate by a
notice given in accordance with requirements contained in this Paragraph 8.
9. This Agreement contains the entire agreement between the parties
hereto. No variations, modifications or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly executed by or
on behalf of such party.
10. This instrument may be executed in multiple counterparts, all of
which shall be deemed originals and with the same effect as if all parties
hereto had signed the same document. All of such counterparts shall be
construed together and shall constitute one instrument, but in making proof, it
shall only be necessary to produce one such fully executed counterpart.
11. Whenever used herein, the singular number shall include the
plural, and the singular, and the use of any gender shall include all genders.
The word "Lender", "Lessor", and "Lessee" shall include their legal
representatives, successors and assigns.
12. Lessee agrees that this Agreement satisfies any condition or
requirement in the Lease relating to the granting of a non-disturbance agreement
with respect to Lender and the Mortgage.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed, sealed and delivered in their respective names and in their behalf;
and if a corporation, by its officers duly authorized, as of the date first
noted above.
LESSEE:
ASHWORTH STORE I, INC., a Delaware
corporation
By: /s/RICHARD H. WERSCHKUL
____________________________
Name: Richard H. Werschkul
Title: President
LENDER:
FRU-CON CONSTRUCTION CORPORATION, a
Missouri corporation
By:
________________________________
Name:
______________________________
Title:
______________________________
LESSEE'S ACKNOWLEDGMENT
-----------------------
STATE OF CALIFORNIA )
) SS
COUNTY OF SAN DIEGO )
I DO HEREBY CERTIFY that Richard H. Werschkul, personally known to me
to be the President of Ashworth Store I, Inc. and personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person and acknowledged that (s)he signed and delivered
the said instrument as President of said corporation pursuant to authority given
by said Ashworth Store I, Inc., as his/her free and voluntary act, and as the
free and voluntary act and deed of said corporation, for the uses and purposes
therein set forth.
GIVEN under my hand and official seal the 2nd day of May, 1995.
/s/NANCY C. MINKUS
------------------------------------
Notary Public
My Commission Expires:
12-6-96
- ------------------------------
4
<PAGE>
LENDER'S ACKNOWLEDGMENT
STATE OF )
) SS
COUNTY OF )
Before me, a Notary Public of the State aforesaid, personally appeared
_____________________, known to me to be the person whose name is subscribed to
the foregoing instrument, and known to me to be the _________________ of FRU-CON
CONSTRUCTION CORPORATION, a Missouri corporation, and acknowledged to me that
he, as the authorized officer of said corporation, and in such capacity,
executed said instrument for the purposes and consideration therein expressed,
and as the act of said corporation. Given under my hand and official seal this
______ day of ___________, 199___.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
5
<PAGE>
AGREEMENT BY LESSOR
Lessor, as the Mortgagor under the Mortgage, agrees for itself and for its
successors and assigns that (i) the foregoing Agreement of Subordination, Non-
Disturbance and Attornment (the "Agreement") does not constitute a waiver or
partial waiver by Lender of any of its rights under the Mortgage and (ii) the
Agreement does not in any way release the Lessor from its obligations to comply
with every term, provision, condition, covenant, agreement, representation,
warranty and obligation of the Mortgage, and that each of same remain in full
force and effect and must be complied with by the Lessor thereunder, and (iii)
Lessor will not take any action contrary to or inconsistent with the provisions
of the Agreement.
LESSOR:
ARIZONA FACTORY SHOPS PARTNERSHIP, an
Arizona general partnership
By: Arizona Factory Shops Limited
Partnership, a Delaware limited
partnership
By: Prime Retail, L.P., its General Partner
By: Prime Retail, Inc., its General Partner
By: /s/WILLIAM H. CARPENTER, JR.
____________________________
Name: William H. Carpenter, Jr.
Title: President
Date: May 11, 1995
__________________________
6
<PAGE>
EXHIBIT 1
ARIZONA FACTORY SHOPS PARTNERSHIP
LEGAL DESCRIPTION OF LAND
A parcel of land located in the Southwest Quarter of Section 10, Township 6
North, Range 2 East of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona, more particularly described as follows:
Commencing at the Southwest corner of said Section 10, also being the TRUE
POINT OF BEGINNING;
thence, N 00.01'38" W along the West line of said Section 10, a
distance of 1929.35 feet to a point;
thence, S 89.7'37" E a distance of 1487.59 feet to a point on the
West right-of-way line of the Black Canyon Highway (Interstate Highway 17);
thence, S 05.26'37" E along said right-of-way line a distance of
990.93 feet to a point;
thence S 12.18'02" W continuing along said right-of-way line a
distance of 837.04 feet to a point;
thence, S 00.02'23" W continuing along said right-of-way line a
distance of 125.00 feet to a point on the South line of said Section 10;
thence, N 89.57'37" W along said South line of Section 10 a distance
of 1402.27 feet to the TRUE POINT OF BEGINNING.
Above described parcel containing 66.7809 acres, more or less.
<PAGE>
EXHIBIT 11
ASHWORTH, INC. AND SUBSIDIARIES
-------------------------------
SCHEDULE COMPUTING NET INCOME PER COMMON SHARE
----------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY:
Net income $ 1,400,582 $ 4,860,356 $ 3,945,719
=========== =========== ===========
Weighted average number of common and
equivalent shares outstanding:
Common stock 11,775,602 11,457,661 11,148,208
Common stock equivalent shares 336,031 766,060 617,563
----------- ----------- -----------
12,111,633 12,223,721 11,765,771
=========== =========== ===========
Net income per common share $ .12 $ .40 $ .34
=========== =========== ===========
FULLY DILUTED:
Net income $ 1,400,582 $ 4,860,356 $ 3,945,719
=========== =========== ===========
Weighted average number of common and
equivalent shares outstanding:
Common stock 11,775,602 11,457,661 11,148,208
Common stock equivalent shares 535,123 795,309 906,460
----------- ----------- -----------
12,310,725 12,252,970 12,054,668
=========== =========== ===========
Net income per common share $ .11 $ .40 $ .33
=========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Ashworth Store I, Inc., a Delaware corporation
Ashworth Store II, Inc., a Delaware corporation
Ashworth International, Inc., a U.S. Virgin Islands corporation
Ashworth U.K., Ltd., a United Kingdom corporation
Ashworth Inc., et Cie, a Luxembourg partnership
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the incorporation of our
reports included in this form 10-K, into the Company's previously filed
Registration Statement Files No. 33-35516, No. 33-41455, No. 33-47502,
No. 33-54206, No. 33-66040 and No. 33-92580.
ARTHUR ANDERSEN LLP
Orange County, California
January 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 1,613,029
<SECURITIES> 0
<RECEIVABLES> 11,940,971
<ALLOWANCES> 767,000
<INVENTORY> 27,845,721
<CURRENT-ASSETS> 45,207,937
<PP&E> 17,340,254
<DEPRECIATION> 5,571,001
<TOTAL-ASSETS> 58,072,024
<CURRENT-LIABILITIES> 15,991,835
<BONDS> 0
0
0
<COMMON> 11,902
<OTHER-SE> 36,378,106
<TOTAL-LIABILITY-AND-EQUITY> 58,072,024
<SALES> 74,524,311
<TOTAL-REVENUES> 74,524,311
<CGS> 49,498,975
<TOTAL-COSTS> 71,020,637
<OTHER-EXPENSES> 99,678
<LOSS-PROVISION> 557,756
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</TABLE>
