UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number:
January 31, 1998 0-23574
PETCO ANIMAL SUPPLIES, INC.
(Exact Name of Registrant As Specified In Its Charter)
Delaware 33-0479906
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
Of Incorporation or Organization)
9125 Rehco Road, San Diego, California 92121
(Address, Including Zip Code, of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(619) 453-7845
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $. 0001 PAR VALUE
(Title of Class)
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 in response to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the 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: ____
As of April 24, 1998, there were outstanding 21,068,826 shares of the
Registrant's Common Stock, $ .0001 par value. As of that date, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $ 374,789,092.
Documents Incorporated By Reference: The information called for by
Part III is incorporated by reference from the Proxy Statement relating to
the 1998 Annual Meeting of Stockholders of the Registrant.
<PAGE> 1
PART I
ITEM 1. BUSINESS
PETCO Animal Supplies, Inc. ("PETCO" or the "Company") is a leading
specialty retailer of premium pet food and supplies. As of January 31,
1998, the Company operated 457 stores, including 392 superstores, in 33
states and the District of Columbia. PETCO's strategy is to be the leading
category-dominant national chain of community pet food and supply
superstores by offering its customers a complete assortment of pet-related
products at competitive prices, with superior levels of customer service at
convenient locations. The Company believes that this strategy provides
PETCO with a competitive advantage by combining the broad merchandise
selection and everyday low prices of a pet supply warehouse store with the
convenience and service of a neighborhood pet supply store.
PETCO currently utilizes both superstore and traditional store
formats. The Company's expansion strategy is to open and acquire
superstores, including relocations, expansions or remodels of existing
traditional stores into superstores (collectively referred to herein as
"conversions"), and to close underperforming stores. In fiscal 1997, the
Company opened or acquired 141 stores and closed 20 stores. Unless
otherwise indicated, all references in this Annual Report to a fiscal year
refer to the fiscal year ending on the Saturday closest to January 31 of
the following year. For example, references to fiscal 1997 refer to the
fiscal year beginning on February 2, 1997 and ending on January 31, 1998.
THE PET FOOD, SUPPLY AND SERVICES INDUSTRY
GENERAL. In 1996, retail sales in the United States of pet food,
supplies, small animals (excluding dogs and cats) and services were
estimated at $18 billion. Pet food accounted for the majority of this
market with an estimated $10 billion in sales, pet supply and small animal
sales were estimated at $4 billion, while sales of pet services, which
include veterinary services, obedience training and grooming services, were
estimated at $4 billion. In 1996, an estimated 58 million households in
the United States, or over half of all U.S. households, owned at least one
pet and over half of pet-owning households owned more than one pet. The
Company believes that these numbers reflect important demographic changes
occurring in the United States which have been favorable to the pet food
and supply industry, such as an increase in families with young children
and an increase in the number of "empty-nest" households with additional
disposable income to spend on pets.
PET FOOD. Historically, the pet food industry has been dominated by
national supermarket brands such as Alpo, Kal Kan and Purina, which are
primarily sold through grocery stores, convenience stores and mass
merchants. These brands are generally considered less nutritious than
premium brands and sell at lower prices. Until the early 1980s, such
brands had little retail competition from specialty pet food manufacturers.
However, over the past five years, sales of national supermarket brands
have represented a decreasing percentage of the total annual pet food sales
as premium food such as Iams, Nutro, and Science Diet, which are not
available through supermarkets or mass merchants due to manufacturers'
restrictions, has increased in popularity. Sales of premium pet food are
estimated to have increased at a compound annual growth rate of
approximately 18% in recent years and now account for an estimated 25% of
the total pet food market. The Company believes that premium pet food
sales have increased due to the changing demographics discussed above, the
increasing concern for animal welfare and nutrition, recommendations by
veterinarians and breeders and the increasing availability and variety of
premium pet food products. As one of the leading specialty premium pet
food retailers in the country, PETCO believes that it is in an excellent
position to capitalize on these trends.
<PAGE> 2
PET SUPPLIES. The Company believes that the growing preference for
premium pet food has also affected the pet supply industry. As consumers
focus on pet health and nutrition, they tend to purchase more and higher
quality pet supplies, particularly vitamins and veterinary products. Pet
supplies are often an impulse purchase made during a customer's regular
visit to purchase pet food, cat litter or flea control products. The
Company believes that demand for pet supplies is less price sensitive than
the demand for pet food. Consequently, pet supply products are less
frequently discounted, resulting in higher gross margins. For these
reasons, the pet supply industry has attracted strong interest from
supermarkets, although due to space constraints, supermarkets tend to carry
a limited assortment of basic items such as cat litter, collars, dog chews,
leashes, flea collars and toys. Pet supply stores such as PETCO, on the
other hand, carry a wider variety of these basic items and a wide
assortment of other supplies, which also includes grooming products, pet
carriers, cat furniture, dog houses, vitamins, treats and veterinary
products. The Company believes that sales of supplies at specialty stores
should continue to increase due to the wide variety of products and the
high level of customer service available at such stores and the growing
preference for premium pet food.
SMALL ANIMALS. The market for small animals (other than dogs and
cats) includes sales of fish, birds, reptiles, rabbits, hamsters, mice and
other small pets. Because of the overpopulation of dogs and cats and the
inhumane practices of some breeders, the Company has elected to limit its
selection of animals to birds, fish, reptiles and other small animals.
PETCO does, however, participate in pet adoption programs for dogs and
cats, which are administered through local animal welfare programs. The
Company purchases small animals only through domestic breeders.
PET SERVICES. The market for pet services includes veterinary
services, obedience training and grooming services. The Company offers
only limited veterinary services such as routine vaccinations. The Company
does offer obedience training in most of its stores and offers grooming in
many of its stores. Although such services do not generate a significant
portion of the Company's revenues, the Company believes that offering
selected pet services does create increased customer traffic in the
Company's stores.
BUSINESS STRATEGY
PETCO's strategy is to be the leading category-dominant national
chain of community pet food and supply superstores by offering its
customers a complete assortment of pet-related products at competitive
prices, with superior levels of customer service at convenient locations.
The key components of PETCO's strategy are:
Superstore Expansion. The Company believes that opportunities for
additional superstores exist in both new and existing markets. The Company
intends to continue to increase the number of superstores it operates by
<PAGE> 3
opening and acquiring superstores in new and existing markets and
converting traditional stores into superstores.
ACQUISITIONS. A significant part of the Company's expansion strategy
is to capitalize on the consolidation of the fragmented pet food and supply
industry. The Company believes that there are acquisition opportunities
which would allow the Company to attract new customers in existing markets,
enter new markets and leverage operating costs. Generally, the Company
seeks to acquire established and well-located stores or chains of stores
which are similar in size and format to the Company's existing superstores.
Consistent with this strategy, the Company has completed 17 acquisitions,
representing 204 stores located in 27 states, since the Company's initial
public offering in March 1994.
COMPLETE MERCHANDISE ASSORTMENT. PETCO's prototype 15,000 square
foot superstores carry a complete merchandise assortment of more than
10,000 active SKUs of high quality pet-related products. PETCO's products
include premium pet food, fish, birds, reptiles and other small animals and
related food and supplies, collars and leashes, grooming products, toys,
pet carriers, cat furniture, dog houses, vitamins, treats and veterinary
supplies. PETCO's traditional stores, which average 3,500 square feet,
also carry a wide variety of premium pet food and supplies (approximately
5,000 active SKUs).
COMPETITIVE PRICES. PETCO's pricing strategy is to offer everyday
low prices on all food items which are important in attracting and
retaining customers. The Company believes that offering competitive prices
on food items increases customer traffic and generates sales of high-margin
supplies.
SUPERIOR CUSTOMER SERVICE. Providing knowledgeable and friendly
customer service is a key aspect of PETCO's business strategy. Most PETCO
store managers and sales associates are better able to assist customers
with their needs because they are pet owners and enthusiasts. PETCO
emphasizes the training and development of its personnel, and the Company
believes that this enables it to attract and retain highly motivated, well-
qualified store managers and sales associates committed to providing
superior levels of customer service.
CONVENIENT STORE LOCATIONS. PETCO's stores are located in high-
traffic retail areas with ample parking, often in community shopping
centers anchored by a large supermarket. The Company selects sites which
are characterized by weekly or more frequent shopping patterns. All stores
offer extended shopping hours and are open seven days a week.
ENJOYABLE SHOPPING EXPERIENCE. PETCO's stores are attractively
designed to create a fun and exciting shopping environment for customers
and their pets. The Company's superstores are brightly illuminated with
colorful fixtures and graphics and feature prominent and attractive
signage. Superstores feature an assortment of fish, aquarium systems,
reptiles, birds and small animals. Birds and other animals are available
for demonstration by PETCO employees and for handling by customers. Many
of the Company's superstores also contain a glassed-in grooming area that
allows customers to observe the grooming process while they shop.
INNOVATIVE COMMUNITY PROGRAMS. PETCO has several long-standing
neighborhood marketing programs in effect designed to introduce consumers
<PAGE> 4
to its stores and maintain long-term customer and community relationships.
Due to the large numbers of dogs and cats available at local animal
shelters, PETCO's long-standing corporate policy has been to encourage its
customers to adopt these pets from animal shelters. On designated days, in
cooperation with animal welfare organizations, the Company offers pet
adoption services at its stores. The Company's other community programs
include in-store vaccination clinics, programs with local pet-related
charities, a product sample program to introduce consumers and their pets
to premium food and supplies and a preferred customer program. In
addition, the Company maintains referral programs and other relationships
with local breeders and veterinarians.
MERCHANDISING
COMPLETE MERCHANDISE ASSORTMENT. Management believes that PETCO
stores offer the pet owner one of the most complete and exciting
assortments of pet products and services available in the marketplace.
PETCO's products and services generally fall into five main categories.
PET FOOD. PETCO offers a complete assortment of leading name brand
premium food for dogs and cats, such as Iams, Nutro, and Science Diet as
well as selected mass brand foods. Due to manufacturers' restrictions,
premium brands are not currently sold through supermarkets, warehouse
clubs, or mass merchants, but are sold exclusively through specialty pet
stores and veterinarians. The Company also offers a PetGold(r) private
label brand of premium dog and cat food. In addition to food for dogs
and cats, the Company features a variety of treats and rawhide chew
items. The Company also sells an extensive variety of food for fish,
birds, reptiles and small animals.
PET SUPPLIES. PETCO's broad assortment of supplies for dogs and cats
includes many private label items and offers collars and leashes,
grooming products, toys, pet carriers, cat furniture, dog houses,
vitamins, treats and veterinary supplies. The Company also offers broad
lines of supplies for other pets, including aquariums, filters, bird
cages and supplies for small animals.
SMALL ANIMALS. PETCO superstores feature specialty departments which
stock a large assortment of fish, domestically bred birds, reptiles and
other small pets. The stores' animal selection typically includes
cockatiels, parakeets and finches in the bird category; iguanas, turtles
and snakes in the reptile category; and hamsters, rats and mice in the
small animal category. Birds and other animals are available for
demonstration by PETCO employees and handling by customers. The Company
believes that its small animal displays add excitement to shopping at
PETCO and generate increased sales of high-margin small animals and
related food and supplies.
GROOMING AND OTHER SERVICES. Professional grooming is available at
many of the Company's superstores. Grooming services are performed in
glass-walled stations in the stores to provide an eye-catching display
and to increase customer awareness and confidence in the service. In
addition, the Company offers vaccinations and obedience training.
NOVELTY ITEMS. PETCO carries a variety of novelty items, including
apparel for pets, calendars, as well as other pet-related merchandise. In
<PAGE> 5
addition, the Company features a variety of seasonal and holiday pet
items.
COMPETITIVE PRICES. PETCO's pricing strategy is to offer everyday
low prices on all food items which are important in attracting and
retaining customers. The Company believes that offering competitive prices
on key food items increases customer traffic and generates sales of higher-
margin pet supplies. PETCO's large buying volume and sophisticated
distribution network allows it to compete effectively on price. The
Company modifies its pricing policies by regional or local markets and is
able to institute overnight price changes, as necessary, to meet market
competition. PETCO's price guarantee program offers to match all
competitors advertised prices.
STORE DEVELOPMENT
The Company utilizes both superstore and traditional store formats.
The Company plans to open only superstores in the future and expects that
these will be the Company's current prototype superstores which average
approximately 15,000 square feet. These prototype superstores offer fish,
birds, reptiles and other small animals, and grooming services. Overall,
the Company's superstores average approximately 13,000 square feet in size.
The Company's traditional stores average approximately 3,500 square feet in
size and generally do not sell fish, birds, reptiles or small animals.
The Company's experience indicates that its superstore format
achieves increased customer traffic, sales volume and profitability
compared to its traditional stores. As a result, the Company intends to
continue to increase the number of superstores it operates by opening and
acquiring superstores in new and existing markets and converting
traditional stores into superstores.
Although the Company does not plan to open any new traditional stores
in the future, it will continue to operate profitable and well-situated
traditional stores until such time as they may be converted into
superstores.
In fiscal 1997, the Company opened or acquired 141 stores and closed
20 stores. The table below sets forth the number of each type of store the
Company operated at the end of each fiscal year indicated, as restated for
the pooling of interests with PetCare Plus, Inc. ("PetCare").
<TABLE>
<S> <C> <C> <C>
Traditional
Superstores Stores Total Stores
----------- ----------- ------------
Fiscal 1993 108 139 247
Fiscal 1994 174 114 288
Fiscal 1995 264 89 353
Fiscal 1996 345 68 413
Fiscal 1997 392 65 457
</TABLE>
PETCO attempts to obtain convenient, high-traffic stores located in
prime community shopping centers. The Company undertakes substantial
market research prior to entering new markets. Key factors in market and
site selection include high visibility, easy access, ample parking,
population, demographics and the number and location of competitors.
<PAGE> 6
PURCHASING AND DISTRIBUTION
The Company's centralized purchasing and distribution system
minimizes the delivered cost of merchandise and maximizes the in-stock
position of its stores.
PETCO purchases most of its merchandise directly from specialty
suppliers and manufacturers of national brands. The Company purchases the
majority of its pet food products from three vendors, Iams, Nutro, and
Science Diet, the first of which supplied products that accounted for more
than 10% and less than 15% of the Company's sales in fiscal 1997. While
the Company does not maintain long-term supply contracts with any of its
vendors, PETCO believes that it enjoys a favorable and stable relationship
with each of these vendors.
PETCO currently operates three central and five regional distribution
centers. The central distribution centers are located in Rancho Cucamonga,
California; Dayton, New Jersey; and Aurora, Illinois. Bulk items for all
stores are either shipped to regional distribution centers for
redistribution or are sent directly to store locations. Manufacturers ship
non-bulk supplies to the central distribution facilities which the Company
then distributes either to regional centers or directly to store locations.
Management believes that its centralized distribution system enables its
stores to maximize selling space by reducing necessary levels of safety
stock carried in each store.
COMPETITION
The pet food and supply business is highly competitive. This
competition can be categorized into four different segments: (i)
supermarkets and other mass merchants, (ii) single store and conventional
pet shops, (iii) specialty pet supply chains and (iv) pet supply warehouse
stores. Many of the premium pet food brands offered by the Company, such
as Iams, Nutro, and Science Diet, are not available to grocery stores or
other mass merchants due to manufacturers' restrictions. The Company
believes that the principal competitive factors influencing the Company's
business are product selection and quality, convenient store locations,
customer service and price. The Company believes that PETCO competes
effectively within its various geographic areas; however, some of the
Company's competitors are much larger in terms of sales volume and have
access to greater capital and management resources than the Company.
The pet food and supply industry has been characterized in recent
years by the consolidation of a number of pet supply chains. This
consolidation has been accomplished through the acquisition of independent
pet stores by larger specialty pet supply chains or pet supply warehouse
chains and the acquisition of these larger chains by similar competitors.
The Company believes this consolidation trend may have a positive impact on
industry conditions as store capacity may be rationalized, both in existing
and in new units. There can be no assurance that in the future the Company
will not face greater competition from other national or regional
retailers.
<PAGE> 7
TRADEMARKS AND LICENSES
The Company has registered several service marks and trademarks with
the United States Patent and Trademark Office, including PETCO(r), PETCO
Pals(tm), Advantage Pet Products(r), Aquatic Gardens(r), Avian Select(r),
Finishing Touch(r), Mighty Marble(r), Paw Pals(r), PetGold(r), Ruff
Toys(r), Small Animal Kingdom(r), Where the Pets Go(tm) and Your Pet's
Second Best Friend(r). The Company believes the PETCO trademark has become
an important component in its merchandising and marketing strategy. The
Company believes it has all licenses necessary to conduct its business.
REGULATION
The transportation and sale of small animals is governed by various
state and local regulations. To date, these regulations have not had a
material effect on the Company's business or operations. The Company's
fish and small animal buyers and real estate department are responsible for
compliance with such regulations. Prior to the opening of each store, the
Company's fish and small animal buyers and real estate department review
the regulations of the relevant state and local governments. The Company's
fish and small animal buyers and real estate department then ensure ongoing
compliance by keeping abreast of industry publications and maintaining
contacts with the Company's fish and small animal suppliers and the
appropriate regulatory agency within each such state and local government.
EMPLOYEES
As of January 31, 1998, the Company employed approximately 9,400
associates, of whom approximately 4,200 were employed full-time.
Approximately 93% of the Company's employees were employed in stores or in
direct field supervision, approximately 3% in distribution centers and
approximately 4% in the corporate office in San Diego. Management believes
its labor relations are generally good.
CERTAIN CAUTIONARY STATEMENTS
Certain statements in this Annual Report, including, but not limited
to, Item 7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations," contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995, that are not historical
facts but rather reflect current expectations concerning future results and
events. The words "believes," "expects," "intends," "plans,"
"anticipates," "likely," "will," and similar expressions identify such
forward-looking statements. These forward-looking statements are subject
to risks, uncertainties, and other factors, some of which are beyond the
Company's control, that could cause actual results to differ materially
from those forecast or anticipated in such forward-looking statements.
Such risks, uncertainties and other factors include, but are not limited
to, the following risks:
EXPANSION PLANS. The Company's continued growth depends, to a
significant degree, on its ability to open and operate new superstores on a
profitable basis and to a lesser extent on increasing sales in existing
stores. The Company's performance is also dependent upon a number of other
<PAGE> 8
factors, including its ability to locate and obtain favorable superstore
sites and negotiate acceptable lease terms, to obtain and distribute
adequate product supplies to its stores, to hire and train employees and to
upgrade its management information and other operating systems to control
the anticipated growth and expanded operations. There can be no assurance
that the Company will achieve its planned expansion or that such expansion
will be profitable. The Company has recently opened stores in new markets
and plans to open additional stores in new markets. The performance of
new stores may be adversely affected by regional economic conditions. The
Company's expansion strategy could have the effect of drawing customers
from its existing stores. In addition, average store contribution and
operating margins may be adversely affected in the near term due to the
level of preopening expenses and lower anticipated sales volumes of its
immature stores. The Company's existing Senior Credit Facility (the
"Credit Facility") contains certain covenants which may restrict or impair
the Company's growth plans. Management continues to evaluate the Company's
long-term distribution needs to increase product handling capacity to
accommodate store and sales growth beyond fiscal 1998. Either the
Company's failure to expand its distribution facilities in accordance with
its growth plans or difficulties incurred in operating its distribution
facilities could adversely affect the Company's ability to deliver
merchandise to its stores in a timely fashion.
INTEGRATION OF OPERATIONS AS THE RESULT OF ACQUISITIONS. If the
Company is to realize the anticipated benefits of its past acquisitions,
the operations of the acquired companies must be integrated and combined
efficiently. The process of rationalizing stores, supply and distribution
channels, computer and accounting systems and other aspects of operations,
while managing a larger and geographically expanded entity, presents a
significant challenge to the Company's management. There can be no
assurance that the integration process will be successful or that the
anticipated benefits of these acquisitions will be fully realized. The
dedication of management resources to integration efforts may detract
attention from the day-to-day business of the Company. The difficulties of
integration may be increased by the necessity of coordinating
geographically separated organizations, integrating personnel with
disparate business backgrounds and combining different corporate cultures.
There can be no assurance that the Company will be able to achieve any
expense reductions with the acquired companies, that there will not be
substantial costs associated with any such reductions, that such reductions
will not result in a decrease in revenues or that there will not be other
material adverse effects of these integration efforts. Such effects could
materially reduce the short-term earnings of the Company. In fiscal 1996
and 1997, merger and business integration costs of $37.2 million and $38.7
million, respectively, were recorded by the Company following acquisition
activities, including transaction costs, costs attributable to lease
cancellation and closure of duplicate or inadequate facilities and
activities, reformatting, facility conversion and other integration costs,
severance, and other costs. The Company expects to incur additional
business integration costs in subsequent periods to reflect costs
associated with its previous acquisitions. In addition, the Company may
make additional acquisitions in the future, which may result in additional
costs. Acquisitions require significant financial and management resources
both at the time of the transaction and during the process of integrating
the newly acquired business into the Company's operations. The Company's
operating results could be adversely affected if the Company is unable to
successfully integrate such new companies into its operations. Future
<PAGE> 9
acquisitions by the Company could also result in potentially dilutive
issuances of securities, incurrence of additional debt and contingent
liabilities, and amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect the Company's
profitability.
RELIANCE ON VENDORS AND PRODUCT LINES AND EXCLUSIVE DISTRIBUTION
ARRANGEMENTS. The Company purchases significant amounts of products from
three key vendors, Iams, Nutro, and Science Diet, the first of which
supplied products that accounted for more than 10% and less than 15% of the
Company's sales in fiscal 1997. The Company does not maintain long-term
supply contracts with any of its vendors and the loss of any of these
vendors or other significant vendors of premium pet food or pet supplies
offered by the Company could have a material adverse effect on the Company.
In addition, it would materially adversely affect the Company if any of
these manufacturers of premium pet food were to make their products
available in supermarkets or through other mass merchants, or if the
premium brands currently available to such supermarkets and mass merchants
were to increase their market share at the expense of the premium brands
sold only through specialty pet food and supply retailers. The Company's
principal vendors currently provide the Company with certain incentives
such as volume purchasing, trade discounts, cooperative advertising and
market development funds. A reduction or discontinuance of these
incentives could also have a material adverse effect on the Company.
COMPETITION. The pet food and supply retailing industry is highly
competitive. The Company competes with a number of pet supply warehouse
stores, smaller pet store chains and independent pet stores. The Company
also competes with supermarkets and other mass merchants. Many of the
Company's competitors are larger and have significantly greater resources
than the Company. If any of the Company's major competitors seek to gain
or retain market share by reducing prices, the Company may be required to
reduce its prices on key items in order to remain competitive, which may
have the affect of reducing its profitability. There is no assurance that
in the future the Company will not face greater competition from other
national, regional and local retailers.
PERFORMANCE OF NEW SUPERSTORES; FUTURE OPERATING RESULTS. The
Company has recently opened and acquired superstores in new markets and
plans to open and acquire additional superstores in other new markets.
There can be no assurance that these stores will be profitable in the near
term or that profitability, if achieved, will be sustained. In addition,
there can be no assurance that the Company's existing stores will maintain
their profitability or that new stores will generate sales levels necessary
to achieve store-level profitability, much less profitability comparable to
that of existing stores. The Company's comparable store net sales
increases were 16.5%, 16.1%, and 11.5% for fiscal 1995, 1996 and 1997,
respectively. The Company anticipates that its rate of comparable stores
sales growth may be lower in future periods than the growth rate previously
experienced due to maturation of the existing store base and the effects of
opening additional stores in existing markets. As a result of the
Company's rapid expansion, the Company expects its average store
contribution and operating margins to be lower in the near term due to the
level of preopening expenses and the lower anticipated sales volume of its
immature stores. In addition, certain costs, such as those related to
occupancy, are expected to be higher in some of the new geographic markets
that the Company has recently entered. Finally, due in part to recent
<PAGE> 10
acquisitions, period-to-period comparisons of financial results may not be
meaningful and the results of operations for historical periods may not be
indicative of future results.
QUARTERLY AND SEASONAL FLUCTUATIONS. The timing of new store
openings, related preopening expenses and the amount of revenue contributed
by new and existing stores may cause the Company's quarterly results of
operations to fluctuate. The Company's business is also subject to some
seasonal fluctuation. Historically, the Company has realized a higher
portion of its net sales during the month of December than during the other
months of the year.
DEPENDENCE ON SENIOR MANAGEMENT. The Company is dependent upon the
efforts of its principal executive officers. In particular, the Company is
dependent upon the management and leadership of Brian K. Devine, Chairman,
President and Chief Executive Officer. The loss of Mr. Devine or certain
of the Company's other principal executive officers could materially
adversely effect the Company's business. The Company has entered into an
employment agreement with Mr. Devine which provides for an indefinite term
and which may be terminated by Mr. Devine on 90 days' notice. The Company
has obtained a key man insurance policy on the life of Mr. Devine in the
amount of $1.0 million, of which the Company is the sole beneficiary. The
Company's success will depend on its ability to retain its current
management and to attract and retain qualified personnel in the future.
POSSIBLE VOLATILITY OF STOCK PRICE. Since the initial public
offering of the Company's common stock in March 1994, the market value of
the common stock has been subject to significant fluctuations. The market
price of the common stock may continue to be subject to significant
fluctuations in response to operating results and other factors. In
addition, the stock market in recent years has experienced price and volume
fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as general
economic and market conditions, may adversely affect the market price of
the common stock.
Readers are cautioned not to place undue reliance on forward-looking
statements which reflect management's view only as of the date of this
Annual Report. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements which may
be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 2. PROPERTIES
The Company leases substantially all of its store and warehouse
locations. Original lease terms for the Company's 457 stores generally
range from five to twenty years, many of which contain renewal options.
Leases on 126 stores expire within the next three years, with leases on 88
of these stores containing renewal options.
<PAGE> 11
The table below shows the location and number of the Company's stores as of
January 31, 1998.
<TABLE>
<S> <C> <C> <C>
Traditional
Location Superstores Stores Total Stores
- ------------------------ ----------- ----------- ------------
Alabama 1 1 2
Arizona 12 0 12
Arkansas 2 0 2
California 101 38 139
Colorado 7 0 7
Connecticut 11 0 11
District of Columbia 1 0 1
Idaho 1 0 1
Illinois 39 6 45
Indiana 2 0 2
Iowa 6 0 6
Kansas 9 0 9
Kentucky 1 0 1
Maryland 6 0 6
Massachusetts 14 3 17
Michigan 7 0 7
Minnesota 17 0 17
Missouri 12 2 14
Nebraska 2 0 2
Nevada 4 0 4
New Hampshire 3 0 3
New Jersey 13 1 14
New York 14 1 15
North Dakota 2 0 2
Ohio 3 0 3
Oregon 9 2 11
Pennsylvania 14 3 17
Rhode Island 1 0 1
South Dakota 1 0 1
Tennessee 5 0 5
Texas 39 0 39
Virginia 7 1 8
Washington 19 7 26
Wisconsin 7 0 7
--- -- ---
392 65 457
=== == ===
</TABLE>
The Company's headquarters, located in San Diego, California, occupy
approximately 70,000 square feet of office space which is financed under an
obligation which expires February 2006. The Company's five regional
distribution centers collectively occupy over 200,000 square feet of space
in Arlington, Texas; Stockton, California; Portland, Oregon; Mansfield,
Massachusetts; and New Hope, Minnesota under leases which expire in August
1999, December 2000, January 2002, December 1998, and September 2002,
respectively. The Company's three central distribution centers
collectively occupy over 460,000 square feet of space in Rancho Cucamonga,
California; Dayton, New Jersey; and Aurora, Illinois under leases which
expire in May 1999, June 2002, and April 1998, respectively. The Company
has entered into leases for two new central distribution centers to replace
the centers located in Rancho Cucamonga, California and Aurora, Illinois.
These two central distribution centers collectively occupy over 580,000
square feet of space in Mira Loma, California and Joliet, Illinois, under
leases which expire in August 2005 and April 2005, respectively. Each of
<PAGE> 12
the other distribution center leases contains a renewal option. The Company
expects to expend approximately $7.0 million to provide the additional
capacity to accommodate the Company's current expansion plans.
ITEM 3. LEGAL PROCEEDINGS
PETCO is not a party to any legal proceedings other than various
claims and lawsuits arising in the normal course of its business which, in
the opinion of the Company's management, are not individually or in the
aggregate material to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the fiscal year ended January 31, 1998.
<PAGE> 13
ITEM 4.1. EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Position
- -------------------- --- -----------------------------------------------
Brian K. Devine 56 Chairman, President and Chief Executive Officer
Bruce C. Hall 53 Executive Vice President - Operations
Richard C. St. Peter 49 Executive Vice President - Administration and
Chief Financial Officer
Larry D. Asselin 50 Senior Vice President - Merchandising and
Distribution
Janet D. Mitchell 42 Senior Vice President - Human Resources and
Administration
James M. Myers 40 Senior Vice President - Finance
William M. Woodard 49 Senior Vice President - Store Operations
BRIAN K. DEVINE, Chairman, President and Chief Executive Officer
joined the Company in August 1990 and has served as Chairman since January
1994. Prior to joining the Company, Mr. Devine was President of Krause's
Sofa Factory, a furniture retailer and manufacturer, from 1988 to 1989.
From 1970 until 1988, Mr. Devine held various positions with Toys 'R' Us, a
retailer of children's toys, including Senior Vice President, Director of
Stores; and Senior Vice President, Growth, Development and Operations. Mr.
Devine graduated from Georgetown University with a degree in economics.
BRUCE C. HALL, Executive Vice President, Operations, joined the
Company in April 1997. Mr. Hall spent his entire career of 34 years from
1963 to 1997 with Toys 'R' Us, a retailer of children's toys, where he
progressively advanced from field operations through a number of positions
and most recently served as Senior Vice President of Operations.
RICHARD C. ST. PETER, Executive Vice President, Administration and
Chief Financial Officer, joined the Company in September 1990. From 1986
to 1990, Mr. St. Peter was Vice President and Chief Financial Officer at
Stor, a furniture retailer. From 1982 to 1986, Mr. St. Peter held various
positions at W.R. Grace's Home Centers, which operated 90 retail stores,
including Vice President and Chief Financial Officer. From 1980 to 1982,
Mr. St. Peter was Controller at Smart & Final, a 120-store grocery
retailer. From 1971 to 1980, Mr. St. Peter was employed by Alpha Beta, a
grocery retailer and a division of American Stores, where he held a number
of positions including Controller. Mr. St. Peter received a bachelor's
degree from California State University at Long Beach and an MBA from the
University of Southern California.
LARRY D. ASSELIN, Senior Vice President, Merchandising and
Distribution, joined the Company in April 1991. Prior to that time,
beginning in 1987, Mr. Asselin was Vice President and General Merchandising
Manager at Oshman's, a sporting goods retailer. From 1969 to 1987, Mr.
Asselin was in various positions including Division Merchandising Manager
at Foley's Department Stores, a division of Federated Department Stores.
Mr. Asselin received a marketing degree from the University of Arkansas.
JANET D. MITCHELL, Senior Vice President, Human Resources and
Administration joined the Company in February 1989. From 1981 to 1989, Ms.
Mitchell held various management positions in human resources with the
Southland Corporation's 7-Eleven division. From 1978 to 1981, Ms. Mitchell
<PAGE> 14
held various positions with the El Torito Restaurant chain. Ms. Mitchell
received a bachelor's degree from California State University, San Diego.
JAMES M. MYERS, Senior Vice President, Finance joined the Company in
May 1990. From 1994 to 1996, Mr. Myers served as Vice President, Finance
and prior to that as Vice President and Controller of the Company. From
1980 to 1990, Mr. Myers held various positions at the accounting firm KPMG
Peat Marwick LLP, including Senior Audit Manager. Mr. Myers is a CPA and
received an accounting degree from John Carroll University.
WILLIAM M. WOODARD, Senior Vice President, Store Operations, joined
the Company in January 1991. From 1987 to 1990, Mr. Woodard was Vice
President, Director of Marketing at J. M. Jones, Inc., a wholesale division
of SuperValu Stores, Inc. From 1970 to 1987, Mr. Woodard was employed by
Safeway Stores, Inc., a grocery retailer, in a number of positions
including Retail Operations Manager and Marketing Operations Manager. Mr.
Woodard holds an administrative management degree from North Texas State
University and an MBA in marketing from the University of Southern
California.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock, $.0001 par value is quoted on The Nasdaq
National Market under the symbol "PETC." Public trading of the common
stock commenced on March 17, 1994. The following table sets forth for the
periods indicated the high and low reported sale prices per share for the
common stock as reported by The Nasdaq National Market. The table reflects
the three-for-two split of the common stock effected in the form of a stock
dividend on April 15, 1996.
<TABLE>
<S> <C> <C>
High Low
FISCAL 1996 ------ ------
First Quarter $32.67 $20.50
Second Quarter 29.25 21.63
Third Quarter 29.00 21.50
Fourth Quarter 26.00 18.75
FISCAL 1997
First Quarter $28.25 $19.00
Second Quarter 30.75 19.63
Third Quarter 33.00 26.25
Fourth Quarter 31.13 19.50
</TABLE>
On April 24, 1998, there were 704 shareholders of record of the
Company's common stock.
The Company has never paid cash dividends on its common stock. The
Company currently anticipates that it will retain all available funds for
use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future.
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share, store and square foot data)
The following table sets forth selected consolidated financial and
operating data for the Company for the five-year period ended January 31,
1998. The selected consolidated financial data presented below under the
caption "Income Statement Data" for the two-year period ended January 28,
1995 is derived from the unaudited consolidated financial statements of the
Company and its subsidiaries as restated to reflect the poolings of
interests during the years ended February 1, 1997 and January 31, 1998.
The selected consolidated financial data presented below under the caption
"Income Statement Data" for the three-year period ended January 31, 1998 is
derived from the audited consolidated financial statements of the Company
and its subsidiaries. The selected consolidated financial data presented
below under the caption "Balance Sheet Data" as of January 29, 1994,
January 28, 1995, and February 3, 1996 is derived from the unaudited
consolidated financial statements of the Company and its subsidiaries as
restated to reflect the poolings of interests during the years ended
February 1, 1997 and January 31, 1998. The selected consolidated financial
data presented below under the caption "Balance Sheet Data" as of February
1, 1997 and January 31, 1998 is derived from the audited consolidated
financial statements of the Company and its subsidiaries. The financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Consolidated Financial Statements as of January 31, 1998 and for
each of the years in the three-year period ended January 31, 1998 and the
independent auditors' report thereon, included and incorporated by
reference elsewhere in this Annual Report.
<TABLE>
<S> <C> <C> <C> <C> <C>
Historical
-----------------------------------------------------
Fiscal Year Ended
-----------------------------------------------------
Jan.29, Jan. 28, Feb 3, Feb. 1, Jan. 31,
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
INCOME STATEMENT DATA:
Net sales $224,979 $313,809 $443,585 $600,637 $749,789
Cost of sales and occupancy costs(1) 169,831 234,400 337,873 446,315 553,566
-------- -------- -------- -------- --------
Gross profit 55,148 79,409 105,712 154,322 196,223
Selling, general and administrative expenses 56,812 75,416 101,760 132,745 173,667
Merger and business integration costs -- -- 9,196 37,208 38,693
-------- -------- -------- -------- --------
Operating income (loss) (1,664) 3,993 (5,244) (15,631) (16,137)
Loss on disposal of stores -- -- 3,500 -- --
Interest expense (income), net 5,308 1,080 71 600 2,530
-------- -------- -------- -------- --------
Earnings (loss) before income taxes (6,972) 2,913 (8,815) (16,231) (18,667)
Income taxes (benefit) (2) 42 1,969 (14,601) (4,075) (5,486)
-------- -------- -------- -------- --------
Net earnings (loss) $ (7,014) $ 944 $ 5,786 $(12,156) $(13,181)
======== ======== ======== ======== ========
Basic net earnings (loss) per common share (3) $0.08 $0.36 $(0.63) $(0.64)
Diluted net earnings (loss) per common share $0.08 $0.35 $(0.63) $(0.64)
Basic weighted average common shares outstanding 11,373 16,147 19,426 20,646
Diluted weighted average common shares outstanding 11,390 16,427 19,426 20,646
OPERATING DATA:
Superstores open end of period 108 174 264 345 392
Traditional stores open end of period 139 114 89 68 65
--------- ---------- ---------- ---------- ----------
Total stores open end of period 247 288 353 413 457
Aggregate gross square footage 1,418,585 2,047,078 3,169,472 4,435,019 5,299,535
Average net sales per store (4) $842,000 $ 974,000 $1,183,000 $1,438,000 $1,696,000
Average net sales per gross square foot (5) $ 162 $ 153 $ 168 $ 162 $ 158
Percentage increase in comparable store net sales 15.0% 18.5% 16.5% 16.1% 11.5%
BALANCE SHEET DATA:
Working capital $ 9,505 $ 31,918 $ 29,064 $ 59,928 $ 33,540
Total assets 71,302 126,918 214,498 312,617 335,195
Long-term debt, excluding current portion 48,531 -- -- -- 26,625
Capital lease and other obligations, excluding
current portion 2,959 5,779 13,334 15,581 11,369
Total stockholders' equity (deficit) (43,716) 48,397 130,040 196,499 186,057
</TABLE>
______________
(1) Includes $4.3 million of charges from the write-down of fixed assets
and related costs with respect to the Company's central distribution
facility in fiscal 1995.
(2) Includes $11.8 million benefit from previously unrecognized deferred
tax assets in fiscal 1995.
(3) Due to differences in capital structure, the Company's net earnings per
share information prior to fiscal 1994 is not comparable and, accordingly,
is not presented.
(4) Calculated using net sales divided by the number of stores open,
weighted by the number of months stores are open during the period.
(5) Calculated using net sales divided by gross square footage of stores
open, weighted by the number of months stores are open during the period.
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company currently utilizes both superstore and traditional store
formats and follows a strategy of converting and expanding its store base
from a traditional store format to a superstore format. As a result of
this strategy, the Company has opened and acquired superstores, has
expanded and relocated traditional stores into superstores and has closed
underperforming stores. PETCO's experience has indicated that its
superstore format achieves increased customer traffic, sales volume and
profitability as compared to its traditional store format. As a result of
the Company's store expansion strategy, operating results may reflect lower
average store contribution and operating margins due to increased store
preopening expenses and lower anticipated sales volumes of immature stores.
During fiscal 1995 the Company completed three acquisitions of
retailers of pet food and supplies which were accounted for as purchases.
During fiscal 1996 the Company completed two acquisitions of retailers of
pet food and supplies which were accounted for as purchases. The Company
also acquired three retailers of pet food and supplies which operated under
the trade names Pet Nosh, with eight stores in the New York area, PETS USA
with four stores in Colorado, and Pet Food Warehouse with 32 stores in the
Upper Midwestern states. These acquisitions were accounted for as poolings
of interests.
During fiscal 1997, the Company completed four acquisitions of
retailers of pet food and supplies, operating 21 stores which were
accounted for as immaterial poolings of interests. The Company also
acquired a retailer that operated 82 pet food and supply stores under the
trade name PetCare located in 10 Midwestern and Southern states which was
accounted for as a pooling of interests.
All results of operations have been restated to reflect the poolings
of interests and to reflect the purchase transactions and immaterial
poolings from their respective acquisition dates. (See footnote 2 to the
consolidated financial statements).
At January 31, 1998, the Company operated 457 stores, including 392
superstores, in 33 states and the District of Columbia.
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth certain items expressed as a
percentage of net sales for the periods indicated. As a result of
operational and strategic changes, period-to-period comparisons of
financial results may not be meaningful and the results of operations for
historical periods may not be indicative of future results.
<TABLE>
<S> <C> <C> <C>
Feb. 3, Feb. 1, Jan. 31,
1996 1997 1998
-------- -------- --------
Net sales 100.0% 100.0% 100.0%
Cost of sales and occupancy costs 76.2 74.3 73.8
----- ----- -----
Gross profit 23.8 25.7 26.2
Selling, general and administrative expenses 22.9 22.1 23.2
Merger and business integration costs 2.1 6.2 5.2
----- ----- -----
Operating income (loss) (1.2) (2.6) (2.2)
Loss on disposal of stores .8 -- --
Interest expense (income), net -- 0.1 0.3
----- ----- -----
Earnings (loss) before income taxes (2.0) (2.7) (2.5)
Income taxes (benefit) (3.3) (0.7) (0.7)
----- ----- -----
Net earnings (loss) 1.3 (2.0) (1.8)
===== ===== =====
</TABLE>
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED FEBRUARY
1, 1997
Net sales increased 24.8% to $749.8 million in fiscal 1997 from
$600.6 million in fiscal 1996. The increase in net sales in fiscal 1997
resulted primarily from the addition of 57 superstores, including the
conversion of 10 traditional stores into superstores, the acquisition of
seven traditional stores, the closing of 10 stores, and a comparable store
net sales increase of 11.5%. The comparable store net sales increase was
attributable to maturing superstores, increased advertising and expanded
merchandise assortments in existing stores. The net increase in the
Company's store base accounted for approximately $103.2 million, or 69.2%
of the net sales increase, and $46.0 million, or 30.8% of the net sales
increase, was attributable to the increase in comparable store net sales.
Gross profit, defined as net sales less the cost of sales including
store occupancy costs, increased $41.9 million, or 27.2%, to $196.2 million
in fiscal 1997 from $154.3 million in fiscal 1996. Gross profit as a
percentage of net sales increased to 26.2% in fiscal 1997 from 25.7% in
fiscal 1996. This increase reflects greater purchasing leverage during the
current period.
Selling, general and administrative expenses increased $41.0 million,
or 30.9%, to $173.7 million in fiscal 1997 from $132.7 million in fiscal
1996. Selling, general and administrative expenses increased primarily as a
result of higher personnel and related costs associated with new store
openings. Selling, general and administrative expenses in fiscal 1997
include charges of $11.0 million related to the acquisition of PetCare.
Excluding these charges, these expenses decreased as a percentage of net
sales to 21.7% in fiscal 1997 from 22.1% in fiscal 1996 due to net sales
increasing at a greater rate than related expenses.
Merger and business integration costs of $37.2 million were recorded
in fiscal 1996 following acquisition activities. These costs consisted of
$7.2 million of transaction costs, $22.2 million of costs attributable to
lease cancellations and closure of duplicate or inadequate facilities and
<PAGE> 19
activities, $3.8 million of reformatting, facility conversion and other
integration costs and $4.0 million of severance and other costs. In fiscal
1997, merger and business integration costs of $38.7 million were recorded
following acquisition activities. These costs consisted of $4.5 million of
transaction costs, $17.8 million of costs attributable to lease
cancellations and closure of duplicate or inadequate facilities and
activities, $12.2 million of reformatting, facility conversion and other
integration costs and $4.2 million of severance and other costs. The
Company expects to incur an additional $14.0 to $18.0 million in merger and
business integration costs for continuing integration efforts in fiscal
1998 from reformatting, facility conversion costs and other integration
costs.
Operating loss of $16.1 million was incurred in fiscal 1997 compared
to operating loss of $15.6 million in fiscal 1996. Excluding merger and
business integration costs and the $11.0 million in charges related to the
PetCare acquisition, the Company would have reported operating income of
4.5% of net sales in fiscal 1997 and 3.6% in fiscal 1996.
Net interest expense was $2.5 million in fiscal 1997 compared to net
interest expense of $0.6 million in fiscal 1996. Increased borrowings in
fiscal 1997 led to the increase in interest expense.
Income tax benefit was $5.5 million in fiscal 1997 compared to income
tax benefit of $4.1 million in fiscal 1996. Income tax benefit reflects
the Federal and state tax benefits of the loss before income taxes, net of
the effect of non-deductible expenses.
Net loss was $13.2 million in fiscal 1997 compared to net loss of
$12.2 million in fiscal 1996. Excluding merger and business integration
costs and related charges and tax benefits, net earnings for fiscal 1997
would have been $18.6 million, or $0.88 per diluted share, compared to
$12.6 million, or $0.63 per diluted share in fiscal 1996.
FISCAL YEAR ENDED FEBRUARY 1, 1997 COMPARED TO FISCAL YEAR ENDED FEBRUARY
3, 1996
Net sales increased 35.4% to $600.6 million in fiscal 1996 from
$443.6 million in fiscal 1995. The increase in net sales in fiscal 1996
resulted primarily from the addition of 91 superstores, including the
conversion of 22 traditional stores into superstores, the acquisition of
one traditional store, the closing of 10 stores, and a comparable store net
sales increase of 16.1%. The comparable store net sales increase was
attributable to maturing superstores, increased advertising and expanded
merchandise assortments in existing stores. The net increase in the
Company's store base accounted for approximately $115.9 million, or 73.8%
of the net sales increase, and $41.1 million, or 26.2% of the net sales
increase, was attributable to the increase in comparable store net sales.
Gross profit increased $48.6 million, or 46%, to $154.3 million in
fiscal 1996 from $105.7 million in fiscal 1995. Gross profit as a
percentage of net sales increased to 25.7% in fiscal 1996 from 23.8% in
fiscal 1995. This increase reflects a better sales mix, increased
occupancy leverage and lowered distribution expenses related to the more
efficient operation of the Company's central distribution facility during
the period. In addition, charges of $4.3 million were recorded during the
third quarter of fiscal 1995 from the write-down of fixed assets and
<PAGE> 20
related costs with respect to the Company's central distribution facility.
Excluding these charges, gross profit as a percentage of net sales in
fiscal 1995 would have been 24.8%.
Selling, general and administrative expenses increased $30.9 million,
or 30.4%, to $132.7 million in fiscal 1996 from $101.8 million in fiscal
1995. Selling, general and administrative expenses increased primarily as
a result of higher personnel and related costs associated with new store
openings. As a percentage of net sales, these expenses decreased to 22.1%
in fiscal 1996 from 22.9% in fiscal 1995 due to net sales increasing at a
greater rate than related expenses.
Merger and business integration costs of $9.2 million were recorded
in fiscal 1995 following acquisition activities. These costs were
primarily associated with lease cancellations and closure of traditional
stores located in the same markets as acquired stores and the conversion
and integration of certain acquired stores. In fiscal 1996, merger and
business integration costs of $37.2 million were recorded following
acquisition activities. These costs consisted of $7.2 million of
transaction costs, $22.2 million of costs attributable to lease
cancellations and closure of duplicate or inadequate facilities and
activities, $3.8 million of reformatting, facility conversion and other
integration costs and $4.0 million of severance and other costs.
Operating loss of $15.6 million was incurred in fiscal 1996 compared
to operating loss of $5.2 million in fiscal 1995. Excluding merger and
business integration costs and the $4.3 million write-down of fixed assets,
the Company would have reported operating income of 3.6% of net sales in
fiscal 1996 and 1.9% in fiscal 1995.
Net interest expense was $0.6 million in fiscal 1996 compared to net
interest expense of $0.1 million in fiscal 1995.
Income tax benefit was $4.1 million in fiscal 1996 compared to income
tax benefit of $14.6 million in fiscal 1995. In fiscal 1995, an income tax
benefit of $11.8 million from previously unrecognized deferred tax assets
was recognized.
Net loss was $12.2 million in fiscal 1996 compared to net earnings of
$5.8 million in fiscal 1995. Excluding merger and business integration
costs, the $4.3 million write-down of fixed assets, the $3.5 million loss
on disposal of stores, and their related tax benefits, and recognition of
$11.8 million from previously unrecognized deferred tax assets, net
earnings for fiscal 1996 would have been $12.6 million, or $0.63 per
diluted share, compared to $4.9 million, or $0.30 per diluted share in
fiscal 1995.
<PAGE> 21
QUARTERLY DATA
The following tables set forth the unaudited quarterly results of
operations for fiscal 1996 and fiscal 1997. This information includes all
adjustments management considers necessary for fair presentation of such
data. The results of operations for historical periods are not necessarily
indicative of results for any future period. The Company expects quarterly
results of operations to fluctuate depending on the timing and amount of
revenue contributed by new stores.
The Company believes that its business is moderately seasonal, with
net sales and earnings generally higher in the fourth fiscal quarter due to
year-end holiday purchases.
<TABLE>
<S> <C> <C> <C> <C>
Fiscal Quarter Ended
------------------------------------------
May 4, Aug. 3, Nov. 2, Feb. 1,
Fiscal 1996 1996 1996 1996 1997
- ----------- --------- --------- --------- ---------
Net sales $ 133,659 $ 143,614 $ 151,556 $ 171,808
Gross profit 32,628 36,799 39,461 45,434
Operating income (loss) 1,988 (10,867) 2,179 (8,931)
Net earnings (loss) 976 (7,208) 1,117 (7,041)
Basic net earnings (loss) per share $ 0.06 $ (0.36) $ 0.06 $ (0.35)
Diluted net earnings (loss) per share $ 0.05 $ (0.36) $ 0.05 $ (0.35)
Stores open at end of period 367 372 389 413
Aggregate gross square footage 3,489,187 3,618,650 3,925,025 4,435,019
Percentage increase in comparable store net sales 18.2% 18.3% 17.0% 12.6%
Fiscal Quarter Ended
------------------------------------------
May 3, Aug. 2, Nov. 1, Jan. 31,
Fiscal 1997 1997 1997 1997 1998
- ----------- --------- --------- --------- --------
Net sales $ 170,909 $ 175,460 $ 191,775 $211,645
Gross profit 42,212 45,339 50,471 58,201
Operating income (loss) 2,704 (2,884) (24,989) 9,032
Net earnings (loss) 1,297 (2,811) (17,013) 5,346
Basic net earnings (loss) per share $ 0.06 $ (0.14) $ (0.81) $ 0.25
Diluted net earnings (loss) per share $ 0.06 $ (0.14) $ (0.81) $ 0.25
Stores open at end of period 420 427 451 457
Aggregate gross square footage 4,564,145 4,759,811 5,132,350 5,299,535
Percentage increase in comparable store net sales 14.0% 12.4% 10.2% 10.2%
</TABLE>
YEAR 2000 ISSUES
The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year.
In 1997, the Company developed a plan to deal with the Year 2000 problem to
assure that its systems are Year 2000 compliant. In general, the Company
expects to resolve Year 2000 issues through planned replacements or
upgrades. The Company does not expect that the cost of its Year 2000
compliance program will be material to its business, results of operations,
or financial condition. Although the impact on the Company caused by the
failure of the Company's significant suppliers to achieve Year 2000
compliance in a timely or effective manner is uncertain, the Company's
business and results of operations could be materially adversely affected
by such failure.
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and expansion program through
internal cash flow, external borrowings and the sale of equity securities.
At January 31, 1998, total assets were $335.2 million, $124.4 million of
which were current assets. Net cash provided by (used in) operating
activities was $6.6 million, $(0.6) million, and $10.6 million for fiscal
1995, 1996 and 1997, respectively. The Company's sales are substantially
on a cash basis, therefore, cash flow generated from operating stores
provides a significant source of liquidity to the Company. The principal
use of operating cash is for the purchase of merchandise inventories. A
portion of the Company's inventory purchases is financed through vendor
credit terms.
The Company uses cash in investing activities to acquire stores,
purchase fixed assets for new and converted stores and, to a lesser extent,
to purchase warehouse and office fixtures, equipment and computer hardware
and software in support of its distribution and administrative functions.
Cash used in investing activities was $63.1 million, $51.6 million and
$65.7 million for fiscal 1995, 1996 and 1997, respectively.
The Company also finances some of its purchases of equipment and
fixtures through capital lease and other obligations. Purchases of $11.1
million, $8.0 million and $1.3 million of fixed assets were financed in
this manner during fiscal 1995, 1996 and 1997, respectively. The Company
believes additional sources of capital lease and other obligation financing
are available on a cost-effective basis and plans to use them, as
necessary, in connection with its expansion program.
During fiscal 1995, the Company completed six acquisitions of
retailers of pet food and supplies in purchase transactions. The aggregate
fair market value of assets acquired was $38.8 million and assumed
liabilities were $8.4 million with $30.4 million of net cash invested in
the acquisition of these businesses. During fiscal 1996, the Company
completed two acquisitions of retailers of pet food and supplies in
purchase transactions. The aggregate fair value of assets acquired was
$14.4 million and assumed liabilities were $1.4 million with $13.0 million
of net cash invested in the acquisition of these businesses, of which $6.0
million was expended in fiscal 1997.
The Company's primary long-term capital requirement is funding for
the opening or acquisition of superstores and conversion of traditional
stores into superstores. Cash flows provided by financing activities were
$54.3 million, $79.4 million and $13.5 million in fiscal 1995, 1996 and
1997, respectively. In fiscal 1995, 1996, and 1997, net proceeds of $53.7
million, $79.4 million, and $2.5 million, respectively, were generated from
sales of common stock. Cash flows from financing activities were used to
finance the acquisition of related businesses and fund the Company's
expansion program and working capital requirements.
The Company has a credit facility with a syndicate of banks with a
commitment of up to $110.0 million that expires January 30, 2003. The
credit facility provides for $80.0 million in revolving loans and a $30.0
million term loan. Borrowings under the credit facility are unsecured and
bear interest, at the Company's option, at the agent bank's corporate base
rate or LIBOR plus 0.50% to 1.50%, based on the Company's leverage ratio at
<PAGE> 23
the time. The credit agreement contains certain affirmative and negative
covenants related to indebtedness, interest and fixed charges coverage, and
consolidated net worth. As of January 31, 1998, the Company had $80.0
million of revolving loans available under the credit facility.
As of January 31, 1998, the Company had available net operating loss
carryforwards of $39.2 million for federal income tax purposes, which begin
expiring in 2004, and $36.4 million for state income tax purposes, which
begin expiring in 1998.
The Company anticipates that funds generated by operations, funds
available under the credit facility and currently available vendor
financing and capital lease and other obligation financing will be
sufficient to finance its continued operations and planned store openings
at least through fiscal 1998.
<PAGE> 24
INFLATION
Although the Company cannot accurately anticipate the effect of
inflation on its operations, it does not believe that inflation has had, or
is likely in the foreseeable future to have, a material impact on its net
sales or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements required by this Item are set
forth at the pages indicated in Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Company's Proxy Statement relating
to the 1998 Annual Meeting of Stockholders to be filed pursuant to General
Instruction G(3) to Form 10-K, except information concerning the executive
officers of the Company which is set forth in Item 4.1 hereof.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Company's Proxy Statement relating
to the 1998 Annual Meeting of Stockholders to be filed pursuant to General
Instruction G(3) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's Proxy Statement relating
to the 1998 Annual Meeting of Stockholders to be filed pursuant to General
Instruction G(3) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's Proxy Statement relating
to the 1998 Annual Meeting of Stockholders to be filed pursuant to General
Instruction G(3) to Form 10-K.
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
Page
Independent Auditor's Reports 26
Consolidated Balance Sheets 28
Consolidated Statements of Operations 29
Consolidated Statements of Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
(b) Reports on Form 8-K
None
(c) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed as
part of this Annual Report.
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Petco Animal Supplies, Inc.:
We have audited the accompanying consolidated balance sheets of Petco
Animal Supplies, Inc. and subsidiaries as of February 1, 1997 and
January 31, 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-
year period ended January 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements
of PetCare Plus, Inc., which statements reflect total assets constituting
10 percent at February 1, 1997, and total revenues constituting 19 percent
and 17 percent for the years ended January 27, 1996 and January 25, 1997,
respectively, of the related consolidated totals. Those financial
statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
PetCare Plus, Inc., is based solely on the report of the other auditors.
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, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Petco Animal
Supplies, Inc. and subsidiaries as of February 1, 1997 and January 31, 1998
and the results of their operations and their cash flows for each of the
years in the three-year period ended January 31, 1998 in conformity with
generally accepted accounting principles.
San Diego, California KPMG Peat Marwick LLP
April 17, 1998
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
PetCare Plus, Inc.:
We have audited the accompanying balance sheets of PetCare Plus, Inc. as of
January 25, 1997 and the related statements of operations, redeemable
convertible preferred stock and stockholder's equity and cash flows for the
years ended January 25, 1997 and January 27, 1996. 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 PetCare Plus, Inc. as
of January 25, 1997, and the results of its operations and its cash flows
for the years ended January 25, 1997 and January 27, 1996 in conformity
with generally accepted accounting principles.
Chicago, Illinois Coopers & Lybrand L.L.P.
April 16, 1997, except as to the
information presented in Note 4,
for which the date is June 10, 1997
<PAGE> 28
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
<TABLE>
<S> <C> <C>
February 1, January 31,
1997 1998
---------- -----------
Current assets:
Cash and cash equivalents $ 44,338 $ 3,354
Receivables 7,881 10,879
Inventories 82,782 96,873
Deferred tax assets (note 6) 6,439 8,354
Other 2,428 4,942
--------- ---------
Total current assets 143,868 124,402
Fixed assets (note 4):
Equipment 43,613 51,525
Furniture and fixtures 36,298 50,575
Leasehold improvements 67,936 100,151
--------- ---------
147,847 202,251
Less accumulated depreciation and amortization (38,018) (54,822)
--------- --------
109,829 147,429
Goodwill 42,408 39,348
Deferred tax assets (note 6) 14,268 17,885
Other assets 2,244 6,131
--------- ---------
$ 312,617 $ 335,195
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,457 $ 51,794
Accrued expenses 19,680 21,558
Accrued salaries and employee benefits 9,096 9,242
Current portion of long-term debt (note 3) 8,950 3,375
Current portion of capital lease and other
obligations (note 4) 4,575 5,073
-------- ---------
Total current liabilities 84,758 91,042
Long-term debt, excluding current portion (note 3) -- 26,625
Capital lease and other obligations, excluding current
portion (note 4) 15,581 11,369
Accrued store closing costs 8,691 11,189
Deferred rent 7,088 8,913
Stockholders' equity (note 5):
Common stock, $.0001 par value, 100,000 shares
authorized, 20,153 and 21,060 shares issued
and outstanding, respectively 2 2
Additional paid-in capital 265,971 270,755
Accumulated deficit (69,474) (84,700)
-------- -------
Total stockholders' equity 196,499 186,057
Commitments and contingencies (notes 4, 5, and 9)
-------- ------
$ 312,617 $ 335,195
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
Years Ended
-----------------------------------
February 3, February 1, January 31,
1996 1997 1998
---------- ---------- ----------
Net sales $ 443,585 $ 600,637 $ 749,789
Cost of sales and occupancy costs 337,873 446,315 553,566
--------- --------- --------
Gross profit 105,712 154,322 196,223
Selling, general and administrative expenses 101,760 132,745 173,667
Merger and business integration costs (note 2) 9,196 37,208 38,693
--------- --------- ---------
Operating loss (5,244) (15,631) (16,137)
Loss on disposal of stores (note 7) 3,500 -- --
Interest income (1,477) (2,179) (588)
Interest expense 1,548 2,779 3,118
--------- -------- --------
Loss before income taxes (8,815) (16,231) (18,667)
Income tax benefit (note 6) (14,601) (4,075) (5,486)
--------- -------- --------
Net earnings (loss) $ 5,786 $ (12,156) $ (13,181)
========= ========= =========
Net earnings (loss) per common share, basic $ 0.36 $ (0.63) $ (0.64)
========= ========= =========
Net earnings (loss) per common share, diluted $ 0.35 $ (0.63) $ (0.64)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 30
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
--------------- ---------- ----------- -------------
Balances at
January 28, 1995 12,020 $ 1 $110,398 $ (46,832) $ 63,567
Restatement for
poolings of
interests (Note 2) 1,264 -- 22,523 (15,180) 7,343
------ ----- ------- -------- -------
Balances at
January 28, 1995 13,284 $ 1 $132,921 $ (62,012) $ 70,910
Sale of common stock 3,897 -- 53,614 -- 53,614
Exercise of options 5 -- 60 -- 60
Distributions to
shareholders (note 2) -- -- (8) (323) (331)
Net earnings -- -- -- 5,786 5,786
------ ----- ------- ------- ------
Balances at
February 3, 1996 17,186 $ 1 $186,587 $(56,549) $130,039
Sale of common stock 2,897 1 78,698 -- 78,699
Cash in lieu of
fractional shares -- -- (5) -- (5)
Exercise of options 69 -- 670 -- 670
Issuance of stock
for services 1 -- 21 -- 21
Distributions to
shareholders (note 2) -- -- -- (769) (769)
Net loss -- -- -- (12,156) (12,156)
----- ---- ------ ------- -------
Balances at
February 1, 1997 20,153 $ 2 $265,971 $(69,474) $196,499
Beginning balance of
immaterial poolings
of interests (note 2) 613 -- 2,311 (2,045) 266
Exercise of options 293 -- 2,449 -- 2,449
Issuance of stock
For services 1 -- 24 -- 24
Net loss -- -- -- (13,181) (13,181)
------ ----- ------- ------- ------
Balances at
January 31, 1998 21,060 $ 2 $270,755 $(84,700) $ 186,057
====== ===== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 31
PETCO ANIMAL SUPPLIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<S> <C> <C> <C>
Years Ended
-----------------------------------------
February 3, February 1, January 31,
1996 1997 1998
---------- ---------- ----------
Cash flows from operating activities:
Net earnings (loss) $ 5,786 $(12,156) $ (13,181)
Depreciation and amortization 11,190 18,089 24,289
Deferred taxes (16,031) (5,204) (5,391)
Loss on retirement of fixed assets 3,603 4,712 5,908
Loss on disposal of stores 3,500 -- --
Changes in assets and liabilities, net of effects
of purchase acquisitions:
Receivables (1,226) (2,348) (2,845)
Inventories (14,006) (15,342) (7,992)
Other assets 210 (2,766) (7,247)
Accounts payable 6,550 3,112 12,667
Accrued expenses 53 2,592 567
Accrued salaries and employee benefits 720 3,238 145
Accrued store closing costs 5,179 3,887 2,489
Deferred rent 1,040 1,540 1,170
------- ------- --------
Net cash provided by (used in) operating
activities 6,568 (646) 10,579
------- ------- --------
Cash flows from investing activities:
Additions to fixed assets (35,361) (46,246) (59,633)
Net cash invested in acquisitions of businesses (30,373) (7,021) (6,028)
Proceeds from sale of fixed assets -- 1,626 --
Proceeds from disposal of stores 2,426 -- --
Other 224 -- --
------- ------- --------
Net cash used in investing activities (63,084) (51,641) (65,661)
------- ------- --------
Cash flows from financing activities:
Borrowings under long-term debt agreements 2,750 5,450 28,591
Repayment of long-term debt agreements -- -- (10,335)
Borrowings under other obligations 1,178 -- --
Repayment of capital lease and other obligations (2,984) (4,626) (7,221)
Proceeds from the issuance of common stock 53,675 79,385 2,473
Distributions to shareholders (331) (769) --
------- ------- --------
Net cash provided by financing activities 54,288 79,440 13,508
------- ------- --------
Net increase (decrease) in cash and cash equivalents (2,228) 27,153 (41,574)
Cash and cash equivalents at beginning of year 19,413 17,185 44,338
Beginning cash and cash equivalents of immaterial
poolings of interests -- -- 590
------- ------- -------
Cash and cash equivalents at end of year $ 17,185 $ 44,338 $ 3,354
======= ======= =======
Supplemental cash flow disclosures:
Interest paid on debt $ 1,340 $ 2,792 $ 3,105
Income taxes paid $ 1,436 $ 1,854 $ 920
Supplemental disclosure of noncash financing
activities:
Additions to capital leases $ 11,093 $ 8,015 $ 1,268
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
PETCO ANIMAL SUPPLIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. Summary of Significant Accounting Policies
(a) Description of Business:
PETCO Animal Supplies, Inc., (the Company or PETCO) a Delaware
corporation, is a national specialty retailer of premium pet food and
supplies with stores in 33 states and the District of Columbia.
(b) Basis of Presentation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(c) Fiscal Year:
The Company's fiscal year ends on the Saturday closest to January 31,
resulting in years of either 52 or 53 weeks. The year ended February 3,
1996 consisted of 53 weeks and the years ended February 1, 1997 and January
31, 1998 consisted of 52 weeks. All references to a fiscal year refer to
the fiscal year ending on the Saturday closest to January 31 of the
following year.
(d) Cash Equivalents:
The Company considers all liquid investments with maturities of three
months or less to be cash equivalents.
(e) Inventories:
Inventories are stated at the lower of cost, determined by the first-
in, first-out method, or market.
(f) Pre-opening Costs:
Costs incurred in connection with opening new stores are expensed as
incurred.
(g) Fixed Assets:
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
generally three to ten years. Equipment under capital leases is stated at
the present value of minimum lease payments at the inception of the lease.
Amortization is computed using the straight-line method over the lesser of
the lease term or the estimated useful lives of the assets, generally five
to fifteen years.
(h) Goodwill:
Goodwill represents the excess of the cost over the fair market value
of net assets acquired by the Company. Goodwill is amortized straight-line
over fifteen years. The Company continually reviews goodwill to assess
recoverability from future undiscounted cash flows. Accumulated
amortization at February 1, 1997 and January 31, 1998 was $3,423 and
$6,483, respectively.
<PAGE> 33
(i) Other Assets:
Other assets consist primarily of lease deposits, non-compete
agreements and debt issuance costs. Non-compete agreements are amortized
straight-line over the periods of the agreements, generally five to seven
years. Debt issuance costs are amortized to interest expense using the
effective interest method over the life of the related debt, generally five
years. Accumulated amortization for intangible other assets at February 1,
1997 and January 31, 1998 was $100 and $177, respectively.
(j) Store Closing Costs:
Management continually reviews the ability of stores to provide
positive contributions to the Company's results. Costs associated with
closing stores, consisting primarily of lease obligations and provisions to
reduce assets to net realizable value are charged to operations upon the
decision to close a store.
(k) Income Taxes:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the enactment date.
(l) Fair Value of Financial Instruments:
Because of their short maturities, the carrying amounts for cash and
cash equivalents, receivables, accounts payable, accrued expenses, and
accrued salaries and employee benefits approximate fair value. The
carrying amounts for long-term debt and capital leases and other
obligations approximate fair value as the interest rates are substantially
similar to rates which could be obtained currently for similar instruments.
(m) Impairment of Long-Lived Assets:
The Company periodically assesses the impairment of long-lived assets
based on expectations of future profitability and undiscounted cash flow
from the related operations, and when circumstances dictate, adjusts the
carrying value of the asset. These factors, along with management's plans
with respect to the operations, are considered in assessing the
recoverability of goodwill, other purchased intangibles and property and
equipment.
(n) Stock Options:
The Company accounts for stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", which recognizes compensation
expense on the grant date if the current market price of the stock exceeded
the exercise price. In 1996, the Company elected to adopt the disclosure
provisions of Statement Of Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation".
(o) Earnings Per Share:
The consolidated financial statements are presented in accordance
with SFAS No. 128, "Earnings per Share." Basic net earnings (loss) per
common share are computed using the weighted average number of common
<PAGE> 34
shares outstanding during the period. Diluted net earnings (loss) per
common share incorporate the incremental shares issuable upon the assumed
exercise of stock options. All prior period net earnings (loss) per common
share information are presented in accordance with SFAS No. 128.
Net earnings (loss) and weighted average common shares used to
compute net earnings (loss) per share, basic and diluted, are presented
below:
<TABLE>
<S> <C> <S>
Years Ended
----------------------------------
February 3, February 1, January 31,
1996 1997 1998
---------- ---------- ---------
Net earnings (loss) $ 5,786 $(12,156) $(13,181)
Common shares, basic 16,147 19,426 20,646
Dilutive effect of stock options 280 -- --
------- ------- -------
Common shares, diluted 16,427 19,426 20,646
======= ======= =======
</TABLE>
Dilutive effect of stock options of 561 and 581 shares were not included in
computing diluted earnings (loss) per share for fiscal 1996 and fiscal
1997, respectively, because the effect would have been antidilutive.
(p) Reclassifications:
Certain previously reported amounts have been reclassified to conform
with the current period presentation.
2. BUSINESS COMBINATIONS
The Company acquired all of the outstanding equity securities of a retailer
with eight pet food and supply stores operated under the tradename Pet Nosh
in July 1996, a retailer with four pet food and supply stores operated
under the tradename PETS USA in October 1996, and a retailer with thirty-
two pet food and supply stores operated under the tradename Pet Food
Warehouse in December 1996, in exchange for an aggregate 2,929 shares of
common stock in transactions accounted for as poolings of interests. All
prior period financial statements have previously been restated for these
acquisitions.
The Company acquired all of the outstanding equity securities of a retailer
with four pet food and supply stores operated under the tradename Super
Pets in August 1997, a retailer with nine pet food and supply stores
operated under the tradename Paws in October 1997, a retailer with five pet
food and supply stores operated under the tradename The PetCare Company in
October 1997, and a retailer with four pet food and supply stores operated
under the tradename Pet Food Savemart in October 1997, in exchange for an
aggregate 613 shares of common stock. These acquisitions were accounted
for as poolings of interests with their financial positions and results of
operations included in the accompanying consolidated financial statements
from the beginning of the period in which each immaterial pooling was
completed. Previously reported financial statements have not been restated
to include the results of these acquisitions as revenues and results of
operations prior to the acquisition were not material to the consolidated
financial position or results of operations of the Company.
The Company acquired all of the outstanding equity securities of a retailer
with eighty-two pet food and supply stores operated under the tradename
PetCare ("PetCare") in November 1997, in exchange for 1,543 shares of
common stock. This transaction has been accounted for as a pooling of
interests, and accordingly, the consolidated financial statements for the
periods presented have been restated to include the accounts of PetCare.
<PAGE> 35
Net sales and net earnings (loss) for the separate companies for the
periods preceding the PetCare acquisition were as follows:
<TABLE>
<S> <C> <C>
Net Earnings
Net Sales (Loss)
--------- ------------
Year ended February 3, 1996:
PETCO, as previously reported $ 358,951 $ 7,465
PetCare (1) 84,634 $ (1,679)
--------- --------
Combined $ 443,585 $ 5,786
========= ========
Year ended February 1, 1997:
PETCO, as previously reported $ 500,036 $ (11,685)
PetCare (1) 100,601 (471)
--------- --------
Combined $ 600,637 $ (12,156)
========= ========
Year ended January 31, 1998:
PETCO $ 695,713 $ (11,193)
PetCare 54,076 (1,988)
--------- --------
Combined $ 749,789 $ (13,181)
========= ========
</TABLE>
(1)In connection with the pooling with PetCare, an additional $1,143
and $327 of deferred tax assets were recognized in fiscal 1995 and fiscal
1996, respectively.
During fiscal 1995, the Company completed six acquisitions of retailers of
pet food and supplies. All of these acquisitions were accounted for as
purchases. The aggregate fair market value of assets acquired was $38,756
and assumed liabilities were $8,383 with $30,373 of net cash invested in
the acquisition of these businesses. The excess of the aggregate cost over
the fair market value of net assets acquired was $28,905 which has been
recorded as goodwill and is being amortized over fifteen years.
During fiscal 1996, the Company completed two acquisitions of retailers of
pet food and supplies in transactions accounted for as purchases. The
aggregate fair value of assets acquired was $14,433 and assumed liabilities
were $1,384 with $13,049 of net cash invested in the acquisition of these
businesses, of which $6,028 was expended in fiscal 1997. The excess of the
aggregate cost over the fair value of net assets acquired was $11,293 which
was recorded as goodwill and is being amortized over fifteen years.
The consolidated financial statements include the operating results from
the closing date for each respective purchase acquisition. The purchase
acquisitions during fiscal 1996 did not materially affect results of
operations and accordingly, pro-forma results are not presented for fiscal
1996.
In fiscal 1995, merger and business integration costs of $9,196 were
recorded following acquisition activities. These costs were primarily
associated with lease cancellations and closure of traditional stores
located in the same markets as acquired stores and the conversion and
integration of certain acquired stores.
In fiscal 1996, merger and business integration costs of $37,208 were
recorded following acquisition activities. These costs consisted of $7,182
of transaction costs, $22,224 of costs attributable to lease cancellations
and closure of duplicate or inadequate facilities and activities, $3,835 of
reformatting, facility conversion and other integration costs and $3,967 of
severance and other costs.
In fiscal 1997, merger and business integration costs of $38,693 were
recorded following acquisition activities. These costs consisted of $4,470
of transaction costs, $17,790 of costs attributable to lease cancellations
and closure of duplicate or inadequate facilities and activities, $12,216
of reformatting, facility conversion and other integration costs and $4,217
of severance and other costs.
Distributions to shareholders reflected in the accompanying Consolidated
Statement of Stockholders' Equity reflect activities of the pooled
companies.
<PAGE> 36
3. LONG-TERM DEBT
On January 30, 1998, the Company agreed to a five year credit facility with
a syndicate of banks which provides for borrowings up to $110,000. The
credit facility provides $80,000 in revolving loans and $30,000 for a term
loan. Borrowings under the credit facility are unsecured and bear
interest, at the Company's option, at the agent bank's corporate base rate
or LIBOR plus 0.50% to 1.50% based on the Company's leverage ratio at the
time. The credit agreement contains certain affirmative and negative
covenants related to indebtedness, interest and fixed charges coverage, and
consolidated net worth.
<TABLE>
<S> <C> <C>
Long-term debt consists of:
February 1, January 31,
1997 1998
---------- ----------
Revolving loans $ 8,950 $ --
Term loan -- 30,000
------ ------
8,950 30,000
Less current portion 8,950 3,375
------ ------
$ -- $26,625
====== ======
</TABLE>
Annual maturities of long-term debt for the next five fiscal years are as
follows:
$3,375, $4,500, $7,125, $7,500 and $7,500.
4. Lease Commitments and Other Obligations
The Company finances certain fixed assets under capital leases.
There are approximately $21,200 and $22,500 in fixed assets financed
through capital leases at February 1, 1997 and January 31, 1998,
respectively. Accumulated amortization related to these financed assets
was approximately $5,000 and $7,500 at February 1, 1997 and January 31,
1998, respectively.
The Company leases warehouse and store facilities under operating
leases. These operating leases generally have terms from three to ten
years. Certain stores leases include additional contingent rental payments
ranging from 2% to 6% of store revenues above defined levels. Contingent
rentals during fiscal years 1995, 1996, and 1997 were $61, $24 and $33,
respectively.
At January 31, 1998, the present value of future minimum payments for
capital lease and other obligations, and minimum lease payments under
noncancellable operating leases were as follows:
<TABLE>
<S> <C> <C>
Capital Leases
and Other Operating
Years Obligations Leases
----- -------------- ---------
1998 $ 6,700 $ 67,414
1999 5,288 65,295
2000 3,121 62,627
2001 1,591 56,234
2002 323 52,190
Thereafter 2,644 239,554
------ -------
Total minimum payments 19,667 $543,314
=======
Less amount representing interest 3,225
------
Present value of net minimum capital
lease and other obligations payments 16,442
Less current portion of capital lease
and other obligations 5,073
------
Capital lease and other obligations $11,369
======
</TABLE>
<PAGE> 37
Rent expense under operating leases for fiscal years 1995, 1996, and
1997 was approximately $39,639, $55,023, and $70,506, respectively.
5. EQUITY
(a) Common Stock:
All references to common share information in the accompanying
consolidated financial statements and notes reflect recognition of an April
15, 1996, three for two stock split. In June 1996, the Company's
stockholders approved an increase in the number of authorized shares to
100,000.
In 1995, the Company sold 3,897 common shares, for net proceeds to
the Company of $53,614. In 1996, the Company sold 2,897 common shares, for
net proceeds to the Company of $78,699.
(b) Stock Options:
In February 1994, the Company's stockholders approved the 1994 Stock
Option Plan ("1994 Company Plan") which provides for the granting of stock
options, stock appreciation rights or restricted stock with respect to
shares of common stock to executives and other key employees. Stock
options may be granted in the form of incentive stock options or non-
statutory stock options and are exercisable for up to ten years following
the date of grant. Stock option exercise prices must be equal to or
greater than the fair market value of the common stock on the grant date.
In June 1996, the Company's stockholders approved an amendment to the 1994
Company Plan to increase the number of shares available for issuance under
the plan for each of the next five fiscal years by 3.0% of the number of
shares of common stock issued and outstanding as of the end of the
immediately preceding fiscal year.
In February 1994, the Company's stockholders approved the Directors
1994 Stock Option Plan ("Directors Plan") which provides for the granting
of common stock options to directors. Stock option exercise prices must be
equal to the fair market value of the common stock on the grant date. In
June 1995, the Company's stockholders approved an amendment to the
Directors Plan to increase the number of shares available for issuance
under the plan for each of the next five fiscal years by 0.1% of the number
of shares of common stock issued and outstanding as of the end of the
immediately preceding fiscal year.
In 1996, the Company assumed an employee stock option plan ("1993
Company Plan") from Pet Food Warehouse which provided for the granting of
incentive and nonqualified stock options with exercise prices equal to
their fair market values on their grant dates that become exercisable over
various periods and expire five or six years after the date of grant. The
common shares and exercise prices under this plan were adjusted based on
the common share conversion rate per the merger agreement with Pet Food
Warehouse. No future grants will be made under this plan.
In 1997, the Company assumed an employee stock option plan ("1989
Company Plan") from PetCare which provided for the granting of incentive
and non-qualified stock options with exercise prices equal to their fair
market values on their grant dates that became exercisable over various
periods and expire up to ten years after the date of grant. The common
shares and exercise prices under this plan were adjusted in accordance with
the terms of the merger agreement with PetCare. No further grants will be
made under this plan.
<PAGE> 38
Information regarding the stock option plans follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1994 Company Plan 1993 Company Plan
--------------------------------- ---------------------------------
Weighted Weighted
Average Average
Option Price Exercise Option Price Exercise
Shares Per Share Price Shares Per Share Price
------ ------------ -------- ------ ------------- --------
Outstanding at
January 28, 1995 548 $ 10.33 $ 10.33 107 $ 8.05-$42.27 $ 24.31
Granted 156 $12.33-$18.33 $ 12.57 167 $14.95-$24.75 $ 18.08
Exercised (6) $ 10.33 $ 10.33 -- -- --
Cancelled (8) $10.33-$12.33 $ 11.49 (65) $16.72-$27.23 $ 24.31
------ ------------ ------- ------ ------------ -------
Outstanding at
February 3, 1996 690 $10.33-$18.33 $ 12.58 209 $ 8.05-$42.27 $ 19.73
Granted 333 $ 23.17 $ 23.17 41 $18.40-$23.58 $ 18.51
Exercised (50) $ 10.33 $ 10.33 -- $16.68-$19.12 $ 17.50
Cancelled (47) $10.33-$23.17 $ 20.52 (41) $8.05-$23.58 $ 19.13
------ ------------ ------- ------ ------------ -------
Outstanding at
February 1, 1997 926 $10.33-$23.17 $ 14.77 209 $14.95-$42.27 $ 19.52
Granted 645 $22.50-$30.31 $ 23.17 -- -- $ --
Exercised (164) $ 10.33 $ 10.33 (75) $15.24-$27.21 $ 20.11
Cancelled (85) $10.33-$23.17 $ 20.52 (13) $14.95-$42.27 $ 23.71
------ ------------ ------- ------ ------------ -------
Outstanding at
January 31, 1998 1,322 $10.33-$30.31 $ 18.89 121 $14.95-$27.73 $ 18.74
====== ------------ ------- ====== ------------ -------
Exercisable at
February 3, 1996 336 $ 10.33 $ 10.33 64 $ 8.05-$42.27 $ 23.69
Exercisable at
February 1, 1997 383 $ 10.33 $ 10.33 182 $14.95-$42.27 $ 19.40
Exercisable at
January 31, 1998 372 $10.33-$30.25 $ 12.55 111 $14.95-$27.73 $ 18.63
Available for grant at
January 31, 1998 784 --
Directors Plan 1989 Company Plan
--------------------------------- ---------------------------------
Weighted Weighted
Average Average
Option Price Exercise Option Price Exercise
Shares Per Share Price Shares Per Share Price
------ ------------ -------- ------ -------------- --------
Outstanding at
January 28, 1995 5 $ 10.33 $ 10.33 105 $ 7.70-$11.54 $ 7.71
Granted 6 $ 12.33 $ 12.33 78 $ 11.54 $ 11.54
Exercised -- -- -- -- $ -- $ --
Cancelled -- -- -- -- $ -- $ --
------ ------------ ------- ------ ------------ -------
Outstanding at
February 3, 1996 11 $10.33-$12.33 $ 11.47 183 $ 7.70-$11.54 $ 9.34
Granted 3 $ 31.67 $ 31.67 5 $ 11.54 $ 11.54
Exercised -- $ -- $ -- -- $ -- $ --
Cancelled -- -- -- -- $ -- $ --
------ ------------ ------- ------ ------------ -------
Outstanding at
February 1, 1997 14 $10.33-$31.67 $ 15.96 188 $ 7.70-$11.54 $ 9.40
Granted 12 $21.38-$22.50 $ 21.67 -- $ 11.54 $ 11.54
Exercised -- $ -- $ -- (134) $ 7.70-$11.54 $ 9.61
Cancelled -- $ -- $ -- -- -- --
------ ------------ ------- ------ ------------ -------
Outstanding at
January 31, 1998 26 $10.33-$31.67 $ 18.64 54 $ 7.70-$11.54 $ 8.89
====== ------------ ------- ====== ------------ -------
Exercisable at
February 3, 1996 11 $10.33-$12.33 $ 11.47 78 $ 7.70-$11.54 $ 7.75
Exercisable at
February 1, 1997 14 $10.33-$31.67 $ 15.96 107 $ 7.70-$11.54 $ 8.22
Exercisable at
January 31, 1998 26 $10.33-$31.67 $ 18.64 54 $ 7.70-$11.54 $ 8.89
Available for grant at
January 31, 1998 64 --
</TABLE>
In March 1998, options for 689 shares were granted under the 1994 Company
Plan which vest in March 2001 and are exercisable at $17.44 per share, and
options for 6,000 shares were granted under the Directors Plan that were
immediately exercisable at $17.44 per share.
(c) Accounting for Stock Options:
The Company accounts for stock option plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations,
under which no compensation expense was recognized. Had compensation costs
for the Company's stock option plans been determined based upon the fair
value at the grant date for awards under these plans, consistent with the
<PAGE> 39
methodology prescribed under SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net earnings and earnings per share would have
been reduced by approximately $650 or $0.04 per share during 1995, the
Company's net loss and loss per share would have been increased by $2,340,
or $0.12 per share, during 1996, and the Company's net loss and loss per
share would have been increased by $3,850, or $0.18 per share, during 1997.
The pro forma change in net earnings (loss) reflects only options granted
in 1995, 1996, and 1997. Therefore, the full impact of calculating
compensation costs for stock options under SFAS No. 123 is not reflected in
the pro forma change in net earnings (loss) amounts presented above because
compensation cost is reflected over the options vesting period of three
years and compensation cost for options granted prior to January 1, 1995 is
not considered. The weighted average fair value of the options granted
during 1995, 1996 and 1997 were estimated as $7.30, $12.01 and $11.65 on
the date of grant using the Black-Scholes option pricing model with the
following assumptions: no dividend yield, volatility of 66%, 52.7%, and
47.5%, risk-free interest rate of 6.5%, 6.5%, and 6.0% for 1995, 1996 and
1997, respectively, and an expected life of five years for all grants.
The following table summarizes information about the options
outstanding under all stock option plans at January 31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
----------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
----------- ------------ -------- ----------- --------
$10-$20 635 5.90 $ 12.03 493 $11.82
$20-$30 850 8.73 $ 22.84 34 $22.98
$30-$45 38 9.34 $ 30.37 36 $30.37
--------- --------
1,523 563
========= ========
</TABLE>
<PAGE> 40
6. INCOME TAXES
Income taxes (benefit) consists of the following:
<TABLE>
<S> <C> <C> <C>
Years Ended
----------------------------------------
February 3, February 1, January 31,
1996 1997 1998
----------- ---------- ----------
Current:
Federal $ 1,090 $ 958 $ 416
State 340 171 (370)
------- ------- -------
1,430 1,129 46
------- ------- -------
Deferred:
Federal (15,370) (5,186) (4,290)
State (661) (18) (1,242)
------- ------- -------
(16,031) (5,204) (5,532)
------- ------- -------
Income taxes (benefit) $(14,601) $ (4,075) $ (5,486)
======= ======= =======
</TABLE>
A reconciliation of income taxes at the federal statutory rate of 34%
with the provision for income taxes (benefit) follows:
<TABLE>
<S> <C> <C> <C>
Years Ended
---------------------------------------
February 3, February 1, January 31,
1996 1997 1998
---------- ---------- ----------
Income taxes at federal
statutory rate $ (2,998) $ (5,518) $ (6,347)
Non-deductible expenses 4 1,323 1,489
State taxes, net of federal
tax benefit (233) 101 (1,064)
Change in valuation
allowance (11,809) -- --
Other 435 19 436
------- ------- -------
$(14,601) $ (4,075) $ (5,486)
======= ======= =======
</TABLE>
The sources of significant temporary differences which gave rise to
the deferred tax provision and their effects follow:
<TABLE>
<S> <C> <C> <C>
Years Ended
---------------------------------------
February 3, February 1, January 31,
1996 1997 1998
---------- ---------- ----------
Inventory $ (344) $ (2,891) $ (1,216)
Deferred rent (420) (1,072) (588)
Depreciation 833 1,424 1,611
Accrued fringes (527) (96) (699)
Intangibles 245 (178) 1,771
Store closing costs (1,182) (1,833) (1,941)
Fixed assets (1,410) (1,318) 1,128
Other assets -- -- (2,358)
Benefit of net operating
loss carryforwards (604) 943 (3,929)
Other (216) (183) 689
Change in valuation
allowance (11,809) -- --
Prior year adjustments (597) -- --
------- ------- -------
$(16,031) $ (5,204) $ (5,532)
======= ======= =======
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets follow:
<PAGE> 41
<TABLE>
<S> <C> <C>
Years Ended
-------------------------
February 1, January 31,
1997 1998
---------- ----------
Deferred tax assets:
Inventory $ 5,033 $ 6,249
Deferred rent 2,824 3,412
Accrued fringes 1,406 2,105
Intangibles 553 --
Store closing costs 3,555 5,496
Fixed assets 2,728 1,600
Other assets -- 2,358
Net operating loss carryforwards 10,693 14,622
Other 370 --
------ ------
Total deferred tax assets 27,162 35,842
Valuation allowance (4,900) (4,900)
------ ------
Net deferred tax assets 22,262 30,942
------ ------
Deferred tax liabilities:
Depreciation (1,555) (3,166)
Intangibles -- (1,218)
Other -- (319)
------ ------
Total deferred tax liabilities (1,555) (4,703)
------ ------
Net deferred tax assets $20,707 $26,239
====== ======
</TABLE>
Following the resolution of the Internal Revenue Service examination
of certain of the Company's federal income tax returns during the year
ended February 3, 1996, the valuation allowance of $11,809 was eliminated
and income taxes provided in prior years adjusted. The valuation allowance
of $4,900 at February 1, 1997 and January 31, 1998 relates to net operating
loss carryforwards of PetCare. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
that the Company will realize the benefits of these deductible differences,
net of the valuation allowance.
At January 31, 1998, the Company has available net loss carryforwards
of $39,239 for federal income tax purposes, which begin expiring in 2004,
and $36,406 for state income tax purposes, which begin expiring in 1998.
7. DISPOSAL OF STORES
In November 1995, Pet Food Warehouse sold certain assets of its eight
retail stores in Michigan and Ohio for $2,426 in cash pursuant to an Asset
Purchase Agreement and Addendum (the Agreements). The Agreements provided
for the sale of certain assets used in the operation of the Michigan and
Ohio stores and the assumption of certain liabilities by the buyer. The
sale of these assets resulted in a loss on the sale of stores of $3,500 in
the fourth quarter of fiscal 1995 from, among other things, rent
concessions and the loss on disposal of inventory and property and
equipment. Pursuant to the Agreements, if the buyer defaults under the
sublease arrangements, the Company is contingently liable for amounts owing
under the lease agreements.
<PAGE> 42
8. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan which permits eligible
participants to make contributions by salary reduction pursuant to section
401(k) of the Internal Revenue Code. Effective April 1, 1997, the Company
adopted a matching provision for 50% of the first 3% of compensation that
is contributed by each participating employee. In connection with the
required match, the Company's contribution to the plan was $58 in 1996 and
$199 in 1997. Prior to 1996, there was no matching contribution.
9. Commitments and Contingencies
Because of the nature of its activities, the Company is subject to
legal actions which arise out of the normal course of business. In the
opinion of management, based in part upon the advice of outside counsel,
the ultimate disposition of these matters will not have a material adverse
effect on the consolidated financial position, results of operations, or
liquidity of the Company.
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
Sequentially
Numbered
Number Document Page
- ------ -------- ------------
2.1 Agreement and Plan of Merger, dated as of October 3, 1996, --
by and among Petco, PASI Acquisition Corp. and Pet Food
Warehouse, Inc. (1)
3.1 Amended and Restated Certificate of Incorporation, as --
amended. (1)
3.2 Amended and Restated By-Laws. (2) --
4.1 Form of Common Stock Certificate. (2) --
10.1 Credit Agreement, dated January 30, 1998 between the Company 51
and Union Bank, as Syndicating Agent. (3)
10.2 Term loan Agreement, dated January 29, 1996, between the --
Company and Union Bank. (4)
10.3 First Amendment to Term loan Agreement, dated April 24, 1997, --
between the Company and Union Bank.(5)
10.4 Distribution Center Lease, dated March 24, 1994, between the --
Company and The Principal Mutual Life Insurance Company for
10401 Seventh Street, Rancho Cucamonga, California. (6)
10.5 Lease Dayton (3) 120
10.6 Distribution Center Lease, dated February 20, 1998 between the 213
Company and Industrial Developments International, Inc. for
3801 Rock Creek Boulevard, Joliet, Illinois. (3)
10.7 Lease Mira Loma (3) 274
10.8 Master Equipment Lease Agreement, dated October 19, 1992, --
between the Company and Sanwa Business Credit Corporation. (2)
10.9 Master Equipment Lease Agreement, dated September 21, 1994, --
between the Company and General Electric Credit Corporation. (6)
10.10 Master Equipment Lease Agreement, dated March 10, 1995, between --
the Company and KeyCorp Leasing Ltd. (4)
10.11 Master Equipment Lease Agreement, dated November 15, 1995, --
between the Company and Fleet Credit Corporation. (4)
10.12 Master Lease Agreement, dated December 27, 1995, between the --
Company and Newcourt Financial USA, Inc. (4)
10.13 Master Lease Agreement, dated September 28, 1995, between the --
Company and USL Capital Corporation. (4)
10.14 Employment Letter Agreement, dated October 3, 1996, by and --
between Petco and Marvin W. Goldstein. (1)
10.15 Employment Agreement, dated March 17, 1996, between the Company --
and Brian K. Devine. (4)
10.16 Form of Indemnification Agreement between the Company and --
certain officers and directors. (2)
10.17 Form of Retention Agreement for executive officers. (3) 366
10.18 Form of Retention Agreement for officers. (3) 375
10.19 Petco Animal Supplies 401(k) Plan. (2) --
10.20 The 1994 Stock Option and Restricted Stock Plan for Executive --
and Key Employees of Petco Animal Supplies, Inc., as amended. (7)
10.21 First Amendment to 1994 Stock Option and Restricted Stock Plan --
for Executive and Key Employees of Petco Animal Supplies, Inc. (5)
10.22 Petco Animal Supplies, Inc. Group Benefit Plan, dated July 29, --
1991, as amended. (4)
10.23 Petco Animal Supplies, Inc. Directors' 1994 Stock Option Plan, --
as amended. (4)
10.24 Form of Petco Animal Supplies, Inc. Nonstatutory Stock Option --
Agreement. (2)
10.25 Form of Petco Animal Supplies, Inc. Incentive Stock Option --
Agreement. (2)
<PAGE> 44
10.26 Form of Petco Animal Supplies, Inc. Restricted Stock Agreement. (2) --
10.27 Form of Petco Animal Supplies, Inc. Nonstatutory Stock Option --
Agreement (Directors' 1994 Stock Option Plan). (2)
10.28 The Pet Food Warehouse, Inc. 1993 Stock Option Plan (8) --
10.29 Pet Food Warehouse, Inc. Amendment to 1993 Stock Option Plan. (9) --
10.30 The PetCare Plus, Inc. 1989 Stock Option Plan (the "1989 Stock --
Option Plan"). (10)
10.31 Form of Incentive Stock Option Agreement under the 1989 Stock --
Option Plan. (10)
10.32 Form of Nonqualified Stock Option Agreement under the 1989 --
Stock Option Plan. (10)
21.1 Subsidiaries of the registrant. (3) 47
23.1 Consent of KPMG Peat Marwick LLP. (3) 48
23.2 Consent of Coopers & Lybrand L.L.P. (3) 49
27.1 Financial Data Schedule. (3) 50
</TABLE>
_____________
(1) Filed as an exhibit to the Company's Registration Statement on Form S-4
dated October 23, 1996, File No. 333-14699, including Amendment No. 1
thereto dated November 20, 1996.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1
dated January 13, 1994, File No. 33-77094, including Amendment No. 1
thereto dated February 24, 1994 and Amendment No. 2 thereto dated March
11, 1994.
(3) Filed herewith.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-3
dated April 4, 1996, File No. 333-3156, including Amendment No. 1
thereto dated April 24, 1996.
(5) Filed as an exhibit to the Company's Current Report on Form 10-K dated
April 30, 1997.
(6) Filed as an exhibit to the Company's Registration Statement on Form S-1
dated March 31, 1995, File No. 33-90804, including Amendment No. 1
thereto dated April 27, 1995.
(7) Filed as an exhibit to the Company's Proxy Statement dated May 24, 1996
relating to the 1996 Annual Meeting of Stockholders of Petco.
(8) Filed as an exhibit to Pet Food Warehouse, Inc.'s Registration
Statement on Form SB-2 dated July 6, 1993, File No. 33-65734C,
including Amendment No. 1 thereto, dated effective August 13, 1993,
Post-Effective Amendment No. 1 thereto, dated January 7, 1994, Post-
Effective Amendment No. 2 thereto, dated February 1, 1994, and Post-
Effective Amendment No. 3 thereto, dated February 10, 1994.
(9) Filed as an exhibit to the Company's Registration Statement on Form S-8
dated February 26, 1997, File No. 333-14699.
(10)Filed as an exhibit to the Company's Registration Statement on Form S-8
dated March 20, 1998, File No. 333-48311.
<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, on the
30th day of April, 1998.
PETCO ANIMAL SUPPLIES, INC.
By: /s/BRIAN K. DEVINE
-------------------------------------
Brian K. Devine
Chairman of the Board, President and
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/BRIAN K. DEVINE Chairman of the Board, President April 30, 1998
- -----------------------
Brian K. Devine and Chief Executive Officer
(Principal Executive Officer)
/s/RICHARD C. ST. PETER Executive Vice President, Chief April 30, 1998
- -----------------------
Richard C. St. Peter Financial Officer and Secretary
(Principal Financial Officer)
/s/JAMES M. MYERS Senior Vice President, Finance April 30, 1998
- -----------------------
James M. Myers (Principal Accounting Officer)
/s/ANDREW G. GALEF Director April 30, 1998
- -----------------------
Andrew G. Galef
/s/RICHARD J. LYNCH Director April 30, 1998
- -----------------------
Richard J. Lynch
/s/JAMES F. McCANN Director April 30, 1998
- -----------------------
James F. McCann
/s/PETER M. STARRETT Director April 30, 1998
- -----------------------
Peter M. Starrett
<PAGE> 46
Exhibit 21.1
PETCO ANIMAL SUPPLIES, INC.
SUBSIDIARIES
<TABLE>
<S> <C>
Name Jurisdiction of Incorporation
---- -----------------------------
International Pet Supplies and Distribution, Inc. California
Pet Nosh Consolidated Co., Inc. New York
</TABLE>
<PAGE> 47
Exhibit 23.1
The Board of Directors
Petco Animal Supplies, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 33-82302, 33-95352, 333-04442, 333-26301, and 333-48311) on Form S-8
and (No. 333-14699) on Post-Effective Amendment No. 1 on Form S-8 to Form
S-4 of Petco Animal Supplies, Inc. of our report dated April 17, 1998,
relating to the consolidated balance sheets of Petco Animal Supplies, Inc.
and subsidiaries as of February 1, 1997 and January 31, 1998, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended January 31,
1998, which report appears in the January 31, 1998, annual report on Form
10-K of Petco Animal Supplies, Inc.
KPMG Peat Marwick LLP
San Diego, California
April 28, 1998
<PAGE> 48
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Petco Animal Supplies, Inc. on Form S-3 (File No. 333-45889) and Form
S-8 (File No. 333-48311) of our report dated April 16, 1997, on our audits
of the financial statements of PetCare Plus, Inc. (which are included in
the restated pooled financial statements of Petco Animal Supplies, Inc.) as
of January 25, 1997 and for the years ended January 25, 1997 and January
27, 1996, which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Chicago, Illinois
April 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 3,354
<SECURITIES> 0
<RECEIVABLES> 10,879
<ALLOWANCES> 0
<INVENTORY> 96,873
<CURRENT-ASSETS> 124,402
<PP&E> 147,429
<DEPRECIATION> 0
<TOTAL-ASSETS> 335,195
<CURRENT-LIABILITIES> 91,042
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 186,057
<TOTAL-LIABILITY-AND-EQUITY> 335,195
<SALES> 749,789
<TOTAL-REVENUES> 749,789
<CGS> 553,566
<TOTAL-COSTS> 553,566
<OTHER-EXPENSES> 212,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,530
<INCOME-PRETAX> (18,667)
<INCOME-TAX> (5,486)
<INCOME-CONTINUING> (13,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,181)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
Exhibit 10.1
$110,000,000
CREDIT AGREEMENT
===============================================
PETCO ANIMAL SUPPLIES, INC.
BORROWER
THE BANKS NAMED HEREIN
LENDERS
AND
UNION BANK OF CALIFORNIA, N.A.
Administrative Agent, Arranger and
Syndication Agent
===============================================
Dated as of January 30, 1998
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS 1
ARTICLE 2
THE CREDIT 14
2.1 Revolving Loans 14
2.2 Issuance of Letters of Credit 16
2.3 Fees 20
2.4 Term Loans 21
2.5 Types of Loans 22
2.6 Voluntary Conversion of Advances 22
2.7 Interest. 23
2.8 Rates Applicable After Default 24
2.9 Method of Payment 24
2.10 Telephonic Notices 24
2.11 Interest Payment Dates; Interest and Fee Basis 24
2.12 Notification of Loan, Interest Rates, Prepayments and
Commitment Reductions 25
2.13 Applicable Lending Offices 25
2.14 Non-Receipt of Funds by the Agent 26
2.15 Withholding Tax Exemption 26
2.16 Optional Prepayments 26
2.17 Mandatory Prepayments 27
2.18 Commitment Obligations 27
2.19 Commitment Termination 27
2.20 Required Payments 27
ARTICLE 3
CHANGE IN CIRCUMSTANCES 28
3.1 Yield Protection 28
3.2 Taxes 29
ARTICLE 4
CONDITIONS PRECEDENT 29
4.1 Initial Loan or Letter of Credit 29
4.2 All Loans 31
4.3 All Letters of Credit 31
ARTICLE 5
REPRESENTATIONS AND WARRANTIES 32
5.1 Authorization 32
5.2 Governmental Action 32
5.3 Enforceability 32
5.4 Use of Proceeds 32
5.5 Litigation 33
5.6 Financial Statements 33
5.7 Taxes 33
5.8 Subsidiaries 33
5.9 ERISA 33
5.10 Accuracy of Information 33
5.11 Organization and Existence 34
5.12 Consents 34
5.13 Intellectual Property 34
5.14 Default 34
5.15 Nature of Business 34
5.16 Ranking of Loans 35
5.17 Compliance with Laws 35
5.18 Investment Company Acts; Other Regulations 35
5.19 Environmental Matters 35
5.20 Title 35
5.21 Solvency 35
ARTICLE 6
COVENANTS 36
6.1 Financial Reporting 36
6.2 Use of Proceeds 38
6.3 Notice of Default 38
6.4 Conduct of Business 38
6.5 Records 39
6.6 Insurance 39
6.7 Compliance with Laws 39
6.8 Maintenance of Properties 39
6.9 Inspection 39
6.10 Debt 39
6.11 Merger 40
6.12 Sale of Assets 40
6.13 Sale of Accounts 40
6.14 Acquisitions 40
6.15 Affiliates 41
6.16 ERISA 41
6.17 Capital Expenditures 41
6.18 Total Debt Ratio 42
6.19 Payment of Obligations 42
6.20 Consolidated Net Worth 42
6.21 Restricted Junior Payments. 43
6.22 Encumbrances and Liens 43
6.23 Loans, Advances and Guaranties 43
6.24 Investments 44
6.25 Minimum Fixed Charge Coverage Ratio 45
6.26 Capitalized Rent Expense Ratio 45
6.27 Guaranties, Etc 45
6.28 Lease Obligations 46
6.29 Condition Subsequent 46
ARTICLE 7
DEFAULTS 46
7.1 Payment Defaults. 46
7.2 Representations and Warranties. 46
7.3 Other Loan Document Defaults. 46
7.4 Bankruptcy. 46
7.5 Other Agreements. 47
7.6 ERISA. 47
7.7 Judgments. 47
7.8 Loan Documents 47
ARTICLE 8
ACCELERATION, WAIVERS AND AMENDMENTS 47
8.1 Acceleration 47
8.2 Cash Collateral 48
8.3 Additional Remedies 48
8.4 Amendments 48
8.5 Preservation of Rights 49
ARTICLE 9
GENERAL PROVISIONS 49
9.1 Survival of Representations 49
9.2 Governmental Regulation 49
9.3 Headings 49
9.4 Entire Agreement 49
9.5 Several Obligations; Benefits of this Agreement 49
9.6 Expenses; Indemnification 50
9.7 Numbers of Documents 50
9.8 Accounting 50
9.9 Severability of Provisions 51
9.10 Nonliability of Lenders 51
9.11 CHOICE OF LAW 51
9.12 CONSENT TO JURISDICTION 51
9.13 WAIVER OF JURY TRIAL 51
9.14 Integration Clause 51
9.15 Confidentiality 52
ARTICLE 10
THE AGENT 52
10.1 Appointment 52
10.2 Powers 52
10.3 General Immunity 52
10.4 No Responsibility for Loans, Recitals, etc. 52
10.5 Action on Instructions of Lenders 53
10.6 Employment of Agents and Counsel 53
10.7 Reliance on Documents; Counsel 53
10.8 Agent's Reimbursement and Indemnification 53
10.9 Rights as a Lender 54
10.10 Lender Credit Decision 54
10.11 Successor Agent 54
ARTICLE 11
SETOFF; RATABLE PAYMENTS 55
11.1 Setoff 55
11.2 Ratable Payments 55
ARTICLE 12
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 56
12.1 Successors and Assigns 56
12.2 Participations 56
12.3 Assignments 57
12.4 Dissemination of Information 58
12.5 Tax Treatment 58
ARTICLE 13
NOTICES 59
13.1 Giving Notice 59
13.2 Change of Address 59
ARTICLE 14
COUNTERPARTS 59
SCHEDULE 1 - LENDERS AND APPLICABLE LENDING OFFICES
SCHEDULE 2 - SUBSIDIARIES
SCHEDULE 3 - DEBT
EXHIBIT A-1 - FORM OF REVOLVING NOTE
EXHIBIT A-2 - FORM OF TERM NOTE
EXHIBIT B - COMPLIANCE CERTIFICATE
EXHIBIT C - ASSIGNMENT AGREEMENT
EXHIBIT D - LEVERAGE RATIO LEVEL CERTIFICATE
EXHIBIT E - FORMS OF LETTER OF CREDIT REQUESTS
EXHIBIT F - FORM OF NOTICE OF BORROWING
CREDIT AGREEMENT
This Agreement, dated as of January 30, 1998, is among PETCO ANIMAL
SUPPLIES, INC., a Delaware corporation (the "Borrower"), the financial
institutions party hereto (together with their respective successors and
permitted assigns, the "Lenders") and UNION BANK OF CALIFORNIA, N.A.
("UBOC"), as Agent for the Lenders. The parties hereto agree as follows:
RECITALS
WHEREAS, UBOC, certain lenders and the Borrower are parties to that
Credit Agreement dated as of December 6, 1996 (the "Prior Loan Agreement");
and
WHEREAS, the Lenders have agreed, on the terms and conditions herein
set forth, to extend term and revolving credit to the Borrower for the
purposes of repaying all amounts under the Prior Loan Agreement, of
refinancing costs associated with recent acquisitions and store
conversions, of making permitted acquisitions and capital expenditures, of
making bridge loans permitted hereunder to Canadian Petcetera Warehouse
Inc., for working capital purposes and for general corporate purposes;
WHEREAS, the Lenders have agreed, on the terms and conditions herein
set forth, to issue letters of credit for the Borrower's account as a
revolving commitment subfacility for the purposes of supporting purchases
of inventory by the Borrower and of providing support for lease and
insurance obligations of the Borrower;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which
the Borrower or any of its Subsidiaries (i) acquires any going business in
the pet food and supply business or related fields or all or substantially
all of the assets of any firm, corporation or division thereof in the pet
food and supply business or related fields, whether through purchase of
assets, merger or otherwise or (ii) directly or indirectly acquires (in one
transaction or as the most recent transaction in a series of transactions)
at least a majority (in number of votes) of the securities of a corporation
in the pet food and supply business or related fields which have ordinary
voting power for the election of directors (other than securities having
such power only by reason of the happening of a contingency) or a majority
(by percentage or voting power) of the outstanding partnership interests of
a partnership in the pet food and supply business or related fields.
"Acquisition Documents" means the purchase agreement, together with
all schedules and exhibits referenced therein and the legal opinions
delivered in connection therewith in connection with any Acquisition.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by the Lenders to the Borrower of the same
Type and, in the case of a LIBOR Loan, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such
Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct
or cause the direction of the management or policies of the controlled
Person, whether through ownership of stock, by contract or otherwise.
"Agent" means UBOC in its capacity as administrative agent for the
Lenders pursuant to Article 10, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Article 10.
"Aggregate Available Commitment" means the aggregate of the Available
Commitments of all the Lenders.
"Aggregate Commitment" means the aggregate of the Term Commitments
and Revolving Commitments of all the Lenders.
"Aggregate Revolving Commitment" means the aggregate of the Revolving
Commitments of all the Lenders.
"Agreement" means this Credit Agreement, as it may be amended or
modified and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent
with that used in preparing the financial statements referred to in
Section 5.6 (except for changes concurred on by the Borrower's independent
public accountants and the Required Lenders).
"Applicable Lending Office" means for any Lender, its offices for
LIBOR Loans and Base Rate Loans, specified in Schedule 1 or in the
Assignment and Acceptance pursuant to which it became a party hereto, as
the case may be, any of which offices may, upon 10 days' prior written
notice to the Agent and the Borrower, be changed by such Lender.
"Applicable Margin": for each LIBOR Loan and for each Base Rate Loan
as set forth below:
LIBOR Base
Leverage Ratio Level Margin Rate Margin
1 .500% 0%
2 .875% 0%
3 1.125% 0%
4 1.375% 0%
5 1.500% 0%
"Article" means an article of this Agreement unless another document
is specifically referenced.
"Assignment and Acceptance" means an Assignment and Acceptance in the
form of Exhibit C hereto.
"Authorized Officer" means any of the chief executive officer, chief
financial officer or any senior vice president (specifically authorized by
the Borrower) of the Borrower, acting singly.
"Available Commitment" means, with respect to each Lender having a
Revolving Commitment, the amount by which (i) the Revolving Commitment of
each Lender on such date exceeds (ii) the sum of (a) the aggregate
principal sum of such Lender's Revolving Loans outstanding, (b) such
Lender's Revolving Commitment Percentage of the aggregate Letter of Credit
Amount of all Letters of Credit outstanding and (c) such Lender's Revolving
Commitment Percentage of the aggregate amount of unreimbursed drawings
under all Letters of Credit on such date.
"Base Rate" means, for any day, a rate per annum equal to (i) the
Corporate Base Rate for such day plus (ii) the Applicable Margin, in each
case changing when and as the Corporate Base Rate changes.
"Base Rate Loan" means a Loan when it bears interest at the Base
Rate.
"Borrower" means Petco Animal Supplies, Inc., a Delaware corporation,
and its successors and assigns.
"Borrowing Date" means a date on which a Revolving Loan is made
hereunder.
"Business Day" means any day (i) other than a Saturday, Sunday or
other day on which commercial banks are authorized or required by law to
close in Los Angeles, California and (ii) if the applicable Business Day
relates to a LIBOR Loan, on which dealings are carried on in the London
interbank market.
"Capital Expenditures" means, for any period, for any person or
entity, the aggregate of all expenditures which are made during such period
(whether paid in cash or accrued as liabilities), by such person or entity,
for property, plant or equipment and which would be reflected as additions
to property, plant or equipment on a balance sheet of such person or entity
prepared in accordance with Agreement Accounting Principles (including,
without limitation, all such property held under Capitalized Leases).
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with Agreement Accounting Principles.
"Capitalized Rent Expense Ratio" means for the Borrower and its
Subsidiaries on a consolidated basis, determined as of the end of each
fiscal quarter for the period of four fiscal quarters then ended, the ratio
of (i) the sum of Funded Debt plus eight times the Rent Expense for such
period to (ii) the sum of Funded Debt plus eight times the Rent Expense for
such period plus the stockholders' equity of the Borrower and its
Subsidiaries at such time.
"Closing Date" means the date on which all the conditions precedent
set forth in Section 4.1 shall have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Commitment" means, for each Lender, its Revolving Commitment and
Term Commitment.
"Compliance Certificate" has the meaning set forth in Section 6.1(v).
"Consideration" means, with respect to any Acquisition, the aggregate
consideration, in whatever form (including, without limitation, cash
payments, the principal amount of promissory notes and Debt assumed, the
aggregate amounts payable to acquire, extend and exercise any option, the
aggregate amount payable under non-compete agreements and management
agreements and the fair market value of other property delivered) paid,
delivered or assumed by the Borrower and its Subsidiaries for such
Acquisition and the expenses associated therewith, including all brokerage
commissions, legal fees and similar expenses. Notwithstanding anything
herein to the contrary, no Acquisition involving the assumption of Debt by
the Borrower or its Subsidiaries shall be permitted if such assumption
would violate the terms of this Agreement.
"Consolidated Fixed Charges" means, for the Borrower and its
Subsidiaries, on a consolidated basis, for any period of four consecutive
fiscal quarters, the sum (without duplication) of (i) Interest Expense for
such period, (ii) cash dividends and distributions paid with respect to the
capital stock of the Borrower or its Subsidiaries during such period (other
than dividends and distributions paid by its Subsidiaries to the Borrower),
(iii) the aggregate principal amount of all scheduled payments of Debt
(including the principal portion of rentals under Capitalized Leases)
required to be made during such period, (iv) all income taxes required to
be paid during such period and (v) Rent Expenses during such period.
"Consolidated Net Worth" means with respect to the Borrower and its
Subsidiaries, the excess of total assets over total liabilities, all to be
determined on a consolidated basis in accordance with Agreement Accounting
Principles.
"Control" means the power to direct or cause the direction of the
management or policies of a person, whether through rights of ownership
under voting securities, under contract or otherwise, and "Controlling" and
"Controlled" shall have meanings correlative thereto.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower or any of its
Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Conversion/Continuation Notice" is the notice referred to in
Section 2.6.
"Corporate Base Rate" means a fluctuating interest rate per annum, as
in effect from time to time, at all times equal to the higher of the
following: (i) the sum of the Federal Funds Effective Rate in effect from
time to time plus 0.50% per annum; and (ii) the annual rate of interest
announced from time to time by UBOC as its corporate reference rate (which
is a rate set by UBOC based upon various factors, including, without
limitation, general market conditions, which is used as a reference point
for pricing certain loans and UBOC may price its loans at, above or below
such rate)
"Debt" of any person or entity means (i) all indebtedness of such
person or entity for borrowed money or for the deferred purchase price of
property or services, (ii) all obligations of such person or entity
evidenced by notes, bonds, debentures or other similar instruments,
(iii) all indebtedness created or arising under any conditional-sale or
other title-retention agreement with respect to property acquired by such
person or entity, (iv) all obligations of such person or entity as lessee
under leases that have been or should be, in accordance with Agreement
Accounting Principles, recorded as Capitalized Leases, (v) all obligations
of such person or entity under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire,
or otherwise to secure a credit against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (i), (ii), (iii)
or (iv) above and (vi) liabilities in respect of unfunded vested benefits
under plans covered by Title IV of ERISA.
"Default" means any Event of Default and any default, event or
condition that would, with the giving of any requisite notice and the
passage of any requisite period of time, constitute an Event of Default.
"Drawing Lender" has the meaning set forth in Section 2.2(iii).
"EBITDA" means for any period, for the fiscal quarter most recently
ended and the immediately preceding three fiscal quarters, Net Income after
eliminating extraordinary gains and losses, plus (i) provisions for income
taxes, (ii) depreciation and amortization and (iii) Interest Expense.
"EBITDAR" means for any period, for the fiscal quarter most recently
ended and the immediately preceding three fiscal quarters, (i) EBITDA plus
(ii) Rent Expenses.
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States, or any State thereof, and having total assets in
excess of $250,000,000 and having a credit rating acceptable to the Agent
and the Borrower; (ii) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such
country, and having total assets in excess of $250,000,000 and having a
credit rating acceptable to the Agent and the Borrower, provided that such
bank is acting through a branch or agency located in the United States;
(iii) an insurance company or other financial institution or an investment
fund that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having total
assets in excess of $250,000,000 and having a credit rating acceptable to
the Agent and the Borrower; (iv) any Affiliate of an existing Lender having
a credit rating acceptable to the Agent and the Borrower; and (v) any other
Person approved by the Agent and, in the absence of any Default, the
Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurocurrency Liabilities" has the meaning set forth in Regulation D
of the Board of Governors of the Federal Reserve System.
"Event of Default" has the meaning set forth in Section 7.
"Facility Termination Date" means January 30, 2003.
"Federal Funds Effective Rate" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published for such day (or, if such
day is not a Business Day, for the immediately preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations at
approximately 10:00 a.m., Los Angeles time, on such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent in its sole discretion.
"Funded Debt" means the sum of the outstanding principal balance of
all Debt of the Borrower and its Subsidiaries described in clauses (i),
(ii), (iii) and (iv) of the definition of "Debt" set forth herein.
"Governmental Person" means, whether domestic or foreign, any
national, federal, state or local government, any political subdivision
thereof or any governmental, quasi-governmental, judicial, public or
regulatory instrumentality, authority, body or entity, including the
Federal Deposit Insurance Corporation, the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, any central bank and any
comparable authority.
"Governmental Rule" means any treaty, law, rule, regulation,
ordinance, order, code, judgment, decree, directive, interpretation,
request, guideline, policy or similar form of decision of any Governmental
Person.
"Guarantors" means International Pet Supplies and Distribution, Inc.,
a California corporation, and Pet Nosh, Consolidated Co., Inc., a New York
corporation, and any other Subsidiary of the Borrower now or hereafter
formed or acquired, which has executed and delivered a Guaranty pursuant to
Section 6.27.
"Guaranties" means, collectively, each Guaranty dated as of even date
herewith executed by a Guarantor in favor of the Agent, for the benefit of
the Lenders, and in form and substance satisfactory to the Agent, as it may
be amended from time to time.
"Interest Expense" means as of any date, for the fiscal quarter most
recently ended and the immediately preceding three fiscal quarters, the sum
of (i) the amount of all interest on Funded Debt which was paid, payable
and/or accrued for such period (without duplication of previous amounts)
and (ii) all commitment, letter of credit or line of credit fees paid,
payable and/or accrued for such period (without duplication of previous
amounts) to any lender in exchange for such lender's commitment to lend.
"Interest Period" means, with respect to a LIBOR Loan, a period of
one, two, three or six months, commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on
(but exclude) the day which corresponds numerically to such date one, two
or three or six months thereafter, provided, however, that if there is no
such numerically corresponding day in such next, second or third or sixth
succeeding month, such Interest Period shall end on the last Business Day
of such next, second or third or sixth succeeding month. If an Interest
Period would otherwise end on a day which is not a Business Day, such
Interest Period shall end on the next succeeding Business Day, provided,
however, that if said next succeeding Business Day falls in a new calendar
month, such Interest Period shall end on the immediately preceding Business
Day. No Interest Period may end after the Facility Termination Date.
"Lenders" means the lending institutions listed on the signature
pages of this Agreement and their respective successors and assigns.
"Letter of Credit Amount" means the stated maximum amount available
to be drawn under a particular Letter of Credit, as such amount may be
reduced or reinstated from time to time in accordance with the terms of
such Letter of Credit.
"Letter of Credit Request" means a request by the Borrower for the
issuance of a Letter of Credit, on the Agent's standard form of standby or
commercial letter of credit application and agreement, the current form of
which is attached hereto as Exhibit E, and containing terms and conditions
satisfactory to the Agent in its sole discretion.
"Letter of Credit" shall have the meaning set forth in Section 2.1.
"Leverage Ratio Level": if the Total Debt Ratio shall be less than
0.75:1.00, the Leverage Ratio Level shall be 1; if the Total Debt Ratio
shall be equal to or greater than 0.75:1.00 and less than 1:00:1.00, the
Leverage Ratio Level shall be 2; if the Total Debt Ratio shall be equal to
or greater than 1.00:1.00 and less than 1.50:1.00, the Leverage Ratio Level
shall be 3; if the Total Debt Ratio shall be equal to or greater than
1.50:1.00 and less than 2.00:1.00, the Leverage Ratio Level shall be 4; and
if the Total Debt Ratio shall be equal to or greater than 2.00:1.00, the
Leverage Ratio Level shall be 5.
"Leverage Ratio Level Certificate" is defined in Section 2.7.
"LIBOR" means, for any Interest Period for any LIBOR Loan, the
interest rate per annum obtained by dividing (a) the average of the
respective rates per annum at which deposits in United States dollars are
offered to the Agent in London, England in the London interbank market at
11:00 a.m., London time, two Business Days before the first day of such
Interest Period in an amount substantially equal to the amount of such Loan
and for a period equal to such Interest Period by (b) a percentage equal to
100% minus the LIBOR Reserve Percentage for such Interest Period.
"LIBOR Loan" means a Loan when it bears interest at the LIBOR Rate.
"LIBOR Rate" means, with respect to a LIBOR Loan for the relevant
Interest Period, the sum of (i) LIBOR applicable to such Interest Period,
plus (ii) the Applicable Margin. The LIBOR Rate shall be rounded to the
next higher multiple of 1/100 of 1% if the rate is not such a multiple.
"LIBOR Reserve Percentage" means, for any Interest Period for any
LIBOR Loan, the reserve percentage applicable two Business Days before the
first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System for
determining the maximum reserve requirements (including any emergency,
supplemental or other marginal reserve requirement) for any Bank with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on such LIBOR
Loan is determined) having a term equal to such Interest Period.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including the lien or retained title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan" means, with respect to a Lender, a Term Loan or a Revolving
Loan, as applicable.
"Loan Documents" means this Agreement, any Letter of Credit Requests,
the Letters of Credit, the Notes and the Guaranties executed by the
Borrower or any Guarantor in connection herewith and any other agreement
executed by the Borrower or any Guarantor in connection herewith, as such
agreements and documents may be amended, supplemented and otherwise
modified from time to time in accordance with the terms hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise) or results of
operations of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Loan Documents
or (iii) the validity or enforceability of any of the Loan Documents or the
rights or remedies of the Agent or the Lenders thereunder.
"Multiemployer Plan" means a Plan that is a "multiemployer plan" as
defined in Section 3(37) or 4001(i)(3) of the Borrower's ERISA Plan.
"Net Income" means for the Borrower and its Subsidiaries on a
consolidated basis, net income as determined in accordance with Agreement
Accounting Principles.
"Net Proceeds" means, with respect to any asset disposition or
issuance of equity or debt securities of the Borrower or any of its
Subsidiaries, the net amount equal to the aggregate amount received in cash
in connection with such asset disposition or issuance of equity or debt
securities minus federal, state and local taxes and other expenses
including legal, accounting, brokerage, advertising, underwriting and
closing costs incurred and paid in connection with such asset disposition
or issuance of equity or debt securities and taxes reasonably estimated to
be actually payable as a result of such asset disposition or issuance of
equity or debt securities.
"Notes" means, collectively, the Revolving Notes and the Term Notes.
"Notice of Assignment" is defined in Section 12.3(ii).
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, the obligation to reimburse drawings under Letters
of Credit (including the contingent obligation to reimburse any drawings
under outstanding Letters of Credit), all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the Borrower
to the Lenders or to any Lender, the Agent or any indemnified party
hereunder arising under the Loan Documents.
"Participants" is defined in Section 12.2(i).
"Payment Date" means the last day of each January, April, July and
October in each calendar year.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Person" means any natural person, corporation, firm, limited
liability company, joint venture, partnership, association, enterprise,
trust or other entity or organization, or any government or political
subdivision or any agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code maintained by or contributed to by the Borrower or
any member of the Controlled Group.
"Prior Loan Agreement" is defined in the first Recital.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"Purchasers" is defined in Section 12.3(i).
"Reduction Installment" is defined in Section 2.4(iv).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor
thereto or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of
the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing
or carrying margin stocks applicable to member banks of the Federal Reserve
System.
"Rent Expense" means, for the Borrower and its Subsidiaries, on a
consolidated basis, for any period of four consecutive fiscal quarters
(except as set forth in Section 6.26), rent expenses under operating leases
of real, personal or mixed property.
"Reportable Event" means a reportable event as defined in
Section 4043 of ERISA and the regulations issued under such section, with
respect to a Single Employer Plan, excluding, however, such events as to
which the PBGC by regulation waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such event,
provided, however, that a failure to meet the minimum funding standard of
Section 412 of the Code and of Section 302 of ERISA shall be a Reportable
Event regardless of the issuance of any such waiver of the notice
requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least
66 2/3% of the Aggregate Commitment or, if the Aggregate Commitment has
been terminated, Lenders in the aggregate holding at least 66 2/3% of the
aggregate unpaid principal amount of the outstanding Loans.
"Revolving Commitment" means, for each Lender having a Revolving
Commitment, the obligation of such Lender to make Revolving Loans not
exceeding the amount set forth opposite its name on Schedule 1 hereto or as
set forth in any Assignment and Acceptance relating to any assignment that
has become effective pursuant to Section 12.3, as such amount may be
modified from time to time pursuant to the terms hereof.
"Revolving Commitment Percentage" means, as to each Lender having a
Revolving Commitment at any time, the percentage of the Aggregate Revolving
Commitment then constituted by such Lender's Revolving Commitment.
"Revolving Loan" is defined in Section 2.1(i).
"Revolving Note" means a promissory note, in substantially the form
of Exhibit A-1 hereto, duly executed by the Borrower and payable to the
order of the Lender having a Revolving Commitment in the aggregate amount
of such Lender's Revolving Commitment.
"SEC" means the United States Securities and Exchange Commission.
"SEC Report" means a Current Report on Form 8-K pursuant to the
Securities Exchange Act of 1934.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Single Employer Plan" means a Plan other than a Multiemployer Plan.
"Solvent" means when used with respect to any Person, that:
(i) the present fair salable value of such Person's assets is in
excess of the total amount of the probable liability on such Person's
liabilities;
(ii) such Person is able to pay its debts as they become due; and
(iii) such Person does not have unreasonably small capital to carry
on such Person's business as theretofore operated and all businesses in
which such Person is about to engage.
"Subsidiary" of a Person means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at
the time be owned or controlled, directly or indirectly, by such Person or
by one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, joint venture or
similar business organization more than 50% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled. Unless otherwise expressly provided, all references herein to
a "Subsidiary" shall mean a Subsidiary of the Borrower.
"Taxes" is defined in Section 3.2.
"Term Commitment" means, for each Lender having a Term Commitment,
the obligation of such Lender to make a Term Loan in the amount set forth
opposite its name on Schedule 1 hereto or as set forth in any Assignment
and Acceptance relating to any assignment that has become effective
pursuant to Section 12.3, as such amount may be modified from time to time
pursuant to the terms hereof.
"Term Loan" is defined in Section 2.4(i).
"Term Note" means a promissory note, in substantially the form of
Exhibit A-2 hereto, duly executed by the Borrower and payable to the order
of each Lender having a Term Commitment in the amount of such Lender's Term
Commitment.
"Total Debt Ratio" means for the Borrower and its Subsidiaries on a
consolidated basis, determined as of the end of each fiscal quarter for the
period of four fiscal quarters then ended, the ratio of Funded Debt
(including obligations under Capitalized Leases) outstanding at such time
to EBITDA.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to a Loan, its nature as a Base Rate Loan
or a LIBOR Loan.
"UBOC" means Union Bank of California, N.A. in its individual
capacity, and its successors.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined in accordance with the respective most recent
valuations for such Plans.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE 2
THE CREDIT
2.1 Revolving Loans.
(i) Each Lender having a Revolving Commitment severally agrees, on
the terms and conditions set forth in this Agreement, to make loans on a
revolving credit basis (each a "Revolving Loan," and, collectively, the
"Revolving Loans") to the Borrower from time to time and to participate in
standby and/or commercial letters of credit issued for the account of the
Borrower pursuant to Section 2.2 from time to time (each a "Letter of
Credit" and, collectively, the "Letters of Credit"), from and including the
Closing Date to but excluding the Facility Termination Date in an amount
not to exceed the amount of its Revolving Commitment. The sum of (a) the
aggregate principal amount of all Revolving Loans outstanding, (b) the
aggregate Letter of Credit Amount of all Letters of Credit outstanding and
(c) the aggregate amount of unreimbursed drawings under all Letters of
Credit shall not exceed, at any time, the amount of the Aggregate Revolving
Commitment. Further, the sum of (A) the aggregate Letter of Credit Amount
of all Letters of Credit outstanding and (B) the aggregate amount of
unreimbursed drawings under all Letters of Credit shall not exceed
$10,000,000 at any time. Within the limit of each Lender's Revolving
Commitment, the Borrower may borrow, have Letters of Credit issued and/or
renewed for the Borrower's account, prepay Revolving Loans, reborrow and
have additional Letters of Credit issued for the Borrower's account.
(ii) The principal amount of each Lender's Revolving Loan and
participation in a Letter of Credit shall be in an amount equal to the
product of (a) such Lender's Revolving Commitment Percentage (expressed as
a fraction) and (b) the total amount of the Revolving Loan or Revolving
Loans or Letters of Credit requested; provided that in no event shall any
Lender be obligated to make a Revolving Loan if after giving effect to such
Revolving Loan such Lender's Revolving Loans, the Revolving Commitment
Percentage of the aggregate Letter of Credit Amount of all Letters of
Credit outstanding and the Revolving Commitment Percentage of the aggregate
amount of unreimbursed drawings under all Letters of Credit outstanding
would exceed its Revolving Commitment or if the amount of such requested
Loan is in excess of such Lender's Available Commitment.
(iii) The Revolving Loans made by each Lender to the Borrower shall
be evidenced by a Revolving Note, with appropriate insertions therein as to
payee, date and principal amount, payable to the order of such Lender and
representing the obligation of the Borrower to pay the aggregate unpaid
principal amount of all Revolving Loans made by such Lender to the
Borrower, with interest thereon as prescribed in Sections 2.7 and 2.8.
Each such Lender is hereby authorized (but not required) to record the date
and amount of each payment or prepayment of principal of its Revolving
Loans made to the Borrower, each continuation thereof, each conversion of
all or a portion thereof to another Type and, in the case of LIBOR Loans,
the length of each Interest Period with respect thereto, in the books and
records of such Lender, and any such recordation shall constitute prima
facie evidence of the accuracy of the information so recorded. The failure
of any Lender to make any such recordation or notation in the books and
records of such Lender (or any error in such recordation or notation)
shall not affect the obligations of the Borrower hereunder or under the
Revolving Notes. Each Revolving Note shall (a) be dated the Closing Date,
(b) provide for the payment of interest in accordance with Sections 2.7 and
2.8 and (c) be stated to be payable on the Facility Termination Date.
(iv) The Borrower shall give the Agent irrevocable written notice
substantially in the form of Exhibit F attached hereto (which notice must
be received by the Agent prior to 11:00 a.m., Los Angeles time, on the
proposed Borrowing Date or, if all or any part of the Revolving Loans are
requested to be made as LIBOR Loans, three Business Days prior to each
proposed Borrowing Date) requesting that the Lenders having a Revolving
Commitment make the Revolving Loans on the proposed Borrowing Date and
specifying (a) the aggregate amount of Revolving Loans requested to be made
(which must be in an aggregate amount equal to at least $1,000,000 or an
integral multiple of $500,000), (b) subject to Section 2.5, whether the
Revolving Loans are to be LIBOR Loans, Base Rate Loans or a combination
thereof and (c) if the Revolving Loans are to be entirely or partly LIBOR
Loans, the respective amounts of each such Type of Revolving Loan and the
respective lengths of the Interest Periods therefor. On receipt of such
notice, the Agent shall promptly notify each such Lender thereof not later
than 11:00 a.m., Los Angeles time, on the date of receipt of such notice.
On the proposed Borrowing Date, not later than 1:00 p.m., Los Angeles time,
each such Lender shall make available to the Agent at its office specified
in Section 13.1 such Lender's Revolving Commitment Percentage of the
aggregate borrowing amount (as determined in accordance with Section
2.1(ii)) in immediately available funds. Not later than 1:30 p.m., Los
Angeles time, on the date of such Loans and upon fulfillment of the
applicable conditions set forth in Section 4, the Agent shall make such
Revolving Loans available to the Borrower in immediately available funds.
Each notice pursuant to this Section 2.1(iv) shall be irrevocable and
binding on the Borrower. The Agent may, in the absence of notification
from any Lender having a Revolving Commitment that such Lender has not made
its pro rata share available to the Agent, on such date, credit the account
of the Borrower on the books of such office of the Agent with the aggregate
amount of such Revolving Loans.
(v) At the Borrower's option and upon at least five Business Days'
prior irrevocable written notice to the Agent, with such notice specifying
the amount and the date of such reduction, the Borrower may permanently
reduce the Aggregate Revolving Commitment in whole at any time or in part
from time to time; provided, however, that each partial reduction of the
Aggregate Revolving Commitment shall be in an aggregate amount equal to at
least $1,000,000 or an integral multiple of $1,000,000. The Agent shall
promptly notify each Lender having a Revolving Commitment (by telecopy or
by telephone) of such requested Aggregate Revolving Commitment reduction.
Reductions of the Aggregate Revolving Commitment pursuant to this
Section 2.1(v) shall automatically effect a reduction of the Revolving
Commitment of each such Lender to an amount equal to the product of (a) the
Aggregate Revolving Commitment of all Lenders, as reduced pursuant to this
Section 2.1(v) and (b) the Revolving Commitment Percentage of such Lender,
in each case determined immediately prior to such reduction of the
Aggregate Revolving Commitment on such date.
Upon each reduction of the Aggregate Revolving Commitment, the
Borrower shall (a) pay the unused commitment fee, payable pursuant to
Section 2.3, accrued on the amount of the Aggregate Revolving Commitment so
reduced through the date of such reduction, (ii) prepay the amount, if any,
by which the sum of (A) the aggregate unpaid principal amount of the
Revolving Loans, (B) the aggregate Letter of Credit Amount of all Letters
of Credit outstanding and (C) the aggregate amount of unreimbursed drawings
under all Letters of Credit exceeds the amount of the Aggregate Revolving
Commitment as so reduced, together with accrued interest on the amount
being prepaid to the date of such prepayment (or, with respect to
outstanding Letters of Credit, make a cash collateral deposit in an amount
equal to such excess to the extent such excess is not corrected by the
foregoing prepayment) and (D) compensate such Lenders for their funding
costs, if any, in accordance with Section 3.1.
2.2 Issuance of Letters of Credit.
(i) The Borrower shall be entitled to request the issuance of
standby and/or commercial Letters of Credit from time to time from and
including the Closing Date to but excluding the date which is seven
Business Days prior to the Facility Termination Date by giving the Agent
(a) a standby Letter of Credit Request at least three Business Days before
the requested date of issuance of such standby Letter of Credit and (b) a
commercial Letter of Credit Request no later than the requested date of
issuance of such commercial Letter of Credit (provided that such Letter of
Credit Request is received by the Agent no later than 11:00 a.m., Los
Angeles time and any Letter of Credit Request received after such time
shall be deemed to have been received on the next Business Day) (which date
of issuance shall be a Business Day). All letters of credit outstanding on
the Closing Date which were issued under the Prior Loan Agreement shall be
deemed to have been issued hereunder on and as of the Closing Date and
shall be subject to the terms and conditions hereof. No Letter of Credit
shall have an expiration date more than one year from its date of issuance
or after the Facility Termination Date. The aggregate Letter of Credit
Amounts under all outstanding Letters of Credit and the aggregate amount of
unreimbursed drawings under Letters of Credit shall reduce, dollar for
dollar, the Aggregate Available Commitment. The sum of (a) the aggregate
Letter of Credit Amount of all Letters of Credit outstanding and (b) the
aggregate amount of unreimbursed drawings under all Letters of Credit shall
not at any time exceed $10,000,000. In addition, the sum of (i) the
aggregate principal amount of all Revolving Loans outstanding, (ii) the
aggregate Letter of Credit Amount of all Letters of Credit outstanding and
(iii) the aggregate amount of unreimbursed drawings under all Letters of
Credit shall not exceed, at any time, the Aggregate Revolving Commitment.
Any Letter of Credit Request received by the Agent later than 10:00 a.m.,
Los Angeles time, shall be deemed to have been received on the next
Business Day. Each Letter of Credit Request shall be made in writing,
shall be signed by an Authorized Officer, shall be irrevocable and shall be
effective upon receipt by the Agent. Provided that a valid Letter of
Credit Request has been received by the Agent and upon fulfillment of the
other applicable conditions set forth in Section 4.3, the Agent will issue
the requested Letter of Credit from its office specified in Section 13.1.
Commercial Letters of Credit shall be used only for the purpose of
supporting purchases of inventory by the Borrower and standby Letters of
Credit shall be used solely to provide support for leasing (including
Capitalized Leases) and insurance obligations of the Borrower.
(ii) Immediately upon the issuance of each Letter of Credit, the
Agent shall be deemed to have sold and transferred to each Lender, and each
Lender shall be deemed to have purchased and received from the Agent, in
each case irrevocably and without any further action by any party, an
undivided interest and participation in such Letter of Credit, each drawing
thereunder and the obligations of the Borrower under this Agreement in
respect thereof in an amount equal to the product of (a) such Lender's
Revolving Commitment Percentage and (b) the maximum amount available to be
drawn under such Letter of Credit (assuming compliance with all conditions
to drawing). The Agent shall advise each Lender of the issuance of each
Letter of Credit, the Letter of Credit Amount of such Letter of Credit, any
change in the face amount or expiration date of such Letter of Credit, the
cancellation or other termination of such Letter of Credit and any drawing
under such Letter of Credit.
(iii) The payment by the Agent of a draft drawn under any Letter of
Credit shall first be made from any cash collateral deposit held by the
Agent with respect to such Letter of Credit. After any such cash
collateral deposit has been applied, the payment by the Agent of a draft
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Agent in its individual capacity as a Lender
hereunder (in such capacity, the "Drawing Lender") of a Revolving Loan
bearing interest at the Base Rate in the amount of such payment (but
without any requirement of compliance with the conditions set forth in
Section 4.3). In the event that any such Loan by the Drawing Lender
resulting from a drawing under any Letter of Credit is not repaid by the
Borrower by 12:00 noon, Los Angeles time, on the day of payment of such
drawing, the Agent shall promptly notify each other Lender having a
Revolving Commitment. Each such Lender shall, on the day of such
notification (or if such notification is not given by 1:00 p.m., Los
Angeles time, on such day, then on the next succeeding Business Day), make
a Revolving Loan bearing interest at the Base Rate, which shall be used to
repay the applicable portion of the Revolving Loan of the Drawing Lender
with respect to such Letter of Credit drawing, in an amount equal to the
amount of such Lender's participation in such drawing for application to
repay the Drawing Lender (but without any requirement of compliance with
the applicable conditions set forth in Section 4.3) and shall deliver to
the Agent for the account of the Drawing Lender, on the day of such
notification (or if such notification is not given by 1:00 p.m., Los
Angeles time, on such day, then on the next succeeding Business Day) and in
immediately available funds, the amount of such Revolving Loans. In the
event that any Lender fails to make available to the Agent for the account
of the Drawing Lender the amount of such Revolving Loan, the Drawing Lender
shall be entitled to recover such amount on demand from such Lender
together with interest thereon at the Federal Funds Effective Rate for each
day such amount remains outstanding.
(iv) The obligations of the Borrower with respect to any Letter of
Credit, any Letter of Credit Request and any other agreement or instrument
relating to any Letter of Credit and any Revolving Loan made under
Section 2.2(iii) shall be absolute, unconditional and irrevocable and shall
be paid strictly in accordance with the terms of the aforementioned
documents under all circumstances, including the following:
(a) any lack of validity or enforceability of any Letter of
Credit, this Agreement or any other Loan Document;
(b) the existence of any claim, setoff, defense or other right
that the Borrower may have at any time against any beneficiary or
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or transferee may be acting), the Agent, any Lender (other than
the defense of payment to a Lender in accordance with the terms of this
Agreement) or any other Person, whether in connection with this Agreement,
any other Loan Document, the transactions contemplated hereby or thereby or
any unrelated transaction;
(c) any statement or other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect, or any statement therein being untrue or inaccurate in any respect
whatsoever;
(d) payment by the Agent under any Letter of Credit against
presentation of a draft or certificate that does not comply on its face
with the terms of such Letter of Credit;
(e) any exchange, release or nonperfection of any collateral,
or any release, amendment or waiver of or consent to departure from any
Guaranty, other Loan Document or other guaranty, for any of the Obligations
of the Borrower in respect of the Letters of Credit; and
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
(v) The Borrower shall pay to the Agent with respect to each Letter
of Credit issued hereunder, the following fees:
(a) for each commercial Letter of Credit for the period from
and including the day such commercial Letter of Credit is issued to but
excluding the day such commercial Letter of Credit expires, a letter of
credit fee to the Agent for the benefit of the Lenders equal to the amount
set forth on the Agent's published Schedule of International Fees (such fee
to be payable on the date of issuance) except for payment fees, which shall
be equal to the greater of (x) the product of (i) .125% and (ii) the Letter
of Credit Amount of such Letter of Credit paid or (y) $100 (such payment
fee to be payable on the date such Letter of Credit is paid);
(b) for each commercial Letter of Credit, a fronting fee to
the Agent for its benefit alone equal to (x) $100, if the commercial Letter
of Credit Amount is less than $500,000 or (y) .125% of the Letter of Credit
Amount, if the commercial Letter of Credit Amount is equal to or more than
$500,000 (such fee to be payable on the date of issuance);
(c) for each standby Letter of Credit, for the period from
and including the day such standby Letter of Credit is issued to but
excluding the day such standby Letter of Credit expires, a letter of credit
fee to the Agent for the benefit of the Lenders equal to the Applicable
Margin (then in effect for LIBOR Loans), multiplied by the Letter of Credit
Amount (such fee to be payable on the date of issuance);
(d) for each standby Letter of Credit, a fronting fee to the
Agent for its benefit alone equal to .15% of the Letter of Credit Amount
(such fee to be payable on date of issuance); and
(e) from time to time, such additional fees and charges
(including cable charges) as are generally associated with letters of
credit, in accordance with the Agent's standard internal charge guidelines
and the related Letter of Credit Request.
(vi) The Borrower agrees to the provisions in the Letter of Credit
Request form; provided, however, that the terms of the Loan Documents shall
take precedence if there is any inconsistency between the terms of the Loan
Documents and the terms of said form.
(vii) The Borrower assumes all risks of the acts or omissions of any
beneficiary or transferee of any Letter of Credit with respect to its use
of such Letter of Credit. Neither the Agent nor any Lender nor any of
their respective officers or directors shall be liable or responsible for
(i) the use that may be made of any Letter of Credit or any acts or
omissions of any beneficiary or transferee in connection therewith;
(ii) the validity, sufficiency or genuineness of documents, or of any
endorsement thereof, even if such documents should prove to be in any or
all respects invalid, insufficient, fraudulent or forged; (iii) in the
absence of any gross negligence or willful misconduct by the Agent, payment
by the Agent against presentation of documents that do not comply with the
terms of any Letter of Credit, including failure of any documents to bear
any reference or adequate reference to any Letter of Credit; or (iv) any
other circumstance whatsoever in making or failing to make payment under
any Letter of Credit. In furtherance and not in limitation of the
foregoing, the Agent may accept any document that appears on its face to be
in order, without responsibility for further investigation, regardless of
any notice or information to the contrary.
2.3 Fees. The Borrower agrees to pay to the Lenders an unused
commitment fee to be shared among Lenders on the basis of their respective
Revolving Commitment Percentages with respect to the Revolving Commitments
for the period from and including the Closing Date to but excluding the
Facility Termination Date, computed at the applicable percentage set forth
below of the average daily aggregate amount of the Aggregate Available
Commitment from time to time in effect, to be payable quarterly in arrears
on each Payment Date and on the Facility Termination Date, commencing on
the first such date to occur after the Closing Date.
Commitment
Leverage Ratio Level Fee
1 .200%
2 .250%
3 .250%
4 .375%
5 .375%
2.4 Term Loans.
(i) Subject to the terms and conditions hereof, each Lender
having a Term Commitment severally agrees to make a Term Loan to the
Borrower on the Closing Date in a principal amount equal to the amount of
the Term Commitment of such Lender. Any Term Loan repaid or prepaid may
not be reborrowed.
(ii) The Term Loan made by each Lender shall be evidenced by a
Term Note, with appropriate insertions therein as to payee, date and
principal amount, payable to the order of such Lender and representing the
obligation of the Borrower to pay the aggregate unpaid principal amount of
the Term Loan made by such Lender to the Borrower, with interest thereon as
prescribed in Sections 2.7 and 2.8. Each such Lender is hereby authorized
(but not required) to record the date and amount of each payment or
prepayment of principal of its Term Loan made to the Borrower, each
continuation thereof, each conversion of all or a portion thereof to
another Type and, in the case of LIBOR Loans, the length of each Interest
Period with respect thereto, in the books and records of such Lender, and
any such recordation shall constitute prima facie evidence of the accuracy
of the information so recorded. The failure of any Lender to make any such
recordation or notation in the books and records of such Lender (or any
error in such recordation or notation) shall not affect the obligations of
the Borrower hereunder or under the Term Notes. Each Term Note shall
(a) be dated the Closing Date, (b) provide for the payment of interest in
accordance with Sections 2.7 and 2.8 and (c) be stated to be payable in
installments of principal in accordance with, and subject to the provisions
of, Section 2.4(iv).
(iii) The Borrower shall give the Agent irrevocable written
notice substantially in the form of Exhibit F hereto (which notice must be
received by the Agent prior to 10:00 a.m., Los Angeles time, one Business
Day prior to the Closing Date) requesting that the Lenders having a Term
Commitment make the Terms Loans in accordance with their respective Term
Loan Commitments on the Closing Date. Upon receipt of such notice, the
Agent shall promptly notify each such Lender thereof not later than 11:00
a.m., Los Angeles time, on the date of receipt of such notice. Not later
than 1:00 p.m., Los Angeles time, on the Closing Date each such Lender
shall make available to the Agent at its office specified in Section 13.1
the amount of such Lender's aggregate Term Commitment in immediately
available funds. The notice pursuant to this Section shall be irrevocable
and binding on the Borrower. The Agent may, in the absence of notification
from any Lender having a Term Commitment that such Lender has not made its
pro rata share available to the Agent, on such date, credit the account of
the Borrower on the books of such office or the Agent with the aggregate
among such Term Loans.
(iv) On each reduction date set forth in this Section, the
Borrower shall on a pro rata basis repay the principal of the Term Notes in
an aggregate amount equal to the amount set forth below (subject to
Sections 2.16 and 2.17) (each such amount a "Reduction Installment"):
April 30, 1998, July 31, 1998, October
31, 1998 and January 31, 1999 $1,125,000.00
April 30, 1999, July 31, 1999, October
31, 1999 and January 31, 2000 $1,125,000.00
April 30, 2000, July 31, 2000, October
31, 2000 and January 31, 2001 $1,500,000.00
April 30, 2001, July 31, 2001, October
31, 2001 and January 31, 2002 $1,875,000.00
April 30, 2002, July 31, 2002, October
31, 2002 and January 30, 2003 $1,875,000.00
; provided, that the final Reduction Installment paid shall be in an amount
equal to all amounts owed by the Borrower on the Term Notes.
All outstanding Term Loans shall be due and payable, to the extent
not previously paid in accordance with the terms hereof, on the Facility
Termination Date.
2.5 Types of Loans. The Loans may from time to time be (i) LIBOR
Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Agent in accordance with Section 2.6.
Notwithstanding the foregoing, the initial Loans made on the Closing Date
shall be made as Base Rate Loans and shall be subject to conversion to
LIBOR Loans pursuant to Section 2.6. Each Lender may make or maintain its
Loans to the Borrower by or through any Applicable Lending Office. At no
time shall more than ten Advances be outstanding.
2.6 Voluntary Conversion of Advances. The Borrower may on any
Business Day, upon written notice given to the Agent not later than 12:00
noon, Los Angeles time, on the third Business Day before the date of the
proposed conversion and subject to the provisions of Section 2.5, convert
any Advance into an Advance of another Type; provided, however, that, with
respect to a conversion from a LIBOR Loan into a Base Rate Loan, any such
conversion shall be made on, and only on, the last day of the Interest
Period for such Loan. Each such notice of a conversion shall, within the
restrictions specified above, specify (i) the Loan to be converted, (ii)
the type of Loan into which such Loan is to be converted and (iii) the
requested date for such conversion. Upon receipt of any such notice the
Agent shall promptly notify each Lender thereof. Any part of outstanding
LIBOR Loans and Base Rate Loans may be converted as provided herein,
provided (a) no Loan may be converted into a LIBOR Loan after the date that
is one month prior to the Facility Termination Date and (b) the Borrower
shall not have the right to continue or convert to a LIBOR Loan if a
Default shall have occurred and be continuing. However, if the Borrower
shall fail to give any required notices described above in this Section or
if such continuation is not permitted pursuant to the preceding sentence,
such Loans shall be automatically converted to Base Rate Loans on the last
day of such then-expiring Interest Period.
2.7 Interest. A Base Rate Loan shall bear interest on the
outstanding principal amount thereof, for each day from and including the
date such Loan is made or is converted from a LIBOR Loan into a Base Rate
Loan pursuant to Section 2.6 to (but not including) the date it becomes due
or is converted into a LIBOR Loan pursuant to Section 2.6 hereof, at a rate
per annum equal to the Base Rate for such day. Changes in the rate of
interest on any Loan maintained as a Base Rate Loan will take effect
simultaneously with each change in the Corporate Base Rate. Each LIBOR
Loan shall bear interest from and including the first day of the Interest
Period applicable thereto to (but not including) the last day of such
Interest Period at the LIBOR Rate determined as applicable to such LIBOR
Loan.
For purposes of determining the Applicable Margin for all Loans,
interest rates on the Loans shall be calculated on the basis of the Total
Debt Ratio set forth in the most recent certificate of an Authorized
Officer of the Borrower delivered pursuant to Section 6.1(v) (a "Leverage
Ratio Level Certificate"). For accrued and unpaid interest only (no
changes being made for interest payments previously made), changes in
interest rates on the Loans attributable to changes in the Applicable
Margin caused by changes in the applicable Leverage Ratio Level shall be
calculated upon the delivery of a Leverage Ratio Level Certificate and such
change shall be effective (y) in the case of a Base Rate Loan, on the day
subsequent to the delivery of the Leverage Ratio Level Certificate and (z)
in the case of a LIBOR Loan, from the first day of the Interest Period
applicable to such LIBOR Loans subsequent to the delivery of the Leverage
Ratio Level Certificate. If, for any reason, the Borrower shall fail to
deliver a Leverage Ratio Level Certificate when due in accordance with
Section 6.1(v), and such failure shall continue for a period of twenty
days, the Leverage Ratio Level shall be deemed to be Level 5, retroactive
to the date on which the Borrower should have delivered such Leverage Ratio
Level Certificate and shall continue until a Leverage Ratio Level
Certificate indicating a different Leverage Ratio Level is delivered to the
Agent. Notwithstanding the foregoing, LIBOR Loans shall accrue interest at
the Applicable Margin for Leverage Level 2 from the Closing Date until five
Business Days after the Agent has received the Borrower's annual financial
statements and Compliance Certificate for the fiscal period ended April 30,
1998.
2.8 Rates Applicable After Default. Notwithstanding anything to
the contrary contained in Section 2.5 or 2.6, during the continuance of an
Event of Default no Loan may be made as, converted into or continued as a
LIBOR Loan. During the continuance of an Event of Default each Loan shall
bear interest at a rate per annum equal to the Base Rate otherwise
applicable to the Base Rate Loan plus 3% per annum. All such interest
shall be payable on demand of the Agent.
2.9 Method of Payment. All payments of the Obligations hereunder
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article 13, or at any other Applicable Lending Office of the Agent
specified in writing by the Agent to the Borrower, by 12:00 noon, Los
Angeles time, on the date when due and shall be applied ratably by the
Agent among the Lenders. Each payment delivered to the Agent for the
account of any Lender shall be delivered promptly by the Agent to such
Lender in the same type of funds that the Agent received at its address
specified pursuant to Article 13 or at any Applicable Lending Office
specified in a notice received by the Agent from such Lender. The Agent is
hereby authorized (but not obligated) to charge the account of the Borrower
maintained with UBOC for each payment of principal, interest and fees as it
becomes due hereunder.
2.10 Telephonic Notices. The Borrower hereby authorizes the Lenders
and the Agent to convert or continue Loans and effect selections of Types
of Loans based on telephonic notices made by any person or persons the
Agent or any Lender in good faith believes to be acting on behalf of the
Borrower. The Borrower agrees to deliver promptly to the Agent a written
confirmation, if such confirmation is requested by the Agent or any Lender,
of each telephonic notice signed by an Authorized Officer. If the written
confirmation differs in any material respect from the action taken by the
Agent and the Lenders, the records of the Agent and the Lenders shall
govern absent manifest error.
2.11 Interest Payment Dates; Interest and Fee Basis. Interest
accrued on each Base Rate Loan shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof, on any
date on which a Base Rate Loan is prepaid, whether due to acceleration or
otherwise, and at maturity. Interest accrued on that portion of the
outstanding principal amount of any Base Rate Loan converted into a LIBOR
Loan on a day other than a Payment Date shall be payable on the date of
conversion. Interest accrued on each LIBOR Loan shall be payable on the
last day of its applicable Interest Period, on any date on which the LIBOR
Loan is prepaid, whether by acceleration or otherwise, and at maturity.
Interest accrued on each LIBOR Loan having an Interest Period longer than
three months shall also be payable on the last day of each three-month
interval during such Interest Period.
Interest on Loans and commitment fees shall be calculated for actual
days elapsed on the basis of a 360-day year. Interest shall be payable for
the day a Loan is made but not for the day of any payment on the amount
paid if payment is received prior to 2:00 p.m., Los Angeles time, at the
place of payment. Whenever any payment to be made hereunder shall be
stated to be due on a day that is not a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall
in such case be included in the computation of payment of interest;
provided, however, that, if such extension would cause any payment of
interest on or principal of any LIBOR Loan to be made in the next following
calendar month, then such payment shall instead be made on the next
preceding Business Day, and such shortened time shall in such case be used
in the computation of payment of interest. Each determination by the Bank
of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
2.12 Notification of Loan, Interest Rates, Prepayments and
Commitment Reductions. Promptly after receipt thereof, the Agent will
notify each Lender of the contents of a borrowing notice,
Conversion/Continuation Notice and repayment notice received by it
hereunder. The Agent will notify each Lender of the interest rate
applicable to each LIBOR Loan promptly upon determination of such interest
rate and will give each Lender prompt notice of each change in the
Corporate Base Rate.
Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error.
2.13 Applicable Lending Offices. Each Lender may book its Loans at
any Applicable Lending Office selected by such Lender and may change its
Applicable Lending Office from time to time. All terms of this Agreement
shall apply to any such Applicable Lending Office and the Notes shall be
deemed held by each Lender for the benefit of such Applicable Lending
Office. Each Lender may, by written or telex notice to the Agent and the
Borrower, designate an Applicable Lending Office through which the Loans
will be made by it and for whose account Loan payments are to be made.
2.14 Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which
it is scheduled to make payment to the Agent of (i) in the case of a
Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a
payment of principal, interest or fees to the Agent for the account of the
Lenders, that it does not intend to make such payment, the Agent may assume
that such payment has been made. The Agent may, but shall not be obligated
to, make the amount of such payment available to the intended recipient in
reliance upon such assumption. If such Lender or the Borrower, as the case
may be, has not in fact made such payment to the Agent, the recipient of
such payment shall, on demand by the Agent, repay to the Agent the amount
so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per
annum equal to (a) in the case of payment by a Lender, the Federal Funds
Effective Rate for such day or (b) in the case of payment by the Borrower,
the interest rate applicable to the relevant Loan.
2.15 Withholding Tax Exemption. At least five Business Days prior to
the first date on which interest or fees are payable hereunder for the
account of any Lender, each Lender that is not incorporated under the laws
of the United States of America, or a state thereof, agrees that it will
deliver to each of the Borrower and the Agent two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224, certifying in
either case that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United
States federal income taxes. Each Lender which so delivers a Form 1001 or
4224 further undertakes to deliver to each of the Borrower and the Agent
two additional copies of such form (or a successor form) on or before the
date that such form expires (currently, three successive calendar years for
Form 1001 and one calendar year for Form 4224) or becomes obsolete or after
the occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by the Borrower or the Agent, in
each case certifying that such Lender is entitled to receive payments under
this Agreement and the Note without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation
any change in treaty, law or regulation) has occurred prior to the date on
which any such delivery would otherwise be required which renders all such
forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender advises the
Borrower and the Agent that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax.
2.16 Optional Prepayments. The Borrower may on the last day of any
Interest Period with respect thereto, in the case of LIBOR Loans, or at any
time and from time to time, in the case of Base Rate Loans, prepay the
Loans, in whole or in part, without premium or penalty, upon at least three
Business Days' irrevocable written notice, in the case of LIBOR Loans, and
upon at least one Business Day's irrevocable written notice, in the case of
Base Rate Loans, from the Borrower to the Agent, specifying the date and
amount of prepayment and whether the prepayment is of LIBOR Loans, Base
Loans or a combination thereof, and, if a combination thereof, the amount
allocable to each. Upon receipt of any such notice from the Borrower, the
Agent shall promptly notify each Lender thereof. If any such notice is
given, the amount specified in such notice shall be due and payable by the
Borrower on the date specified therein, together with accrued interest to
such date on the amount prepaid. Partial prepayments of Loans shall be in
an aggregate principal amount of $1,000,000 or an integral multiple
thereof. Partial prepayments of Term Loans made on a day other than a day
specified in Section 2.4(iv) or any payment made on such day in excess of
the Reduction Installment specified therein shall be applied pro rata to
each Reduction Installment remaining as of the date of such prepayment or
payment.
2.17 Mandatory Prepayments. On the day of receipt by the Borrower
of any Net Proceeds with respect to an asset disposition or an issuance of
equity or debt securities of the Borrower or any of its Subsidiaries, the
Borrower shall prepay the Loans with 75% of Net Proceeds from the issuance
of equity and asset dispositions and 100% of the Net Proceeds from the
issuance of debt securities as follows: Prepayment shall first be applied
to each Term Loan Reduction Installment on a pro rata basis and, when the
Term Loan is paid in full, shall be applied to outstanding Revolving Loans.
Prepayments of Revolving Loans with Net Proceeds from asset dispositions
shall also result in a permanent reduction of the Aggregate Revolving
Commitment by an amount equal to such prepayment amounts.
2.18 Commitment Obligations. Neither the Agent nor any Lender shall
be responsible for the obligation or Available Commitment of any other
Lender hereunder, nor will the failure of any Lender to comply with the
terms of this Agreement relieve any other Lender or the Borrower of its
obligations under this Agreement and the Notes. Nothing herein shall be
deemed to relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights which the Borrower may have against
any Lender as a result of any default by such Lender hereunder.
2.19 Commitment Termination. The Revolving Commitment of each
Lender and the Aggregate Revolving Commitment shall terminate on the
Facility Termination Date.
2.20 Required Payments. The outstanding Loans and all other unpaid
Obligations shall be paid in full by the Borrower on the Facility
Termination Date.
ARTICLE 3
CHANGE IN CIRCUMSTANCES
3.1 Yield Protection.
(i) If any repayment of principal of, or conversion of, any LIBOR
Loan is made other than on the last day of an Interest Period therefor, as
a result of a prepayment, payment or conversion, or an acceleration of the
maturity of the Loan pursuant to Section 8, or for any other reason, or if
the Borrower shall fail to borrow a LIBOR Loan after requesting one, then
the Borrower shall, upon demand by the Agent pay to the Lenders any amounts
required to compensate them for any additional losses, costs or expenses
that they may reasonably incur as a result of such repayment, conversion or
failure to borrow, including any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by a Lender to fund or
maintain such LIBOR Loan.
(ii) If, due to either (a) the introduction of or any change in or
in the interpretation of any Governmental Rule or (b) the compliance by the
Lenders with any Governmental Rule (whether or not having the force of
law), there is any increase in the cost to the Lenders of agreeing to make,
making, funding or maintaining any LIBOR Loan, then the Borrower shall from
time to time, upon written demand by the Agent, pay to the Agent additional
amounts sufficient to compensate the Lenders for such increased cost. A
certificate as to the amount of such increased cost, submitted to the
Borrower by the Agent, shall be conclusive and binding for all purposes,
absent manifest error.
(iii) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any
Governmental Rule makes it unlawful, or any Governmental Person asserts
that it is unlawful, for any Lender to perform its obligations hereunder to
make LIBOR Loans or to continue to fund or maintain LIBOR Loans hereunder,
then, on notice thereof and demand therefor by the Agent to the Borrower,
(a) the obligation of such Lender to make LIBOR Loans and to convert Base
Rate Loans into LIBOR Loans shall terminate and (b) the Borrower shall
forthwith prepay in full all LIBOR Loans then outstanding, together with
interest accrued thereon, unless the Borrower, within five Business Days of
such notice and demand, converts all LIBOR Loans then outstanding into Base
Rate Loans in accordance with Section 2.6.
(iv) If, with respect to any LIBOR Loan, the Agent notifies the
Borrower that LIBOR for such Loan will not adequately reflect the cost to
one or more Lenders (as determined by such Lender(s) in good faith on the
basis of market conditions then in effect) of making, funding or
maintaining such Loan, then (a) such Loan will automatically, on the last
day of the then existing Interest Period therefor, convert into a Base Rate
Loan and (b) the obligation of the affected Lender to make, or to convert
Base Rate Loans into LIBOR Loans shall be suspended until the Agent
notifies the Borrower that the circumstances causing such suspension no
longer exist.
3.2 Taxes. All payments by or on behalf of the Borrower hereunder
shall be made without set-off or counterclaim and in such amounts as may be
necessary in order that all such payments (after deduction or withholding
for or on account of any present or future taxes, levies, imposts, duties
or other charges of whatsoever nature imposed by any Governmental Person,
other than any tax on or measured by the overall net income of the Agent or
a Lender pursuant to the income tax laws of the United States, the
jurisdiction where the Agent's or such Lender's principal office is located
or any political subdivision thereof (collectively, the "Taxes")) shall not
be less than the amounts otherwise specified to be paid hereunder. A
certificate as to any additional amounts payable to the Agent or a Lender
hereunder submitted to the Borrower by the Agent shall show in reasonable
detail the amount payable to the Agent or a Lender and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest error. Any amounts payable by the Borrower hereunder with respect
to past payments shall be due within ten days following receipt by the
Borrower of such certificate from the Agent; and such amounts payable with
respect to future payments shall be due concurrently with such future
payments. With respect to each deduction or withholding for or on account
of any Taxes, the Borrower shall promptly furnish to the Agent such
certificates, receipts and other documents as may be required (in the
reasonable judgment of the Agent) to establish any tax credit to which a
Lender may be entitled. The agreements and obligations of the Borrower
under this paragraph shall survive the payment in full of the Loans.
ARTICLE 4
CONDITIONS PRECEDENT
4.1 Initial Loan or Letter of Credit. The Lenders shall not be
required to make their initial Loans or participate in the initial Letter
of Credit hereunder unless the Borrower has furnished to the Agent:
(i) this Agreement and the Notes, duly executed by the
Borrower;
(ii) the Guaranties, duly executed by each Guarantor;
(iii) Articles of Incorporation and Bylaws of the Borrower and
each Guarantor certified by the Secretary of State of the relevant state of
incorporation;
(iv) Resolutions of the Board of Directors of the Borrower and
of the executive officers of each Guarantor approving the execution,
delivery and performance by the Borrower and each Guarantor, of the Loan
Documents to which the Borrower and each Guarantor is a party, certified by
the Secretary of the Borrower and each Guarantor to be true and correct and
in full force and effect;
(v) an Incumbency Certificate of the Borrower and each
Guarantor;
(vi) evidence that all amounts outstanding under the Prior Loan
Agreement have been paid in full and that such agreement has been
terminated;
(vii) all fees and expenses to be paid on the Closing Date
(including, but not limited to, amounts due to UBOC in reimbursement of
costs and expenses under the Prior Loan Agreement);
(viii) no statute, rule, regulation, order, decree or preliminary
or permanent injunction of any court or administrative agency or, to the
best knowledge of the Borrower, any such action threatened by any Person,
shall be in effect that prohibits the Lenders from consummating the
transactions contemplated by this Agreement and the other Loan Documents;
(ix) copies of the Borrower's consolidated audited financial
statements for the period ending February 3, 1997, together with any
management letter prepared by the accountants, unaudited financial
statements for the period ending November 1, 1997 and a plan, forecast and
budget containing the information specified in Section 6.1(iv) with respect
to fiscal year 1998;
(x) evidence satisfactory to the Agent that there shall have
been no material adverse change to the syndication markets for credit
facilities similar to this Agreement and there shall not have occurred and
be continuing a material disruption of or material adverse change in
financial, banking or capital markets which would have an adverse effect on
such syndication market, as determined by the Agent in its sole discretion;
(xi) evidence satisfactory to the Agent that all intercompany
Debt has been subordinated to the obligations of the Borrower hereunder;
and
(xii) such other documents, instruments and opinions as the
Agent or its counsel may have reasonably requested.
4.2 All Loans. The Lenders shall not be required to make any Loan
(including the initial Loan) hereunder unless the Borrower has furnished to
the Agent with sufficient copies for the Lenders:
(i) a duly completed certificate executed by an Authorized
Officer of the Borrower certifying that:
(a) there exists no Default or Event of Default;
(b) the representations and warranties contained in
Article 5 hereof are true and correct as of the Borrowing Date except
to the extent any such representation or warranty is stated to relate
solely to an earlier date, in which case such representation or
warranty shall be true and correct on and as of such earlier date;
and
(c) no event has occurred, or condition exists, which
could have a Material Adverse Effect.
(ii) in the case where Loan proceeds are to be used for an
Acquisition and such Acquisition will result in the Borrower being required
to file an SEC Report, executed copies of each of the Acquisition
Documents, certified by an Authorized Officer, together with the other
documents required by Section 6.14;
(iii) in the case where Loan proceeds are to be used for an
Acquisition, evidence satisfactory to the Agent that the Acquisition
contemplated by the relevant Acquisition Documents will immediately be
consummated upon the funding of the Loan; and
(iv) such other documents as the Agent or its counsel may
have reasonably requested.
4.3 All Letters of Credit. The Agent shall not be required to
issue any Letter of Credit and the Lenders shall not be required to
participate in any Letter of Credit (including the initial Letter of
Credit) hereunder unless the Borrower has furnished to the Agent with
sufficient copies for the Lenders:
(i) a completed Letter of Credit Request with regard to each
such Letter of Credit;
(ii) all fees to be paid to the Agent in connection with each
Letter of Credit shall have been paid; and
(iii) such other documents as the Agent, any Lender or its
respective counsel may have reasonably requested.
Any Letter of Credit Request delivered to the Agent shall be deemed a
representation and warranty to the Agent and the Lenders that:
(i) there exists no Default or Event of Default;
(ii) the representations and warranties contained in Article 5
hereof are true and correct as of the issuance date of each Letter of
Credit except to the extent any such representation or warranty is stated
to relate solely to an earlier date, in which case such representation or
warranty shall be true and correct on and as of such earlier date; and
(iii) no event has occurred, or condition exists, which could
have a Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1 Authorization. The execution, delivery and performance by the
Borrower of the Loan Documents to which the Borrower is a party are within
the Borrower's corporate powers, have been duly authorized by all necessary
corporate action and do not contravene any applicable law, rule, regulation
or order or any contractual restriction binding on or affecting the
Borrower or its Subsidiaries.
5.2 Governmental Action. No authorization, approval or other
action by, or notice to or filing with, any Governmental Person is required
for the due execution, delivery and performance by the Borrower of the Loan
Documents to which the Borrower is a party.
5.3 Enforceability. Each Loan Document to which the Borrower is a
party is the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally.
5.4 Use of Proceeds. The Borrower will use the proceeds of the
Term Loans solely for the repayment of amounts outstanding under the Prior
Loan Agreement and to refinance costs incurred in connection with certain
Acquisitions and conversions of stores. The Borrower will use the proceeds
of the Revolving Loans solely (i) to make permitted Acquisitions, (ii) to
make permitted Capital Expenditures, (iii) for working capital purposes,
(iv) to make bridge loans permitted hereunder to Canadian Petcetera
Warehouse Inc. and (v) general corporate purposes. The Borrower will use
the Letters of Credit solely for the purposes set forth in Section 2.2(i).
No action has been taken or is currently planned by the Borrower, or any
agent acting on its behalf, which would cause this Agreement or the Notes
to violate Regulation U or any other regulation of the Board of Governors
of the Federal Reserve System or to violate the Securities and Exchange Act
of 1934, in each case as in effect now or as the same may hereafter be in
effect. The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock as one of its
important activities and none of the proceeds of the Loans or Letters of
Credit will be used directly or indirectly for such purpose.
5.5 Litigation. There is no litigation, tax claim, proceeding,
arbitration or dispute pending, or, to the best knowledge of the Borrower,
threatened against or affecting the Borrower or its Property, an adverse
determination in which could have a Material Adverse Effect.
5.6 Financial Statements. The consolidated financial statements of
the Borrower dated February 3, 1997 and November 1 , 1997, copies of which
have been delivered to the Lenders, fairly and accurately reflect the
financial condition of the Borrower and its Subsidiaries as of such date,
and since such date there has been no Material Adverse Effect.
5.7 Taxes. The Borrower and each Subsidiary has filed all tax
returns and reports required to be filed and has paid all applicable
federal, state and local franchise and income taxes which are due and
payable.
5.8 Subsidiaries. Schedule 2 hereto contains an accurate list of
(i) all of the presently existing Subsidiaries of the Borrower, setting
forth their respective jurisdictions of incorporation or organization and
the percentage of their respective capital stock or ownership interests
owned by the Borrower or other Subsidiaries, and (ii) all shareholder
agreements, management agreements and similar agreements executed in
connection therewith. All of the issued and outstanding shares of capital
stock of such Subsidiaries have been duly authorized and issued and are
fully paid and non-assessable.
5.9 ERISA. The Unfunded Liabilities do not in the aggregate exceed
$1,000,000. Each Single Employer Plan complies in all material respects
with all applicable requirements of law and regulations, except to the
extent that the failure to comply therewith does not have a Material
Adverse Effect. No Reportable Event has occurred with respect to any
Single Employer Plan, except to the extent that such Reportable Event has
no Material Adverse Effect. Neither the Borrower nor any Subsidiary (a) is
a party to any Multiemployer Plan or (b) has withdrawn from any
Multiemployer Plan, except to the extent such actions do not have a
Material Adverse Effect.
5.10 Accuracy of Information. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained
therein not misleading in any material respect.
5.11 Organization and Existence. The Borrower is duly organized,
validly existing and in good standing under the laws of the State of
Delaware and it has the corporate power and authority, and the legal right,
to own and operate its Properties and to conduct the business in which it
is currently engaged and in which it proposes to be engaged after the
Closing Date and is duly qualified as a foreign entity and in good standing
under the laws of each jurisdiction where its ownership, lease or operation
of Property or the conduct of its business requires such qualification
except to the extent that the failure to comply thereunder could not, in
the aggregate, reasonably be expected to have a Material Adverse Effect and
is in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
5.12 Consents. No consent or authorization of, or filing with or
other act by or in respect of, any Governmental Authority, or any other
Person is required in connection with the Loans hereunder or with the
execution, delivery, performance, validity or enforceability of this
Agreement, the Notes or the other Loan Documents. The execution, delivery
and performance of this Agreement, the Notes and the other Loan Documents,
the Loans, the Letters of Credit and the use of the proceeds thereof will
not violate any Requirement of Law or contractual obligations of the
Borrower or any of its Subsidiaries which could be reasonably expected to
have a Material Adverse Effect and will not result in, or require, the
creation or imposition of any Lien on any of its or their respective
Properties or revenues pursuant to any such Requirement of Law or
contractual obligation, except pursuant to the Loan Documents or otherwise
as permitted hereunder, which Lien could reasonably be expected to have a
Material Adverse Effect.
5.13 Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
patents, copyrights, material permits, licenses or other intangibles
necessary for the conduct of its business as currently conducted, except to
the extent that the failure to own or license such property could not
reasonably be expected to have a Material Adverse Effect.
5.14 Default. There exists no Default or Event of Default.
5.15 Nature of Business. Neither the Borrower nor any of its
Subsidiaries is engaged in any material business other than the ownership
and operation of pet food and supply retail stores and the manufacture or
procurement of pet food and supplies.
5.16 Ranking of Loans. This Agreement and the other Loan Documents
to which the Borrower is a party, when executed, and the Loans, when
borrowed are and will be the direct and general obligations of the
Borrower. The Borrower's obligations hereunder and thereunder will rank at
least pari passu in priority of payment with all other senior Debt, except
to the extent otherwise permitted hereunder.
5.17 Compliance with Laws. The Borrower and each of its
Subsidiaries is in compliance with all Governmental Rules except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
5.18 Investment Company Acts; Other Regulations. Neither the
Borrower nor any of its Subsidiaries is an "investment company," or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
5.19 Environmental Matters. The Borrower and its Subsidiaries are
in compliance in all material respects with all applicable environmental
laws, and there is no contamination at, under or about any of their
respective Properties, or violation of any environmental law with respect
to any of their respective Properties or the business conducted at any of
their respective Properties which involves a matter or matters which has
caused or reasonably likely to cause a Material Adverse Effect.
5.20 Title. Except for assets which may have been disposed of in
the ordinary course of business, the Borrower has good and marketable title
to all of the property reflected in its financial statements delivered to
the Lenders, to all property acquired by the Borrower since the date of
said financial statements and to all property necessary for the conduct of
its business, free and clear of all Liens, encumbrances, security interests
and adverse claims except (a) those specifically referred to in said
financial statements, (b) those permitted by Section 6.22 hereof and (c)
those that could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
5.21 Solvency. Immediately prior to and upon execution of this
Agreement and the funding of the Loans and the issuance of any Letters of
Credit, the Borrower was, is and will be Solvent.
ARTICLE 6
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1 Financial Reporting. The Borrower will maintain, for itself
and each Subsidiary, a system of accounting established and administered in
accordance with Agreement Accounting Principles, and furnish to the
Lenders:
(i) As soon as available and in any event within 45 days
after the end of each quarterly fiscal period of each
fiscal year of the Borrower (except the last fiscal
quarter), consolidated statements of income, retained
earnings and cash flow of the Borrower and its
consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated
balance sheets of the Borrower and its consolidated
Subsidiaries as at the end of such period, setting forth
in each case in comparative form the corresponding
consolidated figures for the corresponding period in the
preceding fiscal year, accompanied by a certificate of an
Authorized Officer of the Borrower, which certificate
shall state that those consolidated financial statements
fairly present the consolidated financial condition and
results of operations of the Borrower and its
consolidated Subsidiaries, in each case in accordance
with Agreement Accounting Principles, consistently
applied, as at the end of, and for, such period (subject
to normally recurring audit adjustments).
(ii) As soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower,
consolidated statements of income, retained earnings and
cash flow of the Borrower and its consolidated
Subsidiaries for such fiscal year and the related
consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such fiscal
year, setting forth in each case in comparative form the
corresponding consolidated figures for the preceding
fiscal year, and accompanied, in the case of those
consolidated statements and balance sheet of the
Borrower, by a unqualified opinion of independent
certified public accountants of recognized national
standing, which opinion shall state that those
consolidated financial statements fairly present the
consolidated financial condition and results of
operations of the Borrower and its consolidated
Subsidiaries as at the end of, and for, such fiscal year
in accordance with Agreement Accounting Principles,
consistently applied.
(iii) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other
regular reports or statutory statements which the
Borrower or any of its Subsidiaries files with the SEC or
any insurance or regulatory agency.
(iv) As soon as available, but in any event no later than 45
days subsequent to the beginning of each fiscal year of
the Borrower, based on the best information then
currently available, a copy of the plan and forecast
(including a projected consolidated balance sheet, income
statement, funds flow statement and a budget for Capital
Expenditures), prepared on a quarterly format basis, of
the Borrower and its Subsidiaries for such fiscal year.
(v) Together with the financial statements required in
Section 6.1(i) and (ii) (commencing with the fiscal
period ending April 30, 1998), a compliance certificate
in substantially the form of Exhibit B hereto (a
"Compliance Certificate") signed by an Authorized Officer
showing the calculations necessary to determine
compliance with this Agreement and stating that no
Default or Event of Default exists, or if any Default or
Event of Default exists, stating the nature and status
thereof.
(vi) As soon as possible, but in any event within 45 days
after the end of each quarter (except the last fiscal
quarter, in which case within 90 days after the end of
such quarter), a Leverage Ratio Level Certificate in
substantially the form of Exhibit D hereto signed by an
Authorized Officer.
(vii) As soon as possible and in any event within 10 days after
the Borrower knows that any Reportable Event has occurred
with respect to any Single Employer Plan, a statement,
signed by an Authorized Officer, describing said
Reportable Event and the action which the Borrower
proposes to take with respect thereto.
(viii) As soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of (a) any notice or
claim to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a
result of the release by the Borrower, any of its
Subsidiaries, or any other Person of any toxic or
hazardous waste or substance into the environment, and
(b) any notice alleging any violation of any federal,
state or local environmental, health or safety law or
regulation by the Borrower or any of its Subsidiaries,
which, in either case, could have a Material Adverse
Effect.
(ix) Promptly upon the furnishing thereof to the shareholders
of the Borrower, copies of all financial statements,
reports and proxy statements so furnished.
(x) Such other information (including non-financial information) as
the Agent may from time to time reasonably request.
6.2 Use of Proceeds. The Borrower will use the proceeds of the
Term Loans solely for the repayment of amounts outstanding under the Prior
Loan Agreement and to refinance costs incurred in connection with certain
Acquisitions and conversion of stores, and the proceeds of the Revolving
Loans solely (i) to make permitted Acquisitions, (ii) to make permitted
Capital Expenditures, (iii) for working capital purposes, (iv) to make
bridge loans permitted hereunder to Canadian Petcetera Warehouse Inc. and
(v) for general corporate purposes. The Borrower will use the Letters of
Credit only for the purposes specified in Section 2.2(i). The Borrower
will not, nor will it permit any Subsidiary to, use any of the proceeds of
the Loans to purchase or carry any "margin stock" (as defined in
Regulation U).
6.3 Notice of Default. The Borrower will, and will cause each
Subsidiary to, give prompt (but in any case, within 5 Business Days) notice
in writing to the Lenders of the occurrence of any Default or Event of
Default and of any other development, financial or otherwise, which could
have a Material Adverse Effect.
6.4 Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in the pet food and supply
business and related fields and to do all things necessary to remain in
good standing in its jurisdiction of organization and maintain all
requisite authority to conduct its business in each jurisdiction in which
its business is conducted. The Borrower shall not, and shall not permit
any of its Subsidiaries to, make any material change in the nature of its
business as presently conducted; provided that the foregoing shall not be
construed as a limitation on Acquisitions permitted hereunder.
6.5 Records. The Borrower will, and will cause each Subsidiary to,
keep adequate records and books of account, in which full and correct
entries shall be made in accordance with Agreement Accounting Principles of
all financial transactions of the Borrower, its Subsidiaries, their
respective assets and their respective business.
6.6 Insurance. The Borrower will, and will cause each Subsidiary
to, maintain insurance on all their Property in such amounts and covering
such risks as is consistent with sound business practice, and the Borrower
will furnish to any Lender upon request full information as to the
insurance carried.
6.7 Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply in all material respects with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, paying before the same become delinquent, all taxes,
assessments and governmental charges imposed upon it or upon its property,
except such taxes, assessments and governmental charges as are being
contested in good faith by appropriate proceedings and as to which
appropriate reserves are maintained.
6.8 Maintenance of Properties. The Borrower will, and will cause
each Subsidiary to, do all things necessary to maintain, preserve, protect
and keep its Property in good repair, working order and condition, and make
all necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly conducted at
all times.
6.9 Inspection. At any reasonable time and from time to time upon
reasonable notice, the Borrower will, and will cause each Subsidiary to,
permit the Agent, by its respective representatives and agents, to inspect
any of the Property, corporate books and financial records of the Borrower
and each Subsidiary, to examine and make copies of the books of accounts
and other financial records of the Borrower and each Subsidiary, and to
discuss the affairs, finances and accounts of the Borrower and each
Subsidiary with, and to be advised as to the same by, their respective
officers at such reasonable times and intervals as the Lenders may
designate.
6.10 Debt. The Borrower will not, nor will it permit any Subsidiary
to, create, incur or suffer to exist any Debt, except:
(i) Debt of the Borrower under the Loan Documents;
(ii) Debt in existence on the date hereof, as set forth on Schedule
3;
(iii) trade Debt incurred to acquire goods, supplies, and services
and incurred in the ordinary course of business; and
(iv) Debt secured by Liens permitted pursuant to Section 6.22.
6.11 Merger. The Borrower will not, nor will it permit any
Subsidiary to, enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, assign, transfer or otherwise dispose
of, all or substantially all of its property, business or assets; provided
that the Borrower may merge or consolidate with another Person if (i) the
Borrower is the surviving corporation, (ii) the Borrower will at all times
be in pro forma compliance with all provisions of this Agreement subsequent
to such merger or consolidation as long as either Loans or the Commitment
is outstanding and (iii) the Borrower has filed the SEC Report (if required
to do so by law).
6.12 Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any
other Person except for (i) sales of inventory in the ordinary course of
business and (ii) leases, sales or other dispositions of its Property that,
together with all other Property of the Borrower and its Subsidiaries
previously leased, sold or disposed of (other than inventory in the
ordinary course of business) as permitted by this Section during the term
of this Agreement do not require the Borrower to file an SEC Report;
provided that the foregoing shall not be construed as prohibiting a
transfer of assets from a Subsidiary to the Borrower or the merger of a
Subsidiary into the Borrower.
6.13 Sale of Accounts. The Borrower will not, nor will it permit
any Subsidiary to, sell or otherwise dispose of any notes receivable or
accounts receivable, with or without recourse, except the Borrower or any
Subsidiary may assign accounts receivable (previously expensed by the
Borrower as bad debts) for collection, with or without recourse.
6.14 Acquisitions. The Borrower will not, nor will it permit any
Subsidiary to, enter into any agreement, contract, binding commitment or
other arrangement providing for any Acquisition, or take any action to
solicit the tender of securities or proxies in respect thereof in order to
effect any Acquisition, unless:
(i) the Person to be (or whose assets are to be) acquired does not
oppose such Acquisition and the line or lines of business of the Person to
be acquired are substantially the same as one or more line or lines of
business conducted by the Borrower and its Subsidiaries,
(ii) no Default or Event of Default shall have occurred and be
continuing either immediately prior to or immediately after giving effect
to such Acquisition,
(iii) if any Acquisition would require the Borrower to file an SEC
Report, the Borrower shall have furnished to the Agent (A) pro forma
historical financial statements as of the end of the most recently
completed fiscal year of the Borrower and most recent interim fiscal
quarter, if applicable, giving effect to such Acquisition and (B) a
Compliance Certificate prepared on a historical pro forma basis giving
effect to such Acquisition, which certificate shall demonstrate that no
Default or Event of Default would exist immediately after giving effect
thereto (provided, however, that in each case if such information is not
then available for such periods with respect to Borrower, any Subsidiary or
the Person being acquired (or from whom assets are being acquired), then
such statements may be based instead upon reasonable estimates made by
Borrower as to the financial performance of such Persons for such periods)
and
(iv) the Person acquired shall be a Subsidiary, or be merged into
the Borrower or a Subsidiary, immediately upon consummation of the
Acquisition (or if assets are being acquired, the acquiror shall be the
Borrower or a Subsidiary).
6.15 Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation,
the purchase or sale of any Property or service) with, or make any payment
or transfer to, any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable
to the Borrower or such Subsidiary than the Borrower or such Subsidiary
would obtain in a comparable arms-length transaction; provided that the
foregoing shall not be construed as prohibiting a transfer of assets from a
Subsidiary to the Borrower or the merger of a Subsidiary into the Borrower.
6.16 ERISA. The Borrower will not, and will not permit any
Subsidiary to, become a party to any Multiemployer Plan.
6.17 Capital Expenditures. The Borrower will not, and will not
permit any Subsidiary to, make or commit to make (by way of the acquisition
of securities of a person or entity or otherwise) any Capital Expenditure,
except for Capital Expenditures not exceeding (i) in fiscal year 1998,
$65,000,000 in the aggregate, (ii) in fiscal year 1999, $55,000,000 in the
aggregate, (iii) in fiscal year 2000, $55,000,000 in the aggregate, and
(iv) in fiscal year 2001, $55,000,000 in the aggregate, and , with respect
to each fiscal year specified in clauses (ii), (iii) and (iv) above, an
additional aggregate amount equal to the amount (if any) by which the
actual Capital Expenditures in the immediately preceding fiscal year were
less than those permitted under clauses (i), (ii) and (iii) above, as
applicable. Notwithstanding the foregoing, any Capital Expenditure made by
a Person which is the subject of an Acquisition by the Borrower, prior to
such Acquisition, shall not be included in determining compliance by the
Borrower and its Subsidiaries with this Section.
6.18 Total Debt Ratio. The Borrower and its Subsidiaries on a
consolidated basis shall not permit, as of the end of each fiscal quarter
for the four consecutive fiscal quarters then ended, the Total Debt Ratio
to be greater than (i) 2.50:1.00 with respect to any such four consecutive
fiscal quarters ending prior to January 30, 2001 and (ii) 2.25:1.00 with
respect to any such four consecutive fiscal quarters ending on or after
January 30, 2001. Notwithstanding the foregoing, EBITDA for the first
quarterly measurement period shall be measured by the sum of EBITDA plus
merger and non-recurring costs up to a maximum of $10,000,000 for the
quarter ending April 30, 1998 multiplied by four. For the second quarterly
measurement period, EBITDA shall be measured by the sum of EBITDA for the
quarters ending April 30, 1998 and July 31, 1998 plus merger and
non-recurring costs up to a maximum of $20,000,000 multiplied by two. For
the third quarterly measurement period, EBITDA shall be measured by the sum
of EBITDA for the quarters ending April 30, 1998, July 31, 1998 and
October 31, 1998 plus merger and non-recurring costs of up to $20,000,000
multiplied by 1.33. For the quarter ending January 30, 1999, EBITDA shall
be measured by the sum of EBITDA for the period of four consecutive fiscal
quarters then ended plus merger and non-recurring costs up to a maximum of
$20,000,000. For the quarter ending April 30, 1999, EBITDA shall be
measured by the sum of EBITDA for the period of four consecutive fiscal
quarters then ended plus merger and non-recurring costs of up to
$10,000,000.
6.19 Payment of Obligations. The Borrower and each Subsidiary will
pay and discharge promptly all taxes, assessments and other governmental
charges and claims levied or imposed upon it or its Property, or any part
thereof, provided, however, that the Borrower and its Subsidiaries shall
have the right in good faith to contest any such taxes, assessments,
charges or claims and, pending the outcome of such contest, to delay or
refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes assessments, charges
and claims.
6.20 Consolidated Net Worth. The Borrower and its Subsidiaries
shall at all times maintain Consolidated Net Worth, determined as of the
end of each fiscal quarter, of not less than $160,000,000 plus 50% of
cumulative Net Income for the period commencing on February 1, 1998 through
the end of such fiscal quarter plus 75% of any Net Proceeds obtained from
any public equity offering. (In the event that the Borrower and its
Subsidiaries have a consolidated net loss for any fiscal quarter, Net
Income for purposes of this Section shall be deemed zero for such fiscal
quarter).
6.21 Restricted Junior Payments. The Borrower shall not and shall
not permit any Subsidiaries to declare or pay any dividends (other than
dividends payable solely in common stock of the Borrower or its
Subsidiaries and other than dividends payable by its Subsidiaries to the
Borrower) on any shares of any class of capital stock of Borrower or its
Subsidiaries or any warrants or options to purchase any such stock, whether
now or hereafter outstanding.
6.22 Encumbrances and Liens. The Borrower will not create, assume
or suffer to exist any Lien (other than for taxes not delinquent and for
taxes and other items being contested in good faith) on Property of any
kind, whether real, personal or mixed, now owned or hereafter acquired, or
upon the income or profits thereof, except for (i) minor encumbrances and
easements on real property which do not materially affect its market value,
(ii) existing Liens on the Borrower's personal property; (iii) future
purchase money security interests encumbering only the property purchased;
(iv) statutory liens of bankers, carriers, warehousemen, mechanics,
materialmen, and other similar Liens imposed by law, which are incurred in
the ordinary course of business for sums not more than 30 days delinquent
or which are being contested in good faith by appropriate proceedings;
(v) deposits made in the ordinary course of business to secure liability to
insurance carriers; (vi) attachment and judgment Liens securing claims less
than $1,000,000 in the aggregate (excluding for purposes of said
calculation any such Liens for which execution has been stayed, payment is
covered in full by insurance, or the Borrower is prosecuting an appeal in
good faith by appropriate proceedings); and (vii) monetary obligations of
the Borrower under any leasing or similar arrangement which, in accordance
with Agreement Accounting Principles, is classified as a Capitalized Lease.
Notwithstanding the foregoing: (i) the Borrower shall not at any time
encumber any real property with a purchase money security interest if (A)
immediately after giving effect to such encumbrances, the purchase money
Debt secured by said encumbrance will exceed 75% of the fair market value
of the Property encumbered by the encumbrance or (B) immediately after
giving effect to such encumbrance, the aggregate Debt of the Borrower
secured by purchase money security interests in real property will exceed
5% of total assets of the Borrower and its Subsidiaries on a consolidated
basis; and (ii) the Borrower shall not at any time encumber its Property
with an additional Lien or encumbrance if, immediately after giving effect
to such encumbrance, the Borrower would be required to file an SEC Report.
6.23 Loans, Advances and Guaranties. The Borrower will not, and
will not permit any Subsidiary to, except in the ordinary course of
business as currently conducted, make any loans or advances, become a
guarantor or surety, pledge its credit or properties in any manner or
extend credit; provided that the foregoing shall not be construed as a
limitation on guaranties or any Liens permitted hereunder and, provided,
further, that the Borrower may make bridge loans to Canadian Petcetera
Warehouse Inc. in an aggregate amount not to exceed at any time $7,000,000.
6.24 Investments. The Borrower will not purchase the Debt of
another Person or entity except for:
(i) certificates of deposit, time deposits, Eurodollar time
deposits, repurchase agreements, reverse repurchase agreements, or bankers'
acceptances, having in each case a maturity date of not more than twelve
months from the date of acquisition by the Borrower, issued by a Lender or
any U.S. commercial bank or any branch or agency of a non-U.S. bank
licensed to conduct business in the U.S. having combined capital and
surplus or not less than $50,000,000 whose short term securities are rated
at least "A" by Standard & Poor's Corporation (or the equivalent rating
provided by any of Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co. or Fitch Investors Services, Inc.);
(ii) interest bearing or discounted obligations of the United States
Government, any agency thereof (including without limitation the Federal
Home Loan Mortgage Corporation, the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Farm
Credit System) or any entities or pools of mortgages or other instruments
formed by the United States Government or any such agencies, and in any
case only if such obligation has a maturity date not more than twelve
months from the date of acquisition by the Borrower;
(iii) obligations issued by states and local governments or their
agencies, instrumentalities, authorities or subdivisions, if such issuer
has received a rating of at least "A" by Standard & Poor's Corporation (or
the equivalent rating provided by any of Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Fitch Investors Services, Inc.), and in
any case only if such obligation has a maturity date of not more than
twelve months from the date of acquisition by the Borrower;
(iv) commercial paper of an issuer rated at least "A" by Standard &
Poor's Corporation (or the equivalent rating provided by any of Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors
Services, Inc.), and in any case only if such obligation has a maturity
date not more than twelve months from the date of acquisition by the
Borrower;
(v) investments in money market funds including short-term
adjustable rate money market funds; or
(vi) intercompany Debt otherwise permitted by Section 6.10(ii)
hereof.
6.25 Minimum Fixed Charge Coverage Ratio. The Borrower and its
Subsidiaries on a consolidated basis shall at all times maintain a ratio,
determined as of the end of each fiscal quarter, for the four consecutive
fiscal quarters then ended, of EBITDAR to Consolidated Fixed Charges of not
less than 1.25:1.0. Notwithstanding the foregoing, EBITDAR for the first
quarterly measurement period shall be measured by the sum of EBITDAR plus
merger and non-recurring costs up to a maximum of $10,000,000 for the
quarter ending April 30, 1998 multiplied by four. For the second quarterly
measurement period, EBITDAR shall be measured by the sum of EBITDAR for the
quarters ending April 30, 1998 and July 31, 1998 plus merger and
non-recurring costs up to a maximum of $20,000,000 multiplied by two. For
the third quarterly measurement period, EBITDAR shall be measured by the
sum of EBITDAR for the quarters ending April 30, 1998, July 31, 1998 and
October 31, 1998 plus merger and non-recurring costs up to a maximum of
$20,000,000 multiplied by 1.33. For the quarter ending January 30, 1999,
EBITDAR shall be measured by the sum of EBITDAR for the period of four
consecutive fiscal quarters then ended plus merger and non-recurring costs
up to a maximum of $20,000,000. For the quarter ending April 30, 1999,
EBITDAR shall be measured by the sum of EBITDAR for the period of four
consecutive fiscal quarters then ended plus merger and non-recurring costs
of up to $10,000,000. Notwithstanding the foregoing, Consolidated Fixed
Charges for the first quarterly measurement period shall be for the quarter
ending April 30, 1998, multiplied by four. For the second quarterly
measurement period, Consolidated Fixed Charges shall be for the quarters
ending April 30, 1998 and July 31, 1998, multiplied by two. For the third
quarterly measurement period, Consolidated Fixed Charges shall be for the
quarters ending April 30, 1998, July 31, 1998 and October 31, 1998,
multiplied by 1.33.
6.26 Capitalized Rent Expense Ratio. The Borrower and its
Subsidiaries on a consolidated basis shall not permit, as of the end of
each fiscal quarter for the four consecutive fiscal quarters then ended,
the Capitalized Rent Expense Ratio to be greater than 0.85:1:00.
Notwithstanding the foregoing, Rent Expense for the first quarterly
measurement period shall be for the quarter ending April 30, 1998,
multiplied by four. For the second quarterly measurement period, Rent
Expense shall be for the quarters ending April 30, 1998 and July 31, 1998,
multiplied by two. For the third quarterly measurement period, Rent
Expense shall be for the quarters ending April 30, 1998, July 31, 1998 and
October 31, 1998, multiplied by 1.33.
6.27 Guaranties, Etc. The Borrower will cause each of its
Subsidiaries hereafter formed or acquired to execute and deliver to the
Agent promptly upon the formation or acquisition thereof a Guaranty in form
and substance satisfactory to the Agent, guaranteeing the Obligations on
substantially the same terms as the other Guarantors.
6.28 Lease Obligations. The Borrower shall not and shall not permit
any of its Subsidiaries to, create, incur or suffer to exist, any
obligations as lessee for the payment of lease expenses for any real or
personal property under leases or arrangements to lease, other than rental
expense with respect to Capitalized Lease obligations and long-term
operating leases.
6.29 Condition Subsequent. The Borrower shall no later than
February 5, 1998, deliver to the Agent, for the benefit of the Lenders, a
favorable legal opinion (in form and substance satisfactory to the Agent)
of counsel to the Borrower and each Guarantor.
ARTICLE 7
DEFAULTS
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
7.1 Payment Defaults. The Borrower shall fail to pay when due any
payment of principal of any Loan, or the Borrower shall fail to pay within
3 days of the date when due any reimbursement obligation (with respect to a
drawing under a Letter of Credit) or interest or other charge or fee
required under the terms of this Agreement or the other Loan Documents.
7.2 Representations and Warranties. Any representation or warranty
made by the Borrower or any Guarantor under any Loan Document shall prove
to have been incorrect or misleading in any material respect when made.
7.3 Other Loan Document Defaults. The Borrower or any Guarantor
shall fail to perform (a) any obligation set forth in subsections 6.1, 6.3,
6.10, 6.11, 6.12, 6.13, 6.14, 6.17, 6.18, 6.21, 6.22, 6.23, 6.24, 6.25,
6.26 or 6.28 of the Agreement; (b) any obligation set forth in subsections
6.2 or 6.20 of the Agreement and such failure shall continue for 14 days
following the occurrence thereof; or (c) any other obligation contained in
the Agreement or the other Loan Documents, and such failure shall continue
for 30 days after written notice thereof from the Lenders.
7.4 Bankruptcy. (i) The Borrower or any Guarantor shall fail to
pay its Debts generally as they become due or shall file any petition or
action for relief under any bankruptcy, insolvency, reorganization,
moratorium, creditor composition law, or any other law for the relief of or
relating to debtors; (ii) an involuntary petition under any bankruptcy law
shall be filed against the Borrower or any Guarantor and shall not be
dismissed or discharged within 60 days of filing; or (iii) a custodian,
receiver, trustee, assignee for the benefit or creditors, or other similar
official, shall be appointed to take possession, custody or control of the
properties of the Borrower or any Guarantor and not be dismissed or
discharged with 60 days of appointment.
7.5 Other Agreements. The Borrower shall fail to pay when due
principal or interest payments required under the terms of any bonds,
notes, debentures or other agreements evidencing, in the aggregate, at
least $10,000,000 of indebtedness (excluding, for purposes of this
calculation, payments required under this Agreement or any of the other
Loan Documents) and such non-payment shall continue beyond any period of
grace provided with respect thereto, or the Borrower shall default in the
observance or performance of any other agreement contained in any such
bonds, notes, debentures or other agreements evidencing indebtedness, and
the effect of such failure or default is to cause the indebtedness
evidenced thereby to become due prior to its stated date of maturity.
7.6 ERISA. Any Governmental Person shall take any action under
ERISA, with respect to any Plan, that could have a Material Adverse Effect
or that the unfunded liabilities exceed $1,000,000.
7.7 Judgments. A final judgment or order for the payment of money
in excess of $10,000,000 (exclusive of amounts covered by insurance) shall
be rendered against the Borrower or any Guarantor and the same shall remain
undischarged for a period of 30 days during which execution shall not be
effectively stayed, or any judgment, writ, warrant of attachment, or
execution or similar process, shall be issued or levied against a
substantial part of the Borrower's or any Guarantor's property and such
judgment, writ, warrant of attachment, or execution or similar process,
shall not be released, stayed, vacated, bonded or otherwise dismissed
within 20 days after its issue or levy.
7.8 Loan Documents. The Guaranties or any other Loan Document
shall fail to remain in full force or effect or any action shall be taken
by the Borrower or any Guarantor to discontinue or to assert the invalidity
or unenforceability of any Guaranty or any other Loan Document, or any
Guarantor denies that it has any further liability under any Guaranty to
which it is a party, or gives notice to such effect.
ARTICLE 8
ACCELERATION, WAIVERS AND AMENDMENTS
8.1 Acceleration. If any Event of Default described in Section 7.4
occurs with respect to the Borrower, the obligations of the Lenders to make
Loans and issue and participate in Letters of Credit hereunder shall
automatically terminate and the Obligations shall immediately become due
and payable without any election or action on the part of the Agent or any
Lender. If any other Event of Default occurs, the Required Lenders may
terminate or suspend the obligations of the Lenders to make Loans and issue
and participate in Letters of Credit hereunder, or declare the Obligations
to be due and payable, or both, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or notice
of any kind, all of which the Borrower hereby expressly waives.
8.2 Cash Collateral. To the extent that any Letters of Credit are
outstanding at the time of any Event of Default, the Borrower shall deliver
to the Agent, for the benefit of the Lenders, a cash collateral deposit in
an amount equal to the aggregate Letter of Credit Amount for all Letters of
Credit then outstanding.
8.3 Additional Remedies. The rights, powers and remedies given to
the Agent and the Lenders hereunder shall be cumulative and not alternative
and shall be in addition to all rights, powers and remedies given to the
Agent and the Lenders by law against the Borrower or any other person,
including but not limited to any Lender's right of setoff or banker's lien.
8.4 Amendments. Subject to the provisions of this Article 8, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for
the purpose of adding or modifying any provisions to the Loan Documents or
changing in any manner the rights of the Lenders or the Borrower hereunder
or waiving any Default hereunder; provided, however, that no such
supplemental agreement shall, without the consent of each Lender affected
thereby:
(i) Extend the maturity of any Loan or Note or forgive all or any
portion of the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Increase the amount of the Commitment of any Lender hereunder
or permit the Borrower to assign its rights under this
Agreement.
(iv) Amend this Section 8.4.
(v) Release any guarantor of the Loans or modify any guaranty in
any material respect.
No amendment of any provision of this Agreement relating to the Agent shall
be effective without the written consent of the Agent. The Agent may waive
payment of the fees for its own account without obtaining the consent of
any other party to this Agreement.
8.5 Preservation of Rights. No delay or omission of the Lenders or
the Agent to exercise any right under the Loan Documents shall impair such
right or be construed to be a waiver of any Default or an acquiescence
therein, and the making of a Loan notwithstanding the existence of a
Default or the inability of the Borrower to satisfy the conditions
precedent to such Loan shall not constitute any waiver or acquiescence.
Any single or partial exercise of any such right shall not preclude other
or further exercise thereof or the exercise of any other right, and no
waiver, amendment or other variation of the terms, conditions or provisions
of the Loan Documents whatsoever shall be valid unless in writing signed by
the Lenders required pursuant to Section 8.4, and then only to the extent
in such writing specifically set forth. All remedies contained in the Loan
Documents or by law afforded shall be cumulative and all shall be available
to the Agent and the Lenders until the Obligations have been paid in full.
ARTICLE 9
GENERAL PROVISIONS
9.1 Survival of Representations. All representations and
warranties of the Borrower contained in this Agreement shall survive
delivery of the Notes and the making of the Loans and issuance of the
Letters of Credit herein contemplated.
9.2 Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Lender shall be obligated to extend
credit to the Borrower in violation of any limitation or prohibition
provided by any applicable statute or regulation.
9.3 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of
any of the provisions of the Loan Documents.
9.4 Entire Agreement. The Loan Documents embody the entire
agreement and understanding among the Borrower, the Agent and the Lenders
and supersede all prior agreements and understandings among the Borrower,
the Agent and the Lenders relating to the subject matter thereof.
9.5 Several Obligations; Benefits of this Agreement. The
respective obligations of the Lenders hereunder are several and not joint
and no Lender shall be the partner or agent of any other (except to the
extent to which the Agent is authorized to act as such). The failure of
any Lender to perform any of its obligations hereunder shall not relieve
any other Lender from any of its obligations hereunder. This Agreement
shall not be construed so as to confer any right or benefit upon any Person
other than the parties to this Agreement and their respective successors
and assigns.
9.6 Expenses; Indemnification. The Borrower shall reimburse the
Agent for any costs, internal charges and out-of-pocket expenses paid or
incurred by the Agent in connection with the negotiation and documentation
of this Agreement. The Borrower shall also reimburse the Agent and each
Lender for any costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' fees and time charges of attorneys for the
Agent and each Lender) paid or incurred by the Agent or any Lender in
connection with the collection and enforcement of the Loan Documents. The
Borrower further agrees to indemnify the Agent and each Lender, its
directors, officers and employees against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or
not the Agent or any Lender is a party thereto) which any of them may pay
or incur arising out of or relating to this Agreement, the other Loan
Documents, the transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Loan or Letter
of Credit hereunder, provided that no Person shall have the right to be
indemnified hereunder for such Person's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
9.7 Numbers of Documents. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Agent with
sufficient counterparts so that the Agent may furnish one to each of the
Lenders.
9.8 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement
Accounting Principles; provided that, if the Borrower notifies the Agent
that the Borrower wishes to amend any covenant contained in Article 6 to
eliminate the effect of any change after the date hereof in Agreement
Accounting Principles (which, for purposes of this proviso shall include
the generally accepted application or interpretation thereof) on the
operation of such covenants (or if the Agent notifies the Borrower that the
Required Lenders wish to amend any such covenant for such purpose), then
the Borrower's compliance with such covenant shall be determined on the
basis of Agreement Accounting Principles in effect immediately before the
relevant change in Agreement Accounting Principles became effective, until
either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Required Lenders.
9.9 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable,
or invalid without affecting the remaining provisions in that jurisdiction
or the operation, enforceability, or validity of that provision in any
other jurisdiction, and to this end the provisions of all Loan Documents
are declared to be severable.
9.10 Nonliability of Lenders. The relationship between the Borrower
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities
to the Borrower. Neither the Agent nor any Lender undertakes any
responsibility to the Borrower to review or inform the Borrower of any
matter in connection with any phase of the Borrower's business or
operations.
9.11 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING
A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE
STATE OF CALIFORNIA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS.
9.12 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
CALIFORNIA STATE COURT SITTING IN LOS ANGELES IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR
ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE
AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO,
OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN LOS
ANGELES, CALIFORNIA.
9.13 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE)
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT
OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.14 Integration Clause. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire
agreement among the Agent, the Lenders and the Borrower regarding the Loans
and Letters of Credit and all prior communications verbal or written
between the Borrower and the Agent or any Lender shall be of no further
effect or evidentiary value.
9.15 Confidentiality. The Lenders shall take normal and reasonable
precautions to maintain the confidentiality of all non-public information
obtained pursuant to the requirements of this Agreement which has been
identified as such by the Borrower but may, in any event, make disclosures
(i) reasonably required by any bona fide transferee, assignee or
participant in connection with the contemplated transfer or assignment of
any of the Commitments or Loans or participations therein or participations
in Letters of Credit or (ii) as required or requested by any governmental
agency or representative thereof or as required pursuant to any legal
process or (iii) to its attorneys and accountants or (iv) as required by
law or (v) in connection with litigation involving any Lender.
ARTICLE 10
THE AGENT
10.1 Appointment. UBOC is hereby appointed Agent hereunder and
under each other Loan Document, and each of the Lenders irrevocably
authorizes the Agent to act as the agent of such Lender. The Agent agrees
to act as such upon the express conditions contained in this Article 10.
The Agent shall not have a fiduciary relationship in respect of the
Borrower or any Lender by reason of this Agreement.
10.2 Powers. The Agent shall have and may exercise such powers
under the Loan Documents as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably
incidental thereto. The Agent shall have no implied duties to the Lenders,
or any obligation to the Lenders to take any action thereunder except any
action specifically provided by the Loan Documents to be taken by the
Agent.
10.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower or any Lender
for any action taken or omitted to be taken by it or them hereunder or
under any other Loan Document or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct.
10.4 No Responsibility for Loans, Recitals, etc. Neither the Agent
nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in connection with any
Loan Document or any borrowing hereunder; (ii) the performance or
observance of any of the covenants or agreements of any obligor under any
Loan Document, including, without limitation, any agreement by an obligor
to furnish information directly to each Lender; (iii) the satisfaction of
any condition specified in Article 4 except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness or genuineness
of any Loan Document or any other instrument or writing furnished in
connection therewith. The Agent shall have no duty to disclose to the
Lenders information that is not required to be furnished by the Borrower to
the Agent at such time, but is voluntarily furnished by the Borrower to the
Agent (either in its capacity as Agent or in its individual capacity).
10.5 Action on Instructions of Lenders. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder
and under any other Loan Document in accordance with written instructions
signed by the Required Lenders, and such instructions and any action taken
or failure to act pursuant thereto shall be binding on all of the Lenders
and on all holders of Notes. The Agent shall be fully justified in failing
or refusing to take any action hereunder and under any other Loan Document
unless it shall first be indemnified to its satisfaction by the Lenders pro
rata against any and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action.
10.6 Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or
through employees, agents, and attorneys-in-fact and shall not be
answerable to the Lenders, except as to money or securities received by it
or its authorized agents, for the default or misconduct of any such agents
or attorneys-in-fact selected by it with reasonable care. The Agent shall
be entitled to advice of counsel concerning all matters pertaining to the
agency hereby created and its duties hereunder and under any other Loan
Document.
10.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons,
and, in respect to legal matters, upon the opinion of counsel selected by
the Agent, which counsel may be employees of the Agent.
10.8 Agent's Reimbursement and Indemnification. The Lenders agree
to reimburse and indemnify the Agent ratably in proportion to their
respective Commitments (i) for any other expenses incurred by the Agent on
behalf of the Lenders, in connection with the preparation, execution,
delivery, administration and enforcement of the Loan Documents and (ii) for
any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of the Loan Documents or any
other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of
any such other documents, provided that no Lender shall be liable for any
of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent. The obligations of the Lenders under this
Section 10.8 shall survive payment of the Obligations and termination of
this Agreement.
10.9 Rights as a Lender. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other
Loan Document as any Lender and may exercise the same as though it were not
the Agent, and the term "Lender" or "Lenders" shall, at any time when the
Agent is a Lender, unless the context otherwise indicates, include the
Agent in its individual capacity. The Agent may accept deposits from, lend
money to, and generally engage in any kind of trust, debt, equity or other
transaction, in addition to those contemplated by this Agreement or any
other Loan Document, with the Borrower or any of its Subsidiaries in which
the Borrower or such Subsidiary is not restricted hereby from engaging with
any other Person. The Agent shall, as long as it shall be the Agent,
retain at least a 20% interest in the Commitment or, if the Commitment has
been terminated at least a 20% interest in Loans outstanding.
10.10 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents.
10.11 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to
be effective upon the appointment of a successor Agent or, if no successor
Agent has been appointed, forty-five days after the retiring Agent gives
notice of its intention to resign. Upon any such resignation, the Required
Lenders shall have the right to appoint, with the consent (which shall not
be unreasonably withheld) of the Borrower, if no Default has occurred and
is continuing, on behalf of the Borrower and the Lenders, a successor
Agent. If no successor Agent shall have been so appointed by the Required
Lenders within thirty days after the resigning Agent's giving notice of its
intention to resign, then the resigning Agent may appoint, on behalf of the
Borrower and the Lenders, a successor Agent. If the Agent has resigned and
no successor Agent has been appointed, the Lenders may perform all the
duties of the Agent hereunder and the Borrower shall make all payments in
respect of the Obligations to the applicable Lender and for all other
purposes shall deal directly with the Lenders. No successor Agent shall be
deemed to be appointed hereunder until such successor Agent has accepted
the appointment. Any such successor Agent shall be a commercial bank
having capital and retained earnings of at least $50,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning Agent. Upon the
effectiveness of the resignation of the Agent, the resigning Agent shall be
discharged from its duties and obligations hereunder and under the Loan
Documents. After the effectiveness of the resignation of an Agent, the
provisions of this Article 10 shall continue in effect for the benefit of
such Agent in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent hereunder and under the other Loan
Documents.
ARTICLE 11
SETOFF; RATABLE PAYMENTS
11.1 Setoff. Upon the occurrence and during the continuance of any
Event of Default, the Lenders are hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by any
Lender to or for the credit or the account of the Borrower against any and
all obligations of the Borrower now or hereafter existing under the Loan
Documents, irrespective of whether or not any Lender shall have made any
demand under this Agreement and although such obligations may be unmatured.
The Agent agrees to notify the Borrower promptly after any such setoff and
application; provided, however, that the failure to give such notice shall
not affect the validity of such setoff and application. The rights of the
Lenders under this Section are in addition to other rights and remedies
(including other rights of setoff) that the Lenders may have.
11.2 Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it upon its Loans (other than payments
received pursuant to Section 3.1 or 3.2) in a greater proportion than that
received by any other Lender, such Lender agrees, promptly upon demand, to
purchase a portion of the Loans held by the other Lenders so that after
such purchase each Lender will hold its ratable proportion of Loans. If
any Lender, whether in connection with setoff or amounts which might be
subject to setoff or otherwise, receives collateral or other protection for
its Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to
their Loans. In case any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made.
ARTICLE 12
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower
and the Lenders and their respective successors and assigns, except that
(i) the Borrower shall not have the right to assign its rights or
obligations under the Loan Documents and (ii) any assignment by any Lender
must be made in compliance with Section 12.3. Notwithstanding clause (ii)
of this Section, any Lender may at any time, without the consent of the
Borrower or the Agent, assign all or any portion of its rights under this
Agreement and its Notes to a Federal Reserve Bank; provided, however, that
no such assignment shall release the transferor Lender from its obligations
hereunder. The Agent may treat the payee of any Note as the owner thereof
for all purposes hereof unless and until such payee complies with
Section 12.3 in the case of an assignment thereof or, in the case of any
other transfer, a written notice of the transfer is filed with the Agent.
Any assignee or transferee of a Note agrees by acceptance thereof to be
bound by all the terms and provisions of the Loan Documents. Any request,
authority or consent of any Person, who at the time of making such request
or giving such authority or consent is the holder of any Note, shall be
conclusive and binding on any subsequent holder, transferee or assignee of
such Note or of any Note or Notes issued in exchange therefor.
12.2 Participations.
(i) Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable
law, at any time sell to one or more banks or other entities
("Participants") participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Commitment of such Lender
or any other interest of such Lender under the Loan Documents. In
the event of any such sale by a Lender of participating interests to
a Participant, such Lender's obligations under the Loan Documents
shall remain unchanged, such Lender shall remain solely responsible
to the other parties hereto for the performance of such obligations,
such Lender shall remain the holder of any such Note for all purposes
under the Loan Documents, all amounts payable by the Borrower under
this Agreement shall be determined as if such Lender had not sold
such participating interests, and the Borrower and the Agent shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under the Loan Documents.
(ii) Voting Rights. Each Lender shall retain the sole right
to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other
than any amendment, modification or waiver with respect to any Loan
or Commitment in which such Participant has an interest which
forgives principal, interest or fees or reduces the interest rate or
fees payable with respect to any such Loan or Commitment, postpones
any date fixed for any regularly-scheduled payment of principal of,
or interest or fees on, any such Loan or Commitment, or releases any
guarantor of any such Loan or any substantial amount of collateral
securing any such Loan.
(iii) Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in
Section 11.1 in respect of its participating interest in amounts
owing under the Loan Documents to the same extent as if the amount of
its participating interest were owing directly to it as a Lender
under the Loan Documents, provided that each Lender shall retain the
right of setoff provided in Section 11.1 with respect to the amount
of participating interests sold to each Participant. The Lenders
agree to share with each Participant, and each Participant, by
exercising the right of setoff provided in Section 11.1, agrees to
share with each Lender, any amount received pursuant to the exercise
of its right of setoff, such amounts to be shared in accordance with
Section 11.2 as if each Participant were a Lender.
12.3 Assignments.
(i) Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any
time assign to one or more Eligible Assignees ("Purchasers") all or
any part of its rights and obligations under the Loan Documents,
provided, however, such assignments must be in a minimum amount at
least equal to $5,000,000; provided, however, that if such Purchaser
is a Lender or an Affiliate thereof, no minimum amount shall be
applicable. Such assignment shall be substantially in the form of
Exhibit C hereto or in such other form as may be agreed to by the
parties thereto. The consent of the Borrower and the Agent shall be
required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof; provided,
however, that if a Default has occurred and is continuing, the
consent of the Borrower shall not be required. Such consents shall
not be unreasonably withheld.
(ii) Effect; Effective Date. Upon (i) delivery to the Agent
of a notice of assignment, substantially in the form attached as
Exhibit I to Exhibit C hereto (a "Notice of Assignment"), together
with any consents required by Section 12.3(i), and (ii) payment of a
$3,000 fee to the Agent for processing such assignment, such
assignment shall become effective on the effective date specified in
such Notice of Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that it is an Eligible
Assignee and that none of the consideration used to make the purchase
of the Commitment and Loans under the applicable assignment agreement
are "plan assets" as defined under ERISA and that the rights and
interests of the Purchaser in and under the Loan Documents will not
be "plan assets" under ERISA. On and after the effective date of
such assignment, such Purchaser shall for all purposes be a Lender
party to this Agreement and any other Loan Document executed by the
Lenders and shall have all the rights and obligations of a Lender
under the Loan Documents, to the same extent as if it were an
original party hereto, and no further consent or action by the
Borrower, the Lenders or the Agent shall be required to release the
transferor Lender with respect to the percentage of the Aggregate
Commitment and Loans assigned to such Purchaser. Upon the
consummation of any assignment to a Purchaser pursuant to this
Section 12.3(ii), the transferor Lender, the Agent and the Borrower
shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each case in
principal amounts reflecting their Commitment, as adjusted pursuant
to such assignment.
12.4 Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Person
acquiring an interest in the Loan Documents by operation of law (each a
"Transferee") and any prospective Transferee any and all information in
such Lender's possession concerning the creditworthiness of the Borrower
and its Subsidiaries, provided that each prospective Transferee shall
execute and deliver to the Agent a confidentiality agreement (in form and
substance reasonably satisfactory to the Borrower and the Agent).
12.5 Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the
transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer, to comply with the provisions of
Section 2.15.
ARTICLE 13
NOTICES
13.1 Giving Notice. Except as otherwise permitted by Section 2.6
with respect to notices regarding conversion or continuation of Advances,
all notices and other communications provided to any party hereto under
this Agreement or any other Loan Document shall be in writing or by
facsimile and addressed or delivered to the Borrower and the Agent at their
respective addresses set forth below its signature hereto and to each
Lender at its address set forth on Schedule 1 hereto or at such other
address as may be designated by such party in a notice to the other
parties. Any notice, if mailed and properly addressed with postage
prepaid, shall be deemed given when received; any notice, if transmitted by
facsimile, shall be deemed given when transmitted (answerback confirmed in
the case of telexes).
13.2 Change of Address. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in
writing to the other parties hereto.
ARTICLE 14
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower, the
Agent and the Lenders and each party has notified the Agent by telex or
telephone, that it has taken such action.
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
PETCO ANIMAL SUPPLIES, INC.
By: _____________________________
Print Name: James M. Myers
Title: Senior Vice President-
Finance
9125 Rehco Road
San Diego, California 92121
Attention: James M. Myers
Senior Vice President -
Finance
Telecopier: (619) 638-2154
UNION BANK OF CALIFORNIA, N.A.,
as Agent and Lender
By: ______________________________
Print Name: Myra Juetten
Title: Vice President
By: ______________________________
Print Name: Bruce Breslau
Title: Vice President
500 South Main Street, Suite 201
Orange, California 92868
Attention: Myra Juetten
Vice President
Telecopier: (714) 565-5770
SCHEDULE 1
LENDERS AND APPLICABLE LENDING OFFICES
Revolving Term Applicable
Lender Commitment Commitment Lending Office
Union Bank of
California, N.A.
Agent and Lender
$80,000,000
$30,000,000
500 South Main Street,
Suite 200
Orange, CA 92868
Attention: Myra Juetten
Telecopier: (714) 565-5770
___________ ___________
Total $80,000,000 $30,000,000
SCHEDULE 2
SUBSIDIARIES
(See Section 5.8)
Jurisdiction
Investment Owned Amount of Percent of
In By Investment Ownership Organization
International Borrower $100 100% California
Pet Supplies
and
Distribution,
Inc.
Pet Nosh, Borrower $100 100% New York
Consolidated
Co., Inc.
Shareholder Agreements and/or Management Agreements
None
SCHEDULE 3
DEBT
That certain Credit Agreement dated as of December 6, 1996 between Petco Animal
Supplies, Inc., as Borrower, the lenders named therein and Union Bank of
California, N.A. as agent and lender.
EXHIBIT A-1
FORM OF REVOLVING NOTE
$_______________ _______________, 19__
PETCO ANIMAL SUPPLIES, INC., a Delaware corporation, (the
"Borrower"), promises to pay to the order of ___________________________
(the "Lender") the principal sum of ___________________________ Dollars or
such lesser amount as loaned under the Agreement referred to below, in
immediately available funds at the main office of Union Bank of California,
N.A., as Agent, together with interest on the unpaid principal amount
hereof at the rates and on the dates set forth in the Agreement hereinafter
referred to. The Borrower shall pay the principal of and accrued and
unpaid interest on the Revolving Loans made by the Lender in full on the
Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the
schedule attached hereto, or to otherwise record in accordance with its
usual practice, the date and amount of each Revolving Loan and the date and
amount of each principal payment hereunder.
This Note is one of the Revolving Notes issued pursuant to, and is
entitled to the benefits of, the Credit Agreement dated as of January 30,
1998 (the "Agreement") among the Borrower, Union Bank of California, N.A.,
individually and as Agent, and the lenders named therein, including the
Lender, to which Agreement, as it may be amended from time to time,
reference is hereby made for a statement of the terms and conditions
governing this Note, including the terms and conditions under which this
Note may be prepaid or its maturity date accelerated. Capitalized terms
used herein and not otherwise defined herein are used with the meanings
attributed to them in the Agreement.
The Borrower waives notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor or any other notices
or demands.
The Borrower shall reimburse the Lender for all costs and expenses,
including without limitation reasonable attorneys' fees, as set forth in
the Agreement.
PETCO ANIMAL SUPPLIES, INC.
By: ______________________________
Print Name:_______________________
Title: ___________________________
EXHIBIT A-2
FORM OF TERM NOTE
$_________________ ______________, 19__
PETCO ANIMAL SUPPLIES, INC., a Delaware corporation, (the
"Borrower"), promises to pay to the order of ________________ (the
"Lender") the principal sum of ________________________ Dollars or such
lesser amount as loaned under the Agreement referred to below, in
immediately available funds at the main office of Union Bank of
California, N.A., as Agent, together with interest on the unpaid principal
amount hereof at the rates and on the dates set forth in the Agreement
hereinafter referred to. The Borrower shall pay the principal of and
accrued and unpaid interest on the Term Loan made by the Lender on the
dates and in the amounts specified in the Agreement, and in any event in
full on the Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual
practice, the date and amount of the Term Loan and the date and amount of
each principal payment hereunder.
This Note is one of the Term Notes issued pursuant to, and is
entitled to the benefits of, the Credit Agreement dated as of January 30,
1998 (the "Agreement") among the Borrower, Union Bank of California, N.A.,
individually and as Agent, and the lenders named therein, including the
Lender, to which Agreement, as it may be amended from time to time,
reference is hereby made for a statement of the terms and conditions
governing this Note, including the terms and conditions under which this
Note may be prepaid or its maturity date accelerated. Capitalized terms
used herein and not otherwise defined herein are used with the meanings
attributed to them in the Agreement.
The Borrower waives notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor or any other notices
or demands.
The Borrower shall reimburse the Lender for all costs and expenses,
including without limitation reasonable attorneys' fees, as set forth in
the Agreement.
PETCO ANIMAL SUPPLIES, INC.
By: ______________________________
Print Name:_______________________
Title: ___________________________
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF PETCO ANIMAL SUPPLIES, INC.
DATED JANUARY 30, 1998
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Maturity Paid Balance
EXHIBIT B
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Credit Agreement Described Below
This Compliance Certificate is furnished pursuant to that certain
Credit Agreement dated as of January 30, 1998 (as amended, modified,
renewed or extended from time to time, the "Agreement") among PETCO ANIMAL
SUPPLIES, INC. (the "Borrower"), the lenders party thereto and Union Bank
of California, N.A., as Agent for the Lenders. Unless otherwise defined
herein, capitalized terms used in this Compliance Certificate have the
meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly [elected/appointed] _________________ of the
Borrower;
2. I have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower during the accounting period
covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which
constitutes a Default or an Event of Default during or at the end of the
accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and
computations evidencing the Borrower's compliance with certain covenants in
the Agreement, all of which data and computations are true, complete and
correct.
Described below are the exceptions, if any, to paragraph 3 by
listing, in detail, the nature of the condition or event, the period during
which it has existed and the action which the Borrower has taken, is
taking, or proposes to take with respect to each such condition or event:
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
The foregoing certifications, together with the computations set
forth in Schedule I hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this day of
, .
________________________
[SAMPLE]
SCHEDULE I TO COMPLIANCE CERTIFICATE
Schedule of Compliance as of _____________, __________ with
Provisions of Sections 6.10, 6.12, 6.17, 6.18, 6.20,
6.21, 6.22, 6.25 and 6.26 of
the Agreement
EXHIBIT C
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
(the "Assignor") and (the
"Assignee") is dated as of , ________. The parties hereto
agree as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit
Agreement (which, as it may be amended, modified, renewed or extended from
time to time is herein called the "Credit Agreement") described in Item 1
of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed
to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns
to the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, an interest in and to the Assignor's rights and obligations under
the Credit Agreement such that after giving effect to such assignment the
Assignee shall have purchased pursuant to this Assignment Agreement the
percentage interest specified in Item 3 of Schedule 1 of all outstanding
rights and obligations under the Credit Agreement relating to the
facilities listed in Item 3 of Schedule 1 and the other Loan Documents.
The aggregate Commitment (or Loan, if the applicable Commitment has been
terminated) purchased by the Assignee hereunder is set forth in Item 4 of
Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment
Agreement (the "Effective Date") shall be the later of the date specified
in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed
to by the Agent) after a Notice of Assignment substantially in the form of
Exhibit "I" attached hereto has been delivered to the Agent. Such Notice
of Assignment must include any consents required to be delivered to the
Agent by Section 12.3(i) of the Credit Agreement. In no event will the
Effective Date occur if the payments required to be made by the Assignee to
the Assignor on the Effective Date under Sections 4 and 5 hereof are not
made on the proposed Effective Date. The Assignor will notify the Assignee
of the proposed Effective Date no later than the Business Day prior to the
proposed Effective Date. As of the Effective Date, (i) the Assignee shall
have the rights and obligations of a Lender under the Loan Documents with
respect to the rights and obligations assigned to the Assignee hereunder
and (ii) the Assignor shall relinquish its rights and be released from its
corresponding obligations under the Loan Documents with respect to the
rights and obligations assigned to the Assignee hereunder.
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the
Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby.
The Assignee shall advance funds directly to the Agent with respect to all
Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. [In consideration for the sale
and assignment of Loans hereunder, with respect to any Loan made by the
Assignor and assigned to the Assignee hereunder which is outstanding on the
Effective Date, (a) on the last day of the Interest Period therefor or (b)
on such earlier date agreed to by the Assignor and the Assignee or (c) on
the date on which any Loan either becomes due (by acceleration or
otherwise) or is prepaid (the date as described in the foregoing clauses
(a), (b) or (c) being hereinafter referred to as the "Payment Date"), the
Assignee shall pay the Assignor an amount equal to the principal amount of
the portion of such Loan assigned to the Assignee which is outstanding on
the Payment Date. If the Assignor and the Assignee agree that the Payment
Date for such Loan shall be the Effective Date, they shall agree to the
interest rate applicable to the portion of such Loan assigned hereunder for
the period from the Effective Date to the end of the existing Interest
Period applicable to any Loan (the "Agreed Interest Rate") and any interest
received by the Assignee in excess of the Agreed Interest Rate shall be
remitted to the Assignor. In the event interest for the period from the
Effective Date to but not including the Payment Date is not paid by the
Borrower with respect to any Loan sold by the Assignor to the Assignee
hereunder, the Assignee shall pay to the Assignor interest for such period
on the portion of such Loan sold by the Assignor to the Assignee hereunder
at the applicable rate provided by the Credit Agreement. In the event a
prepayment of any Loan which is existing on the Payment Date and assigned
by the Assignor to the Assignee hereunder occurs after the Payment Date but
before the end of the Interest Period applicable to such Loan, the Assignee
shall remit to the Assignor the excess of the prepayment penalty paid with
respect to the portion of such Loan assigned to the Assignee hereunder over
the amount which would have been paid if such prepayment penalty was
calculated based on the Agreed Interest Rate. The Assignee will also
promptly remit to the Assignor (i) any principal payments received from the
Agent with respect to a Loan prior to the Payment Date and (ii) any amounts
of interest on Loans and fees received from the Agent which relate to the
portion of the Loans assigned to the Assignee hereunder for periods prior
to the Payment Date, and not previously paid by the Assignee to the
Assignor.]* In the event that either party hereto receives any payment to
which the other party hereto is entitled under this Assignment Agreement,
then the party receiving such amount shall promptly remit it to the other
party hereto.
*Each Assignor may insert its standard payment provisions in lieu of the
payment terms included in this Exhibit.
[ 5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the
Assignor a fee on each day on which a payment of interest or
________________ fees is made under the Credit Agreement with respect to
the amounts assigned to the Assignee hereunder (other than a payment of
interest or ___________ fees for the period prior to the Payment Date,
which the Assignee is obligated to deliver to the Assignor pursuant to
Section 4 hereof). The amount of such fee shall be the difference between
(i) the interest or fee, as applicable, paid with respect to the amounts
assigned to the Assignee hereunder and (ii) the interest or fee, as
applicable, which would have been paid with respect to the amounts assigned
to the Assignee hereunder if each interest rate was of 1% less than
the interest rate paid by the Borrower or if the ______________ fee was
of 1% less than the _____________ fee paid by the Borrower, as applicable.
In addition, the Assignee agrees to pay % of the recordation fee
required to be paid to the Agent in connection with this Assignment
Agreement.]
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim created by the
Assignor. It is understood and agreed that the assignment and assumption
hereunder are made without recourse to the Assignor and that the Assignor
makes no other representation or warranty of any kind to the Assignee.
Neither the Assignor nor any of its officers, directors, employees, agents
or attorneys shall be responsible for (i) the due execution, legality,
validity, enforceability, genuineness, sufficiency or collectability of any
Loan Document, including without limitation, documents granting the
Assignor and the other Lenders a security interest in assets of the
Borrower or any guarantor, (ii) any representation, warranty or statement
made in or in connection with any of the Loan Documents, (iii) the
financial condition or creditworthiness of the Borrower or any guarantor,
(iv) the performance of or compliance with any of the terms or provisions
of any of the Loan Documents, (v) inspecting any of the Property, books or
records of the Borrower, (vi) the validity, enforceability, perfection,
priority, condition, value or sufficiency of any collateral securing or
purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the
Loan Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms
that it has received a copy of the Credit Agreement, together with copies
of the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment Agreement, (ii)
agrees that it will, independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and information at
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents, (iii)
appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto, (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of
the Loan Documents are required to be performed by it as a Lender, (v)
agrees that its payment instructions and notice instructions are as set
forth in the attachment to Schedule 1, (vi) confirms that none of the
funds, monies, assets or other consideration being used to make the
purchase and assumption hereunder are "plan assets" as defined under ERISA
and that its rights, benefits and interests in and under the Loan Documents
will not be "plan assets" under ERISA, [and (vii) attaches the forms
prescribed by the Internal Revenue Service of the United States certifying
that the Assignee is entitled to receive payments under the Loan Documents
without deduction or withholding of any United States federal income
taxes].*
*to be inserted if the Assignee is not incorporated under the laws of the
United States, or a state thereof.
8. INDEMNITY. The Assignee agrees to indemnify and hold the
Assignor harmless against any and all losses, costs and expenses
(including, without limitation, reasonable attorneys' fees) and liabilities
incurred by the Assignor in connection with or arising in any manner from
the Assignee's non-performance of the obligations assumed under this
Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee
shall have the right pursuant to Section 12.3(i) of the Credit Agreement to
assign the rights which are assigned to the Assignee hereunder to any
entity or person, provided that (i) any such subsequent assignment does not
violate any of the terms and conditions of the Loan Documents or any law,
rule, regulation, order, writ, judgment, injunction or decree and that any
consent required under the terms of the Loan Documents has been obtained
and (ii) unless the prior written consent of the Assignor is obtained, the
Assignee is not thereby released from its obligations to the Assignor
hereunder, if any remain unsatisfied, including, without limitation, its
obligations under Sections 4, 5 and 8 hereof.
*[10. REDUCTIONS OF AGGREGATE REVOLVING COMMITMENT. If any
reduction in the Aggregate Revolving Commitment occurs between the date of
this Assignment Agreement and the Effective Date, the percentage interest
specified in Item 3 of Schedule 1 shall remain the same, but the dollar
amount purchased shall be recalculated based on the reduced Aggregate
Commitment.]
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached
Notice of Assignment embody the entire agreement and understanding between
the parties hereto and supersede all prior agreements and understandings
between the parties hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by
the internal law, and not the law of conflicts, of the State of California.
13. NOTICES. Notices shall be given under this Assignment Agreement
in the manner set forth in the Credit Agreement. For the purpose hereof,
the addresses of the parties hereto (until notice of a change is delivered)
shall be the address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above
written.
[NAME OF ASSIGNOR]
By:_________________________
Title:______________________
____________________________
____________________________
[NAME OF ASSIGNEE]
By:________________________
Title:_____________________
___________________________
___________________________
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement: Credit Agreement dated as
of January 31, 1998 among Petco Animal Supplies, Inc., the Lenders
party thereto and Union Bank of California, N.A., as Agent.
2. Date of Assignment Agreement: ,
3. Amounts (As of Date of Item 2 above):
a. Total of Assignor's Revolving Commitment (Revolving
Loans/Letters of Credit)*/Term Loans under Credit Agreement
Revolving Commitment: $____________
Term Loan: $____________
b. Assignee's Percentage of Facility purchased under the
Assignment Agreement**
Revolving Commitment: _____%
Term Loan: _____%
c. Amount of Assigned Share in Facility purchased under the
Assignment Agreement
Revolving Commitment: $____________
Term Loan: $____________
d. Amount of Assigned Share in Letters of Credit Outstanding
$________
4. Assignee's aggregate Commitment (Revolving Commitment* and Term
Loan) purchased hereunder:
$
5. Proposed Effective Date: _____________, __
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: _________________________ By:_________________________
Title:_______________________ Title:______________________
* If a Revolving Commitment has been terminated, insert outstanding
Revolving Loans/Letters of Credit in place of Revolving Commitment
** Percentage taken to 10 decimal places
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
EXHIBIT "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
_______________, 19__
To: Petco Animal Supplies, Inc.
9125 Rehco Road
San Diego, California 92121
Union Bank of California, N.A., as Agent
500 South Main Street, Suite 201
Orange, California 92868
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement")
described in Item 1 of Schedule 1 attached hereto ("Schedule 1").
Capitalized terms used herein and not otherwise defined herein shall have
the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and
delivered to the Borrower and the Agent pursuant to Section 12.3(ii) of the
Credit Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of , (the "Assignment"), pursuant
to which, among other things, the Assignor has sold, assigned, delegated
and transferred to the Assignee, and the Assignee has purchased, accepted
and assumed from the Assignor the percentage interest specified in Item 3
of Schedule 1 of all outstandings, rights and obligations under the Credit
Agreement relating to the facilities listed in Item 3 of Schedule 1. The
Effective Date of the Assignment shall be the later of the date specified
in Item 5 of Schedule 1 or two Business Days (or such shorter period as
agreed to by the Agent) after this Notice of Assignment and any consents
and fees required by Sections 12.3(i) and 12.3(ii) of the Credit Agreement
have been delivered to the Agent, provided that the Effective Date shall
not occur if any condition precedent agreed to by the Assignor and the
Assignee has not been satisfied.
4. The Assignor and the Assignee hereby give to the Borrower and
the Agent notice of the assignment and delegation referred to herein. The
Assignor will confer with the Agent before the date specified in Item 5 of
Schedule 1 to determine if the Assignment Agreement will become effective
on such date pursuant to Section 3 hereof, and will confer with the Agent
to determine the Effective Date pursuant to Section 3 hereof if it occurs
thereafter. The Assignor shall notify the Agent if the Assignment
Agreement does not become effective on any proposed Effective Date as a
result of the failure to satisfy the conditions precedent agreed to by the
Assignor and the Assignee. At the request of the Agent, the Assignor will
give the Agent written confirmation of the satisfaction of the conditions
precedent.
5. The Assignor or the Assignee shall pay to the Agent on or
before the Effective Date the processing fee of $3,000 required by Section
12.3(ii) of the Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor
and the Assignee request and direct that the Agent prepare and cause the
Borrower to execute and deliver new Notes or, as appropriate, replacements
notes, to the Assignor and the Assignee. The Assignor and, if applicable,
the Assignee each agree to deliver to the Agent the original Note received
by it from the Borrower upon its receipt of a new Note in the appropriate
amount.
7. The Assignee advises the Agent that notice and payment
instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the
funds, monies, assets or other consideration being used to make the
purchase pursuant to the Assignment are "plan assets" as defined under
ERISA and that its rights, benefits, and interests in and under the Loan
Documents will not be "plan assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent under the
Loan Documents in accordance with the terms thereof. The Assignee
acknowledges that the Agent has no duty to supply information with respect
to the Borrower or the Loan Documents to the Assignee until the Assignee
becomes a party to the Credit Agreement.*
*May be eliminated if Assignee is a party to the Credit Agreement prior to
the Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By:____________________ By:____________________
Title: ________________ Title:_________________
ACKNOWLEDGED AND CONSENTED ACKNOWLEDGED AND CONSENTED
TO BY UNION BANK OF TO BY PETCO ANIMAL SUPPLIES,
CALIFORNIA, N.A., as Agent INC., a Delaware corporation
By________________________ By_________________________
Name:_____________________ Name:______________________
Title:____________________ Title:_____________________
[Attach photocopy of Schedule 1 to Assignment]
EXHIBIT D
LEVERAGE RATIO LEVEL CERTIFICATE
TO: The Lenders Party to the Credit Agreement
described below
This Leverage Ratio Level Certificate is furnished pursuant to that
certain Credit Agreement dated as of January 30, 1998 (as amended,
modified, renewed or extended from time to time, the "Agreement") among
Petco Animal Supplies, Inc. (the "Borrower"), the Lenders party thereto and
Union Bank of California, N.A., as Agent for the Lenders. Unless otherwise
defined herein, capitalized terms used in this Leverage Ratio Level
Certificate have their meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. The Total Debt Ratio for the Borrower and its Subsidiaries on a
consolidated basis as at ____________, ___________ for the period of four
fiscal quarters then ended is as follows:
(a) Funded Debt (including Capitalized
Leases outstanding) $_______________
(b) EBITDA
$_______________
(c) On the basis of the foregoing,
the Total Debt Ratio is
_____ to 1.00 ((a) divided by (b)).
2. Based on the Total Debt Ratio, the applicable Leverage Ratio
Level for the Borrower as of ____________, _____________ is Level
___________.
The foregoing certifications are made and delivered this _____ day of
_____________, ___________.
_____________________________
EXHIBIT F
FORM OF NOTICE OF BORROWING
[Date]
Union Bank of California, N.A., as Agent
500 South Main Street, Suite 201
Orange, California 92868
Attention: Vice President
Re: Credit Agreement Dated as of January 30, 1998 (the "Credit
Agreement")
Ladies and Gentlemen:
Pursuant to the provisions of Section [2.1(iv)/2.4(iii)] of the
Credit Agreement, Petco Animal Supplies, Inc. (the "Borrower") hereby gives
irrevocable and binding notice to you, as Agent, that the Borrower is
requesting a Loan to be made under the Credit Agreement as follows
(capitalized terms have the definitions set forth in the Credit Agreement):
1. Aggregate Loan Amount: $____________.
Term Loans: $___________
Revolving Loans: $___________
[At least $1,000,000 or multiple of $500,000]
2. Borrowing Date: ____________, ____.
[Same date for Base Rate Loans; at least 3 Business Days for
LIBOR Loans.]
3. (a) Revolving Loans will be [LIBOR Loans ($______) and/or Base
Rate Loans ($______)].
(b) Term Loans will be [LIBOR Loans
($_________) and/or Base Rate Loans
($_________)]
4. LIBOR Loans will have the following Interest Periods [1, 2, 3
or 6 months]:
(a) Revolving Loans
$_________: ____ months
$_________: ____ months
(b) Term Loans
$_________: _____ months
$_________: _____ months
[no more than 10 Loans in aggregate to be outstanding]
[5. Loan proceeds are to be used for an Acquisition and such
Acquisition does/does not require the Borrower to file an SEC
Report. If such SEC Report must be filed, Acquisition
Documents certified by an Authorized Officer are included.]
[6. Loan proceeds are to be used for an Acquisition. Such
Acquisition will be consummated on __________, ___________
[date of Loan funding].]
7. The undersigned certifies that:
A. There exists no Default or Event of Default.
B. The representations and warranties contained in Article 5
of the Credit Agreement are true and correct as of the
Borrowing Date.
C. No event has occurred, or condition exists, which could
have a Material Adverse Effect.
Sincerely,
PETCO ANIMAL SUPPLIES, INC.
By______________________________
Name:
Title:
* To be included if interest assigned consists of a
Revolving Commitment or Revolving Loans.
1 Calculated as follows: Net Income ($______), plus
provisions for taxes ($_______), plus depreciation and
amortization ($________), plus Interest Expense ($_______),
provided that Borrower shall be permitted to adjust such
amounts as set forth in Section 6.18 for the first six
quarters.
Exhibit 10.5
LEASE AGREEMENT
FORM
OPUS WEST CORPORATION,
a Minnesota corporation ("Landlord")
PETCO ANIMAL SUPPLIES, INC.,
a Delaware corporation ("Tenant")
Dated: November __, 1997
|| TABLE OF CONTENTS
Page
ARTICLE 1 LEASE OF PREMISES AND LEASE TERM 4
1.1 Premises 4
1.2 Term of Lease 4
1.2.1 Acknowledgment of Commencement Date 4
1.2.2 Early Occupancy 4
1.3 Delivery of Premises 5
1.3.1 Acknowledgment of Delivery Date 5
ARTICLE 2 RENTAL AND OTHER PAYMENTS 5
2.1 Basic Rent 5
2.1.1 Free Rent Periods 5
2.2 Additional Rent 5
2.3 Rental Deposit 6
ARTICLE 3 PAYMENT OF PROPERTY TAXES AND ASSESSMENTS 6
3.1 Payment of Property Taxes 6
3.2 Property Taxes 6
3.3 Tenant's Right to Contest Property Taxes. 6
3.4 Landlord's Right to Contest Property Taxes 7
ARTICLE 4 USE 7
4.1 Permitted Use 7
4.2 Acceptance of Premises 7
4.3 Rules and Regulations 7
4.4 Tenant's Obligations 7
4.5 Condition of Premises 7
ARTICLE 5 HAZARDOUS MATERIALS 8
5.1 Hazardous Materials 8
5.2 Hazardous Materials Laws 8
5.2.1 Federal 8
5.2.2 California 8
5.2.3 Other Laws and Regulations 8
5.2.4 Phase I Environmental Analysis 8
5.3 Compliance with Hazardous Materials Laws 8
5.4 Notice of Actions 9
5.5 Disclosure and Warning Obligations 9
5.6 Tenant Indemnification 9
5.7 Landlord Indemnification 10
5.8 Environmental Audits 10
5.9 Assignment and Subletting 10
ARTICLE 6 SERVICES AND UTILITIES 10
ARTICLE 7 MAINTENANCE, REPAIR AND ALTERATION OF PREMISES 10
7.1 Construction Warranty and Landlord Obligations 10
7.2 Tenant's Maintenance 11
7.3 Tenant's Waiver of Claims Against Landlord 11
ARTICLE 8 CHANGES AND ALTERATIONS 11
8.1 Tenant's Changes and Alterations 11
8.2 Liens 12
8.3 Compliance with Laws 12
ARTICLE 9 RIGHTS RESERVED BY LANDLORD 13
9.1 Landlord's Entry 13
9.2 Landlord's Cure 13
ARTICLE 10 INDEMNITY AND INSURANCE 13
10.1 Tenant's Insurance Obligations 13
10.2 Insurance Coverage 13
10.3 Insurance Provisions 14
10.4 Waiver of Subrogation 14
10.5 Rental Abatement Insurance 14
10.6 Indemnification by Tenant 14
10.7 Indemnification by Landlord 15
ARTICLE 11 ASSIGNMENT AND SUBLETTING 15
11.1 Restriction on Other Transfers 15
11.2 Permitted Transfers 15
11.3 Sublease Requirements. 16
11.4 No Merger 16
11.5 Profits on Transfer 16
11.5.1 Tenant's Profit Statement 16
ARTICLE 12 DAMAGE OR DESTRUCTION 16
12.1 Destruction and Restoration 16
12.2 Application of Insurance Proceeds 16
12.3 Continuance of Tenant's Obligations 16
12.4 Damage or Destruction at End of Lease Term 17
12.5 Waiver of California Statutes 17
ARTICLE 13 CONDEMNATION 17
13.1 Condemnation of Entire Premises 17
13.2 Partial Condemnation/Termination of Lease 17
13.3 Partial Condemnation/Continuation of Lease 17
13.4 Continuance of Obligations 18
13.5 Tenant's Waiver 18
ARTICLE 14 DEFAULTS; REMEDIES 18
14.1 Events of Default 18
14.1.1 Failure to Pay 18
14.1.2 Failure to Perform 18
14.1.3 Other Defaults 18
14.2 Remedies 18
14.3 Right of Landlord to Re-Enter 19
14.4 Cumulative Remedies 19
14.5 Mitigation 19
14.6 Limitation on Remedies 19
14.7 Legal Costs 19
14.8 No Waiver 19
14.9 Waiver by Tenant 20
14.9.1 Delinquent Rental Payments 20
ARTICLE 15 PROTECTION OF CREDITORS 20
15.1 Subordination 20
15.2 Attornment 21
15.3 Estoppel Certificates 21
15.4 Mortgagee Protection Clause 21
15.5 Non-Disturbance 21
ARTICLE 16 TERMINATION OF LEASE 21
16.1 Surrender of Premises 21
16.2 Holding Over 22
ARTICLE 17 RENEWAL OPTIONS 22
17.1 Options to Renew 22
17.1.1 No Event of Default 22
17.1.2 Fair Market Rent 22
17.1.3 Exercise of Renewal Term(s) 22
17.1.4 Determination of Fair Market Rent 22
17.1.5 Arbitration 23
ARTICLE 18 EXPANSION OPTION 23
18.1 Option to Expand 23
18.2 No Event of Default 23
18.3 Exercise of Expansion Option 23
18.4 Expansion Terms 23
18.5 Expansion Space Basic Rent 24
18.6 Free Rent Period 24
18.7 Failure to Exercise Expansion Option 24
ARTICLE 19 MISCELLANEOUS PROVISIONS 24
19.1 Notices 24
19.2 Landlord's Continuing Obligations 25
19.3 Net Lease 25
19.4 Successors 25
19.5 Memorandum of Lease 25
19.6 Captions and Interpretation 25
19.7 Relationship of Parties 25
19.8 Entire Agreement 25
19.9 Severability 25
19.10 Landlord's Limited Liability 25
19.11 Survival 25
19.12 Attorneys' Fees 25
19.13 Broker 26
19.14 Governing Law 26
19.15 Time is of the Essence 26
19.16 Joint and Several Liability 26
19.17 Delivery of Corporate Documents 26
19.18 Tenant's Financial Condition 26
19.19 Provisions are Covenants and Conditions 26
19.20 Business Days 26
19.21 Force Majeure 26
19.22 No Continuous Operation 26
19.23 Waiver of Landlord's Lien 27
19.24 Submission of Lease 27
||
Lease Agreement
Summary of Basic Lease Information
10 Lease Date: November __, 1997
20 Landlord: Opus West Corporation
30 Address of Landlord Opus West Management Corporation
for Payment of Rent: 2415 East Camelback Road, Suite 840
Phoenix, AZ 85016-4201
Telephone No.: (602) 912-8880
Facsimile No.: (602) 912-8881
40 Address of Landlord Opus West Corporation
for Notices: 2030 Main Street, Suite 520
Irvine, CA 92614
Attn: Paul A. Marshall
Telephone No.: (714) 475-0977
Facsimile No.: (714) 475-0970
With a copy to: Opus U.S. Corporation
2415 East Camelback Road, Suite 800
Phoenix, AZ 85016-4201
Attn: Daniel T. Haug, Esq.
Telephone No.: (602) 468-7000
Facsimile No.: (602) 468-7045
With another copy to: Opus West Corporation
2415 East Camelback Road, Suite 800
Phoenix, AZ 85016-4201
Attn: Mr. Thomas W. Roberts, President
Telephone No.: (602) 468-7000
Facsimile No.: (602) 468-7045
50 Tenant: PETCO Animal Supplies, Inc., a Delaware
corporation
60 Address of Tenant PETCO Animal Supplies, Inc.
for Notices: 9125 Rehco Road
San Diego, CA 92121-2270
Attn: Mark Drasin
Telephone No.: (619) 453-7845
Facsimile No.: (619) 677-3000
With a copy to: Leslie Coughlan, Esq.
Attorney at Law
5010 Shoreham Place, Suite 100
San Diego, CA 92122
Telephone No.: (619) 626-8494
Facsimile No.: (619) 626-8450
70 Premises The parcel of land situated in the County
of Riverside, State of California,
described on Exhibit "A," together with all
Improvements thereon (as defined in Section
1.1).
80 Landlord's The Landlord's Improvements to be
constructed by Landlord as
Improvements described in the Work Letter (See Exhibit
"B").
90 Lease Term Initial Lease Term: 86 months from the
Commencement Date
Renewal Terms: Two (2) Renewal Terms each
for five (5) years.
100 Rent: Basic Rent:
Lease Months: 1-2:
Monthly Rent for Premises: Basic
Rent is abated for first two (2)
months. Additional Rent is not
abated.
Lease Months: 3-62:
Monthly Rent for Premises:
$89,991.00 ($.2727 per square
foot)
Monthly Rent for Expansion Land:
Prior to Expansion Land
Commencement Date: $4,125
($.0125 per square foot of the
Building)
After Expansion Land Commencement
Date: Calculated pursuant to
Article 18
Lease Months: 63-86 (and Lease months 87-
122 if Extension Election under Article 18
is exercised):
Monthly Rent for the Premises:
$100,782 ($.3054 per square foot)
Monthly Rent for Expansion Land:
Prior to Expansion Land
Commencement Date: $4,125
($.0125 per square foot of the
Building)
After Expansion Land Commencement
Date: Calculated pursuant to
Article 18
Lease Months: 123-146: (if Extension
Election under Article 18 is exercised):
Monthly Rent for the Premises:
$112,860 ($.3420 per square foot)
Monthly Rent for Expansion Land:
Calculated pursuant to Article 18
Renewal Terms:
Calculated pursuant to Article 17.
The Basic Rent is subject to adjustment
pursuant to the provisions of Section 2.1
and 2.1.1 of this Lease.
The term "Basic Rent" as used in this Lease
includes the portion of the rent for the
Expansion Land.
Maximum Rate of Interest: Prime plus two
percent (2%) per annum. For purposes of
this Lease, the term "Prime" shall mean the
rate announced from time to time by Bank of
America, N.A., as its prime or reference
rate. If Bank of America shall cease to
use its prime or reference rate, then
Landlord shall select the rate of another
financial institution to be substituted
therefor, which shall be a major money
center commercial bank.
Late Charge: 2% of the overdue amount.
110 Use: General Office and Warehouse Uses
("Permitted Use")
120 Deposit: None
130 Rental Deposit: $196,482.00 applicable to third (3rd) and
fourth (4th) month's Basic Rent.
140 Brokers: Landlord's and Tenant's Broker: Lee &
Associates
150 Exhibits: The following exhibits are attached hereto and
incorporated into this Lease:
Exhibit "A" Legal Description of Land
Exhibit "A-1" Legal Description of Expansion Land
Exhibit "A-2" Expansion Space
Exhibit "B" Work Letter
Schedule 1 to Work Letter Final Plans and Specifications
Exhibit "C" Preliminary Report
Exhibit "D" Commencement Date Acknowledgment
Exhibit "E" Delivery Date Acknowledgment
Exhibit "F" Subordination, Non-Disturbance and Attornment Agreement
The foregoing Basic Terms are hereby incorporated into and made a
part of this Lease. Each reference in this Lease to the Basic Terms shall
mean the information set forth above and shall be construed to incorporate
all of the terms provided under the particular Lease paragraph pertaining
to such information. In the event of a conflict between the Basic Terms
and the Lease, the Lease shall prevail.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a
Minnesota corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
LEASE AGREEMENT
This Lease Agreement (the "Lease"), which includes the Basic Terms
(as hereinafter defined), dated as of November __, 1997 ("Effective Date"),
is made by and between Landlord and Tenant.
ARTICLE 1
LEASE OF PREMISES AND LEASE TERM
1.1 Premises. Landlord, for and in consideration of the rents,
covenants and agreements hereinafter set forth, hereby leases to Tenant and
Tenant hereby leases from Landlord, upon and subject to the terms,
covenants and conditions hereinafter set forth, all that certain parcel of
land situated in the County of Riverside, and State of California
delineated on Exhibit "A" attached hereto and incorporated herein ("Land"),
together with those certain Landlord's Improvements as defined in the Work
Letter attached hereto as Exhibit "B" ("Work Letter") to be constructed by
Landlord, including an approximately three hundred thirty thousand
(330,000) square foot building ("Building") and all other improvements,
machinery, equipment, fixtures and other property (except Tenant's trade
fixtures), to be installed or located thereon and all additions,
alterations and replacements thereof (collectively "Improvements"). Herein
the Land and the Improvements are referred to collectively as the
"Premises". Tenant acknowledges that this Lease is subordinate and subject
to (a) all liens, encumbrances, deeds of trust, reservations, covenants,
conditions, restrictions and other matters affecting the Premises ("Title
Matters") (i) in effect on the Effective Date of this Lease as specified in
Exhibit "C" attached hereto and incorporated herein ("Preliminary Report")
or (ii) approved or deemed approved pursuant to this Section 1.1,
("Permitted Encumbrances") and (b) any law, regulation, rule, order or
ordinance of any governmental entity applicable to the Premises or the use
or occupancy thereof, in effect on the execution of this Lease or
thereafter promulgated. In the event that, after the Effective Date any
new Title Matters appear of record, such matters shall be subject to the
review and approval of Tenant which approval shall not be withheld so long
as the new Title Matter does not materially and adversely impair the use or
occupancy by Tenant of the Premises for its intended purpose. Tenant shall
deliver written notice to Landlord of its approval or disapproval of such
Title Matters within ten (10) days after delivery by Landlord to Tenant of
such new Title Matter. If Tenant fails to respond within such ten (10) day
period and Landlord delivers a written reminder notice to Tenant and Tenant
fails to respond within five (5) days of the delivery of the written
reminder notice, the new Title Matter shall be deemed approved.
1.2 Term of Lease. The initial term of this Lease ("Initial Term")
shall commence on the Delivery Date (defined in Section 1.3 below) as such
date may be extended until (i) the date of Substantial Completion of the
Landlord's Improvements (as defined in the Work Letter) ("Commencement
Date"); provided Tenant shall be permitted by the City to occupy and use
the Premises at such time. The Initial Term shall end on the date which is
eighty-six (86) months after the Commencement Date unless sooner terminated
pursuant to the terms of this Lease. Any reference to the Term of this
Lease or similar reference shall be a reference to the Initial Term
together with any renewal terms of this Lease specified in Article 17. Any
reference to Lease Year shall refer to each consecutive twelve (12) month
period during the Term commencing on the Commencement Date. For purposes
of this Lease, a "Lease Month" shall be defined as those successive
calendar month periods beginning with the Commencement Date and continuing
through the Initial Term or any Renewal Term of this Lease.
1.2.1 Acknowledgment of Commencement Date. Tenant shall,
within ten (10) business days of request therefor by Landlord, execute an
acknowledgment of the Commencement Date prepared by Landlord in the form of
Exhibit "D" attached hereto and incorporated herein ("Commencement Date
Acknowledgment"), provided, however, that the failure of Tenant to execute
such acknowledgment shall not affect any obligation of Tenant hereunder or
the Landlord's determination of the Commencement Date. If the Tenant fails
to execute and deliver such Commencement Date Acknowledgment or provide
written notice of Tenant's disagreement with the contents thereof, then
Landlord may deliver a written reminder notice. If Tenant fails to respond
in writing to the written reminder notice within five (5) days, Landlord
may deliver a second written reminder notice. If Tenant fails to respond
in writing to the second written reminder notice within five (5) days, then
Landlord and any prospective purchaser or encumbrancer may conclusively
presume and rely upon the fact that the Commencement Date is the date
specified in the Commencement Date Acknowledgment.
1.2.2 Early Occupancy. Tenant shall be entitled to early
occupancy of the Premises thirty (30) days prior to the Commencement Date
in accordance with this Section 1.2.2 and the Work Letter. Tenant's early
occupancy of the Premises for installation of furniture, fixtures and
equipment shall be subject to all the terms and conditions of this Lease,
other than the obligation to pay Basic Rent. Early occupancy of the
Premises shall not advance the expiration date of this Lease. Landlord
shall have the right to charge Tenant for any utility costs incurred as a
result of Tenant's early occupancy of the Premises. If during Tenant's
early occupancy of the Premises, Tenant desires to have security for the
Premises, Tenant shall provide such security at no cost to Landlord.
1.3 Delivery of Premises. Landlord shall use its commercially
reasonable efforts to deliver the Premises to Tenant on or before August 1,
1998 ("Delivery Date" with Landlord's Improvements) (as defined in the Work
Letter) Substantially Completed. If Landlord is unable to deliver the
Premises to Tenant by August 1, 1998, then Tenant shall be entitled to
receive from Landlord the amount of Five Thousand Dollars ($5,000) per day
for the first fifteen (15) days beyond August 1, 1998 that Landlord fails
to deliver the Premises (subject to force majeure as provided in
Section 19.21) and Ten Thousand Dollars ($10,000) per day for the fifteen
(15) days beyond August 15, 1998 that Landlord fails to deliver the
Premises (subject to force majeure as provided in Section 19.21) and the
Delivery Date shall be deemed to have occurred on such later date. If
Landlord fails to deliver the Premises on or before September 1, 1998
subject to extension for force majeure as provided in Section 19.21 of this
Lease, then Tenant shall, as Tenant's sole and exclusive remedy, have the
option to terminate this Lease by delivering written notice ("Termination
Note") to Landlord. If Tenant accepts delivery of the Premises, then
Tenant shall be deemed to have waived its right to terminate the Lease as
provided for under this Section 1.3. Notwithstanding anything herein to
the contrary, in the event Landlord tenders possession of the Premises to
Tenant in a substantially completed condition during that period of time
from October 1, 1998 through and including November 30, 1998 (the "Non-
Acceptance Period"), then, Tenant shall have the right not to accept
possession of the Premises during such period by notifying Landlord, within
five (5) days of the tender of possession of the Premises to Tenant, in
which case the Commencement Date shall not occur until December 1, 1998.
1.3.1 Acknowledgment of Delivery Date. Tenant shall, within
ten (10) business days of request therefor by Landlord, execute an
acknowledgment of the Delivery Date prepared by Landlord in the form of
Exhibit "E" attached hereto and incorporated herein ("Delivery Date
Acknowledgment"), provided, however, that the failure of Tenant to execute
such acknowledgment shall not affect any obligation of Tenant hereunder or
the Landlord's determination of the Delivery Date. If the Tenant fails to
execute and deliver such Commencement Date Acknowledgment or provide
written notice of Tenant's disagreement with the contents thereof, then
Landlord may deliver a reminder notice. If Tenant fails to respond to the
reminder notice within five (5) days, Landlord may deliver a second
reminder notice. If Tenant fails to respond to the second reminder notice
within five (5) days, then Landlord and any prospective purchaser or
encumbrancer may conclusively presume and rely upon the following facts:
(i) the Delivery Date is the date specified in the Delivery Date
Acknowledgment and (ii) that the Premises were in acceptable condition and
were delivered in compliance with all of the requirements of Work Letter.
ARTICLE 2
RENTAL AND OTHER PAYMENTS
2.1 Basic Rent. In consideration of the leasing of the Premises
and the construction of the Landlord's Improvements described in the Work
Letter, Tenant covenants to pay Landlord in advance, on the first day of
each and every calendar month during the Term, at the address of Landlord
as specified in Item 3 of the Basic Terms, or at such other place as
Landlord may from time to time designate in writing, a rental for the
Initial Term of this Lease calculated based upon the amounts specified in
Item 10 of the Basic Terms ("Basic Rent"). Upon Substantial Completion (as
defined in the Work Letter) of the Landlord's Improvements, Landlord shall
deliver to Tenant a certificate from Landlord's architect certifying the
square footage of the Premises ("Square Footage Certification") together
with a calculation of the Basic Rent. For purposes of calculating the
Basic Rent, the Premises shall be measured from the face of the exterior
walls. Tenant shall have the right to independently confirm such square
footage by an architect certified in the state of California. In the event
Tenant's confirmation of such square footage differs from the calculation
provided by Landlord, Tenant shall provide notice to Landlord within
fifteen (15) days after Landlord's delivery of its Square Footage
Certification. Landlord and Tenant shall have fifteen (15) days after
delivery of Tenant's notice to reach agreement on the final measurement of
the square footage of the Premises. In the event Landlord and Tenant fail
to reach agreement on the square footage of the Premises within such
fifteen-day period, then Landlord's architect and Tenant's architect shall
together select a third architect whose determination shall be binding on
the parties. Such selection shall be made within fifteen (15) days after
Landlord and Tenant determine that they cannot reach agreement on the
square footage of the Premises. In the event Landlord's architect and
Tenant's architect cannot reach agreement on a third architect, then the
matter shall be referred to the local office of the American Institute of
Architects who shall make such selection. The third architect so selected
shall then make a final determination of the square footage within fifteen
(15) days of such architect's selection and Landlord shall revise the
Square Footage Certification to reflect this final determination. The
parties shall each bear the costs of their own architect and shall share
the costs equally of any third architect. If the Square Footage
Certification differs from the approximate square footage of the Building
set forth in Section 1.1 above, then the Basic Rent shall be adjusted to
reflect the square footage set forth in the Square Footage Certification.
2.1.1 Free Rent Periods. During the first two (2) calendar
months of the Initial Term, Basic Rent shall be abated ("Free Rent
Period").
2.2 Additional Rent. Except as otherwise specifically provided in
Section 7.1 of this Lease, the Basic Rent shall be net to Landlord so that
this Lease shall yield, net to Landlord, the Basic Rent payable under this
Lease for each year of the Term of this Lease and that all charges payable
by Tenant under this Lease for Property Taxes, insurance premiums, utility
charges, maintenance, repair and replacement expenses, all expenses
relating to compliance with laws, and all other costs, fees, charges,
expenses, reimbursements and obligations of every kind and nature
whatsoever relating to the operation and use of the Premises, and/or the
Expansion Land (defined below) (whether or not Tenant has exercised the
Expansion Land Option) which may arise or become due during the Term or by
reason of events occurring during the Term of this Lease or which relate to
the performance by Tenant of all the terms, covenants, conditions and
agreements to be performed, paid or observed by Tenant hereunder shall be
paid or discharged by Tenant, at Tenant's sole cost and expense.
Notwithstanding anything to the contrary, Tenant shall not be responsible
for any property management fees or earthquake insurance premiums paid by
Landlord during the Term of this Lease. Except as otherwise provided in
Section 7.1 or 14.9 of this Lease, all payments of Basic Rent and
Additional Rent shall be payable without previous demand therefor and
without any right of setoff or deduction whatsoever. All charges payable
by Tenant other than Basic Rent, however denoted, are called "Additional
Rent." Unless this Lease provides otherwise, all Additional Rent shall be
paid with the next installment of Basic Rent falling due. Rent for any
partial month shall be prorated on the basis of the number of days within
such calendar month and paid within ten (10) days of the later of
(a) invoice from Landlord or (b) the Commencement Date. Basic Rent and
Additional Rent are sometimes collectively referred to as "Rent" or "rent."
2.3 Rental Deposit. Upon execution of this Lease, Tenant shall
deposit with Landlord the sum specified in the Basic Lease Provisions as
the Rental Deposit. The Rental Deposit shall be held by Landlord without
obligation or liability for payment of interest thereon as security for the
faithful payment of Basic Rent by Tenant, but shall be applicable to the
third (3rd) and fourth (4th) month's Basic Rent payments without offset or
deduction therefrom.
ARTICLE 3
PAYMENT OF PROPERTY TAXES AND ASSESSMENTS
3.1 Payment of Property Taxes. Provided Landlord delivers the
Property Tax bill to Tenant (if delivered to Landlord) promptly upon
receipt thereof, but no later than twenty (20) days prior to the day on
which any fine, penalty, interest or cost may be added thereto for the non-
payment thereof, Tenant covenants and agrees to pay during the Term of this
Lease, as Additional Rent, before any fine, penalty, interest or cost may
be added thereto for the nonpayment thereof, all Property Taxes (as defined
in Section 3.2 below), which become due and payable during the Term of this
Lease. Within ten (10) days of written request from Landlord, Tenant shall
furnish Landlord with satisfactory evidence that the Property Taxes have
been paid. If any Property Taxes shall cover any period of time prior to
or after the term of this Lease, Tenant's share of such Property Taxes
shall be equitably prorated to cover only the period of time within the tax
fiscal year during which this Lease shall be in effect.
3.2 Property Taxes. "Property Taxes" shall include general real
property and improvement taxes, any form of assessment, special assessment
or reassessment, license, permit or inspection fee or tax, commercial
rental tax (but only to the extent the same is in lieu of some existing
Property Taxes), levy, charge, penalty or similar imposition, whatsoever or
at all imposed by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special assessment
district thereof, or any agency or public body, and all other charges or
burdens of whatsoever kind and nature incurred in the use, occupancy,
ownership, operation, leasing or possession of the Premises, and/or the
Expansion Land (whether or not Tenant has exercised the Expansion Land
Option) without particularizing by any known name or by whatever name
hereafter called, and whether any of the foregoing be general or special,
ordinary or extraordinary, foreseen or unforeseen. Property Taxes shall
include, without limitation, the following: (i) any tax imposed upon the
transaction or based upon a reassessment of the Premises, and/or the
Expansion Land (whether or not Tenant has exercised the Expansion Land
Option) due to a change in ownership or transfer of all or part of
Landlord's interest in the Premises the Land, and/or the Expansion Land
(whether or not Tenant has exercised the Expansion Land Option); (ii) any
assessments, taxes, fees, levies or charges in addition to, or in
substitution, partially or totally, for any items previously included
within the definition of Real Property Taxes; (iii) any tax or charge for
fire protection, street lighting streets, sidewalks, road maintenance,
refuse, sewer, water or other services provided to the Premises, and/or the
Expansion Land (whether or not Tenant has exercised the Expansion Land
Option) by any governmental agency; and (iv) capital levy, sales or use
tax, gross receipts tax or other tax on the rents received therefrom, or a
franchise tax, or an assessment, levy or charge measured by or based in
whole or in part upon such rents or value, now or hereafter imposed.
Property Taxes do not, however, include Landlord's state or federal income,
franchise, estate or inheritance taxes.
3.3 Tenant's Right to Contest Property Taxes. Tenant shall have
the right at its own expense, and upon prior notice to Landlord, to contest
the amount or validity, in whole or in part, of any Property Taxes by
appropriate proceedings diligently conducted in good faith, but only after
payment of such Property Taxes, unless such payment, or a payment thereof
under protest, would operate as a bar to such contest or interfere
materially with the prosecution thereof, in which event, notwithstanding
the provisions of Section 3.1 hereof, Tenant may defer payment of such
Property Taxes if neither the Premises, and/or the Expansion Land (whether
or not Tenant has exercised the Expansion Land Option)] nor any portion
thereof would, by reason of such deferment, be in danger of being forfeited
or lost and so long as such deferment will not otherwise materially and
adversely impact the Premises, and/or the Expansion Land (whether or not
Tenant has exercised the Expansion Land Option) or impair the value of the
Premises, and/or the Expansion Land (whether or not Tenant has exercised
the Expansion Land Option). Upon the termination of any such proceedings,
Tenant shall pay the amount of such Property Taxes as finally determined in
such proceedings, with any costs, fees, including attorney's fees,
interest, penalties, fines and other liability in connection therewith.
Landlord shall not be required to join in any proceedings referred to in
this Section unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by or in the
name of Landlord, in which event Landlord shall join in such proceedings.
Landlord shall not ultimately be subject to any liability for the payment
of any fees, including attorney's fees, costs and expenses in connection
with such proceedings and Tenant shall reimburse Landlord for all such fees
(including reasonable attorney's fees), costs and expenses on demand.
3.4 Landlord's Right to Contest Property Taxes. In addition to the
right of Tenant under Section 3.3 to contest the amount or validity of
Property Taxes, Landlord shall also have the right, but not the obligation,
to contest the amount or validity, in whole or in part, of any Property
Taxes not contested by Tenant. Any such contests by Landlord shall be at
Landlord's sole expense; provided, however, that if the amounts payable by
Tenant for Property Taxes are reduced (or if a proposed increase in such
amounts is avoided or reduced) by reason of Landlord's contest of Property
Taxes, Tenant shall reimburse Landlord for the costs incurred by Landlord
in contesting Property Taxes, but such reimbursements shall not be in
excess of the amount saved by Tenant by reason of Landlord's actions in
contesting such Property Taxes.
ARTICLE 4
USE
4.1 Permitted Use. Tenant may use the Premises only for the
Permitted Use specified in Item 11 of the Basic Terms. Tenant shall not
use or occupy the same, or knowingly permit them to be used or occupied,
contrary to any statute, governmental, quasi-governmental or administrative
rule, order, ordinance, requirement or regulation applicable thereto
("Regulatory Requirement"), or in any manner which would violate any
certificate of occupancy affecting the same, or which would make void or
voidable any insurance then in force with respect thereto or which would
cause structural injury to the Improvements or cause the value or
usefulness of the Premises, or any portion thereof, substantially to
diminish (reasonable wear and tear excepted), or which would constitute a
public or private nuisance or waste and Tenant agrees that it will
promptly, upon discovery of any such use, take all necessary steps to
compel the discontinuance of such use. Landlord represents that the
Premises are zoned for the Permitted Use.
4.2 Acceptance of Premises. Tenant shall accept delivery of the
Premises with Landlord's Improvements, as set forth on Exhibit "B"
substantially completed. Within thirty (30) days of Substantial Completion
(as defined below) of Landlord's Improvements, Landlord and Tenant shall
provide a "punchlist" identifying the corrective work of the type commonly
found on an architectural punchlist with respect to Landlord's
Improvements, which list shall be based on whether such items were required
by the approved Final Plans and Specifications. Within ten (10) Business
Days after delivery of the punchlist, Landlord shall commence the
correction of punchlist items and diligently pursue such work to
completion. The punchlist procedure to be followed by Landlord and Tenant
shall in no way limit Tenant's obligation to occupy the Premises under the
Lease nor shall it in any way excuse Tenant's obligation to pay Rent as
provided under the Lease unless such punch list items preclude Tenant from
occupying the Premises as reasonably determined by Tenant. Nothing in this
Section 4.2 shall be deemed to diminish any obligation of Landlord under
Section 7.1. Tenant acknowledges, that except as specifically provided in
this Lease and the Work Letter, neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Premises or the
Building or with respect to the suitability or fitness of either for the
conduct of Tenant's business or for any other purpose. Tenant shall comply
with the Permitted Encumbrances.
4.3 Rules and Regulations. Tenant shall comply with all rules and
regulations adopted by Landlord from time to time for the Project; provided
that such rules and regulations are applied in a non-discriminatory manner,
and do not adversely affect Tenant's hours of operation or otherwise
adversely affect the operation of Tenant's business. In the event of any
conflict between such rules and regulations and the provisions of this
Lease, this Lease shall prevail.
4.4 Tenant's Obligations. Tenant shall obtain and pay for all
permits, required for Tenant's occupancy of the Premises and shall promptly
take all substantial and non-substantial actions necessary to comply with
all applicable Regulatory Requirements regulating the particular type of
use by Tenant of the Premises, including, without limitation, the
Occupational Health and Safety Act and the Americans with Disabilities Act
4.5 Condition of Premises. Landlord shall deliver the Premises to
Tenant clean and free of debris on the Commencement Date, with Landlord's
Improvements Substantially Completed as provided in the Work Letter and,
except as disclosed in the Phase 1 Report, (defined below), the
improvements constructed by Landlord as Landlord's Improvements shall, as
of the Commencement Date, not contain Hazardous Materials (defined below)
in violation of any of the Hazardous Materials Laws (defined below).
ARTICLE 5
HAZARDOUS MATERIALS
5.1 Hazardous Materials. The term "Hazardous Material(s)" shall
mean any toxic or hazardous substance, material or waste or any pollutant
or contaminant or infectious or radioactive material, including but not
limited to those substances, materials or wastes regulated now or in the
future under any of the statutes or regulations listed in Section 5.2, and
any and all of those substances included within the definitions of
"hazardous substances," "hazardous materials," "hazardous waste,"
"hazardous chemical substance or mixture," "imminently hazardous chemical
substance or mixture," "toxic substances," "hazardous air pollutant,"
"toxic pollutant," or "solid waste" in the statutes or regulations in
Section 5.2. Hazardous Materials shall also mean any and all other similar
terms defined in other federal, state and local laws, statutes,
regulations, orders or rules, and materials and wastes which are, or in the
future become, regulated under applicable local, state or federal law for
the protection of health or the environment, or which are classified as
hazardous or toxic substances, materials or wastes, pollutants or
contaminants, as defined, listed or regulated by any federal, state or
local law, regulation or order or by common law decision, including,
without limitation, (i) trichloroethylene, tetrachloroethylene, perchloro-
ethylene and other chlorinated solvents, (ii) oil or any petroleum products
or fractions thereof, (iii) asbestos, (iv) polychlorinated biphenyls, (v)
flammable explosives, (vi) urea formaldehyde and (vii) radioactive
materials and waste, and (viii) infectious waste.
5.2 Hazardous Materials Laws. The term "Hazardous Materials
Law(s)" shall mean any federal, state or local laws, ordinances, codes,
statutes, regulations, administrative rules, policies and orders, and other
authority, existing now or in the future, which classify, regulate, list or
define hazardous substances, materials, wastes contaminants, pollutants
and/or the Hazardous Materials, including without limitation the following
statutes and regulations, and any other legal authority, regulations, or
policies relating to or implementing such statutes and regulations:
5.2.1 Federal. Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"), as
amended by the Superfund Amendments and Reauthorization Act of 1986
("SARA"), 42 U.S.C. ' 9601 et seq.; Resource Conservation and Recovery Act
of 1976 ("RCRA"), 42 U.S.C. ' 6901 et seq.; Clean Water Act ("CWA"), 33
U.S.C. ' 1251 et seq.; Clean Air Act ("CAA"), 42 U.S.C. ' 78401 et seq.;
Toxic Substances Control Act ("TSCA"), 15 U.S.C. ' 2601 et seq.; The Refuse
Act of 1899, 33 U.S.C. ' 407; Occupational Safety and Health Act ("OSHA"),
29 U.S.C. ' 651 et seq.; Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq.; United States Department of Transportation Table (49
CFR 172.101 and amendments thereto) and the Environmental Protection Agency
Table (40 CFR Part 302 and amendments thereto);
5.2.2 California. Carpenter-Presley-Tanner Hazardous
Substance Account Act ("California Superfund"), Cal. Health & Safety Code
' 25300 et seq.; California Hazardous Waste Control Act, Cal. Health &
Safety Code Sections 25100 et seq.; Porter-Cologne Water Quality Control
Act ("Porter-Cologne Act"), Cal. Water Code ' 13000 et seq.; Hazardous
Waste Disposal Land Use Law, Cal. Health & Safety Code ' 25220 et seq.;
Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"),
Cal. Health & Safety Code ' 25249.5 et seq.; Hazardous Substances
Underground Storage Tank Law, Cal. Health & Safety Code ' 25280 et seq.;
California Hazardous Substance Act, Cal. Health & Safety Code ' 28740 et
seq.; Air Resources Law, Cal. Health & Safety Code ' 39000 et seq.; Hazard-
ous Materials Release Response Plans and Inventory, Cal. Health & Safety
Code '' 25500-25541; Toxic Pits Cleanup Act of 1984 ("TCPA"), Cal. Health &
Safety Code '' 25208-25208.17;
5.2.3 Other Laws and Regulations. All other regulations
promulgated pursuant to said foregoing laws or any amendments or
replacement thereof, provided such amendments or replacements shall in no
way limit the original scope and/or definition of Hazardous Materials
defined herein as of the execution date of this Lease.
5.2.4 Phase I Environmental Analysis. Landlord has delivered
to Tenant two (2) Phase I Environmental Analysis Reports ("Phase 1
Reports") covering the Premises, and the Expansion Land, respectively and
Tenant acknowledges that this shall be deemed satisfaction of any
obligation on the part of Landlord to disclose any and all Hazardous
Materials on or relating to the Premises, and the Expansion Land as
required hereunder or by any Hazardous Materials Laws.
5.3 Compliance with Hazardous Materials Laws. Tenant shall not
cause or knowingly and intentionally permit any Hazardous Materials to be
brought upon, kept, or used in connection with the Premises or by Tenant,
its agents, employees or contractors in a manner or for a purpose
prohibited by or which could result in liability under any applicable law,
regulation, rule or ordinance, including, without limitation, the Hazardous
Materials Laws. Tenant shall, at its own expense, at all times and in all
respects comply with all Hazardous Materials Laws relating to the
industrial hygiene, environmental protection or the use, analysis,
generation, manufacture, storage, presence, disposal or transportation of
any Hazardous Materials brought thereon by Tenant, its agents, employees,
or contractors. Tenant shall, at its own expense, procure, maintain in
effect and comply with all conditions of any and all permits, licenses and
other governmental and regulatory approvals relating to Hazardous Materials
that are brought upon, knowingly and intentionally permitted to be brought
upon, kept, or used in connection with the Premises and/or the Expansion
Land by Tenant or Tenant's agents, employees, or contractors ("Tenant's
Agents") and Tenant shall cause any and all said Hazardous Materials to be
removed from the Premises and/or the Expansion Land and transported in
accordance with and in compliance with all Hazardous Materials Laws.
Tenant shall in all respects, handle, treat, deal with and manage any and
all Hazardous Materials that are brought upon, knowingly and intentionally
permitted to be brought upon, kept, or used in connection with the Premises
by Tenant or Tenant's Agents, in complete conformity with all applicable
Hazardous Materials Laws and prudent industry practices regarding the
management of such Hazardous Materials. Upon expiration or earlier
termination of this Lease, Tenant shall at its own expense, cause all
Hazardous Materials (to the extent such Hazardous Materials are generated,
stored, released or disposed of during the Term of this Lease by Tenant or
Tenant's Agents) to be removed from the Premises and/or the Expansion Land
and transported for use, storage or disposal in accordance and in
compliance with all applicable Hazardous Materials Laws. Tenant shall not
take any remedial action in response to the presence of any Hazardous
Materials in, on, about or under the Premises and/or the Expansion Land or
in any Improvements situated on the Land and/or the Expansion Land, nor
enter into any settlement agreement, consent, decree or other compromise in
respect to any claims relating to any way connected with the Premises or
the Improvements on the Land and/or the Expansion Land without first
notifying Landlord of Tenant's intention to do so and affording Landlord
ample opportunity to appear, intervene or otherwise appropriately assert
and protect Landlord's interest with respect thereto.
5.4 Notice of Actions. Tenant shall immediately notify Landlord in
writing of (a) any enforcement, clean-up, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any
Hazardous Materials Laws; (b) any written claim made or threatened by any
person against Landlord, or the Premises, relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from or claimed to
result from any Hazardous Materials; and (c) any written reports made to
any environmental agency arising out of or in connection with any Hazardous
Materials in, on or about the Premises or with respect to any Hazardous
Materials removed from the Premises, including, any complaints, notices,
warnings, reports or asserted violations in connection therewith. Tenant
shall also provide to Landlord, as promptly as possible, and in any event
within five (5) business days after Tenant first receives or sends the
same, with copies of all written claims, reports, complaints, notices,
warnings or asserted violations relating in any way to the Premises or
Tenant's use thereof. Upon written request of Landlord (to enable Landlord
to defend itself from any claim or charge related to any Hazardous
Materials Law), Tenant shall promptly deliver to Landlord notices of
hazardous waste manifests reflecting the legal and proper disposal of all
such Hazardous Materials removed or to be removed from the Premises and/or
the Expansion Land. All such manifests shall list the Tenant or its agent
as a responsible party only if such Hazardous Materials were caused or
knowingly and intentionally permitted to be brought upon the Premises or
Expansion Land by Tenant, its agent, employees, or contractors, and in such
case shall not attribute responsibility for any such Hazardous Materials to
Landlord.
5.5 Disclosure and Warning Obligations. Tenant shall also comply
with all laws, ordinances and regulations regarding warning obligations
with respect to the presence or danger of Hazardous Materials or as
otherwise may be required by law (to the extent Tenant has knowledge
thereof). Tenant acknowledges and agrees that it will promptly notify
Landlord prior to reporting to any governmental or quasi-governmental
agencies any matters relating to Hazardous Materials and Landlord shall
have the right to review such reports. So long as Tenant will not be in
violation of any laws requiring Tenant to make such reports, Landlord shall
have the right to assume control over the making of such reports to the
applicable governmental or quasi-governmental agencies. Tenant further
agrees to cooperate with Landlord in complying with all Hazardous Materials
Laws regarding the disclosure of, the presence or danger of Hazardous
Materials, including, with limitation, all notices or other requirements
under California Health and Safety Code Section 25919 et seq., and 25249.5
et seq. and California Code of Regulations Section 12000 et seq.
Notwithstanding the foregoing, Tenant shall prior to delivering any notices
required by this Section 5.5 to any governmental entity or agency, deliver
written notice to Landlord of the same so as to afford Landlord opportunity
to take over such obligation if Landlord so desires.
5.6 Tenant Indemnification. Tenant shall indemnify, defend (with
counsel reasonably acceptable to Landlord), protect and hold Landlord and
each of Landlord's officers, directors, partners, employees, agents,
attorneys, successors and assigns (collectively "Landlord's Indemnitees")
free and harmless from and against any and all claims, liabilities,
damages, costs, penalties, forfeitures, losses or expenses (including
reasonable attorneys' fees) for death or injury to any person or damage to
any property whatsoever (including water tables and atmosphere) ("Claims")
to the extent arising or resulting in whole or in part from the presence or
discharge of Hazardous Materials to the extent such Hazardous Materials are
in excess of legally permissible amounts under the Hazardous Materials Laws
by Tenant, Tenant's agents, employees, or contractors in, on, under, upon
or from the Premises and/or the Expansion Land or the Improvements located
thereon or from the transportation or disposal of Hazardous Materials to or
from the Premises and/or the Expansion Land to the extent caused by Tenant.
5.7 Landlord Indemnification. Landlord shall indemnify, defend
(with legal counsel reasonable acceptable to Tenant) and hold Tenant and
Tenant's officers, directors, partners, employees, agents, attorneys,
successors and assigns (collectively, "Tenant's Indemnitees") free and
harmless from and against any and all Claims to the extent arising or
resulting in whole or in part from the presence or discharge of Hazardous
Materials to the extent such Hazardous Materials are in excess of legally
permissible amounts under the Hazardous Materials Laws by Landlord, or its
employees, agents or contractors in, on, under, upon or for the Premises
and/or the Expansion Land or the Improvements thereon or from the
transportation or disposal of Hazardous Materials by Landlord or its
employees, agents, or contractors. Landlord's obligations hereunder shall
include, without limitation, and whether foreseeable or unforeseeable, all
costs of any required or necessary repairs, clean-up or detoxification or
decontamination of the Premises and/or the Expansion Land or the
Improvements, and the presence and implementation of any closure, remedial
action or other required plans in connection therewith, and shall survive
the expiration of or early termination of the term of this Lease and any
costs and fees incurred in the enforcement of the indemnity action. In
addition, with respect to any Hazardous Materials that are in excess of the
legally permissible amounts under the Hazardous Materials Laws that were on
the Land and/or the Expansion Land at the time that the Phase 1 Reports
were issued and which were not disclosed by the Phase 1 Reports ("Pre-
existing Hazardous Materials"), Landlord agrees to remediate such Pre-
existing Hazardous Materials if, as and when required by a governmental
agency to the extent required by such governmental agency. Landlord
further agrees to indemnify and hold Tenant harmless from any fines,
penalties or other fees imposed against Tenant by such governmental agency
as a result of such Pre-exiting Hazardous Materials. Notwithstanding the
foregoing, nothing in this Section 5.7 shall be deemed to impose any
obligation or liability on Landlord for remediation, indemnification or
payment of any fines, penalties or other fees if the same would not have
been imposed but for some act or omission of Tenant.
5.8 Environmental Audits. Landlord shall have the right, at any
time during the term of this Lease, to conduct an environmental audit. If
Landlord conducts such an audit, it shall be at Landlord's sole cost and
expense, except that if said audit discloses the presence of Hazardous
Materials on the Premises, or the Expansion Land in violation of Tenant's
obligations under this Article 5, then the cost of such audit shall be
borne by Tenant. If the audit confirms the presence of Hazardous Materials
in on or under the Premises, or the Expansion Land or the groundwater
thereunder in violation of Tenant obligations under this Article 5,
Landlord shall have the right to require Tenant to immediately commence all
necessary remediation, abatement, removal and cleanup actions to return the
Premises, and/or the Expansion Land and any other property of whatever
nature to their condition existing prior to the appearance of Hazardous
Materials. Any plan of remediation, abatement, removal and cleanup shall
be subject to the prior approval of Landlord, in its sole discretion.
Except as specified above, Tenant shall not perform or cause to be
performed, any Hazardous Materials surveys, studies, reports or
inspections, relating to the Premises, and/or the Expansion Land without
obtaining Landlord's advance written consent.
5.9 Assignment and Subletting. If (i) any anticipated use of the
Premises by any proposed assignee or sublessee involves the generation,
storage, use, treatment or disposal of Hazardous Materials in a manner or
for a purpose prohibited by any governmental agency or authority, or
(ii) the proposed assignee or sublessee is subject to an enforcement order
issued by any governmental activity in connection with the use, disposal,
or storage of Hazardous Materials, it shall not be unreasonable for
Landlord to withhold its consent to an assignment or subletting to such
proposed assignee or sublessee.
ARTICLE 6
SERVICES AND UTILITIES
During the Term of this Lease, Tenant will pay, when due, all charges
of every nature, kind or description (including, without limitation,
charges imposed by any utility company as a condition precedent to
furnishing or continuing to furnish utilities or services to the Premises)
for utilities furnished to the Premises or chargeable against the Premises,
including all charges for water, sewage, heat, gas, light, garbage,
electricity, telephone, steam, power, or other public or private utility
services and any charges or fees for present or future water or sewer
capacity to serve the Premises, any charges for the underground
installation of gas or other utilities or services, and other charges
relating to the extension of or change in the facilities necessary, and
requested by Tenant, to provide the Premises with adequate utility
services. Notwithstanding the foregoing, nothing contained herein shall be
deemed to limit Landlord's obligations to complete Landlord's Improvements
pursuant to the terms of the Work Letter.
ARTICLE 7
MAINTENANCE, REPAIR AND ALTERATION OF PREMISES
7.1 Construction Warranty and Landlord Obligations. Except to the
extent caused by Tenant's specific use of the Premises or the negligent
acts or intentional misconduct of Tenant, its agents, employees, or
contractors, or as otherwise provided under this Lease, Landlord shall
repair and maintain in good order, condition and repair the foundation,
exterior walls and structural portions of the roof of the Building
("Structural Portions of the Building"). However, Landlord shall not be
obligated to maintain or repair windows, doors, plate glass, surfaces of
exterior walls, or the membrane or other nonstructural elements of the roof
and the same shall not be deemed to be included within the definition of
the Structural Portions of the Premises Building. Landlord warrants, as
Landlord's sole and exclusive warranty concerning the Landlord's
Improvements and the Improvements (including the HVAC System), the
Landlord's Improvements and the Improvements (including the HVAC System)
against defective workmanship and/or materials for a period of one (1) year
from the date of Substantial Completion (as defined in the Work Letter) of
Landlord's Improvements and Landlord agrees, at its sole cost and expense,
to repair or replace any defective item occasioned by poor workmanship
and/or materials during said one-year period, and performance of such one-
year warranty shall be Landlord's sole and exclusive obligation with
respect to defective workmanship and/or materials, and Tenant's rights to
enforce such one-year warranty shall be Tenant's sole and exclusive remedy
with respect to such defective workmanship and/or materials in limitation
of any contract, warranty or other rights, whether express or implied, that
Tenant may otherwise have under applicable law. Landlord covenants that it
will obtain, as part of the costs of the Landlord's Improvements, a ten
(10) year roof warranty. Landlord shall assign to Tenant, to the extent
permitted under any such warranties provided to Landlord, on a non-
exclusive basis, all rights Landlord may have under any warranties provided
by contractors or subcontractors. From and after the expiration of the
one-year warranty of Landlord against defective workmanship and materials,
Landlord agrees to cooperate with Tenant in the enforcement by Tenant, at
Tenant's sole cost and expense, of any express warranties or guaranties of
workmanship or materials given by subcontractors or materialmen or any
service contracts that guarantee or warrant against defective workmanship
or materials or provide service or repair for a period of time in excess of
the one-year period described above. Notwithstanding anything to the
contrary, Landlord, at Landlord's sole cost and expense, shall be solely
responsible for repairing latent structural defects in the Structural
Portions of the Building during the Initial Term and any Renewal Terms
(provided that if Tenant has penetrated, attached any item to, or otherwise
damaged the same, Landlord shall not be responsible for, nor shall Landlord
remedy, any defects attributable to such actions or conditions). During
the Initial Term, Tenant shall be responsible for annual roof inspections
and clean out of gutters and down spouts and Landlord shall be responsible
for all other related maintenance of the roof structure (exclusive of the
roof membrane) including all roof leaks during the first five (5) years of
Initial Lease Term (provided that if Tenant has penetrated, attached any
item to, or otherwise damaged the same, Landlord shall not be responsible
for, nor shall Landlord remedy, any defects attributable to such actions or
conditions). Thereafter, Tenant's exposure shall be capped at Five
Thousand Dollars ($5,000.00) annually inclusive of inspections and clean
out of gutters and down spouts.
7.2 Tenant's Maintenance. Except as otherwise expressly provided
in this Lease, Tenant, at its sole cost and expense, throughout the Term of
this Lease, including the warranty period specified in Section 7.1 above,
whether Tenant is occupying or has vacated the Premises), shall take good
care of the Premises (including the Landlord's Improvements any
improvements hereafter erected or installed on the Land), and shall keep
the same in at least the same order, condition and repair (including
interior repainting and refurnishing, as needed), as when received and
shall make and perform all routine maintenance thereof and all necessary
repairs thereto, interior and exterior, structural and nonstructural,
ordinary and extraordinary, foreseen and unforeseen, of every nature, kind
and description. When used in this Article 7, "repairs" shall include all
necessary replacements, renewals, alterations, additions and betterments,
interior and exterior, structural and non-structural, ordinary and
extraordinary, foreseen and unforeseen, of every nature, kind and
description, including, without limitation, any repairs, replacements,
renewals, alterations and additions required by any governmental law,
ordinance or regulations now or hereafter enacted relating to the Premises.
All repairs made by Tenant shall be at least equal in quality, workmanship
and cost to the original work and shall be made by Tenant in accordance
with all laws, ordinances and regulations whether heretofore or hereafter
enacted.
7.3 Tenant's Waiver of Claims Against Landlord. Except as
otherwise specifically provided in this Lease or the Work Letter or this
Lease, Landlord shall not be required to furnish any services or facilities
or to make any repairs or alterations in, about or to the Premises or any
improvements hereafter erected thereon.
ARTICLE 8
CHANGES AND ALTERATIONS
8.1 Tenant's Changes and Alterations. Tenant shall not make any
alterations, additions or improvements ("Alterations") to the Property,
without Landlord's prior written consent, which shall not be unreasonably
withheld, except for non structural alterations in the interior of the
Building that do not affect the Structural Portions of the Building or
exterior of the Building ("Permitted Alterations"). All Alterations shall
be done promptly and in a good and workmanlike manner and in compliance
with all laws, ordinances, orders, rules, regulations and requirements of
all federal, state and municipal governments and appropriate departments,
commissions, boards and officers thereof, and in accordance with the
orders, rules and regulations of the Board of Fire Underwriters where the
Premises are located, or any other body exercising similar functions. All
such Alterations which affect the Structural Portions of the Building or
the exterior of the Building ("Structural or Exterior Alterations") shall
be performed by a contractor approved by Landlord, in its reasonable
discretion. If required by Landlord, Tenant shall provide demolition
and/or lien and completion bonds in form and amount satisfactory to
Landlord in connection with any Structural or Exterior Alterations. Tenant
shall promptly remove any Alterations constructed in violation of this
Section upon Landlord's written request. All permanent Alterations (i.e.
other than Tenant's movable trade fixtures and equipment), including the
Permitted Alterations made or installed by Tenant shall immediately, upon
completion or installation thereof, become the property of Landlord without
payment therefor by Landlord, and shall be surrendered to Landlord on the
expiration of the Term of this Lease. Prior to commencement of the
Alterations, Tenant shall deliver Builder's All Risk Insurance, in an
amount acceptable to Landlord, in conformance with the requirements of
Article 10 of this Lease. Notwithstanding anything to the contrary set
forth herein, Tenant agrees, at Tenant's sole cost and expense, and within
ten (10) days request therefor by Landlord at the end of the Lease Term or
earlier termination thereof, to remove any of the following types of
Permitted Alterations and repair the Premises where such Permitted
Alterations were situated to the same or better condition than existed
prior to Tenant installation of said Permitted Alterations: racking,
Permitted Alterations to create manufacturing and/or office space, drop
ceilings, mezzanines, and demising walls. To the extent Tenant removes any
other Alterations, Tenant shall also, within ten (10) days of removal
thereof, restore the Premises to the condition that existed prior to
Tenant's installation of such Alterations.
8.2 Liens. Tenant shall keep the Premises free from any
mechanics', materialmen's, designer's or other liens arising out of any
work performed, materials furnished or obligations incurred by or for
Tenant or any person or entity claiming by, through or under Tenant.
Landlord shall have the right at all times to post and keep posted on the
Premises any notices which it deems necessary for protection from such
liens. If any such liens are filed and are not released of record by
payment or posting of a proper bond within thirty (30) days after such
filing, Landlord may, without waiving its rights and remedies based on such
breach by Tenant and without releasing Tenant from any obligations
hereunder, cause such liens to be released by any means it shall deem
proper, including payment of the claim giving rise to such lien or posting
security to cause the discharge of such lien, in which event all amounts
paid by Landlord shall immediately be due and payable by Tenant as
Additional Rent. Tenant hereby indemnifies, protects, defends and holds
Landlord and Landlord's Indemnitees and the Premises harmless from any
liability, cost, obligation, expense (including, without limitation,
reasonable attorneys' fees and expenses and attorneys' fees incurred in
enforcing of this indemnity), or claim of any mechanics', materialmen's,
design professional's or other liens in any manner relating to any work
performed, materials furnished or obligations incurred by or for Tenant or
any person or entity claiming by, through or under Tenant. Tenant shall
notify Landlord in writing fifteen (15) days prior to commencing any
Alterations so that Landlord shall have the right to record and post
notices of non-responsibility or any other notices deemed necessary by
Landlord on the Premises. Tenant shall not create, and shall within thirty
(30) days discharge and satisfy of record, any other lien, encumbrance,
charge, security interest, or other right or interest which shall be or
become a lien, encumbrance, charge or security interest upon the Premises,
or any portion thereof.
8.3 Compliance with Laws. Landlord warrants, that provided that
the Tenant Work, and any subsequent Alterations, is in compliance with all
present laws, codes, regulations and ordinances, upon completion of
Landlord's Improvements, the utilities, including without limitation the
HVAC, (as hereinafter defined), the structural portions, the interior and
the exterior of the Premises will meet with all laws, codes, regulations
and ordinances in effect at the time the Premises is delivered by Landlord
to Tenant and will be in good working condition and order (except for
punch-list items). If, at any time, the Premises or such utilities do not
meet with such laws, codes, regulations and ordinances as required by
regulations of governing authorities (other than as a result of Tenant's
negligent acts or the failure of Tenant Work or Tenant's Alterations to
comply with such laws, codes, regulations and ordinances), then, except for
work that is specifically required as a result of the business operation
being conducted by Tenant, the Premises will be brought up to the proper
standards at Landlord's expense. Landlord's receipt of all governmental
permits required for initial occupancy shall be deemed satisfaction of the
foregoing representations and obligations. Landlord shall also be
responsible for paying any and all fines or penalties assessed by any
governmental authority if the Premises fails to meet codes and regulations
of governmental authorities during the Term of this Lease, other than as a
result of the failure of the Tenant Work or Alterations and/or improvements
made by Tenant to comply with all laws, codes, regulations and ordinances
as required by regulations of governing authorities. Tenant shall be
responsible for paying any and all fines or penalties for the failure of
the Tenant Work and Alterations and/or improvements made by Tenant to
comply with all laws, codes, regulations and ordinances as required by
regulations of governing authorities during the Term of this Lease and
shall cause the Tenant Work and any Alterations and/or improvements made by
Tenant to be brought up to the proper standards at Tenant's expenses.
ARTICLE 9
RIGHTS RESERVED BY LANDLORD
9.1 Landlord's Entry. In addition to any other right of entry
provided to Landlord in this Lease, Landlord reserves the right, at all
reasonable times and upon twenty-four (24) hours prior notice to Tenant
except in case of emergency when no notice shall be required (but Landlord
will use reasonable efforts to give prior or contemporaneous notice), to
enter the Premises to: (i) inspect them; (ii) show the Premises to
prospective purchasers, mortgagees or tenants (provided that Landlord shall
only show the Premises to prospective tenants during the last (6) six
months of the Lease Term); (iii) post notices of non-responsibility or
other notices as may be customary in the State of California; (iv) for
performance of any of Landlord's repair and/or maintenance rights or
obligations; or (v) to exercise any other rights, obligations or remedies
that Landlord may have under this Lease. Landlord and its authorized
representatives may enter the Premises at any time in case of emergency and
shall have the right to use any and all means which Landlord may deem
proper to open such doors during an emergency in order to obtain entry to
the Premises. Any entry to the Premises obtained by Landlord in the event
of any emergency shall not, under any circumstances, be construed or deemed
to be a forcible or unlawful entry into, or detainer of, the Premises, or
to be an eviction of Tenant from the Premises or any portion thereof.
9.2 Landlord's Cure. If Tenant shall default in the performance of
its obligations under this Lease and if such default is not cured within
the applicable periods provided in Article 14, Landlord upon twenty (20)
days prior notice to Tenant (except in emergency in which case no notice
shall be required) may, but shall not be obligated to, make any such
payment or perform any such act on Tenant's part without waiving its right
based upon any default of Tenant and without releasing Tenant from any
obligations hereunder. Except as may be specifically provided to the
contrary in this Lease, Tenant shall pay to Landlord, within twenty (20)
days after delivery by Landlord to Tenant of statements therefor, sums
equal to expenditures reasonably made and obligations reasonably incurred
by Landlord in connection with the remedying by Landlord of Tenant's
defaults. If there are any outstanding monetary obligations of Tenant
under this Lease attributable to the period prior to the expiration or
termination of this Lease, such obligations shall survive the termination
or expiration of this Lease and such amount shall be payable to Landlord
within ten (10) days after receipt of notice therefor from Landlord.
ARTICLE 10
INDEMNITY AND INSURANCE
10.1 Tenant's Insurance Obligations. Tenant, at its sole cost and
expense, shall obtain and continuously maintain in full force and effect
during the Term of this Lease, commencing with the earlier to occur of
(a) Commencement Date or (b) the date Tenant first occupies the Premises,
policies of insurance covering the Improvements constructed, installed or
located on the Premises naming the Landlord, as an additional insured,
against (a) loss or damage by fire; (b) loss or damage from such other
risks or hazards now or hereafter embraced by an "Extended Coverage
Endorsement," including, but not limited to, windstorm, hail, explosion,
vandalism, riot and civil commotion, damage from vehicles, smoke damage,
water damage and debris removal; (c) loss for damage by earthquake if
requested by Landlord (provided that Landlord shall reimburse Tenant for
the cost of insurance allocable to earthquake coverage); (d) loss from
so-called explosion, collapse and underground hazards; and (e) loss or
damage from such other risks or hazards of a similar or dissimilar nature
which are now or may hereafter be customarily insured against with respect
to improvements similar in construction, design, general location, use and
occupancy to the Improvements other than loss for flood. At all times,
such insurance coverage shall be in an amount equal to 100% of the then
"full replacement cost" of the Improvements exclusive of excavations,
foundations and footings "Full Replacement Cost" shall be interpreted to
mean the cost of replacing the improvements without deduction for
depreciation or wear and tear, and it shall include a reasonable sum for
architectural, engineering, legal, administrative and supervisory fees
connected with the restoration or replacement of the Improvements in the
event of damage thereto or destruction thereof. If a sprinkler system
shall be located in the Improvements, sprinkler leakage insurance shall be
procured and continuously maintained by Tenant at Tenant's sole cost and
expense. Prior to occupancy of the Premises, Tenant shall deliver to
Landlord a copy of such insurance policy.
10.2 Insurance Coverage. During the Term of this Lease, Tenant, at
its sole cost and expense, shall obtain and continuously maintain in full
force and effect comprehensive general liability insurance or commercial
liability insurance against any loss, liability or damage on, about or
relating to the Premises, or any portion thereof, with limits of not less
than Three Million Dollars ($3,000,000.00) combined single limit, per
occurrence and aggregate, coverage on an occurrence basis. Such insurance
shall specifically insure (by contractual liability endorsement) Tenant's
indemnity obligations under this Lease.
The insurance set forth in this Section 10.2 shall be maintained by
Tenant at not less than the limits set forth herein. To the extent it is
customary in the marketplace for insurance limits to be higher than those
specified in this Section 10.2, such limits may be increased, upon written
notice from Landlord to Tenant, at the end of each five (5) year period
during which this Lease is in effect ("Adjustment Date") based upon
increases (if any) in the Index (defined below). The most recent Index in
publication prior to the Commencement Date shall be the "Base Index." On
each Adjustment Date, the insurance limits shall be increased by the
percentage equal to the percentage increase (if any) in the most recent
Index in publication prior to the Adjustment Date ("Comparison Index") over
the Base Index. The term "Index" as used in this Lease shall mean the
United States Department of Labor, Bureau of Labor Statistics Consumer
Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-Long
Beach-Anaheim Average Subgroup "All Items," (1982-84 = 100). If the
1982-84 base of the Index should hereafter be changed, then the new base
shall be converted to the 1982-84 base and the base as so converted shall
be used. If at any time the Index should not exist in the format recited
herein, Landlord shall substitute any official index published by the
Bureau of Labor Statistics, or successor or similar governmental agency, as
may then be in existence and shall, in Landlord's opinion, be most nearly
equivalent thereto.
10.3 Insurance Provisions. All policies of insurance required by
this Article shall provide that the proceeds thereof shall be payable to
Tenant and Landlord as their interests appear, and if Landlord so requests
shall also be payable to any contract purchaser of the Premises and the
holder of any mortgages now or hereafter becoming a lien on the fee of the
Premises, or any portion thereof, provided that any such mortgagee has
provided Tenant with the Non-Disturbance Agreement (defined below). Tenant
shall not, on Tenant's own initiative or pursuant to request or requirement
of any third party, take out separate insurance concurrent in form or
contributing in the event of loss with that required in Section 10.1
hereof, unless Landlord is named therein too as an additional insured with
loss payable as in said Section 10.1 provided. Tenant shall immediately
notify Landlord whenever any such separate insurance is taken out and shall
deliver to Landlord original certificates evidencing the same. Any such
insurance obtained and maintained by Tenant shall name Landlord, and, if
requested by Landlord, Landlord's mortgagee, as an additional insured
therein, provided that any such mortgagee has provided Tenant with the Non-
Disturbance Agreement (defined below), and such insurance shall be obtained
and maintained from and with a reputable and financially sound insurance
company authorized to issue such insurance in California. Each policy
required under this Article 10 shall have attached thereto (a) an
endorsement that such policy shall not be canceled or materially changed
without at least thirty (30) days prior written notice to Landlord, and (b)
an endorsement to the effect that the insurance as to the interest of
Landlord shall not be invalidated by any act or neglect of Landlord or
Tenant and an "agreed value" endorsement. All policies of insurance,
together with any endorsements reflecting the changes to the policy
required to comply with this Lease, shall be written in companies
reasonably satisfactory to Landlord and licensed in the state in which the
Premises are located. Such certificates of insurance shall be in a form
reasonably acceptable to Landlord, shall be delivered to Landlord upon
commencement of the Term and prior to expiration of such policy, new
certificates of insurance, shall be delivered to Landlord not less than
twenty (20) days prior to the expiration of the then current policy Term.
In the event Tenant shall fail to procure such insurance, or to deliver
such policies or certificates and appropriate endorsements, Landlord may,
at its option, procure such policies for the account of Tenant after five
(5) days' written notice, and the cost thereof shall be paid by Tenant to
Landlord as Additional Rent within fifteen (15) days after delivery to
Tenant of bills therefor.
10.4 Waiver of Subrogation. Tenant shall cause to be inserted in
the policy or policies of insurance required by this Article 10 hereof a
so-called "Waiver of Subrogation Clause" as to Landlord. Each party hereby
waives, releases and discharges the other party, its agents and employees
from all claims whatsoever arising out of loss, claim, expense or damage to
or destruction covered or coverable by insurance required under this
Article 10 notwithstanding that such loss, claim, expense or damage may
have been caused by such other party, its agents or employees, and each
party agrees to look to the insurance coverage only in the event of such
loss.
10.5 Rental Abatement Insurance. Landlord may maintain insurance
coverage (including loss of use and rental abatement coverage) upon
Tenant's business and upon all personal property of Tenant or the personal
property of others kept, stored or maintained on the Premises against loss
or damage by fire, windstorm or any other casualties or causes for such
amount as Landlord may desire. Tenant shall reimburse Landlord for the
actual and commercially reasonable costs of such rental abatement
insurance, covering a period not to exceed eighteen (18) months, on an
annual basis. Tenant shall pay such amounts to Landlord as Additional
Rent, no later than thirty (30) days after receipt of a statement therefor
from Landlord. Landlord shall have the right to require payments on a
semi-annual or annual basis. The failure of Landlord to deliver a
statement for such charges shall not constitute a waiver of Landlord's
rights to collect such amounts if delivered within six (6) months. Tenant
shall have the right, upon at least six (6) months prior notice, to elect
to carry its own business interruption or rental abatement insurance, in
amounts reasonably acceptable to Landlord and which satisfy the
requirements set forth in Section 10.3 and this Section 10.5 of this Lease.
In such case, Landlord shall cancel the rental abatement insurance. Tenant
agrees that such policies shall contain a waiver of subrogation clause as
to Landlord.
10.6 Indemnification by Tenant. To the fullest extent allowed by
law, Tenant shall at all times indemnify, protect, defend with legal
counsel reasonably acceptable to Landlord) and hold Landlord and Landlord's
shareholders, officers, directors, partners, employees, lender, managing
agent, successors and/or assigns (collectively, "Landlord's Indemnities")
harmless against and from any and all claims, costs, liabilities, actions
and damages (including, without limitation, attorneys' fees and costs and
costs related to the enforcement of this indemnity provision) arising
from or out of any occurrence in, upon or about the Premises or the
occupancy or use by Tenant of the Premises, or the condition of the
Premises to the extent caused by any act or omission of Tenant, its agents,
contractors, servants, tenants, invitees (i.e. persons directed or
requested by Tenant to enter the Premises) or licensees (collectively
"Tenant's Agents") or arising from any act or negligence of Tenant or
Tenant's Agents, or a default by Tenant under this Lease or, to the extent
covered by insurance Tenant is required to carry under this Lease, arising
from any accident, injury or damage whatsoever caused to any person, or
entity occurring during the Term of this Lease, in or about the Premises,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in or about any such claim or action or proceeding brought
thereon. Notwithstanding the foregoing, Tenant shall not have any
liability hereunder or otherwise with respect to any claim, cost,
liability, action or damage caused by the negligence or wilful misconduct
of Landlord or any of Landlord's Indemnitees or Landlord's Agents or any
material default by Landlord under this Lease. In case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant,
upon notice from Landlord, covenants to defend such action or proceeding by
counsel reasonably satisfactory to Landlord.
10.7 Indemnification by Landlord. To the fullest extent allowed by
law, Landlord shall at all times indemnify, protect, defend (with legal
counsel reasonably acceptable to Tenant) and hold Tenant and Tenant's
shareholders, officers, directors, partners, employees, affiliates,
successors and/or assigns (collectively, "Tenant's Indemnitees") harmless
against and from any and all claims, costs, liabilities, actions and
damages (including, without limitation, attorneys' fees and costs and costs
related to the enforcement of this indemnity provision) arising from or out
of any negligence or wilful misconduct by Landlord or any of the Landlord's
Indemnities or Landlord's Agents, in, on, or about the Premises or any
breach by Landlord of its obligations under this Lease, and from and
against all costs, attorneys' fees, expenses and liabilities incurred in or
about any such claim or action or proceeding brought thereon; provided,
however, that in no event shall Landlord be obligated to indemnify, defend
and hold Tenant or any of Tenant's Indemnitees or Tenant's Agents harmless
to the extent of any claims, costs, liabilities, actions or damages arising
from or out of, or occasioned in whole or in part by, the negligence or
wilful misconduct of Tenant, Tenant's Indemnitees or Tenant's Agents or any
material default by Tenant under this Lease. In case any action or
proceeding be brought against Tenant by reason of any such claim, Landlord,
upon notice from Tenant, covenants to defend such action or proceeding by
counsel reasonably satisfactory to Tenant. Landlord shall cause the
obligations under this Section 10.7 to be covered under Landlords policy of
commercial general liability insurance.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 Restriction on Other Transfers. Except as specifically
permitted in Section 11.2 below, Tenant shall not assign, sublease,
mortgage, pledge, transfer, or otherwise encumber or dispose of this Lease,
or any interest therein, or in any manner assign, mortgage, pledge,
transfer or otherwise encumber or dispose of its interest or estate in the
Premises, or any portion thereof ("Transfer"), without obtaining Landlord's
prior written consent in each and every instance, which consent shall not
be unreasonably withheld, delayed or conditioned. If Landlord fails to
respond to any request by Tenant for Landlord's consent or approval within
twenty (20) days of such request, Tenant shall provide Landlord with a
second written request. If Landlord fails to respond to such second
written request within ten (10) days of Landlord's receipt thereof,
Landlord shall be deemed to have consented to such Transfer; provided that
such second written request specifically states that Landlord's failure to
respond within ten (10) days shall be deemed consent under this Section
11.1 of this Lease. No Transfer shall release Tenant from its liability
under this Lease. Tenant acknowledges and agrees that this covenant and
agreement is a material inducement to the decision of Landlord to lease the
Premises to Tenant and that Landlord may use its sole and absolute
discretion hereunder. Landlord shall have the right to withhold consent to
any sublessee in the event any of the conditions set forth in Section 5.8
of this Lease apply.
11.2 Permitted Transfers. Notwithstanding the provisions of
Section 11.1, Tenant shall have the right, without Landlord's prior
consent, to Transfer all or any portion of the Premises to a related entity
or affiliate of Tenant. Tenant may also Transfer the lease to any
successor entity, whether by merger, consolidation or otherwise, and to any
entity that purchases all or substantially all of Tenant's assets. Finally
Tenant shall be permitted to assign or sublease to an Affiliate (as
hereinafter defined) of Tenant. The foregoing Transfers described in this
Section 11.2 are referred to as "Permitted Transfers." No such Permitted
Transfer shall require Landlord's prior approval or consent, provided that
Tenant shall provide to Landlord written notice of the Transfer, within a
reasonable time thereafter, including the name of the transferee and the
terms of the Transfer, and an agreement executed by the transferee
acceptable to and in favor of Landlord whereby the transferee agrees to
assume Tenant's obligations under this Lease. No such Permitted Transfer
shall release Tenant from its liability under this Lease. As used herein,
the term "Affiliate" shall mean any person, directly or indirectly through
one or more intermediaries, controlling, controlled by, or under common
control with the person in question, which, in the case of a person which
is a partnership, shall include each of the partners thereof and each of
their Affiliates. The term "control," as used in the immediately preceding
sentence, means, with respect to a person that is a corporation, the right
to exercise, directly or indirectly, more than twenty percent (20%) of the
voting rights attributable to the shares of the controlled corporation,
and, with respect to a person that is not a corporation, the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of the controlled person.
11.3 Sublease Requirements. Any sublease permitted under this
Article 11 shall contain provisions to the effect that, except as may
otherwise be specifically agreed to by Landlord in writing, (i) such
sublease is only for actual use and occupancy by the sublessee; (ii) such
sublease is subject and subordinate to all of the terms, covenants and
conditions of this Lease and to all of the rights of Landlord thereunder;
and (iii) Tenant shall continue to be and remain liable under the Lease.
In the case of a sublease, a copy of any sublease fully executed and
acknowledged by Tenant and the sublessee shall be mailed to Landlord ten
(10) days prior to the effective date of such sublease, which sublease
shall be in form and content reasonably acceptable to Landlord.
11.4 No Merger. No merger shall result from Tenant's sublease of
the Premises under this Article 11, Tenant's surrender of this Lease or the
termination of this Lease in any other manner.
11.5 Profits on Transfer. In the event that Tenant shall make a
permitted Transfer hereunder of all or any portion of the Premises (the
"Transfer Space"), then the following shall apply: Tenant shall pay
Landlord monthly, as Additional Rent, at the same time as the monthly
installment of Basic Rent required hereunder, fifty percent (50%) of the
"Profit" payable by the Transferee pursuant to the terms reserved in the
Transfer agreement, assignment or sublease. For purposes of this Section
11.5, "Profit" shall mean all rent and other amounts paid or payable by the
Transferee to Tenant pursuant to the terms of the Transfer which are in
excess of the applicable Basic Rent and Additional Rent (if the obligation
to pay Additional Rent is not passed through to or assumed by the
Transferee under this Lease) after deducting therefrom Tenant's actual and
reasonable costs incurred in connection with the Transfer, including but
not limited to reasonable real estate commissions, costs of renovations or
improvements, reasonable tenant improvement allowances, reasonable
attorneys fees and reasonable rent concessions.
11.5.1 Tenant's Profit Statement. Tenant shall and hereby
agrees that it will furnish to Landlord upon written request from Landlord
a complete statement, setting forth in detail the computation of all profit
derived and to be derived from such assignment or sublease, such
computation to be made in accordance with generally accepted accounting
principles. Tenant agrees that Landlord or its authorized representatives
shall be given access, at all reasonable times (at Tenant's Southern
California office) upon ten (10) business days advance notice, not to
exceed more than one (1) time per year per Transfer, to the books, records
and papers of Tenant relating directly to any such assignment or
subletting.
ARTICLE 12
DAMAGE OR DESTRUCTION
12.1 Destruction and Restoration. Tenant covenants and agrees that
in case of damage to or destruction of the Improvements after the
Commencement Date by fire or otherwise, Tenant at its sole cost and
expense, shall promptly restore, repair, replace and rebuild the same
("Restoration") as nearly as possible to the condition that the same were
in immediately prior to such damage or destruction with such changes or
alterations as may be reasonably acceptable to Tenant or required by law.
Tenant shall forthwith give Landlord written notice of such damage or
destruction upon the occurrence thereof and specify in such notice, in
reasonable detail, the extent thereof. The Restoration shall be carried on
and completed in accordance with the provisions and conditions of this
Lease. All insurance proceeds shall be held by Landlord and Tenant as co-
trustee. If the insurance moneys in the hands of Landlord and Tenant as
co-trustees shall be deemed to be insufficient by Landlord to pay the
entire costs of the Restoration, Tenant agrees, only to the extent Tenant
failed to maintain the insurance Tenant is required to maintain under this
Lease, to pay any deficiency promptly upon demand that would have been paid
by the insurance company had Tenant maintained the required insurance.
12.2 Application of Insurance Proceeds. All insurance moneys
recovered by Landlord or Tenant shall be held by Landlord and Tenant as
co-trustees on account of such damage or destruction, less the costs, if
any, to Landlord of such recovery, shall be applied to the payment of the
costs of the Restoration and shall be paid out from time to time as the
Restoration progresses, in accordance with requirements imposed by Landlord
or any mortgagee of record, provided that any such mortgagee has
theretofore or concurrently provided, Tenant with the Non-Disturbance
Agreement (defined below). Tenant shall furnish Landlord at the time of
any such payment with lien releases and evidence reasonably satisfactory to
Landlord that there are no unpaid bills in respect to any work, labor,
services or materials performed, furnished or supplied in connection with
such Restoration.
12.3 Continuance of Tenant's Obligations. No destruction of or
damage to the Premises, or any portion thereof, by fire, casualty or
otherwise shall permit Tenant to surrender this Lease or shall relieve
Tenant from its liability to pay to Landlord the Basic Rent and Additional
Rent payable under this Lease or from any of its other obligations under
this Lease, and Tenant waives any rights now or hereafter conferred upon
Tenant by present or future law or otherwise to quit or surrender this
Lease or the Premises, or any portion thereof, to Landlord or to any
suspension, diminution, abatement or reduction of rent on account of any
such damage or destruction.
12.4 Damage or Destruction at End of Lease Term. In the event the
damage or destruction occurs during the last eighteen (18) months of the
Lease Term, then, notwithstanding the provisions of Section 12.1 and 12.2,
Tenant shall not be obligated to complete such Restoration so long as
Tenant assigns to Landlord all insurance proceeds except those amortized
and allocable to Tenant's Work (as defined in the Work Letter) (including
the amount of any deductibles and any other amounts necessary) so that
Landlord can complete such Restoration.
12.5 Waiver of California Statutes. 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 damage or destruction of the Premises,
including, but not limited to, the provisions of Sections 1932(2) and
1933(4) of the Civil Code or any successor statute or law. Tenant agrees
that the provisions of this Article shall govern the rights and obligations
of Landlord and Tenant in the event of any damage or destruction of the
Premises. Notwithstanding the foregoing, Basic Rent and Additional Rent
shall be abated proportionately during any period of repair under this
Article for a period not to exceed eighteen (18) months; provided that
Tenant has complied with the requirements of Section 10.5.
ARTICLE 13
CONDEMNATION
13.1 Condemnation of Entire Premises. If, during the Term of this
Lease, the entire Premises shall be taken as the result of the exercise of
the power of eminent domain (hereinafter referred to as the "Proceedings"),
this Lease shall terminate on the date of vesting of title pursuant to such
Proceedings. In any taking of the Premises, or any portion thereof,
whether or not this Lease is terminated as in this Article provided, Tenant
shall not be entitled to any portion of the award for the taking of the
Premises or damage to the Improvements, except as otherwise provided for in
Section 13.3 with respect to the restoration of the Improvements, or for
the estate or interest of Tenant therein, all such award, damages,
consequential damages and compensation being hereby assigned to Landlord,
and Tenant hereby waives any right it now has or may have under present or
future law to receive any separate award of damages for its interest in the
Premises, or any portion thereof, or its interest in this Lease, except
that Tenant shall have, nevertheless, the limited right to prove in the
Proceedings and to receive any award which may be made for damages to or
condemnation of Tenant's movable trade fixtures and equipment, and for
Tenant's relocation costs in connection therewith.
13.2 Partial Condemnation/Termination of Lease. If, during the Term
of this Lease, less than the entire Premises, but more than ten percent
(10%) of the floor area of the Building, or more than fifteen percent (15%)
of the land area of the Premises, shall be taken in any such Proceedings,
this Lease shall, upon vesting of title in the Proceedings, terminate as to
the portion of the Premises so taken, and Tenant shall have the right to
terminate this Lease if the business of Tenant conducted in the portion of
the Premises taken cannot reasonably be carried on with substantially the
same utility and efficiency in the remainder of the Premises and Tenant
cannot construct or secure substantially similar space to the space so
taken, on the Premises. Such termination as to the remainder of the
Premises shall be effected by notice in writing given not more than sixty
(60) days after the date of vesting of title in such Proceedings, and shall
specify a date not more than sixty (60) days after the giving of such
notice as the date for such termination.
13.3 Partial Condemnation/Continuation of Lease. If ten percent
(10%), or less, of the floor area of the Building, or fifteen percent
(15%), or less, of the Land, shall be taken in such Proceedings, or if more
than ten percent (10%) of the floor area of the Building or more than
fifteen percent (15%) of the Land is taken (but less than the entire
Premises), and this Lease is not terminated as in Section 13.2 hereof
provided, this Lease shall, upon vesting of title in the Proceedings,
terminate as to the parts so taken. The net amount of the award (after
deduction of all costs and expenses, including attorneys' fees), shall be
held by Landlord and Tenant as co-trustees and applied as hereinafter
provided. Tenant, in such case, covenants and agrees, at Tenant's sole
cost and expense (subject to reimbursement to the extent hereinafter
provided), promptly to restore that portion of the Improvements on the
Premises not so taken to a complete architectural and mechanical unit for
the use and occupancy of Tenant as in this Lease provided. In the event
that the net amount of the award (after deduction of all costs and
expenses, including attorney's fees) that may be received by Landlord and
held by Landlord and Tenant as co-trustees in any such Proceedings is
insufficient to pay all costs of such restoration work, Landlord may elect
to either (a) terminate the Lease in accordance with the provisions of
Section 13.1 or (b) continue the Lease and restore that portion of the
Improvements on the Premises not so taken to a complete architectural and
mechanical unit for the use and occupancy of Tenant as in this Lease
provided. If Landlord elects to terminate the Lease under this Section
13.3, Landlord shall deliver to Tenant written notice of Landlord's
election to terminate along with an estimate of the amount of the
deficiency between the costs of complete restoration and the award
("Deficiency Amount"), Tenant may continue the Lease in effect by delivery
written notice to Landlord, within fifteen (15) days of receipt of
Landlord's termination notice, of its election to continue the Lease and
pay the Deficiency Amount. If Tenant elects to continue the Lease, Tenant
shall deliver to Landlord and Tenant as co-trustees the Deficiency Amount
within fifteen (15) days of written request by Landlord. If the Premises
are restored, the award amounts shall be disbursed in accordance with the
same requirements set forth in Section 12.2 of this Lease. If the Lease is
terminated, the award amounts shall be disbursed in accordance with Section
13.1.
13.4 Continuance of Obligations. In the event this Lease is not
terminated, then from and after the date of vesting of title in such
Proceedings, Tenant shall continue to pay the Basic Rent and Additional
Rent and other charges payable hereunder, as in this Lease provided, to be
paid by Tenant, subject to an abatement of a just and proportionate part of
the Basic Rent according to the extent and nature of such taking as may be
mutually agreed upon by Tenant and Landlord.
13.5 Tenant's Waiver. Tenant waives the protection of any statute,
code or judicial decision which grants Tenant a right to any compensation
other than that set forth in this Article in the event of a taking,
including, but not limited to, California Code of Civil Procedure Section
1265.150 or any successor statute or law.
ARTICLE 14
DEFAULTS; REMEDIES
14.1 Events of Default. The occurrence of any of the following
shall constitute a default and breach of this Lease by Tenant:
14.1.1 Failure to Pay. If Tenant fails to pay such Rent or
such charge as and when due where such failure continues for ten (10) days
after written notice thereof by Landlord to Tenant.
14.1.2 Failure to Perform. If Tenant fails to perform any of
Tenant's nonmonetary obligations under this Lease for a period of thirty
(30) days after written notice from Landlord; provided that if more time is
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.
14.1.3 Other Defaults. (i) If Tenant makes a general
assignment or general arrangement for the benefit of creditors; (ii) a
petition for adjudication of bankruptcy or for reorganization or
rearrangement is filed by or against Tenant and is not dismissed within
sixty (60) days; (iii) if a trustee or receiver is appointed to take
possession of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in the Lease and possession is not restored to
Tenant within sixty (60) days; or (iv) if substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within sixty (60) days. If a court of competent jurisdiction
determines that any of the acts described in this Subsection 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 difference between the Rent (or any other
consideration) paid in connection with such assignment or sublease and the
Rent payable by Tenant hereunder.
The notices required by this Section are intended to satisfy any and all
notice requirements imposed by law on Landlord and are not in addition to
any such requirement.
14.2 Remedies. On the occurrence of any default by Tenant, Landlord
may, at any time thereafter, with or without any additional 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 at any time 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 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
Basic 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
Basic Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease Term after the time of award exceeds the
amount of such rental loss that Tenant proves Landlord could have
reasonable avoided; and (iv) any other amount, including court costs
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 Maximum Rate of Interest set forth in Item 10 of the Basic
Terms. 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 14.1.5(a), or (ii) proceeding
under Paragraph 14.1.5(b) or (c);
(b) Maintain Tenant's right to possession, in which
case this Lease shall continue in effect whether or not Tenant has
abandoned the Property. 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. This remedy is intended to and is
hereby declared to be that described in California Civil Code
Section 1951.4. During the period Tenant is in default, Landlord may enter
the Premises and relet them, or any part of them, to third parties for
Tenant's account. Tenant shall be liable immediately to Landlord for all
costs Landlord incurs in reletting the Premises, including brokers'
commissions, expenses of remodeling the Premises required by the reletting,
and like costs. Reletting can be for a period shorter or longer than the
remaining Term of this Lease. Tenant shall pay to Landlord the Rent due
under this Lease on the dates the Rent is due, less the Rent Landlord
receives from reletting. No act by Landlord allowed by this Section
14.2(b) will terminate this Lease unless Landlord notifies Tenant in
writing that Landlord elects to terminate this Lease. After Tenant's
default and for so long as Landlord does not terminate Tenant's right to
possession of the Premises, if Tenant obtains Landlord's consent, Tenant
will have the right to assign or sublet its interest in this Lease, but
Tenant will not be released from liability. If Landlord elects to relet
the Premises as provided in this Section 14.2(b), Rent that Landlord
receives from reletting will be applied to the payment of: (i) first, any
indebtedness from Tenant to Landlord other than Rent due from Tenant; (ii)
second, all costs, including for maintenance, incurred by Landlord in
reletting; and (iii) third, Rent due and unpaid under the Lease. After
deducting the payments referred to in this Section 14.2(b), any sum
remaining from the Rent Landlord receives from reletting will be held by
Landlord and applied in payment of future Rent as Rent becomes due under
this Lease. If, on the date Rent is due under this Lease, the Rent
received from the reletting is less than the Rent due on that date, Tenant
will pay to Landlord, in addition to the remaining Rent due, all costs,
including for maintenance, Landlord incurred in reletting which remain
after applying the Rent received from the reletting; and/or
(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.
14.3 Right of Landlord to Re-Enter. In the event of any termination
of this Lease, Landlord shall have the immediate right to enter upon and
repossess the Premises, and any personal property of Tenant may be removed
from the Premises and stored in any public warehouse at the risk and
expense of Tenant.
14.4 Cumulative Remedies. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
14.5 Mitigation. Landlord shall have the obligation to use all
reasonable efforts to mitigate any loss or damages suffered by Landlord on
account of any default by Tenant.
14.6 Limitation on Remedies. Notwithstanding anything to the
contrary in this Article 14, Landlord shall not be permitted to accelerate
the payment of Rent for the remainder of the Lease Term unless there has
been a monetary default by Tenant for over 60 days. Except as otherwise
specifically provided in this Lease, neither Landlord nor Tenant shall not
be entitled to recover consequential and/or punitive damages from the other
as a result of the breach of this Lease.
14.7 Legal Costs. Each party shall reimburse the other party, upon
demand, for any reasonable costs or expenses incurred by such other party
in connection with any actual breach or default of the non-performing party
under this Lease, whether or not suit is commenced or judgment entered.
Such costs shall include reasonable legal fees and costs incurred for the
negotiation of a settlement, enforcement of rights or otherwise. Tenant
shall also indemnify, protect, defend and hold Landlord harmless from all
costs, expenses, demands and liability (including, without limitation,
attorneys' fees and costs, including attorneys fees as a result of the
enforcement of this indemnity) incurred by Landlord if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant (other than
against Landlord), or by any third party against Tenant, or by or against
any person holding any interest under or using the Premises by license of
or agreement with Tenant; (b) for foreclosure of any lien for labor or
material furnished to or for Tenant or such other person; (c) otherwise
arising out of or resulting from any act or transaction of Tenant or such
other person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the
United States Code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable
to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for
any legal fees or costs incurred by Landlord in any such claim or action.
14.8 No Waiver. No failure by Landlord or by Tenant to insist upon
the performance of any of the terms of this Lease or to exercise any right
or remedy consequent upon a breach thereof, and no acceptance by Landlord
of full or partial rent from Tenant or any third party during the
continuance of any such breach, shall constitute a waiver of any such
breach or of any of the terms of this Lease. None of the terms of this
Lease to be kept, observed or performed by Landlord or by Tenant, and no
breach thereof, shall be waived, altered or modified except by a written
instrument executed by Landlord and/or by Tenant, as the case may be. No
waiver of any default of either party herein shall be implied from any
omission by the other party to take any action on account of such default.
One or more waivers by either party shall not be construed as a waiver of a
subsequent breach of the same covenant, term or condition. 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.
14.9 Waiver by Tenant. Tenant hereby waives all claims by
Landlord's re-entering and taking possession of the Premises and removing
and storing the property of Tenant as permitted under this Article 14 and
will save Landlord harmless from all losses, costs or damages occasioned
Landlord thereby. No such reentry shall be considered or construed to be a
forcible entry by Landlord. If Landlord fails to perform any of Landlord's
obligations under this Lease, which failure continues for more than fifteen
(15) days after Tenant's delivery of written notice to Landlord specifying
such failure, or if such failure is of a nature that it requires more than
fifteen (15) days to remedy and continues beyond the time reasonably
necessary to cure (and Landlord has not undertaken procedures to cure the
failure withing such fifteen (15) day period and diligently pursued such
efforts to complete such cure), Tenant may deliver a reminder notice
("Reminder Notice"). If Landlord fails to commence to cure such failure
within fifteen (15) days of receipt of Tenant's Reminder Notice and
diligently pursue the same to completion, then Tenant may incur reasonable
expenses necessary to perform the obligation of Landlord specified in such
notice and invoice Landlord therefor. If Landlord fails to reimburse
Tenant within fifteen (15) days following receipt of such invoice, then
Tenant may deliver a reminder notice ("First Reminder Notice"). If
Landlord fails to reimburse Tenant within fifteen (15) days of receipt of
Tenant's First Reminder Notice, Tenant may deliver a second reminder notice
("Second Reminder Notice"). If Landlord fails to reimburse Tenant within
fifteen (15) days of receipt of Tenant's Second Reminder Notice, then
Tenant may apply the cost of such repairs against the next Basic Rent
obligations due hereunder, and invoice Landlord therefor.
Notwithstanding anything contained herein to the contrary, Tenant's
rights to deduct from Basic Rent shall be restricted to any amount per
month not in excess of the sum of twenty-five percent (25%) of the Basic
Rent; provided, however, that the sum which was not capable of offset as a
result of such cap shall bear interest at the Maximum Rate of Interest from
thirty (30) days after the date Tenant first invoiced Landlord for such
expenses to be offset until the date Tenant actually recovers such costs
through offset. It is further agreed that, if any default by Landlord
cannot be cured by Tenant by the expenditure of a sum that is recoverable
from future offsets as authorized in this Lease by the end of the then
applicable Term, the aforesaid twenty-five percent (25%) figure shall be
increased to such percentage of the Basic Rent as is necessary in order to
assure that such sum is recoverable from future offsets.
14.9.1 Delinquent Rental Payments. Any installment of Basic
Rent or Additional Rent or any other charges payable by Tenant under the
provisions hereof which shall not be paid when due or within ten (10) days
thereafter shall be subject to a late payment fee of two percent (2%) of
the unpaid amount per month commencing on the date said payment is due
("Late Payment Fee"). Tenant acknowledges that Tenant's failure to pay
Basic Rent or Additional Rent when due may cause Landlord to incur
unanticipated costs. The exact amount of such costs are impractical or
extremely difficult to ascertain. The parties agree that such charge
specified above represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment and acceptance of such
late charge does not constitute a waiver of Tenant's default or limit any
other remedy of Landlord. The late charge shall be deemed Rent and the
rights to require it shall be in addition to all of Landlord's rights and
remedies hereunder or at law. Notwithstanding the foregoing, Tenant shall
not be subject to the late payment fee specified herein unless Landlord has
given Tenant ten (10) days written notice of any payment of Additional Rent
or Basic Rent that is past due ("Late Payment Notice"); provided that after
Tenant's receipt of two (2) such Late Payment Notices in any Lease Year,
Landlord shall no longer be required to deliver a Late Payment Notice in
order to collect the late payment fee during said Lease Year.
Notwithstanding the foregoing, Landlord waives its right to collect the
Late Payment Fee the first time Landlord would otherwise be entitled to
such a Late Payment Fee in any Lease Year.
ARTICLE 15
PROTECTION OF CREDITORS
15.1 Subordination. This Lease and all rights of Tenant therein,
and all interest or estate of Tenant in the Premises, or any portion
thereof, shall be subject and subordinate to the lien of any mortgage, deed
of trust, or other document of like nature ("Mortgage"), which at any time
may be placed upon the Premises, or any portion thereof, by Landlord, and
to any replacements, renewals, amendments, modifications, extensions or
refinancing thereof, and to each and every advance made under any Mortgage.
Tenant agrees at any time hereafter, and from time to time on demand of
Landlord, to execute and deliver to Landlord a Subordination, Non-
Disturbance and Attornment Agreement in the form of Exhibit "F" attached
hereto and incorporated herein ("SNDA") and any other instruments, releases
or other documents that may be reasonably required for the purpose of
subjecting and subordinating this Lease to the lien of any such Mortgage
and which are reasonably acceptable to Tenant. It is agreed, nevertheless,
that so long as Tenant is not in default in the payment of Basic Rent and
Additional Rent and the performance and observance of all covenants,
conditions, provisions, terms and agreements to be performed and observed
by Tenant under this Lease, that such SNDA or other instrument, release or
document shall not interfere with, hinder or molest Tenant's right to quiet
enjoyment under this Lease, nor the right of Tenant to continue to occupy
the Premises, and all portions thereof, and to conduct its business thereon
in accordance with the covenants, conditions, provisions, terms and
agreements of this Lease. The lien of any such Mortgage shall not cover
Tenant's trade fixtures or other personal property located in or on the
Premises.
15.2 Attornment. If Landlord's interest in the Premises is acquired
by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale or by any new person or entity as a result
of any transfer by Landlord, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Premises and recognize such
transferee or successor as Landlord under this Lease if all obligations and
liabilities accruing under this Lease after such acquisition are assumed in
writing by such transferee or successor. Tenant waives the protection of
any statute or rule of law which gives or purports to give Tenant any right
to terminate this Lease or surrender possession of the Premises upon the
transfer of Landlord's interest.
15.3 Estoppel Certificates.
15.3.1 Within fifteen (15) business days after Landlord's or
Tenant's written request (the "Requesting Party"), the non-requesting party
(the "Responding Party") shall execute, acknowledge and deliver to the
Requesting Party a written statement certifying: (i) that this Lease (and
all guaranties, if any) is unmodified and in full force and effect (or, if
there have been any modifications, that the same is in full force and
effect, as modified, and stating the modifications); (ii) that this Lease
has not been canceled or terminated; (iii) the last date of payment of the
Basic Rent and other charges and the time period covered by such payment;
(iv) whether or not there are then existing any breaches or defaults by
such party or the other party known by such party under this Lease, and
specifying such breach or default, if any, or any setoffs or defenses
against the enforcement of any such breach of this Lease (or of any
guaranties) upon the part of Landlord or Tenant (or any guarantor), as the
case may be, to be performed or complied with (and, if so, specifying the
same and the steps being taken to remedy the same) and (v) such other
statements as reasonably required by The Requesting Party, or any lender or
prospective lender, investor or purchaser. the Responding Party shall
deliver such statement to the Requesting Party within fifteen (15) business
days after the Requesting Party's request. Any such statement by Tenant
may be given by Landlord to any prospective purchaser or encumbrancer of
the Premises. Such purchaser or encumbrancer may rely conclusively upon
such statement as true and correct.
15.3.2 If the Responding Party, does not deliver such statement
to the Requesting Party within such fifteen (15) business day period, then
the Requesting Party may deliver a second request and if the Responding
Party does not deliver such statement to Landlord within five (5) business
days after receipt of such second request, then the Requesting Party, 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 the
Requesting Party; (ii) that this Lease has not been canceled or terminated
except as otherwise represented by the Requesting Party; (iii) that not
more than one month's Base Monthly Rent or other charges have been paid in
advance; and (iv) that the Requesting Party is not in default under this
Lease. In such event, the Responding Party shall be estopped from denying
the truth of such facts.
15.4 Mortgagee Protection Clause. Tenant agrees to give any
mortgagees and/or trust deed holders, by registered mail, a copy of any
notice of default, served upon the Landlord, provided that prior to
delivery of such notice Tenant has been notified in writing (by way of
Notice of Assignment of Rents and Leases, or otherwise) of the addresses of
such mortgagees and/or trust deed holders and the same have executed a Non-
Disturbance Agreement as provided and defined below. Tenant further agrees
that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the mortgagees and/or trust deed holders
shall have an additional fifteen days (15) within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such fifteen days (15) any
mortgagee and/or trust deed holder has commenced and is diligently pursuing
the remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings if necessary to effect such cure),
in which event this Lease shall not be terminated while such remedies are
being so diligently pursued.
15.5 Non-Disturbance. Landlord represents that as of the Effective
Date of this Lease, there is no mortgage encumbering the Land. With
respect to any future Mortgages, Tenant's subordination is expressly
conditioned upon Landlord's delivery to Tenant of a fully executed
Recognition and Non-Disturbance Agreement substantially in the form of the
SNDA or in such other form and substance as may be reasonably acceptable to
Tenant with respect to such Mortgage ("Non-Disturbance Agreement").
ARTICLE 16
TERMINATION OF LEASE
16.1 Surrender of Premises. At the expiration of the Term of this
Lease or earlier termination of this Lease, Tenant shall surrender the
Premises together with all alterations placed thereon by Tenant (except
Alterations Tenant elects to remove or Alterations Landlord, in the
exercise of reasonable discretion, informed Tenant, in connection with
Landlord=s approval of the installation thereof, that Landlord would
require Tenant to remove upon the expiration of the Lease) in the same
condition as the same were in upon delivery of possession thereto at the
Commencement Date of the term of this Lease, reasonable wear and tear
excepted, and shall surrender all keys to the Premises to Landlord at the
place then fixed for the payment of Basic Rent and shall inform Landlord of
all combinations on locks, safes and vaults, if any. Tenant shall at such
time remove all of its property therefrom and all alterations and
improvements placed thereon by Tenant unless Landlord requires Tenant to
leave the same. Tenant shall repair any damage to the Premises caused by
such removal, and any and all such property not so removed shall, at
Landlord's option, after five (5) business days notice to Tenant, become
the exclusive property of Landlord or be disposed of by Landlord, at
Tenant's cost and expense, without further notice to or demand upon Tenant.
If the Premises be not surrendered as above set forth, Tenant shall
indemnify, protect, defend and hold Landlord harmless against loss or
liability resulting from the delay by Tenant in so surrendering the
Premises, including, without limitation, any claim made by any succeeding
occupant founded on such delay. All property of Tenant not removed within
thirty (30) days after the last day of the Term of this Lease shall be
deemed abandoned. Tenant hereby appoints Landlord its agent to remove, at
Tenant's cost, all property of Tenant from the Premises left thirty (30)
days or longer after termination of this Lease and to cause its
transportation and storage for Tenant's benefit, all at the sole cost and
risk of Tenant and Landlord shall not be liable for damage, theft,
misappropriation or loss thereof and Landlord shall not be liable in any
manner in respect thereto.
16.2 Holding Over. In the event Tenant remains in possession of the
Premises after expiration of this Lease, and without the execution of a new
lease, it shall be deemed to be occupying the Premises as a tenant from
month to month, subject to all the provisions, conditions and obligations
of this Lease insofar as the same can be applicable to a month-to-month
tenancy, except that the Basic Rent shall be escalated to one hundred
twenty-five percent (125%) of the then current Basic Rent for the Premises.
ARTICLE 17
RENEWAL OPTIONS
17.1 Options to Renew. Tenant shall have the right, to be exercised
as hereinafter provided, to extend the term of this Lease ("Renewal
Option") for up to two (2) periods of five (5) years each (each such five
(5) year period is sometimes hereinafter referred to as a "Renewal Term")
upon the following terms and conditions and subject to the limitations set
forth below.
17.1.1 No Event of Default. At the respective times
hereinafter set forth for the exercise of each Renewal Option and at the
time of the commencement of each Renewal Term, this Lease shall be in full
force and effect and there shall be no uncured Event of Default under this
Lease, but Landlord shall have the right, at its sole discretion, to waive
any such condition regarding an Event of Default.
17.1.2 Fair Market Rent. The Premises shall be leased to
Tenant on an "as is" basis on the same terms, covenants and conditions
contained in this Lease, except that the annual Basic Rent for the
Premises, including all buildings, structures and fixtures erected thereon,
together with all additions, alterations and replacements thereof (except
Tenant's moveable trade fixtures, machinery and equipment) shall be
adjusted to reflect ninety-five percent (95%) of the Fair Market Rent (as
hereinafter defined) for the Premises, as of the date of commencement of
such Renewal Term ("Adjusted Basic Rent"); provided that in no event shall
such Adjusted Basic Rent be less than the Basic Rent for the Lease Year
immediately prior to the Renewal Term.
17.1.3 Exercise of Renewal Term(s). Tenant shall exercise its
right to extend the Term of this Lease for any Renewal Term set forth in
this Article 17, if at all, by notifying Landlord, in writing, of its
election to exercise the right to renew and extend the term of this Lease
at least nine (9) months prior to the expiration of the Initial Term or the
applicable Renewal Term, as the case may be.
17.1.4 Determination of Fair Market Rent. In calculating the
Fair Market Rent, the Premises shall be deemed to include all buildings,
structures and fixtures erected thereon, together with all additions and
replacements thereof (except Tenant's moveable trade fixtures, machinery
and equipment). Not earlier than eighteen (18) months prior to the
expiration of the Initial Term and each Renewal Term, Tenant may notify
Landlord of its desire to consider renewal of this Lease. Thereafter,
Landlord and Tenant shall make a good faith effort to agree upon the "Fair
Market Rent" of the Premises for the ensuing Renewal Term. In the event
Landlord and Tenant fail to agree within sixty (60) days after delivery of
Tenant's notice ("Initial Rent Determination Period"), the "Fair Market
Rent" shall be determined by arbitration in accordance with the process
described below. Without limiting the foregoing, in determining the Fair
Market Rent, the following factors shall be considered: the amount per
rentable square foot that a willing, comparable, non-equity tenant would
pay, and a willing landlord of a comparable property in the marketplace (as
set forth above) would accept in an arm's-length transaction giving
appropriate consideration to rental rates per rentable square foot,
escalation clauses (including, but not limited to, operating expenses and
real estate taxes), abatement provisions reflecting free rent, if any,
length of lease term, size and location of premises being leased, tenant
improvement allowances, if any, and any other generally applicable terms
and conditions of tenancy for the subject space.
17.1.5 Arbitration. All arbitrators appointed by or on behalf
of either party or appointed pursuant to the provisions hereof shall be MAI
members of the American Institute of Real Estate Appraisers with not less
than ten (10) years of experience in the appraisal of improved commercial
and industrial real estate in the Riverside, California area and be
devoting a substantial amount of time to professional appraisal work at the
time of appointment and be in all respects impartial and disinterested. If
the parties are unable to agree upon the Fair Market Base Rent during the
Initial Rent Determination Period, then within fifteen (15) days after
termination of the Initial Rent Determination Period, each party shall
deliver to the other party a notice specifying the name, address and
professional qualifications of the person designated to act as arbitrator
on its behalf. The two (2) arbitrators so selected shall select a third
arbitrator no later than thirty (30) days after the Initial Rent
Determination Period. If the party receiving a request for arbitration
fails to appoint its arbitrator within the time above specified, or if the
two (2) arbitrators so selected cannot agree on the selection of the third
arbitrator within the time above specified, then either party, on behalf of
both parties, may request such appointment of such second or third
arbitrator, as the case may be, by application to any Judge of the District
Court of the County of Riverside, State of California, upon ten (10) days
prior written notice to the other party of such intent. The decision of
the arbitrators so chosen shall be given within a period of thirty (30)
days after the appointment of such third arbitrator. The arbitrators so
selected shall have all rights and power conferred on him or her by the
California Code of Civil Procedure Sections 1280 et seq. or any successor
statute or law, and except as otherwise provided for herein, the
arbitration proceedings shall be carried on and governed by such statute.
No discovery shall be permitted by the Landlord and Tenant in the
arbitration except that all parties shall make available to the arbitrators
such information as may be requested by such arbitrators. Acting
independently of each other and without consultation with each other, each
of said three arbitrators, within sixty (60) days after appointment of the
third appraiser, and his or her acceptance of such appointment, shall make
their appraisal and submit to Landlord and Tenant a written report and
appraisal setting forth the appraiser's opinion as to the fair market value
of the Premises. The two appraisals of all of the appraisals reported by
the three appraisers that are closest in amount shall be averaged (or if
the appraisal is less than one of the other appraisals and more than the
other appraisal by the same amount, all three appraisals shall be
averaged). Such averaged amount shall be the Fair Market Rent of the
Premises. All arbitrators appointed by or on behalf of either party or
appointed by the Presiding Judge of the Superior Court of Riverside County,
California as hereinafter provided, shall be in all respects impartial and
disinterested. Each party shall pay the fees and expenses of the
arbitrator appointed by or on behalf of such party and the fees and
expenses of the third arbitrator shall be borne equally by both parties.
Landlord and Tenant shall then execute an amendment recognizing the Fair
Market Rent for the Renewal Term and the fact Tenant shall pay ninety-five
percent (95%) of such Fair Market Rent or the Basic Rent for the Previous
Lease Year, whichever is greater.
ARTICLE 18
EXPANSION OPTION
18.1 Option to Expand. Tenant shall have the right, to be exercised
as hereinafter provided, to expand the Premises ("Expansion Option") into
space to be constructed on the Land adjacent to the Premises, which land is
more particularly described on Exhibit "A-1" attached hereto and
incorporated herein ("Expansion Land") together with certain improvements
to be constructed thereon, including an approximately ninety-five thousand
(95,000) square foot addition to the Building, depicted as the Expansion
Space on Exhibit "A-2" ("Expansion Space"), upon the following terms and
conditions and subject to the limitations set forth below.
18.2 No Event of Default. At the respective times hereinafter set
forth for the exercise of the Expansion Option and the delivery of the
Expansion Space, this Lease shall be in full force and effect and there
shall be no uncured Event of Default (as defined below) under this Lease.
18.3 Exercise of Expansion Option. Tenant may exercise its right to
expand by notifying Landlord, in writing, of its election to exercise the
Expansion Option ("Notice of Exercise") at least nine (9) months prior to
the desired occupancy date for the Premises, which Notice of Exercise shall
specify the exact desired occupancy date ("Desired Occupancy Date");
provided that, subject to the provisions below, there will still be at
least five (5) years remaining in the Initial Term after the Desired
Occupancy Date. In the event that there will not be at least five (5)
years remaining in the Initial Term at the time Tenant desires to exercise
its Expansion Option, Tenant may still exercise its Expansion Option up
until nine (9) months prior to the end of the Initial Term ("Expansion
Option Termination Date") if, in Tenant's Notice of Exercise, Tenant
indicates that it is also electing to extend the Initial Term by the number
of days necessary to cause there to be exactly five (5) years between the
Desired Occupancy Date and the expiration of the Initial Term ("Extension
Election"). In the event, Tenant exercises the Extension Election, the
commencement date for the Expansion Space shall occur upon Substantial
Completion of the Expansion Space Landlord's Improvements (as described in
the Work Letter) ("Expansion Space Commencement Date"). The term of the
Lease for the Expansion Space shall terminate concurrently with the Term of
the Lease for the balance of the Premises.
18.4 Expansion Terms. The Expansion Space shall be leased to Tenant
on the same terms, covenants and conditions contained in this Lease, except
as provided in this Article and except that the Basic Rent for the
Expansion Space due and payable each month shall be computed in accordance
with Section 18.5 below and paid along with the Basic Rent provided in Item
10 of the Basic Terms. The Basic Rent per rentable square foot for the
Expansion Space shall be increased from time to time in accordance with any
proportionate increases to the Basic Rent provided under Item 10 of the
Basic Terms and under Section 18.3 above (provided that increases in the
Expansion Space Rent shall not occur until the sixty-third (63rd) month
after the Expansion Space Commencement Date). If Tenant exercises any
Expansion Option, Landlord and Tenant shall enter into an amendment of this
Lease setting forth the adjusted Basic Rent and other relevant provisions
based on the increase in the area of the Premises effective on the
Expansion Space Commencement Date. If Tenant exercises its Expansion
Option, then (a) all references to the Premises shall include the Expansion
Space and Expansion Land, and all references to the Land shall include the
Expansion Land, effective as of the Expansion Space Commencement Date; (b)
Landlord shall be subject to the same monetary penalties for failure to
deliver the Expansion Space by the Desired Occupancy Date as are (provided
in Section 1.3 for failure to deliver the Premises by August 1, 1998
provided that Tenant shall not have the termination rights set forth in
Section 1.3); and (c) Tenant shall be entitled to the same early occupancy
rights for the Expansion Space as those set forth in Section 1.2.2 and in
the Work Letter for the Premises.
18.5 Expansion Space Basic Rent. Commencing on the Expansion Space
Commencement Date, Tenant shall pay Basic Rent for the Expansion Space in
the amount provided in this Section 18.5 at which time Tenant shall no
longer be required to pay the portion of the Basic Rent described as
"Monthly Rent for Expansion Land" in Item 10 of the Basic Terms. The Basic
Rent, paid monthly, for the Expansion Space shall be the product of ten and
one half percent (102%), multiplied by the following costs ("Expansion
Space Basic Rent"):
(1) The Expansion Land valued at $525,000;
(2) The cost of building the Expansion Space (inclusive of a
tenant improvement allowance not to exceed Five Dollars
($5.00) per square foot) as determined by (a) the lowest
competitive bid by general contractors acceptable to
both parties or (b) Landlord's in-house general
contractor at a fee of five percent (5%) of Hard Costs
(defined below);
(3) Commercially reasonable and standard Architectural and
engineering fees, permit fees, governmental charges,
soil testing costs and surveying costs incurred by
Landlord in connection with the Expansion Space
building;
(4) A three percent (3%) development fee on all Hard Costs.
As used herein, the term "Hard Costs" shall mean the
actual costs paid by Landlord to construct the
Improvements, including without limitation, all amounts
paid to the contractors, suppliers, and all general
contractors, all architectural, engineering and other
design consultants and on-site overhead costs directly
attributable to the Expansion Space, all standard fees
paid to the governmental agencies for the construction
of the Improvements, and other costs commonly included
in what is customarily known as "Hard Costs";
(5) The best available interim financing costs, not to
exceed the Maximum Rate of Interest specified in Item 10
of the Basic Terms; and
(6) Any standard real estate commission paid or due and
payable by Landlord in connection with the Expansion
Space or Expansion Land.
18.6 Free Rent Period. The first two (2) calendar months of the
Expansion Space Basic Rent shall be abated.
18.7 Failure to Exercise Expansion Option. In the event Tenant
fails to exercise the Expansion Option during the Initial Term only, for so
long as there has been no Expansion Space Commencement Date, Tenant shall
continue to pay the portion of the Basic Rent described as "Monthly Rent
for Expansion Land." In the event that Tenant has not exercised the
Expansion Option as of the Expansion Option Termination Date, then
notwithstanding anything to the contrary contained herein, commencing on
the first day following the Expansion Option Termination Date, Tenant shall
no longer be required to pay the Monthly Rent for Expansion Land or any
Taxes or other Additional Rent attributable to the Expansion Land.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Notices. All notices, demands and requests which may be or are
required to be given, demanded or requested by either party to the other
shall be in writing. All notices, demands and requests shall be sent by
United States registered or certified mail, postage prepaid or by Federal
Express or other reputable independent overnight courier service, addressed
at the addresses specified in the Basic Terms or at such other place as
either party may designate to the other party by written notice, and shall
be deemed to have been delivered on the date the same is (i) postmarked, if
sent by certified mail, or (ii) deposited, if sent by Federal Express or
such other reputable overnight courier service, but shall not be deemed
received until (a) one (1) business day following deposit with Federal
Express or other reputable overnight courier service, or (b) three (3) days
following deposit in the United States Mail if sent by certified mail.
19.2 Landlord's Continuing Obligations. The term "Landlord," as
used in this Lease so far as covenants or obligations on the part of
Landlord are concerned, shall be limited to mean and include only the owner
or owners at the time in question of the fee of the Premises, and in the
event of any transfer or transfers or conveyance the then grantor shall be
automatically freed and relieved from and after the date of such transfer
or conveyance of all liability as respects the performance of any covenants
or obligations on the part of Landlord contained in this Lease thereafter
to be performed, provided (a) that such liability is assumed in writing by
the transferee and (b) that any funds in the hands of such landlord or the
then grantor at the time of such transfer, in which Tenant has an interest,
shall be turned over to the grantee, and any amount then due and payable to
Tenant by Landlord or the then grantor under any provision of this Lease
shall be paid to Tenant.
19.3 Net Lease. Landlord and Tenant do each state and represent
that it is the intention of each of them that, except as otherwise
provided herein, this Lease be interpreted and construed as a net lease
and, except as otherwise provided in this Lease, all Basic Rent and
Additional Rent shall be paid by Tenant to Landlord without abatement,
deduction, diminution, deferment, suspension, reduction or setoff.
19.4 Successors. The covenants and agreements herein contained
shall bind and inure to the benefit of Landlord, its successors and
assigns, and Tenant and its permitted successors and assigns.
19.5 Memorandum of Lease. Upon not less than fifteen (15) business
days prior written request by Landlord or Tenant, the other party agrees to
execute and deliver to the requesting party a Memorandum of Lease, in
recordable form, setting forth the following: (a) the date of this Lease;
(b) the parties to this Lease; (c) the term of this Lease; and (d) the
legal description of the Premises.
19.6 Captions and Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and
are not a part of the terms or provisions of this Lease. Whenever required
by the context of this Lease, the singular shall include the plural and the
plural shall include the singular. The masculine, feminine and neuter
genders shall each include the other. In any provision relating to the
conduct, acts or omissions of Tenant, the term "Tenant" shall include
Tenant's agents, employees, contractors, invitees, successors or others
using the Premises with Tenant's expressed or implied permission.
19.7 Relationship of Parties. This Lease does not create the
relationship of principal and agent, or of partnership, joint venture, or
of any association or relationship between Landlord and Tenant, the sole
relationship between Landlord and Tenant being that of landlord and tenant.
19.8 Entire Agreement. Any exhibits, addenda and schedules attached
hereto shall be incorporated herein as though fully set forth herein. All
preliminary and contemporaneous negotiations are merged into and
incorporated in this Lease. This Lease Agreement together with the
Exhibits contains the entire agreement between the parties. No subsequent
alteration, amendment, change or addition to this Lease shall be binding
upon Landlord or Tenant unless reduced to writing and signed by the party
to be charged with their performance.
19.9 Severability. If any covenant, condition, provision, term or
agreement of this Lease shall, to any extent, be held invalid or
unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Lease shall not be affected thereby, but each covenant,
condition, provision, term or agreement of this Lease shall be valid and in
force to the fullest extent permitted by law.
19.10 Landlord's Limited Liability. Tenant agrees to look solely to
Landlord's interest in the Premises and any income derived directly
therefrom for recovery of any judgment from Landlord, it being agreed that
Landlord (and if Landlord is a partnership, its partners, whether general
or limited, and if Landlord is a corporation, its directors, officers or
shareholders) shall never be personally liable for any personal judgment or
deficiency decree or judgment against it.
19.11 Survival. All obligations of Landlord and Tenant (together
with interest or money obligations at the Maximum Rate of Interest)
accruing prior to expiration of the Term of this Lease shall survive the
expiration or other termination of this Lease.
19.12 Attorneys' Fees. In the event of any litigation or judicial
action in connection with this Lease or the enforcement thereof or the
enforcement of any indemnity obligation hereunder, the prevailing party in
any such litigation or judicial action shall be entitled to recover all
costs and expenses of any such judicial action or litigation (including,
but not limited to, reasonable attorneys' fees, costs and expenditures
fees) from the other party.
19.13 Broker. Each party represents and warrants that it has not had
any dealings with any realtors, brokers or agents in connection with the
negotiation of this Lease except for Lee & Associates, whose commission
shall be payable by Landlord, and each party agrees to hold the other party
harmless from and against the failure to pay any realtors, brokers or
agents and from any cost, expense or liability for any compensation,
commission or changes claimed by any other realtors, brokers or agents
claiming by, through or on behalf of such party with respect to this Lease
and/or the negotiation hereof.
19.14 Governing Law. This Lease shall be governed by the laws of the
State of California. All covenants, conditions and agreements of Tenant
arising hereunder shall be performable in the county wherein the Premises
are located. Any suit arising from or relating to this Lease shall be
brought in the county wherein the Premises are located, and the parties
hereto waive the right to be sued elsewhere.
19.15 Time is of the Essence. Time is of the essence with respect to
the performance of every provision of this Lease in which time of
performance is a factor.
19.16 Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
19.17 Delivery of Corporate Documents. In the event that Tenant is a
corporation, Tenant shall, without charge to Landlord, at any time and from
time to time within fifteen (15) days after written request by Landlord, if
required by a prospective lender or purchaser, deliver to Landlord, in
connection with any proposed sale or mortgage of the Premises, the
following instruments and documents:
(a) Certificate of Good Standing in the state of
incorporation of Tenant and in the state in which the
Premises are located issued by the appropriate state
authority and bearing a current date;
(b) A copy of Tenant's articles of incorporation and bylaws,
and any amendments or modifications thereof certified by
the secretary or assistant secretary of Tenant.
19.18 Tenant's Financial Condition. Prior to the Effective Date, and
within fifteen (15) business days after written request from Landlord (so
long as Landlord has a reasonable basis for requesting such information
based upon Tenant's financial condition) and not more than one (1) time per
twelve month period, Tenant shall deliver to Landlord financial statements
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP") as are reasonably required by Landlord to
verify the net worth of Tenant, or any assignee, subtenant or guarantor of
Tenant provided that Tenant shall not be required to provide any
information that would constitute a violation of the rules and regulations
of the Securities Exchange Commission. In addition, Tenant shall deliver
to any lender or proposed purchaser of the Premises, Project, Land and/or
Expansion Land or any portion thereof designated by Landlord any financial
statements prepared in accordance with GAAP required by any lender or
purchaser to facilitate the sale, financing or refinancing of the Premises
or Project or any portion thereof. Tenant represents and warrants to
Landlord that (a) each such financial statement is a true and accurate
statement as of the date of such statement; and (b) at all times after the
date of any such statement during the Lease Term or any extension thereof,
Tenant's net worth, as stated therein, shall not be reduced. All financial
statements shall be confidential and shall be used only for the purposes
set forth herein. Each such financial statement shall be executed by
Tenant and shall, if requested by Landlord, be certified by Tenant to be
true and correct. Notwithstanding the foregoing, if Tenant is a publicly
traded company. Tenant may provide Landlord with copies of Tenant's latest
10-Q and 10-K filings with the Securities Exchange Commission in lieu of
the above referenced financial statements.
19.19 Provisions are Covenants and Conditions. All provisions,
whether covenants or conditions, on the part of the Landlord, or on the
part of Tenant, shall be deemed to be both covenants and conditions.
19.20 Business Days. As used herein, the term "business days" shall
mean any day which is not a Saturday, Sunday or a legal holiday in the
State of California.
19.21 Force Majeure. If either party shall be delayed or prevented
from the performance of any act required hereunder, other than the payment
of Rent, Additional Rent or any other sums required to be paid hereunder,
by reason of acts of God, strikes, lockouts, labor troubles, inability to
procure materials, respect of governmental laws or regulations, or by
reason of any order or direct of any legislative, administrative or
judicial body, or any government department, or by reason of not being able
to obtain any licenses, permissions or authorities required therefor, or
other causes without fault or beyond the reasonable control of such party,
then notwithstanding anything to the contrary contained herein, performance
of such acts by such party shall be excused for the period of the delay and
the period of the performance of any such acts shall be extended for a
period equivalent to the period of such delay; (herein such delays are
sometimes referred to as AForce Majeure@.)
19.22 No Continuous Operation. Notwithstanding anything in this
Lease to the contrary, nothing herein shall be construed as an obligation
for Tenant to open or operate its business in the Premises. Tenant shall
have the right to remove Tenant's personal property and cease operations in
the Premises at any time and at Tenant's sole discretion. However, the
right to cease to operate its business shall not affect Tenant's obligation
to pay all amounts due hereunder and to perform all covenants and
obligations hereunder. Tenant agrees, at such time it is operating its
business in the Premises, to conduct its business in a first-class manner,
consistent with reputable business standards and practices.
19.23 Waiver of Landlord's Lien. Landlord hereby waives any
contractual, statutory or other Landlord's lien on Tenant's furniture,
moveable trade fixtures, supplies, equipment and inventory. Tenant shall
have the absolute right from time to time during the Term hereof and
without Landlord's further approval, written or otherwise, to grant and
assign a mortgage or other security interest Tenant's furniture, fixtures,
supplies, equipment and inventory to Tenant's lenders in connection with
Tenant's financing arrangement. Landlord agrees to execute such
confirmation certificates and other documents (except amendments to this
Lease unless Landlord hereafter consents in its sole and absolute
discretion) as Tenant's lenders may reasonably request in connection with
any such financing.
19.24 Submission of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
an option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all
Exhibits and Addenda which are attached to or incorporated by reference in
this Lease.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a
Minnesota corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
EXHIBITS
Page First
Appearing
Exhibit "A" - Legal Description of Land 1
Exhibit "A-1" - Legal Description of Expansion Land 18
Exhibit "A-2" - Expansion Space 18
Exhibit "B" - Work Letter 1
Schedule 1 to Work Letter - Final Plans and Specification N/A
Exhibit "C" - Preliminary Report 1
Exhibit "D" - Commencement Date Acknowledgment 1
Exhibit "E" - Delivery Date Acknowledgment 1
Exhibit "F" - Subordination, Non-Disturbance and Attornment Agreement 15
EXHIBIT "A"
Legal Description of Land
[To Be Attached]
EXHIBIT "A-1"
Legal Description of Expansion Land
[To Be Attached]
EXHIBIT "A-2"
Depiction of Expansion Space
[To Be Attached]
EXHIBIT "B"
WORK LETTER
OPUS WEST CORPORATION, a Minnesota corporation, ("Landlord") and
PETCO ANIMAL SUPPLIES, INC., a Delaware corporation ("Tenant") as of this
___ day of November, 1997, are executing simultaneously with this Work
Letter Agreement ("Work Letter"), a written lease (the "Lease") covering
the Premises described in the Lease.
This Work Letter defines the scope of Landlord's Improvements (as
defined below) which Landlord shall be obligated to construct or install on
the Premises. It there is a conflict between the terms and provisions of
this Work Letter and the Lease, this Work Letter shall control. Terms
which have initial capital letters and are not otherwise defined in this
Letter shall have the meaning set forth in the Lease.
This Work Letter is a part of the Lease and shall be subject to all
of its terms and condition, including all definitions contained therein.
Unless the context otherwise requires, any references to the Lease shall
include the Work Letter and the obligations contained herein shall, to the
extent applicable, continue during the Lease Term.
In consideration of the mutual covenants hereinafter contained,
Landlord and Tenant mutually agree as set forth below.
CONSTRUCTION OF IMPROVEMENTS
1. Improvements. Landlord agrees to furnish, at Landlord's sole
cost and expense, all of the material, labor, and equipment for the
construction on the Land of the improvements ("Landlord's Improvements")
designated on the Final Plans and Specifications attached hereto and as
Schedule 1 and incorporated herein ("Final Plans and Specifications" or
"Construction Documents"). When Landlord requests Tenant to specify
details or layouts, Tenant shall specify same, subject to the provisions of
the Final Plans and Specifications, so as not to delay completion of the
Landlord's Improvements. Except as specifically set forth in this Lease
and delineated on the Final Plans and Specifications, Landlord shall not
provide or pay for any other improvements related to the Premises.
Landlord's Improvements shall be constructed in a good and workmanlike
manner in accordance with the Final Plans and Specifications and Landlord
agrees to complete the construction thereof in accordance with the
applicable building code as it is presently interpreted and enforced by the
governmental bodies having jurisdiction thereof. By execution of the
Lease, Tenant hereby approves of the attached Final Plans and
Specifications. Tenant shall pay to Landlord all increased costs or
damages incurred by Landlord attributable to delays caused by Tenant.
1.1 Premises Furnishings. Tenant shall be solely responsible
for the performance and expense of the design, layout, provision, delivery
and installation of any furniture, furnishings, telephone systems, computer
systems, office equipment, and any other personal property Tenant will use
at the Premises. In arranging for the performance of any of the work
referred to in the preceding sentence, Tenant shall adopt a schedule in
conformance with the schedule(s) of Landlord's Contractor(s) (defined
below) and conduct its work in such a manner as to maintain harmonious
labor relations and so as not to interfere unreasonably with or delay the
work of Landlord's Contractor(s) in substantially completing the Landlord's
Improvements.
2. Construction of Landlord's Improvements. A contractor
selected by Landlord in Landlord's sole discretion ("Landlord's
Contractor") shall use its commercially reasonable efforts (a) to
Substantially Complete (as defined below) the Landlord's Improvements on or
before August 1, 1998 and (b) to ensure that the structural and exterior
portions of the Premises, including without limitation the roof
(hereinafter, the "Structural Portions of the Demised Premises"), the
plumbing, electrical, gas, and other utilities, including without
limitation the HVAC (hereinafter, the "Utilities") servicing same are in
good working condition and order on the Commencement Date and are in
compliance with all existing law, codes, regulations and ordinances of any
governmental authorities, including seismic requirements and the Americans
with Disabilities Act, as evidenced by a Certificate of Occupancy issued by
the City.
3. Completion of Landlord's Improvements. Landlord shall be
responsible for the construction of the Landlord's Improvements in
accordance with the approved Final Plans and Specifications. Within thirty
(30) days of Substantial Completion (as defined below) of the Landlord's
Improvements, Landlord and Tenant shall provide a "punchlist" identifying
the corrective work of the type commonly found on an architectural
punchlist with respect to the Landlord's Improvements, which list shall be
in Landlord's reasonable discretion based on whether such items were
required by the approved Final Plans and Specifications. Within ten (10)
Business Days after delivery of the punchlist, Landlord shall commence the
correction of punchlist items and diligently pursue such work to
completion. The punchlist procedure to be followed by Landlord and Tenant
shall in no way limit Tenant's obligation to occupy the Premises under the
Lease nor shall it in any way excuse Tenant's obligation to pay Rent as
provided under the Lease unless such punch list items preclude Tenant from
occupying the Premises as reasonably determined by Landlord and Tenant.
4. Substantial Completion. "Substantial Completion" or
"Substantially Completed" as used herein shall mean delivery of written
notice to Tenant of the completion of construction of the Landlord's
Improvements in the Premises pursuant to the approved Final Plans and
Specifications with the exception of minor details of construction,
installation, decoration, or mechanical adjustments and punchlist items as
certified to by Landlord. Substantial Completion shall be deemed to have
occurred, and completion of the Landlord's Improvements shall be deemed to
have occurred upon issuance of a temporary or permanent certificate of
occupancy, notwithstanding the requirement to complete "punchlist" items or
similar corrective work. Tenant agrees that if Landlord shall be delayed
in causing such work to be Substantially Completed as a result of any of
the events as defined below (referred to herein as a "Tenant Delay"), then
such delay shall be the responsibility of Tenant, and will result in the
Commencement Date of the Term being the earlier of: (i) Tenant's opening
of the Premises for business; (ii) the date of Substantial Completion or
(iii) the date when Substantial Completion would have occurred if there had
been no Tenant Delay, providing that Landlord shall not be required to work
on an overtime basis in order to bring the Premises to Substantial
Completion. For the purposes of this Work Letter, a Tenant Delay is
defined as follows: (a) Tenant's failure to comply with any time frames
set forth herein or in the Lease, (b) any changes in the Final Plans and
Specifications requested by Tenant after execution of this Lease, or (c)
Tenant's failure to perform any act or obligation imposed on Tenant by the
Lease or this Work Letter as and when requested thereunder or hereunder, or
(d) any other delay otherwise caused by Tenant, its agents, employees or
contractors which operates to delay Landlord's Substantial Completion of
the Landlord's Improvements, as reasonably determined by Landlord.
5. Force Majeure. Landlord shall diligently proceed with the
construction of the Landlord's Improvements and complete the same and
deliver possession thereof to Tenant in accordance with the project
schedule to be submitted by Landlord to Tenant within fifteen (15) days
after the Effective Date of the Lease; provided, however, if delay is
caused or contributed to by act or neglect of Tenant, Tenant delays as
described in Section 4 above or those acting for or under Tenant, change
orders requested by Tenant, labor disputes, casualties, acts of God or the
public enemy, governmental embargo restrictions, shortages of fuel, labor,
or building materials, action or non-action of public utilities, or of
local, state or federal governments affecting the work, or other causes
beyond Landlord's reasonable control, then the time of completion of said
construction shall be extended for the additional time caused by such
delay. Such delays are each hereinafter referred to as an "Excused Delay."
Landlord shall notify Tenant in writing of any Excused Delay that is due to
a Tenant Delay.
6. Possession of Premises. Tenant shall, within five (5) business
days after request therefrom by Landlord, advise Landlord of required color
selections. Tenant shall be responsible for Landlord's increased cost of
labor and materials if any, and loss of Rent, arising out of delay in the
completion of the Premises caused by Tenant's failure to comply in a timely
manner with the foregoing schedule. Landlord shall notify Tenant at least
thirty (30) days prior to its estimated date of Substantial Completion and
Tenant shall during such thirty (30) day period have the right to access
the warehouse portion of the Premises to install fixtures and equipment
("Fixturization Period") provided that Tenant does not thereby interfere
with the completion of construction or occasion any labor dispute as a
result of such installations and provided further that Tenant does hereby
agree to assume all risk of loss or damage to such machinery, equipment,
fixtures and other personal property. Tenant shall adopt a schedule in
conformance with the schedule of Landlord and conduct its work in such a
manner as to maintain harmonious labor relations so as not to interfere
unreasonably with or delay the work of Landlord. Tenant shall not be
liable to Landlord for the payment of Basic Rent or taxes during such
Fixturization Period but Tenant shall be subject to the other terms and
provisions of this Lease, including the insurance and indemnity obligations
and the obligation to maintain the Premises free of mechanic liens. Basic
Rent and the payment and performance of all other obligations to be paid by
Tenant shall commence upon the Commencement Date; provided, however, in the
event that Landlord's Improvements are partially completed and partially
ready for occupancy, and are occupied by Tenant, or Tenant is required to
occupy same, the terms of such occupancy or use of the Premises shall apply
and a pro rata portion of the Basic Rent and the pro rata portion of all
other obligations to be paid by Tenant shall be payable commencing with
such date of partial occupancy, and shall be equitably adjusted from time
to time based upon the area and value of the portion of Landlord's
Improvements substantially completed and ready for Tenant's occupancy. The
failure of Tenant to take possession of or to occupy the Premises or any
portion thereof which Tenant is required to occupy on or after the date
Landlord's Improvements or such applicable portion thereof are
substantially complete and ready for occupancy by Tenant shall not serve to
relieve Tenant of said obligations or delay payments by Tenant to Landlord.
7. Tenant Work.
7.1 Finish Work. All finish work and decoration and other
work desired by Tenant and not included within the Landlord's Improvements
as set forth in the approved Construction Documents, including
specifically, without limitation, all computer systems, telephone systems,
telecommunications systems and other items (the "Tenant Work") shall be
furnished and installed by Tenant at Tenant's sole expense.
7.1.1 Consent of Landlord. If any Tenant Work is not set
forth on the approved Construction Documents, Tenant shall secure
Landlord's prior consent for such Tenant Work in the same manner and
following the same procedures provided for in the Lease. Tenant shall not
commence the construction or installation of any improvements on the
Premises, including, specifically, the Tenant Work, without Landlord's
prior written approval which shall not be unreasonably withheld of: (i)
Tenant's contractor, (ii) detailed plans and specifications for the Tenant
Work, and (iii) certificate(s) of insurance accurately showing that
Tenant's contractor maintains insurance coverage in amounts, types, form
and with companies reasonably acceptable to Landlord. All such
certificates or policies shall be endorsed to show Landlord as an
additional insured and such insurance shall be maintained by Tenant or
Tenant's contractor at all times during the performance of the Tenant Work.
7.2 Landlord's Obligations. Landlord is under no obligation
to construct or supervise construction of any of the Tenant Work and any
inspection by Landlord shall not be construed as a representation that the
Tenant Work is in compliance with the final plans and specifications
therefor or that the construction will be free from faulty material or
workmanship, or that the Tenant Work is in conformance with any building
codes or other applicable requirements. All of the Tenant Work shall be
undertaken and performed in strict accordance with the provisions of the
Lease and this Work Letter.
8. Risk of Loss. All materials, work, installations and
decorations of any nature brought upon or installed in the Premises before
the Commencement Date shall be at the risk of the party who brought such
materials or items onto the Premises. Neither Landlord nor any party
acting on Landlord's behalf shall be responsible for any damage or loss or
destruction of such items brought to or installed in the Premises by Tenant
prior to such date, except in the event of Landlord's gross negligence or
willful misconduct.
9. Expansion Space. If Tenant exercises its Expansion Option to
lease the Expansion Space (as defined in the Lease), then the terms of this
Work Letter, to the extent applicable, shall apply with respect to the
Expansion Space; provided that an amendment to the Lease and/or this Work
Letter shall be executed by the parties which shall set forth more
specifically the provisions hereof that shall apply to the Expansion Space.
If Tenant acquires the Expansion Space, Landlord shall furnish the
material, labor and equipment for the construction of improvements similar
to the Landlord's Improvements described in Schedule 1, which shall be
agreed upon and incorporated into the amendment ("Expansion Space
Landlord's Improvements"). With respect to Expansion Space Landlord's
Improvements, Substantial Completion of such improvements shall be deemed
to have occurred in accordance with the same criteria for Substantial
Completion provided under Section 4 of this Work Letter.
10. Conformance with Laws. All work performed by Tenant, including
the Tenant Work, shall be done in conformity with applicable codes and
regulations of governmental authorities having jurisdiction over the
Project and the Premises and valid building permits and other necessary
authorizations from appropriate governmental agencies when required, shall
be obtained by Tenant for the Tenant Work at Tenant's expense.
Notwithstanding any failure by Landlord to object to any such Tenant Work,
Landlord shall have no responsibility therefor.
11. Tenant's Representative. Tenant has designated Dave Evans as
its sole representative with respect to the matters set forth in this Work
Letter, who shall have full authority and responsibility to act on behalf
of Tenant as required in this Work Letter. Tenant may change its
representative under this Work Letter at any time by providing five (5)
days prior written notice to Landlord. All inquiries, requests,
instructions, authorizations and other communications with respect to
matters covered by this Work Letter from Landlord will be made to Tenant's
Representative.
12. Landlord's Representative. Landlord has designated Jeff
Dickerson as its sole representative with respect to the matters set forth
in this Work Letter, who shall have full authority and responsibility to
act on behalf of Landlord as required in this Work Letter. Landlord may
change its representative under this Work Letter at any time by providing
five (5) days prior written notice to Tenant. All inquiries, requests,
instructions, authorizations and other communications with respect to the
matters covered by this Work Letter from Tenant will be made to Landlord's
representative. Tenant will communicate solely with Landlord's
Representative and will not make any inquiries of or requests to, and will
not give any instructions or authorizations to, any other employee or agent
of Landlord, including Landlord's architect, engineers, and contractors or
any of their agents or employees, with regard to matters covered by this
Work Letter.
13. Miscellaneous.
13.1 Sole Obligations. Except as herein expressly set forth
with respect to the Landlord's Improvements, Landlord has no agreement
with Tenant and has no obligation to do any work with respect to the
Premises. Any other work in the Premises which may be permitted by
Landlord pursuant to the terms and conditions of the Lease, including any
alterations or improvements as contemplated in the Lease, shall be done at
Tenant's sole cost and expense and in accordance with the terms and
conditions of the Lease.
13.2 Applicability. This Work Letter shall not be deemed
applicable to: (a) any additional space added to the original Premises at
any time, whether by the exercise of any options under the Lease or
otherwise, or (b) any portion of the original Premises or any additions
thereto in the event of a renewal or extension of the original Lease Term,
whether by the exercise of any options under the Lease or any amendment or
supplement thereto. The construction of any additions or improvements to
the Premises not contemplated by this Work Letter shall be effected
pursuant to a separate work letter agreement, in the form then being used
by Landlord and specifically addressed to the allocation of costs relating
to such construction.
13.3 Authority; Counterparts. Any person signing this Work
Letter on behalf of Tenant warrants and represents that such person has
authority to do so. This Work Letter may be executed in counterparts, each
of which shall be deemed an original, but all of which together constitute
one instrument.
13.4 Binding on Successors. Subject to the limitations on
assignment and subletting contained in the Lease, this Work Letter shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13.5 Time of the Essence. Time is of the essence as to each
and every term and provision of this Work Letter. In all instances where
Tenant is required to approve an item, if no written notice of disapproval
is given within the stated time period at the end of said period the item
shall automatically be deemed approved and the next succeeding time period
shall commence. Except as otherwise provided, all references herein to a
"number of days" shall mean and refer to calendar days.
13.6 Attorneys' Fees. In any action to enforce or interpret
the terms of this Work Letter, the party prevailing in that action shall be
entitled to recover its reasonable attorneys' fees and costs of suit, both
at trial and on appeal.
13.7 Incorporation. This Work Letter is and shall be
incorporated by reference in the Lease and all of the terms and provisions
of the Lease are incorporated herein for all purposes. Any default by
Tenant hereunder also constitutes a default under the Lease.
[Remainder of Page Intentionally Left Blank]
14. Tenant's Acceptance of Premises. Within a period of sixty (60)
days after commencement of the Initial Term, Tenant shall notify Landlord,
in writing, of all portions of the Landlord's Improvements which are
incomplete and Landlord shall forthwith complete such items. Failure to
deliver such notice shall constitute an acknowledgment that the Landlord's
Improvements are complete.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a
Minnesota corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
SCHEDULE 1
Plans and Specification
[To Be Attached]
EXHIBIT "C"
Preliminary Report
EXHIBIT "D"
Commencement Date Acknowledgment
TO: Opus West Corporation
2030 Main Street, Suite 520
Irvine, CA 92614
Attn: Paul A. Marshall
("Landlord")
FROM: PETCO Animal Supplies
9125 Rehco Road
San Diego, CA 92121-2270
Attn: Mark Drasin
("Tenant")
RE: Lease Agreement dated ___________________, 1997 ("Lease")
covering the premises described therein ("Premises") located in
the County of Riverside, State of California.
Pursuant to the term of the Lease, Tenant has agreed to provide this
Commencement Date Acknowledgment ("Acknowledgment") to Landlord within ten
(10) business days after Landlord's request therefor. This Acknowledgment
is not in any way intended to modify any of the terms of the Lease.
1. Commencement Date. The term of the Lease commenced on
___________________, is presently in force, and, unless Tenant exercises
its renewal or extension options, will expire on
__________________________. Tenant has two (2) five (5) year Renewal
Options exercisable pursuant to Article 17 the Lease and an Extension
Election exercisable pursuant to Article 18 of the Lease.
2. Amendments. The Lease has not been modified, altered or
amended in any respect, except for (indicate "None" if
none)______________________________________.
The information set forth in this Acknowledgment is true and correct
as of the date hereof. This Acknowledgment shall be binding upon the
successors and assigns of Tenant.
DATED:
TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT "E"
Delivery Date Acknowledgment
TO: Opus West Corporation
2030 Main Street, Suite 520
Irvine, CA 92614
Attn: Paul A. Marshall
("Landlord")
FROM: PETCO Animal Supplies
9125 Rehco Road
San Diego, CA 92121-2270
Attn: Mark Drasin
("Tenant")
RE: Lease Agreement dated ___________________, 1997 ("Lease")
covering the premises described therein ("Premises") located in
the County of Riverside, State of California.
Pursuant to the term of the Lease, Tenant has agreed to provide this
Delivery Date Acknowledgment ("Acknowledgment") to Landlord within ten (10)
business days after Landlord's request therefor. This Acknowledgment is
not in any way intended to modify any of the terms of the Lease.
1. Acceptance of Premises. Tenant has accepted possession of the
Premises, is the actual occupant in possession of the Premises and has not
sublet, assigned or otherwise transferred its interest in the Premises.
All improvements to be constructed on the Premises by Landlord have been
completed and accepted by Tenant (with the exception of any identified
punch list items). The Premises were in acceptable condition and were
delivered in compliance with all of the requirement of the Work Letter (as
defined in the Lease) and the Lease.
2. Delivery Date. The Delivery Date under the Lease is and the
Premises were delivered from Landlord to Tenant on ___________________
3. Substantial Completion. The date of Substantial Completion of
the Premises (as defined in the Lease) is ________________________.
4. Amendments. The Lease has not been modified, altered or
amended in any respect, except for (indicate "None" if
none)______________________________________.
The information set forth in this Acknowledgment is true and correct
as of the date hereof. This Acknowledgment shall be binding upon the
successors and assigns of Tenant.
DATED:
TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT "F"
RECORDED AT THE REQUEST OF )
)
AND )
)
WHEN RECORDED MAIL TO: )
______________________________ )
______________________________ )
______________________________ )
______________________________ )
)
Space Above This Line for Recorder's Use
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into this ___ day of October,
1997, by and among ___________________("Lender"), whose address
is_______________, PETCO ANIMAL SUPPLIES, INC., a Delaware corporation (the
"Tenant") and OPUS WEST CORPORATION, a Minnesota corporation (ALandlord@).
RECITALS
1. Lender is the owner and holder of that certain ____________
(Promissory Note or Loan Agreement) dated ____________, in the principal
sum of
($_____________). The ___________________ is secured by a deed of trust,
assignment and security agreement recorded prior to or contemporaneously
with the recording hereof in the records of San Diego County, California,
which Deed of Trust constitutes a lien or encumbrance on that real property
more particularly described on Schedule "A" attached hereto and by this
reference incorporated herein.
2. Tenant is the holder of a leasehold estate (the "Leased
Premises") included in the real property described on Schedule "A" attached
hereto and by this reference incorporated herein, pursuant to the terms of
that lease (the "Lease") dated _______, and executed by Tenant and
Landlord. The Lease includes without limitation all right, title and
interest that Tenant may have in all or any portion of the Leased Premises.
3. Tenant and Lender desire to confirm their understanding with
respect to the Lease and the Deed of Trust.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree and covenant as
follows:
1. So long as Tenant is not in default (beyond any period given
Tenant to cure such default) in the payment of rent or in the performance
of any of the terms, covenants or conditions of the Lease to be performed
by Tenant, Lender shall not disturb or interfere with Tenant's possession
and occupancy of the Leased Premises during the term of the Lease or any
extension thereof duly exercised by Tenant.
2. If the interests of Tenant shall be transferred to and owned by
Lender by judicial foreclosure, private trustee sale or any other manner,
and Lender succeeds to the interest of Landlord under the Lease, Tenant
shall be bound to Lender under all of the covenants, conditions and
provisions of the Lease for the remaining term thereof, and any extension
thereof duly exercised by Tenant, with the same force and effect as if
Lender were the Landlord under the Lease. Tenant hereby attorns to Lender
as its Landlord, and that attornment shall be self-operative and shall be
effective immediately upon Lender's succeeding to the interest of Landlord
under the Lease without the execution of any further instruments by any of
the parties hereto.
3. If the interests of Landlord shall be transferred to and owned
by Lender by judicial foreclosure, private trustee sale or any other
manner, and Lender succeeds to the interest of Landlord under the Lease,
Lender shall be bound to Tenant under all of the terms, covenants and
conditions of the Lease except that Lender shall not be:
(a) Liable for any act or omission of any prior landlord
(including Landlord);
(b) Subject to any offsets or defenses that Tenant might have
against any prior landlord (including Landlord) unless Lender has been
given notice and an opportunity to cure in accordance with the terms of the
Lease;
(c) Bound by any rent or additional rent or advance rent that
Tenant might have paid for more than the current month to any prior
landlord (including Landlord) and all such rent shall remain due and owing
notwithstanding such advance payment;
(d) Bound by any amendment or modification of the Lease made
without its consent and written approval;
(e) Liable for any security deposit Tenant might have paid to
any prior landlord (including Landlord), except to the extent Lender has
actually received said security deposit;
(f) Personally liable under the Lease. Lender's liability
under the Lease shall be limited to the ownership interest of Lender in the
Leased Premises and any income derived therefrom by Lender.
In addition, Lender shall not have any liability or responsibility under or
pursuant to the terms of the Lease or this Agreement after it ceases to own
an interest in or to the property described on Schedule "A."
4. The Lease is now, and shall at all times continue to be,
subject and subordinate in each and every respect to the Deed of Trust and
to all extensions, modifications, renewals, replacements, substitutions
and/or consolidations thereof; but only to the extent that such extensions,
modifications, renewals, replacements, substitutions, and/or consolidations
thereof do not materially and detrimentally alter Tenant's rights and
obligations under the Lease. Nothing contained herein shall be deemed or
construed as limiting or restricting the enforcement by Lender of any of
the covenants, conditions, provisions or remedies of the Deed of Trust,
whether or not consistent with the Lease.
5. Tenant shall give written notice to Lender of any failure by
Landlord to perform or observe any of the covenants, conditions or
provisions of the Lease, and Lender shall have the right, but not the
obligation, to cure such failure. In the event of any such failure by
Landlord, Tenant shall not take any action with respect to such failure,
including without limitation any action to terminate, rescind or avoid the
Lease or to withhold any rent thereunder, for a period of fifteen (15) days
after notice thereof to Lender; provided, however, that if such failure
cannot reasonably be remedied within that fifteen (15) day period, Tenant
shall not take any action with respect to such failure, including without
limitation any action to terminate, rescind or avoid the Lease or to
withhold any rent thereunder, so long as Lender shall commence to remedy
the failure within the fifteen (15) day period and thereafter shall
diligently prosecute the remedy to completion.
6. All notices, demands and requests which may be or are required
to be given, demanded or requested by either party to the other shall be in
writing. All notices, demands and requests shall be sent by United States
registered or certified mail, postage prepaid or by Federal Express or
other reputable independent overnight courier service, addressed at the
addresses specified at the beginning of this Agreement or at such other
place as either party may designate to the other party by written notice,
and shall be deemed to have been delivered on the date the same is
(i) postmarked, if sent by certified or registered United States mail, or
(ii) deposited, if sent by Federal Express or such other reputable
overnight courier service, but shall not be deemed received until (a) one
(1) business day following deposit with Federal Express or other reputable
overnight courier service, or (b) three (3) days following deposit in the
United States Mail if sent by certified or registered mail.
7. The term "Lender" shall be deemed to include _________, a
__________, and its successors and assigns, including anyone who shall have
succeeded to Landlord's interest by or through judicial foreclosure,
private trustee's sale, or other proceedings brought pursuant to the Deed
of Trust or deed in lieu of such foreclosure or proceedings.
8. Each covenant, condition and provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law but if any covenant, condition or provision of this Agreement shall be
held to be void or invalid, the same shall not affect the remainder hereof
which shall be effective as though the void or invalid covenant, condition
or provision had not been contained herein.
9. This Agreement may not be modified orally or in any other
manner than by an agreement in writing signed by the parties hereto or
their respective successors in interest. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their successors and
assigns.
10. This Agreement shall be governed by and construed according to
the laws of the State of California.
11. This Agreement may be executed in any number of counterparts,
and each counterpart executed by any of the undersigned, together with all
other counterparts so executed, shall constitute a single instrument and
agreement of the parties.
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
_____________________________, a
__________________________________
By:
Name:
Title:
Lender
PETCO ANIMAL SUPPLIES, INC.,
a Delaware corporation
By:
Name:
Title:
Tenant
OPUS WEST CORPORATION,
a Minnesota corporation
By:
Name: Thomas W. Roberts
Title: President
Landlord
STATE OF CALIFORNIA )
) ss.
County of San Diego )
On _____________ before,____________________, personally appeared
________________ personally, known to me (or proved to me on the basis of
satisfactory evidence) to the person whose name(s) are/is subscribed to the
within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity, and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS, my hand and official seal.
Notary Public
My commission expires:_____________
[SEAL]
STATE OF CALIFORNIA )
) ss.
County of San Diego )
On _____________ before,____________________, personally appeared
________________ personally, known to me (or proved to me on the basis of
satisfactory evidence) to the person whose name(s) are/is subscribed to the
within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity, and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS, my hand and official seal.
Notary Public
My commission expires:_____________
[SEAL]
STATE OF CALIFORNIA )
) ss.
County of San Diego )
On _____________ before,____________________, personally appeared
________________ personally, known to me (or proved to me on the basis of
satisfactory evidence) to the person whose name(s) are/is subscribed to the
within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity, and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS, my hand and official seal.
Notary Public
My commission expires:_____________
[SEAL]
SCHEDULE "A"
Legal Description
[TO BE ATTACHED]
ARTICLE ONE: BASIC TERMS
The following terms used in this lease shall have the meanings set forth
below.
1.01 Date Of Lease: June __, 1997
1.02 Landlord (legal entity) Knickerbocker Industrial
Properties East, L.P.
1.03 Tenant (legal entity) Petco Animal Supplies, Inc.
1.04 Tenant's Guarantor: None
1.05 Address of Premises: 152 Dayton Jamesburg Road,
South Brunswick, New Jersey
1.06 Intentionally deleted
1.07 Approximate Size of
Building: 211,450 square feet.
1.08 Tenant's Initial
Prorata Share: 100%
1.09 Lease Term; Commencing on the Lease
Commencement Date and expiring on
June 30, 2002.
1.10 (a) Lease Commencement Date:July 1, 1997
(b) Rent Commencement Date: August 1, 1997
1.11 Permitted Uses; Warehouse and ancillary offices
1.12 Broker(s): Colliers Houston & Co.
1.13 Intentionally Omitted
1.14 Parking Spaces Allocated
to Tenant: 100%
1.15 Base Rent:
(i) August 1, 1997 through
June 30, 2000 the Base
Rent shall be $761,220 per
year, in equal monthly
installments of $63,435.00
(ii) July 1, 2000 through
June 30, 2002 the Base
Rent shall be $845,800 per
year in equal monthly
installments of $70,483.53
1.16 Other Charges Payable
by Tenant: (i) Real Property Taxes
(Article Five)
(ii) Utilities (Article Six)
(iii) Insurance Premiums (Article
Seven)
(iv) CAM Expenses (Article
Eight)
1.17 Address of Landlord
for Notices: c/o Cabot Partners Limited
Partnership
Two Center Plaza
Boston, MA 02108
1.18 Address of Tenant
for Notices: 9125 Rehco Road
San Diego, CA 92121
Attention: Property Manager
1.19 Exhibits: A: The Premises
B: Rules & Regulations
C: Memorandum of Acceptance
D: Landlord's Release and
Waiver
E: Additional Provisions
Relating to Parking Spaces
ARTICLE TWO: PREMISES
2.01 Premises. The Premises are described in Exhibit A. The Premises
includes the building thereon (the "Building"), including the racking
system located therein.
2.02 Condition of Premises. Prior to the Lease Commencement Date,
Landlord will broom clean the Building and ensure that the gas unit heaters
and loading docks are in good working order and that the roof is
watertight. Except as provided in the preceding sentence or as otherwise
expressly provided herein, Tenant shall accept the Premises in its "as-is"
condition on the Lease Commencement Date, and Landlord shall have no
obligation to perform any work therein to prepare the Premises for Tenant.
ARTICLE THREE: LEASE TERM
3.01 Lease of Premises for Lease Term. Landlord leases the Premises to
Tenant and Tenant leases the Premises from Landlord for the Lease Term,
commencing on the Lease Commencement Date, subject to all terms and
provisions of this Lease, except for the payment of Base Rent (which shall
commence on the Rent Commencement Date). The Lease Term shall be the
period stated in Article One and shall begin on the Lease Commencement Date
set forth in Article One.
3.02 Options to Extend Term. Tenant shall have two (2) options to
extend the term of this Lease, each for a five (5) year period (an "Option
Period"), provided (a) Tenant shall give notice to Landlord of its exercise
of an option not less than nine (9) months prior to the expiration of the
Lease Term or the first Option Period, as the case may be, (b) no default
beyond any applicable grace period in the obligations of Tenant under this
Lease shall exist at the time such notice is given and (c) Tenant shall not
have been in default under this Lease beyond any applicable grace period on
more than two (2) occasions during the entire preceding Lease Term. All of
the terms and provisions of this Lease shall be applicable during each
Option Period except that (a) Tenant shall have no option to extend the
term of this Lease beyond the second Option Period and (b) the Base Rent
for each Option Period shall be the greater of (i) the Base Rent for the
last year of the Lease Term or the first Option Period, as the case may be,
or (iii) Market Rent, as defined below, as of the first day of such Option
Period.
"Market Rent" shall be computed as of the applicable date at the
then current rentals being charged to new tenants for comparable space
located in comparable buildings, taking into account and giving effect to,
in determining comparability, without limitation, such considerations as
size, location and condition of premises and lease term.
Landlord shall designate Market Rent for the next Option Period
within thirty (30) days after Tenant's written request therefor (such
request to be made no earlier than one (1) year before such Option Period).
If Landlord shall not have previously designated Market Rent, after
Tenant shall exercise an option to extend for an Option Period, Landlord
shall initially designate Market Rent and shall furnish data in support of
such designation. If Tenant shall have exercised its option to extend for
the Option Period but shall disagree with Landlord's designation of the
Market Rent, then Tenant shall have the right, by notice given within
fourteen (14) days after Tenant's receipt of Landlord's designation, to
submit such Market Rent to arbitration as follows. Market Rent shall be
determined by arbitrators, one chosen by Tenant, one chosen by Landlord and
a third selected, if necessary, as below provided. All arbitrators
selected under this Section shall be experienced real estate appraisers
with substantial experience with properties in the vicinity of the
Premises. If within fourteen (14) days after Tenant's notice the parties
shall agree upon a single arbitrator or if one party shall fail to select
an arbitrator, the arbitrator selected by the other shall be the sole
arbitrator, and Market Rent shell be determined by such arbitrator. The
unanimous written decision of the two first chosen (or the decision of the
first, if a second arbitrator is not chosen) without selection and
participation of a third arbitrator, or otherwise the written decision of a
majority of the three arbitrators chosen and selected as provided herein,
shall be conclusive and binding upon Landlord and Tenant. Landlord and
Tenant shall each notify the other of its chosen arbitrator within fourteen
(14) days following the call for arbitration, and, unless such two
arbitrators shall have either reached a unanimous decision within thirty
(30) days after their designation or jointly selected a third arbitrator,
they shall so notify the then President of the local Real Estate Board and
request him to select an impartial third arbitrator to act hereunder, or if
such individual does not exist or is unavailable, then they shall apply to
a court of competent jurisdiction to select an impartial third arbitrator.
Such third arbitrator and the first two chosen shall hear the parties and
their evidence and render their decision within thirty (30) days following
the conclusion of such hearing and notify Landlord and Tenant thereof.
Landlord and Tenant shall bear the expense of the third arbitrator (if any)
equally. If the dispute between the parties as to Market Rent shall not
have been resolved before the commencement of Tenant's obligation to pay
rent based upon Market Rent, then Tenant shall pay rent based upon the
Market Rent designated by Landlord until either the agreement of the
parties as to the Market Rent or the decision of the arbitrators, as the
case may be, at which time Tenant shall pay any underpayment of rent to
Landlord or Landlord shall refund any overpayment of rent to Tenant.
3.03 Intentionally Omitted.
3.04 Holding Over. Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages, costs, liabilities
and expenses, including attorneys' fees, which Landlord shall incur on
account of Tenant's delay in so vacating the Premises. If Tenant shall not
vacate The Premises upon the expiration or earlier termination of this
lease, the Base Rent shall be increased to 250% of the Base Rent then in
effect and Tenant's obligation to pay Additional Rent shall continue, but
nothing herein shall limit any of Landlord's rights or Tenant's obligations
arising from, Tenant's failure to vacate the Premises, including, without
limitation, Landlord's right to repossess the Premises and remove Tenant
therefrom at any time after the expiration or earlier termination of this
Lease and Tenant's obligation to reimburse and indemnify Landlord as
provided in the preceding sentence.
3.05 Tenant's Termination Option. Tenant shall have the right, to
terminate this Lease effective June 30, 2000 (Tenant's Termination Option),
provided that (i) Tenant shall give notice to Landlord of the exercise of
Tenant's option ("Tenant's Termination Notice") not later than January 1,
2000, the time of exercise being of the essence; (ii) Tenant shall pay to
Landlord, as an early termination penalty, the sum of one month's Base
Rent, simultaneously with the delivery of Tenant's Termination Notice;
(iii) this Lease shall be in full force and effect as of the date of
Tenant's Termination Notice and on June 30, 2000; and (iv) Tenant shall not
be in default hereunder, beyond any applicable notice or grace period on
the date Tenant sends the Tenant Termination Notice and on June 30, 2000.
If Tenant shall have complied with the foregoing provisions of this Article
3.05, this Lease and the Lease Term shall expire on June 30, 2000, with the
same force and effect as though said date were the expiration date.
ARTICLE FOUR: RENT
4.01 Base Rent. On the first day of each month during the Lease Term,
Tenant shall pay to Landlord the Base Rent as described in Section 1.15 in
lawful money of the United States, in advance and without offset,
deduction, or prior demand. The Base Rent shall be payable at Landlord's
address or at such other place or to such other person as Landlord may
designate in writing from time to time.
4.02 Additional Rent. All sums payable by Tenant under this Lease other
than Base Rent shall be deemed "Additional Rent;" the term "Rent" shall
mean Base Rent and Additional Rent. Landlord shall estimate in advance and
charge to Tenant the following costs, to be paid with the Base Rent on a
monthly basis throughout the Lease Term: (i) all Real Property Taxes for
which Tenant is liable under Section 5.01 and 5.02 of the Lease, (ii) all
utility costs (if utilities are not separately metered) for which Tenant is
liable under Section 6.01 of the Lease, (iii) all insurance premiums for
which Tenant is liable under Sections 7.01 and 7.08 of the Lease, (iv) all
CAM Expenses for which Tenant is liable under Section 8.04 of the Lease.
Collectively, the aforementioned Real Property Taxes, insurance, utility,
and CAM Expenses shall be referred to as the "Total Operating Costs."
Landlord may adjust its estimate of Total Operating Costs 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 120 days after the end of each fiscal year (which
shall be the calendar year for this Lease) during the Lease Term, Landlord
shall deliver to Tenant a statement prepared in accordance with generally
accepted accounting principles setting forth, in reasonable detail, the
Total Operating Costs paid or incurred by Landlord during the preceding
fiscal year and Tenant's Pro Rata Share of such expenses. Within thirty
(30) days after Tenant's 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) in order that Landlord shall receive the
entire amount of Tenant's share of such costs and expenses for such period.
In addition to its obligation to pay Base Rent and its Pro Rata Share of
Total Operating Expenses, Tenant is required hereunder to pay directly to
suppliers, vendors, carriers, contractors. etc. certain insurance premiums,
utility costs, personal property taxes, maintenance and repair costs and
other expenses, collectively "Additional Expenses." If Landlord pays for
any Additional Expenses in accordance with the terms of this Lease,
Tenant's obligation to reimburse such costs shall be an Additional Rent
obligation payable in full with the next monthly Rent payment. Unless this
Lease provides otherwise, Tenant shall pay all Additional Rent then due
with the next monthly installment of Base Rent.
4.03 Late Charge. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent and other amounts due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but
are not limited to, processing and accounting charges, and late charges
which may be imposed on Landlord by the terms of any loan secured by the
Building. Accordingly, if any installment of Rent or any other sums due
from Tenant shall not be received by Landlord within five days following
the due date, Tenant shall pay to Landlord a late charge equal to five
percent of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge
by Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies granted hereunder.
4.04 Interest. Any Rent or other amount due to Landlord, if not paid
when due, shall bear interest from the date due until paid at the rate of
15% per annum or the highest rate permitted by law, whichever is less,
provided that interest shall not be payable on late charges incurred by
Tenant nor on any amounts upon which late charges are paid by Tenant to the
extent such interest would cause the total interest to be in excess of that
legally permitted. Payment of interest shall not excuse or cure any
default hereunder by Tenant.
4.05 Tenant's Pro Rata Share. Tenant's Pro Rata Share shall be 100%.
ARTICLE FIVE: PROPERTY TAXES
5.01 Real Property Taxes. Tenant shall pay Tenant's Pro Rata Share of
Real Property Taxes on the Premises payable during the Lease Term. Tenant
shall make such payments in accordance with Section 4.02. If Landlord
shall receive a refund of any Real Property Taxes with respect to which
Tenant shall have paid Tenant's Pro Rata Share, Landlord shall refund to
Tenant Tenant's Pro Rata Share of such refund after deducting therefrom the
costs and expenses incurred in connection therewith.
5.02 Definition of "Real Property Tax." "Real Property Tax" shall mean
taxes, assessments (special, betterment, or otherwise), levies, fees, rent
taxes, excises, impositions, charges water and sewer rents and charges, and
all other government levies and charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, which are imposed or levied upon or
assessed against the Premises or any Rent or other sums payable by any
tenants or occupants thereof. Real Property Tax shall include Landlord's
costs and expenses of contesting any Real Property Tax. If at any time
during the term the present system of ad valorem taxation of real property
shall be changed so that in lieu of the whole or any part of the ad valorem
tax on real property, or in lieu of increases therein, there shall be
assessed on Landlord a capital levy or other tax on the gross rents
received with respect to the Premises or a federal, state, county,
municipal, or other local income, franchise, excise or similar tax,
assessment, levy, or charge (distinct from any now in effect) measured by
or based, in whole or in part, upon gross rents, then all of such taxes,
assessments, levies, or charges, to the extent so measured or based
("Substitute Taxes"), shall be deemed to be a Real Property Tax.
5.03 Personal Property Taxes. Tenant shall pay directly all taxes
charged against trade fixtures furnishings, equipment, inventory, or any
other personal property belonging to Tenant. Tenant shall use its best
efforts to have personal property taxed separately from the Premises. If
any of Tenant's personal property shall be taxed with the Premises, Tenant
shall pay Landlord the taxes for such personal property within fifteen (15)
days after Tenant receives a written statement from Landlord for such
personal Property taxes.
ARTICLE SIX: UTILITIES
6.01 Utilities. Tenant shall promptly pay, directly to the appropriate
supplier, the cost of all natural gas, heat, cooling energy, light, power,
sewer service, telephone, water, refuse disposal and other utilities and
services supplied to the Premises, allocable to the Lease Term together
with any related Installation or connection charges or deposits
(collectively "Utility Costs"). Landlord shall not be liable for damages,
consequential or otherwise, nor shall there be any rent abatement arising
out of any curtailment or interruption whatsoever in utility services.
ARTICLE SEVEN: INSURANCE
7.01. Liability Insurance. From the time Tenant shall first enter the
Premises, throughout the Lease Term and thereafter as long as Tenant shall
remain in the Premises (collectively, "the Occupancy Period"), Tenant shall
maintain in effect commercial general liability insurance insuring Tenant
against liability for bodily injury, property damage (including loss of use
of Premises) and personal injury at the Premises, including contractual
liability. Such insurance shall name Landlord, its Premises manager, any
mortgagee, and Cabot Partners Limited Partnership, as additional insureds.
The initial amount of such insurance shall be Three Million Dollars
($3,000,000) per occurrence and shall be subject to increase once during
the Option Period specified by Landlord based upon inflation, increased
liability awards, recommendation of Landlord's professional insurance
advisers, and other relevant factors. The liability insurance obtained by
Tenant under this Section 7.01 shall (i) be primary; and (ii) insure
Tenant's obligations to Landlord under Section 7.09. 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
commercial general liability insurance in an amount and with coverage
determined by Landlord insuring Landlord against liability with respect to
the Premises. The policy obtained by Landlord shall not provide primary
insurance, shall not be contributory and shall be excess over any insurance
maintained by Tenant.
7.02 Worker's Compensation Insurance. During the Occupancy Period,
Tenant shall maintain in effect Worker's Compensation Insurance (including
Employers' Liability Insurance) in the statutory amount covering all
employees of Tenant employed or performing services at the Premises, in
order to provide the statutory benefits required by the laws of the state
in which the Premises are located.
7.03 Automobile Liability Insurance. During the Occupancy Period,
Tenant shall maintain in effect Automobile Liability Insurance, including
but not limited to, passenger liability, on all owned, non-owned, and hired
vehicles used in connection with Tenant's use of the Premises, with a
combined single limit per occurrence of not less than One Million Dollars
($1,000,000) per vehicle for injuries or death of one or more persons or
loss or damage to property.
7.04 Personal Premises Insurance. During the Occupancy Period, Tenant
shall maintain in effect Personal Property Insurance covering leasehold
improvements paid for by Tenant and Tenant's personal property and fixtures
from time to time in, on, or at the premises, in an amount not less than
100% of the full replacement cost, without deduction for depreciation,
providing protection against events protected under Direct Risk of Physical
Loss (All Risk), as well as against sprinkler damage, vandalism, and
malicious mischief. Any proceeds from the Personal Property insurance
shall be used for the repair or replacement of the property damaged or
destroyed, unless this Lease is terminated under an applicable provision
herein. Tenant may satisfy the requirement for insurance under this
Section 7.04 by self insuring, provided that at all times while so self
insuring (i) Tenant maintains a net worth of at least $150,000,000 and
(ii) promptly upon written request from Landlord (which may be given from
time to time), Tenant shall deliver to Landlord evidence reasonably
satisfactory to Landlord that Tenant has such net worth.
7.05 Intentionally Deleted.
7.06 Premises and Rental Income Insurance. During the Lease Term,
Landlord shall maintain in effect Direct Risk of Physical Loss (all risk)
insurance covering loss of or damage to the Premises in the amount of its
replacement value with such endorsements and deductibles as Landlord shall
determine from time to time. Landlord shall have the right to obtain
flood, and such other insurance as Landlord shall determine from time to
time or shall be required by any lender holding a security interest in the
Premises. Landlord shall not obtain insurance for Tenant's fixtures or
equipment or building improvements installed by Tenant. During the Lease
Term, Landlord shall also maintain a rental income insurance policy, with
loss payable to Landlord, in an amount equal to one (1) year's Base Rent,
plus estimated Real Property Taxes, CAM Expenses, Utility Costs and
insurance premiums for one (1) year. Tenant shall be liable for the
payment of any deductible amount under Landlord's insurance maintained
pursuant to this Article Seven, in an amount not to exceed Twenty-Five
Thousand Dollars ($25,000). Tenant shall not do or permit anything to be
done which shall invalidate any such insurance.
7.07 Payment of Insurance Premiums. Landlord shall pay the premiums of
the insurance policies maintained by Landlord under Section 7.06 and
Section 7.01 (if applicable), and Tenant shall reimburse Landlord for
Tenant's Pro Rata Share of such premiums in accordance with Section 4.02.
Tenant shall pay directly the premiums of the insurance policies maintained
by Tenant under Sections 7.01, 7.02, 7.03, 7.04, and 7.05.
7.08 General Insurance Provisions.
7.08(a) Any insurance which Tenant shall be 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.
7.08(b) Prior to the earlier of Tenant's entry into the Premises or
the commencement of the Lease Term, Tenant shall deliver to
Landlord an insurance company certificate that Tenant maintains the
insurance required by Sections 7.01, 7.02, 7.03, 7.04 and 7.05 and
not less than thirty (30) days prior to the expiration or
termination of any such insurance, Tenant shall deliver to Landlord
renewal certificates therefor. Tenant shall provide Landlord with
copies of the policies promptly upon request from time to time. If
Tenant shall fail to deliver any certificate or renewal certificate
to Landlord required under this Lease within the prescribed time
period or if any such policy shall be canceled or modified during
the Lease Term without Landlord's consent, Landlord may obtain such
insurance, in which case Tenant shall reimburse Landlord, as
Additional Rent, for 110% of the cost of such insurance within ten
(10) days after receipt of a statement of the cost of such
insurance.
7.08(c) Tenant shall maintain all insurance required under this
Lease with companies legally qualified to issue such insurance in
New Jersey and reasonably acceptable to Landlord.
7.08 (d) Landlord and Tenant, on behalf of themselves and their
insurers, each hereby waive any and all rights of recovery against
the other, or against the officers, partners, 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
shall be covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage, or
required to be carried under this Article Seven. All property
insurance carried by either party shall contain a waiver of
subrogation against the other party to the extent such right shall
have been waived by the insured party prior to the occurrence of
loss or injury.
7.09 Indemnity. As such waiver does not violate public policy and
insurance is available to protect it, Tenant hereby waives all claims
against Landlord, its agents, employees, officers, directors, partners end
shareholders, (collectively "the Indemnitees") for damage to any property
or injury to or death of any person in, upon or about the Premises arising
at any time and from any cause, and Tenant shall hold Indemnitees harmless
from and defend Indemnitees from and against all claims, liabilities,
judgments, demands, causes of action, losses, damages, costs and expenses
including seasonable attorney's fees for damage to any property or injury
to or death of any person arising in or from the negligence or willful
misconduct of Tenant, its employees, agents, contractors, or invitees in,
upon or about the Premises. The foregoing shall include investigation
cost; and all the costs and expenses incurred by Landlord from the first
notice that any claim or demand is to be made or may be made. The
provisions of this Section 7.08 shall survive the expiration or termination
of this Lease with respect to any damage, injury, or death occurring prior
to such time.
7.10 Landlord's Indemnity. Landlord shall defend, with counsel
reasonably approved by Tenant, all actions against Tenant, its agents,
employees, officers, directors, partners and shareholders (collectively
"the Indemnitees") with respect to, and shall pay, protect, indemnify and
save harmless to the extent permitted by law the Indemnitees from and
against, all liabilities, losses, damages, costs and expenses (including
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature arising from injury to or death of any
person or damage to or loss of property occurring at the Property caused by
the negligence or willful misconduct of Landlord to the extent the same
shall not be covered by any insurance maintained or required to be
maintained by any of the Indemnitees.
ARTICLE EIGHT: COMMON AREAS
8.01 Common Areas. As used in this Lease, "Common Areas" shall mean
all areas within the Premises outside the Building, including, but not
limited to, parking areas, driveways, sidewalks, access roads, landscaping,
and planted areas.
8.02 Use of Common Areas. The Common Areas are part of the Premises,
and Tenant shall have the exclusive right to use the Common Areas for the
purposes intended, subject to such reasonable rules and regulations ("Rules
and Regulations") as Landlord may establish or modify from time to time and
as initially set forth in Exhibit "B". Tenant shall abide by all such
Rules and Regulations and shall use its best efforts to cause others who
use the Common Areas with Tenant's express or implied permission to abide
by Landlord's Rules and Regulations.
8.03 Vehicle Parking. Tenant shall be entitled to use all vehicle
parking spaces on the Premises, without paying any additional rent.
Vehicles shall be parked only in striped parking spaces and not in
driveways, other locations not specifically designated for parking.
Handicapped spaces shall only be used by those legally permitted to use
them. The additional spaces shall be in locations designated by Landlord
subject to the approval of Tenant, which approval shall not unreasonably be
withheld. Tenant, at its expense, may construct additional parking spaces
on the Premises provided (a) Tenant shall first obtain Landlord's approval
of plans and specifications therefor, (b) such additional parking shall
comply with all legal requirements, including, without limitation, zoning
requirements, and (c) the construction of such additional parking spaces
shall comply with Section 10.05 hereof. See Exhibit E for additional
provisions, if any, relating to parking spaces.
8.04 Common Area Maintenance. Subject to Articles Eleven and Twelve,
Landlord shall maintain the Common Areas in good order, condition, and
repair. Common Area Maintenance expenses ("CAM Expenses") are all costs
and expenses associated with the operation and maintenance of the Common
Areas and the repair and maintenance of the heating, ventilation, air
conditioning, plumbing, electrical, utility, and safety systems (to the
extent not performed by Tenant), including, but not limited to, the
following: gardening and landscaping; snow removal; utility. water and
sewage services for the Common Area; maintenance of signs (other than
Tenant's signs); worker's compensation insurance; personal property taxes;
rental or lease payments paid by Landlord for rented or leased personal
property used in the operation or maintenance of the Common Areas; fees for
required licenses and permits; routine maintenance and repair of roof
membrane, flashings, gutters, downspouts, roof drains, skylights and
waterproofing; maintenance of paving [including sweeping, striping,
repairing, resurfacing, and repaving); general maintenance Painting;
lighting; cleaning; refuse removal; security and similar items; reserves
for roof replacement, exterior painting and other appropriate reserves; and
a property management fee (not to exceed three percent (3%) of the gross
rents of the Premises 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 CAM Expenses with respect to any CAM Expenses
which are included for the benefit of the Premises and other property,
Landlord shall make a reasonable allocation of such cost between the
Premises and such other property. CAM Expenses shall not include: (a) the
cost of capital repairs and replacements, provided, however, that the
annual depreciation (based on the useful life of the item under generally
accepted accounting principles) of any such capital repair or replacement
to the Common Areas or the heating, ventilating, air-conditioning,
plumbing, electrical, utility and safety systems serving the Premises shall
be included in the CAM Expenses each year during the term of this Lease;
and (b) the cost of capital improvements, provided, however, that the
annual depreciation (based on the useful life of the item under generally
accepted accounting principles) of any capital improvement undertaken to
reduce CAM Expenses or made in order to comply with legal requirements
shall be included in CAM Expenses each year during the term of this Lease.
8.05 Tenant's Payment of CAM Expense. Tenant shall pay Tenant's Pro
Rata Share (100%) of all CAM Expenses in accordance with Section 4.02.
ARTICLE NINE: USE 0F PREMISES
9.01 Permitted Uses. Tenant may use the Premises only for the Permitted
uses set forth in Section 1.11 above.
9.02 Manner of Use. Tenant shall not cause or permit the Premises to be
used in any way which shall constitute a violation of any law, ordinance,
restrictive covenants, governmental regulation or order, or which shall
constitute a nuisance or waste. Tenant shall obtain and pay for all
permits, including a certificate of occupancy and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances,
notes, regulations, orders and requirements regulating the use by Tenant of
the Premises, including the Occupational Safety and Health Act.
9.03 Hazardous Materials. As used In this Lease, the term "Hazardous
Material" shall mean any flammable items, explosives, radioactive
materials, oil, 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 Premises by
Tenant, its agents, employees, contractors, sublessees or invitees without
complying with all applicable Federal, State and Local laws or ordinances
pertaining to the transportation, storage, use or disposal of such
Hazardous Materials, including but not limited to obtaining proper permits.
In no event, however, shall Tenant install or use any storage tanks on the
Premises.
If Tenant's transportation, storage, use or disposal of Hazardous Materials
on the Premises results in the contamination of the soil or surface or
ground water or loss or damage to person(s) or property, then Tenant agrees
to: (a) notify Landlord immediately of any contamination, claim of
contamination, loss or damage, (b) after consultation with the Landlord,
clean up the contamination in full compliance with all applicable statutes,
regulations and standards and (c) indemnify, defend and hold Landlord
harmless from and against any claims, suits, causes of action, costs and
fees, including reasonable attorney's fees and costs, arising from or
connected with any such contamination, claim of contamination, loss or
damage. Tenant agrees to fully cooperate with Landlord and provide such
documents, affidavits and information as may be requested by Landlord
(i) to comply with any environmental law, (ii) to comply with the request
of any lender, purchaser or tenant, and/or (iii) for any other reason
deemed necessary by Landlord in its sole discretion. Tenant shall notify
Landlord promptly in the event of any spill or other release of any
Hazardous Material at, in, on, under or about the Premises which is
required to be reported to a governmental authority under any environmental
law, will promptly forward to Landlord copies of any notices received by
Tenant relating to alleged violations of any environmental law and will
promptly pay when due any fine or assessment against Landlord, Tenant or
the Premises relating to any violation of an environmental law during the
term of this Lease. If a lien is filed against the Premises by any
governmental authority resulting from the need to expend or the actual
expending of monies arising from an act or omission, whether intentional or
unintentional, of Tenant, its agents, employees or invitees, or for which
Tenant is responsible, resulting in the releasing, spilling, leaking,
leaching, pumping, emitting, pouring, emptying or dumping of any Hazardous
Material into the water or onto land located within the State where the
Premises is located, then Tenant shall, within thirty (30) days from the
date that Tenant is first given notice that such lien has been placed
against the Premises (or within such shorter period of time as may be
specified by Landlord if such governmental authority has commenced steps to
cause the Premises to be sold pursuant to such lien) either (i) pay the
claim and remove the lien, or (ii) furnish a cash deposit, bond, or such
other security with respect thereto as is satisfactory in all respects to
Landlord and is sufficient to effect a complete discharge of such lien on
the Premises. The provisions of this Section 9.03 shall survive the
expiration or earlier termination of this Lease.
Notwithstanding anything to the contrary herein, any environmental
remediation or response action required in or around the Premises resulting
directly or indirectly from any acts or omissions of other parties for whom
Tenant is not responsible prior to the Lease Commencement Date or during
the term of this Lease shall not be the obligation, duty or responsibility
of Tenant.
Notwithstanding the foregoing, Landlord shall indemnify Tenant
against and hold Tenant harmless from any and all costs, claims,
liabilities or damages, including reasonable attorneys' fees and expenses,
arising from the presence or use of Hazardous Materials caused by Landlord,
its agents or employees.
9.04 Signs and Auctions. Tenant shall not place any signs on the
Premises without Landlord's prior written consent, which shall not be
unreasonably withheld (subject to the Park Covenants and Landlord's sign
standards). Tenant shall not conduct or permit any auctions or sheriff's
sales at the Premises.
9.05 Landlord's Access. Landlord or its agents may enter the Premises
upon prior notice (which may be oral) at all reasonable times to show the
Premises 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 (which
may be oral) of such entry, except in the case of an emergency, in which
event Landlord shall make reasonable efforts to notify Tenant. Landlord
may place customary "For Sale" or "For Lease" signs on the Premises.
ARTICLE TEN: CONDITION AND MAINTENANCE OF PREMISES
10.01 Existing Conditions. Tenant shall accept the Premises 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 Premises
or the suitability of the Premises for Tenant's intended use. Tenant
represents and warrants that Tenant has made its own inspection of and
inquiry regarding the condition of the Premises Tenant agrees to execute
promptly a memorandum of Acceptance of Premises in the form set forth in
Exhibit "C" to this Lease.
10.02 Exemption of Landlord from Liability. Tenant shall insure its
personal property under an all risk full replacement cost property
insurance policy. 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 or about the Premises, whether such damage or
injury is caused by or results from: (a) fire, steam, electricity, water,
gas or rain; (b) the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about
Premises, or from other sources or places. 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 10.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
10.03 Landlord's Obligations. Subject to the provisions of Article
Eleven (Damage or Destruction) and Article Twelve (Condemnation), and
except for damages caused by any act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, Landlord at its expense
(subject to Section 4.02) shall keep the foundation, roof, building systems
(other than the heating, ventilating and air conditioning system),
structural supports and exterior walls of the improvements on the Premises
in good order, condition and repair. However, Landlord shall not be
obligated to maintain or repair windows, doors, plate glass or the surfaces
of wells. Tenant shall promptly report in writing to Landlord any
defective condition known to it which Landlord is required to repair.
Notwithstanding anything to the contrary contained in Section 10.01 above,
or Section 10.04(a) below, Landlord shall deliver the Premises to Tenant
with all operating and mechanical systems (including heating, ventilating
and air conditioning) in good working order and shall maintain the same in
said condition for one (1) year.
10.04 Tenant's Obligations
10.04 (a) Repair and Maintenance. Except as provided in Section
10.03, Article Eleven (Damage or Destruction) and Article Twelve
(Condemnation), and the last sentence of Section 10.03 above,
Tenant shall keep all portions of the Premises (including systems
and equipment) and the heating, ventilating and air conditioning
system in good order, condition and repair (including repainting
and refinishing, as needed). If any portion of the Premises or any
system or equipment in the Premises which Tenant shall be obligated
to repair can not be fully repaired or restored, Tenant shall
promptly replace such portion of the Premises or system or
equipment, 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, the useful life of
such replacement shall be prorated over the remaining portion of
the Lease Term. Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of
the heating and air conditioning system by a heating and air
conditioning contractor, such contract and such contractor to be
approved by Landlord. Landlord shall have the right, upon written
notice to Tenant, to undertake the responsibility for maintenance
of the heating and air conditioning system at Tenant's expense.
Landlord shall, at Tenant's expense, repair any damage to the
portions of the Premises Landlord shall be required to maintain
caused by Tenant's acts or omissions.
10.04 (b) Tenant's Expense. Tenant shall fulfill all of Tenant's
obligations under this Section 10.04 at Tenant's sole expense. If
Tenant shall fail to maintain, repair or replace the Premises as
required by this Section 10.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Premises and perform such
maintenance or repair (including replacement, as needed) on behalf
of Tenant. In such case, Tenant shall reimburse Landlord for ail
costs reasonably incurred in performing such maintenance, repair or
replacement within ten (10) days after demand.
10.05 Alterations, Additions, and Improvements
10.05 (a) Tenant's Work. Tenant shall not make any installations,
alterations, additions, or improvements in or to the Premises,
including, without limitation, any apertures in the walls,
partitions, ceilings or floors, without on each occasion obtaining
the prior consent of Landlord. Landlord agrees that it will not
unreasonably withhold, condition or delay its consent to any
alterations, improvements or installations which do not affect the
structure of the Building or any systems serving the Building. Any
such work so approved by Landlord shall be performed only in
accordance with plans and specifications therefor approved by
Landlord. Tenant shall procure at Tenant's sole expense all
necessary permits and licenses before undertaking any work on the
Premises and shall Perform all such work in a good and workmanlike
manner employing materials of good quality and so as to conform
with all applicable zoning, building, fire, health and other codes,
regulations, ordinances and laws and with all applicable insurance
requirements. If requested by Landlord, Tenant shall furnish to
Landlord prior to commencement of any such work a bond or other
security acceptable to Landlord assuring that any work by Tenant
will be completed in accordance with the approved plans and
specifications and that all subcontractors will be paid. Tenant
shall employ for such work only contractors approved by Landlord
and shall require all contractors employed by Tenant to carry
worker's compensation insurance in accordance with statutory
requirements and commercial general liability insurance covering
such contractors on or about the Premises with a combined single
limit not less than $3,000,000 and shall submit certificates
evidencing such coverage to Landlord prior to the commencement of
such work. Tenant shall indemnify and hold harmless Landlord from
all injury, loss, claims or damage to any person or Premises
occasioned by or growing out of such work. Landlord may inspect
the work of Tenant at reasonable times and given notice of observed
defects. 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.
10.05 (b) No Liens. Tenant shall pay when due all claims for
labor and material furnished to the Premises and shall at all times
keep the Premises free from liens for labor and materials. Tenant
shall give Landlord at least twenty (20) days' prior written notice
of the commencement of any work on the Premises, regardless of
whether Landlord's consent to such work is required. Landlord may
record and post notices of non-responsibility on the Premises.
10.06 Condition upon Termination. Upon the expiration or termination of
this Lease, Tenant shall surrender the Premises to Landlord broom clean and
in the condition which Tenant shall have been required to maintain the
Premises under this Lease. Tenant shall not be obligated to repair any
damage which Landlord is required to repair under Article Seven (Damage or
Destruction). Landlord (by so designating at the time it approves the
same) may require Tenant to remove any alterations, additions or
improvements at the expiration of the Lease and to restore the Premises to
their prior condition, all at Tenant's expense. Any alterations, additions
or improvements not required to be removed by Tenant 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
damage to the Premises. Tenant shall repair, at Tenant's expense, any
damage to the Premises 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; unless the same shall have been installed
by Tenant at its expense; any power wiring or wiring 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.
10.07 Landlord's Contribution. Landlord shall reimburse Tenant in
accordance with this Section 10.07 for its initial cost of improving or
remodeling existing office space within the Building or expanding such
office space ("Tenant's Initial Office Work") as approved by Landlord in
accordance with Section 10.05 above. Landlord shall reimburse Tenant for
the costs of Tenant's Initial Work upon completion of such work, to the
extent of the lesser of (i) $20,000.00, or (ii) the actual out of pocket
cost to Tenant for such work ("Landlord's Contribution"). Landlord shall
make such payment within 30 days after its receipt of (a) receipts (or such
other proofs of payment as Landlord shall reasonably require) from Tenant
for work done in connection with Tenant's Initial Office Work, (b) a
written statement from Tenant's architect, engineer, contractor, or any
other person employed by Tenant to perform work, that the work described on
any such invoices has been completed in accordance with the final plans and
specifications approved by Landlord pursuant to Section 10.05 above and
(c) a lien waiver executed by the contractors, material men and suppliers
engaged by or on behalf of Tenant in connection with Tenant's Initial
Office Work. Landlord shall not be required to make any payment hereunder
to Tenant during the continuation of any default by Tenant hereunder beyond
any applicable notice and grace periods.
ARTICLE ELEVEN: DAMAGE OR DESTRUCTION
11.01 Damage to Premises
11.01 (a) If the Premises shall be destroyed or rendered
untenantable, either wholly or in part, by fire or other casualty
("Casualty"). Tenant shall immediately notify Landlord in writing
upon the occurrence of such Casualty. In the event of any
Casualty, Landlord may elect either to (i) repair the damage caused
by such casualty 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 casualty occurred. Landlord shall notify
Tenant within thirty (30) days after receipt of notice of the
occurrence of the casualty whether Landlord elects to repair the
damage or terminate this Lease. If Landlord shall elect to repair
the damage, Tenant shall pay Landlord the portion of the
"deductible amount" (if any) under Landlord's insurance allocable
to the damage to the Premises and, if the damage shall have been
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.
11.01 (b) If the casualty to the Premises shall occur during the
last six (6) months of the Lease Term and the damage shall be
estimated by Landlord to require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease
as of the date the casualty shall have 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 ten (1O) days after Tenant's notice
to Landlord of the occurrence of the casualty.
11.01 Temporary Reduction of Rent. If the Premises shall be destroyed or
damaged by casualty and Landlord shall determine to repair or restore the
Premises pursuant to the provisions of this Article Eleven, any Rent
payable during the period of such damage, repair and/or restoration shall
be reduced according to the degree, if any, to which Tenant's use of the
Premises shall be impaired. Such reduction shall not exceed the sum of one
year's payment of Base Rent, insurance premiums and Real Property Taxes.
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 of the Premises.
11.03 Waiver. Tenant waives the protection of any statute, code or
judicial decision which shall grant a tenant the right to terminate a lease
in the event of the damage or destruction of the leased property and the
provisions of this Article Eleven shall govern the rights and obligations
of Landlord and Tenant in the event of any damage or destruction of or to
the Premises.
ARTICLE TWELVE: CONDEMNATION
12.01 Condemnation. If more than twenty percent (20%) of the floor area of
the building or more than twenty-five percent (25%) of the parking on the
Premises, shall be taken by eminent domain either Landlord or Tenant may
terminate this Lease as of the date the condemning authority takes title or
possession, by delivering 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 shall take title or
possession). If neither Landlord nor Tenant shall terminate this Lease,
this Lease shall remain in effect as to the portion of the Premises not
taken, except that the Bass Rent shall be reduced in proportion to the
reduction in the floor area of the Building. If this Lease shall be
terminated, any condemnation award or payment shall be distributed to the
Landlord. Tenant shall have no claim against landlord for the value of the
unexpired lease term or otherwise, except that Tenant may file a separate
claim for moving expenses and removal of trade fixtures and other personal
property as long as such claim does not reduce Landlord's award.
ARTICLE THIRTEEN: ASSIGNMENT AND SUBLETTING
13.01 Landlord's Consent Required. No portion of the Premises or of
Tenant's interest in this Lease shall 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 13.02 below. Landlord, acting
reasonably, shall have the right to grant or withhold its consent as
provided in Section 13.04 below, which consent shall not be unreasonably
withheld or delayed. Any attempted transfer without consent shall be void
and shall constitute a non curable breach of this Lease.
13.02 No Release of Tenant. No assignment or transfer 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 Tenant or any other person shall not be a waiver of any provision
or this Article Thirteen. Consent to one transfer shall not be deemed a
consent to any subsequent transfer or a waiver of the obligation to obtain
consent on subsequent occasions. If Tenant's assignee or transferee shall
default under this Lease, Landlord may proceed directly against Tenant
without pursuing remedies against the assignee or transferee. Landlord may
consent to subsequent assignments or modifications of this Lease by
Tenant's transferee without notifying Tenant or obtaining its consent, and
such action shall not release Tenant from any of its obligations or
liabilities under this Lease as so assigned or modified.
13.03 Offer to Terminate. If Tenant shall desire to assign this Lease or
sublease all or any part of the Premises, Tenant shall offer to Landlord in
writing, the right to terminate this Lease as of the date specified in the
offer. If Landlord shall elect in writing to accept the offer to terminate
within twenty (20) days after receipt of notice of the offer, this Lease
shall terminate as of the date specified in such offer and all the terms
and provisions of this Lease governing termination shall apply. If
Landlord shall not so elect, Tenant shall then comply with the provisions
of this Article Thirteen applicable to such assignment of sublease.
13.04 Landlord's Consent. Tenant's request for consent under
Section 13.01 shall set forth the details of the proposed sublease,
assignment or transfer, including the name, business and financial
condition of the prospective transferee, financial details of the proposed
transaction (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, reasonably exercised, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the
proposed use of the Premises; (ii) the net worth and financial condition of
the proposed assignee or subtenant; (iii) Tenant's compliance with all of
its obligations under this Lease; and (iv) such other factors as Landlord
may reasonably deem relevant. If Tenant shall assign or sublease, the
following shall apply: Tenant shall pay to Landlord as Additional Rent
fifty percent (50%) of the Profit (defined below) on such transaction such
amount being Landlord's sharer as and when received by Tenant, unless
Landlord shall give notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. Profit shall mean (a) all rent and all fees and other
consideration paid for or in respect of the assignment or sublease,
including fees under any collateral agreements less (B) the rent and other
sums payable under this Lease (in the case of a sublease of less than all
of the Premises, allocable to the subleased premises) and all costs and
expenses directly incurred by Tenant in connection with the execution and
performance of such assignment or sublease for reasonable real estate
broker's commissions and reasonable costs of renovation or construction of
tenant improvements required under such assignment or sublease. Tenant
shall be entitled to recover such reasonable costs and expenses before
Tenant shall be obligated to pay Landlord's Share to Landlord. Tenant
shall provide Landlord a written statement certifying all amounts to be
paid from any assignment or sublease of the Premises within thirty (30)
days after the transaction shall be signed and from time to time thereafter
on Landlord's request, 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.
ARTICLE FOURTEEN: DEFAULTS AND REMEDIES
14.01 Covenants and Conditions. Tenant's performance of each of Tenant's
obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Premises is conditioned
upon such performance. Time is of the essence in the performance by Tenant
of all covenants and conditions.
14.02 Defaults. Each of the following shall be an event of default under
this Lease:
14.02(a) Tenant shall abandon the Premises;
14.02(b) Tenant shall fail to Pay Rent or any other sum payable
under this Lease within five (5) days after notice of non-payment:
14.02(c) Tenant shall fail to perform any of Tenant's other
obligations under this Lease and such failure shall continue for a
period of fifteen (15) days after notice from Landlord; provided
that if more than fifteen (15) days shall be required to complete
such performance, Tenant shall not be in default if Tenant shall
commence such performance within the fifteen (15) day period and
shall thereafter diligently pursue its completion.
14.02(d)(i) Tenant shall make a general assignment or general
arrangement for the benefit of creditors: (ii) a petition for
adjudication of bankruptcy or for reorganization or rearrangement
shall be filed by or against Tenant and shall not be dismissed
within sixty (60) days; (iii) a trustee or receiver shall be
appointed to take possession of substantially all of Tenant's
assets located at the Premises or Tenant's interest in this Lease
and possession shall be subjected to attachment, execution or other
judicial seizure which shall not be discharged within sixty (60)
days. If a court of competent jurisdiction shall determine that
any of the acts described in this subsection (d) is not a default
under this Lease, and a trustee shall be appointed to take
possession (or if Tenant shall remain a debtor in possession) and
such trustee or Tenant shall assign, sublease, or transfer Tenant's
interest hereunder, then Landlord shall receive, as Additional
Rent, the excess, if any, of The rent for any other consideration)
paid in connection with such assignment, transfer or sublease over
the rent payable by Tenant under this Lease.
14.03 Remedies. On the occurrence of an event of default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand
(except as provided in Section 14.02) and without limiting Landlord in the
exercise of any right or remedy which Landlord may have:
14.03(a) Terminate this Lease by written notice to Tenant or by
entry, at Landlord's option. Tenant shall then immediately quit
and surrender the Premises to Landlord, but Tenant shall remain
liable as hereinafter provided. Following termination, without
prejudice to other remedies Landlord may have by reason of Tenant's
default or of such termination, Landlord may (i) peaceably reenter
the Premises upon voluntary surrender by Tenant or remove Tenant
therefrom and any other persons occupying the Premises, using such
legal proceedings as may be available; (ii) repossess the Premises
or relet the Premises or any part thereof for such term (which may
be for a term extending beyond the Lease Term), at such rental and
upon such other terms and conditions as Landlord in Landlord's sole
discretion shall determine, with the right to make alterations and
repairs to the Premises; and (iii) remove all personal property
therefrom. Following termination, Landlord shall have all the
rights and remedies of a landlord provided at law and in equity.
The amount of damages Tenant shall pay to Landlord following
termination shall include all Rent unpaid up to the termination of
this Lease, costs and expenses incurred by Landlord due to such
Event of Default and, in addition, Tenant shall pay to Landlord as
damages, at the election of Landlord (if Landlord shall elect
subsection (y) below, it may cease such election at any time),
either (x) the discounted present values (at the then Federal
Reserve Bank discount rate) of the aggregate Rent and other charges
due during the period commencing with such termination and ending
on the expiration date of this Lease, or (y) amount equal to the
Rent and other charges which would have been payable by Tenant had
this Lease or Tenant's right to Possession not been so terminated,
payable upon the due dates therefor specified herein following such
termination and until the expiration date Of this Lease, provided,
however, that if Landlord shall re-let the Premises during such
period, Landlord shall credit Tenant with the net rents received by
Landlord from such re-letting, such net rents to be determined by
first deducting from the gross rents as and when received by
Landlord from such re-letting the expenses incurred or paid by
Landlord in terminating this Lease, and the expenses of reletting,
including, without limitation, altering and preparing the premises
for new tenants, brokers' commissions, legal fees and all other
similar and dissimilar expenses properly chargeable against the
Premises and the rental therefrom, it being understood that any
such reletting may be for a period equal to or shorter or longer
than the remaining Lease Term; and provided, further, that (i) in
no event shall Tenant be entitled to receive any excess of such net
rents over the sums payable by Tenant to Landlord hereunder and
(ii) in no event shall Tenant be entitled in any suit for the
collection of damages pursuant to this subsection (y) to a credit
in respect of any net rents from a re-letting except to the extent
that such net rents are actually received by Landlord prior to the
commencement of such suit. If the Premises or any part thereof
should be re-let in combination with other space, then proper
apportionment on a square foot area basis shall be made of the rent
received from such re-letting and of the expenses of re-letting.
In calculating the Rent and other charges under subsection (x)
above, there shall be included, in addition to the Rent other
considerations agreed to be paid or performed by Tenant on the
assumption that all such considerations would have remained
constant (except as herein otherwise provided) for the balance of
the full term hereby granted. Landlord may, but need not, re-let
the Premises or any part thereof for such rent and on such terms as
it shall determine (including the right to re-let the Premises for
a greater or lesser term than the Lease Term, the right to re-let
the Premises as part of a larger area and the right to change the
character or use made of the Premises). Suit or suits for the
recovery of such damages, or any installments thereof, may be
brought by Landlord from time to time at its election, and nothing
contained herein shall be deemed to require Landlord to postpone
suit until the date when the Term of this Lease would have expired
if it had not been terminated hereunder.
14.03(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned
the Premises. In such event, Landlord shall be enticed to enforce
all of Landlord's rights and remedies under this Lease, including
the right to recover the rent as it becomes due.
14.03(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which
the Premises is located.
14.04 Landlord's Waiver. Landlord agrees to execute and deliver a
Landlord's Release and Waiver in the form of Exhibit D promptly upon
Tenant's request with respect to any equipment installed at the Premises by
Tenant, which equipment Tenant finances with an unaffiliated lender and
which equipment is pledged to such lender.
14.05 Automatic Termination: Damages. Notwithstanding any other term or
provision hereof to the contrary, this Lease shall terminate on the
occurrence of any act which affirms the Landlord's intention to terminate
the Lease as provided in Section 14.03 hereof, including the filing of an
unlawful detainer action against Tenant. On any termination, Landlord's
damages for default shall include all costs and fees, including reasonable
attorneys' fees that Landlord shall incur 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 Premises. All such damages suffered (apart from Base Rent and other
Rent payable hereunder) shall constitute pecuniary damages which shall be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceedings.
14.06 Cumulative Remedies. Except as otherwise expressly provided
herein, any and all rights and remedies which Landlord may have under this
Lease and at law and equity shall be cumulative and shall not be deemed
inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time to the greatest extent permitted
by law.
ARTICLE FIFTEEN: PROTECTION OF LENDERS
15.01 Subordination. Landlord shall have the right to subordinate this
Lease to any ground lease, deed of trust or mortgage encumbering the
Premises, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any
lender which shall acquire a security interest in the Premises 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 and Tenant's use or Possession of the Premises
shall not be disturbed thereby. 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.
15.02 Attornment. If Landlord's interest in the Premises 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 Premises and recognize such
transferee or successor as Landlord under this Lease.
15.03 Signing of Documents. Tenant shall sign and deliver any instrument
or documents reasonably satisfactory to Tenant necessary or appropriate to
evidence any such attornment or subordination or agreement to do so.
15.04 Estoppel Certificates. Within ten (10) days after Landlord's
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, setting forth such default in reasonable detail) and (v) such
other information with respect to Tenant or this Lease as Landlord may
reasonably request or which any prospective purchaser or encumbrancer of
the Premises may require. Landlord may deliver any such statement by
Tenant to any prospective purchaser or encumbrancer of the Premises, and
such purchaser or encumbrancer may rely conclusively upon such statement as
true and correct If Tenant shall 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 this Lease.
In such event, Tenant shall be estopped from denying the truth of such
facts.
15.05 Tenant's Financial Condition. Within ten (10) days after request
from Landlord from time to time, Tenant shall deliver to Landlord Tenant's
audited financial statements for the latest available fiscal year. Such
financial statements shall be delivered to Landlord's mortgagees and
lenders and prospective mortgagees, lenders and purchasers. Tenant
represents and warrants to Landlord that each such financial statement
shall be true and accurate as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes
set forth in this Lease.
ARTICLE SIXTEEN: LEGAL COSTS
16.01 Legal Proceedings. In the event of any litigation between the
parties, the prevailing party shall be entitled to its legal fees and
expenses.
16.02 Landlord's Consent. Tenant shall pay Landlord's reasonable fees
and expenses, including, without limitation, legal, engineering and other
consultants' fees and expenses, incurred in connection With Tenant's
request for Landlord's consent under Article Thirteen (Assignment and
Subletting) or in connection with any other act by Tenant which requires
Landlord's consent or approval under This Lease.
ARTICLE SEVENTEEN: MISCELLANEOUS PROVISIONS
17.01 Non-Discrimination. Tenant agrees that it will not permit any
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
Premises or any portion thereof.
17.02 Landlord's Liability; Certain Duties.
17.02(a) Bind and Inure; Limitation of Landlord's Liability. The
obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. No owner of
the Premises shall be liable under this Lease except for breaches
of Landlord's obligations occurring while owner of the Premises.
The obligations of Landlord shall be binding upon the assets of
Landlord which comprise the Premises but not upon other assets of
Landlord. No individual partner, trustee, stockholder, officer,
director, employee, or beneficiary of Landlord shall be personally
liable under this Lease and Tenant shall look solely to Landlord's
interest in the Premises in pursuit of its remedies upon an event
of default hereunder, and the general assets of Landlord and its
partners, trustees, stockholders, officers, employees or
beneficiaries of Landlord shall not be subject to levy, execution
or other enforcement procedure for the satisfaction of the remedies
of Tenant.
17.02 (b) Notice. Tenant shall give 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 Premises whose name and address
shall have been furnished to Tenant. Landlord shall not be in
default under this Lease unless Landlord (or such ground lessor,
mortgagee or beneficiary) shall fail to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However,
if such non-performance shall reasonably require more than
thirty (30) days to cure, Landlord shall not be in default if such
cure shall be commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
17.03 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 of this Lease, which shall remain in full force and effect.
17.04 Interpretation. The captions of the Articles or Sections of this
Lease 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 ganders shall each include the other, in any provision relating
to the conduct, acts or omissions of Tenant, the term "Tenant" shall
include Tenant's agents, employees, contractors, invitees, successors or
others using the Premises with Tenant's expressed or implied permission.
17.05 Incorporation of Prior Agreements; Modifications. This Lease is
the only agreement between the parties pertaining to the lease of the
Premises and no other agreements shall be effective. All amendments to
this Lease shall be in writing and signed by all parties. Any other
attempted amendment shall be void.
17.06 Notices. All notices, requests and other communications 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 or by a national overnight delivery service which maintains
delivery records. Notices to Tenant shall be delivered to the address
specified in Section 1.18 above. Notices to Landlord shall be delivered to
the address specified in Section 1.17 above. All notices shall be
effective upon delivery (or refusal to accept delivery). Either party may
change its notice address upon written notice to the other party.
17.07 Waivers. All waivers shall 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
by to the conditions of such statement.
17.08 No Recordation. Tenant shall not record this Lease. Either
Landlord or Tenant may require that a notice, short form or memorandum of
this Lease executed by both parties be recorded. The party requiring such
recording shall pay all transfer taxes and recording fees.
17.09 Binding Effect; Choice of Law. This Lease shall bind any party who
shall legally acquire any rights or interest in this Lease from Landlord or
Tenant, provided that 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 Premises is located shall govern this Lease.
17.10 Corporate Authority; Partnership Authority. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents
and warrants that (s)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 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 prompt notice to Landlord of any general
partner's withdrawal or addition from time to time. 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.
17.11 Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
17.12 Force Majeure. If Landlord can not perform any of its obligations
due to events beyond Landlord's reasonable 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 reasonable 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.
17.13 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.
17.14 Survival. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
17.15 Examination of Lease. Submission of this Lease to Tenant shall not
constitute an option to lease, and this Lease shall not be effective until
execution and delivery by both Landlord and Tenant.
17.16 Intentionally Deleted.
17.17 Limitation of Warranties. LANDLORD AND TENANT EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE N0 IMPLIED WARRANTIES OF MERCHANTABILITY,
SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING
OUT OF THIS Lease, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE
EXPRESSLY SET FORTH IN THIS LEASE. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, TENANT EXPRESSLY ACKNOWLEDGES THAT LANDLORD HAS MADE NO
WARRANTIES OR REPRESENTATIONS CONCERNING ANY HAZARDOUS Materials OR OTHER
ENVIRONMENTAL MATTERS AFFECTING ANY PART OF THE Premises AND LANDLORD
HEREBY EXPRESSLY DISCLAIMS AND TENANT WAIVES ANY EXPRESS OR IMPLIED
WARRANTIES WITH RESPECT TO ANY SUCH MATTERS.
17.18 No Other Brokers. Tenant represents and warrants to Landlord that
the brokers named in Section 1.12 above are the only agents, brokers,
finders or other parties with whom Tenant has dealt who may be entitled to
any commission or fee with respect to this Lease or the Premises or the
Premises. Tenant agrees to indemnify and hold Landlord harmless from any
claim, demand, cost or liability, including, without limitation, attorneys'
fees and expenses, asserted by any party other than the brokers named in
Section 1.12 based upon dealings of that party with Tenant.
Signed on _____________, 1997 LANDLORD
at ___________________________
KNICKERBOCKER INDUSTRIAL
PROPERTIES EAST, L.P.
By: Knickerbocker
Properties, Inc. XVIII,
its General Partner
By:__________________________
Its: ________________________
Signed on _____________, 1997 TENANT
at __________________________ PETCO ANIMAL SUPPLIES, INC.
By:__________________________
Richard St. Peter
Its: Executive Vice President &
CFO
EXHIBIT "B" - RULES AND REGULATIONS
1. No advertisements, pictures or signs of any sort shall be displayed
on or outside the Premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld (subject
to the Park Covenants and Landlord's sign standards). This
prohibition shall include any portable signs or vehicles placed
within the parking lot, common areas or on streets adjacent thereto
for the purpose of advertising or display. Landlord shall have the
right to remove any such unapproved item without notice and at
Tenant's expense.
2. Intentionally Omitted..
3. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord without the prior written consent of
Landlord.
4. All window coverings and window films or coatings installed by
Tenant and visible from outside of the building require the prior
written approval of Landlord. Except for dock shelters and seals as
may be expressly permitted by Landlord, no awnings or other
projections shall be attached to the outside walls of the building.
5. Tenant shall use, keep or permit to be used or kept any foul or
noxious gas or substance on, in or around the Premises unless
approved by Landlord. Tenant shall not use, keep or permit to be
used or kept any flammable or combustible materials without proper
governmental permits and approvals.
6. Tenant shall not use, keep or permit to be used or kept food or
other edible materials in or around the Premises in such a manner as
to attract rodents, vermin or other pests. Tenant shall not permit
cooking in or about the Premises other than in microwave ovens.
7. Tenant shall not use or permit the use of the Premises for lodging
or sleeping, for public assembly, or for any illegal or immoral
purpose.
8. Tenant shall not alter any lock or install any new locks or bolts on
any door at the Premises without the prior written consent of
Landlord. Tenant agrees not to make any duplicate keys without the
prior consent of Landlord.
9. Tenant shall park motor vehicles in paved areas only and shall not
block any emergency entrances or exits. During loading and
unloading of vehicles or containers, Tenant shall not unreasonably
interfere with traffic flow within the industrial park and loading
and unloading areas of other tenants.
10. Storage of propane tanks, whether interior or exterior, shall be in
secure and protected storage enclosures approved by the local fire
department and, if exterior, shall be located in areas specifically
designated by Landlord. Safety equipment, including eye wash
stations and approved neutralizing agents, shall be provided in
areas used for the maintenance and charging of lead-acid batteries.
Tenant shall protect electrical panels and building mechanical
equipment from damage from forklift trucks.
11. Tenant shall not disturb, solicit or canvas any occupant of the
Building or industrial park and shall cooperate to prevent same.
12. No person shall go on the roof of the Premises without Landlord's
Permission except to perform obligations under its lease.
13. Intentionally Deleted.
14. Machinery, equipment and apparatus belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the
Building to such a degree as to be objectionable to Landlord or
other tenants or to cause harm to the Building shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate the transmission of such
noise and vibration. Tenant shall cease using any such machinery
which causes objectionable noise and vibration which can not be
sufficiently mitigated.
15. All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into the Premises as
soon as reasonably possible.
16. Tractor trailers which must be unhooked or parked with dolly wheels
beyond the concrete loading areas must use steel plates or wood
blocks of sufficient size to prevent damage to the asphalt paving
surfaces. No parking or storing of such trailers will be permitted
in the auto parking areas of the industrial park or on streets
adjacent thereto.
17. Forklifts which operate on asphalt paving areas shall not have solid
rubber tires and shall use only tires that do not damage the
asphalt.
18. Tenant shall be responsible for the safe storage and removal of all
pallets. If pallets are stored within the Premises, storage shall
comply with safe practices as described in Factory Mutual Loss
Prevention Data Sheet 8-24.
19. Tenant shall be responsible for the safe storage and removal of all
trash and refuse. All such trash and refuse shall be contained in
suitable receptacles stored behind screened enclosures at locations
approved by Landlord, provided that dumpsters need not be screened.
Landlord reserves the right to remove, at Tenant's expense and
without further notice, any trash or refuse left elsewhere outside
of the Premises or in the industrial park.
20. No displays or sales of merchandise shall be allowed in the parking
lots or other common areas.
21. Tenant shall appoint an Emergency Coordinator who shall be
responsible for assuring notification of the local fire department
in the event of an emergency, assuring that sprinkler valves are
kept open and implementing the Factory Mutual "Red Tag Alert" system
including weekly visual inspection of all sprinkler system valves on
or within the Premises.
_________________ Landlord
_________________ Tenant
EXHIBIT "C" - ACCEPTANCE OF PREMISES
As of this date, Tenant acknowledges and accepts delivery of
possession of the Premises as described in the Lease dated
________________, 1997 in their as is condition as of the date hereof,
subject to all recorded matters, laws, ordinances, and governmental
regulations and orders. Except as provided in the Lease, Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty as to the condition of the Premises or the
suitability at the Premises for Tenant's intended use. Tenant represents
and warrants that Tenant has made its own inspection of and inquiry
regarding the condition of the Premises and is not relying on any
representations or warranties of Landlord or any broker with respect
thereto. Tenant further acknowledges that the Lease is in full force and
effect as of this date.
TENANT
Date: __________, 1996 PETCO ANIMAL SUPPLIES, INC.
By:________________________
Its Vice President-Real Estate
EXHIBIT "D"
Landlord's Release and Waiver
Re:
Tenant's Lender
Gentlemen:
The undersigned, owner of certain premises located at
_______________________, in the County of _____________, State of
__________________, legally described as follows:
(hereinafter called the "Premises"), and Landlord of said Premises to
(hereinafter called the "Tenant"), pursuant to that certain Lease dated
____________________, agrees as follows with respect to the various
equipment to be installed at the Premises:
1. The undersigned hereby subordinates any all right, title
and interest of the undersigned in and to the personal property, described
in Exhibit A attached hereto, now or hereafter located upon or installed in
or upon said Premises to you and your successors and assigns interest
thereby, and the undersigned hereby consents to the locating or installing
of said personal property in or upon said Premises.
2. The undersigned further authorizes you, your successors
or assigns, at your election, provided you shall give the undersigned
reasonable notice (in no event less than two (2) business days) and an
opportunity to be present during such entry, to enter upon said Premises
during business hours during the Lease term and to remove said personal
property therefrom, committing only such injury to said Premises as may be
necessary to effect such removal, provided that you shall reimburse the
undersigned for the cost of repair of any physical injury to the Premises
caused by removal of personal property and provided that in no event shall
you commit, or permit to be committed, any structural damage to said
Premises or damages any systems, or to any building or improvement of which
said Premises are a part; provided, however that the undersigned shall have
the right to purchase said personal property from you at such time as you
shall elect to remove the same from said Premises, paying therefore such
sum as may be agreed upon between you and the undersigned. If the
undersigned is interested in considering this right to purchase, he shall
provide you with a non-binding notice of such interest within the
referenced two (2) business days notice period. Thereafter, you will allow
the undersigned ten (10) days in which to make a final decision, and you
shall not remove the property during this ten (10) day period.
The undersigned further agrees that any lien obtained by the
undersigned for non-payment of rent or any other debt now due or hereafter
becoming due to the undersigned from Tenant, or any subsequent tenant shall
be subject and subordinate to your interest.
This Release and Waiver shall remain in effect so long as you,
your successors or assigns, shall have any interest in said personal
property by virtue of a chattel mortgage, or otherwise.
The undersigned executes this Release and Waiver upon the
express condition that this Release and Waiver shall not be effective
unless you agree to all of the terms hereinabove contained, and further, on
the condition that you agree (a) that the removal of any roof mounted
equipment shall be done under the direct supervision of the undersigned or
its agent and any openings or penetrations shall be repaired in accordance
with plans approved in writing by the undersigned, (b) that any air
conditioning and heating or ventilation equipment, chap ceiling, electric
conduit and ceiling lighting installed shall become and remain a part of
the real property, (c) to provide the undersigned with no less than two (2)
business days written notice in the event of entry for repossession, and an
opportunity to be present during such entry, (d) to remove the personal
property on or before the expiration or earlier termination of this Lease,
and if you fail to do so on or before fifteen (1.5) days following your
receipt of written request so to remove such personal property, then as
between you and the undersigned you shall be deemed to have waived any and
all rights which you have had to such property. If you remove the personal
property in accordance herewith, you will store and dispose of or sell the
personal property at some place other than the Premises, unless the same
shall be purchased by the undersigned as provided above, (e) to indemnify,
hold harmless and defend the undersigned from any liability, cost, demand,
cause of action and claim which may arise or be asserted by reason of or
attributable to any actions, activities or omissions in connection with the
entry upon said Premises as hereinabove provided, including, without
limitation damage to property and injury to persons.
Please indicate your acceptance and approval of the forgoing by
signing, dating and returning four (4) copies of this document to the
undersigned, upon receipt of which this document shall be deemed effective.
ACKNOWLEDGED AND AGREED:
Owner/Landlord:
By:
Its:
Date:
*************************************
IN THE STATE OF ________________
IN THE COUNTY OF _______________
On ________________, before me, _________________ personally
appeared _____________________________ personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.
Witness my hand and official seal.
SEAL
63210.059 #2662
INDUSTRIAL REAL ESTATE LEASE
TABLE OF CONTENTS
Article Page
One Basic Terms 1
Two Premises 3
Three Lease Term 3
Four Rent 6
Five Property Taxes 7
Six Utilities 8
Seven Insurance 9
Eight Common Areas 12
Nine Use of Premises 14
Ten Condition and Maintenance of Premises 16
Eleven Damage or Destruction 21
Twelve Condemnation 22
Thirteen Assignment and Subletting 22
Fourteen Defaults and Remedies 24
Fifteen Protection of Lenders 28
Sixteen Legal Costs 29
Seventeen Miscellaneous Provisions 30
INDUSTRIAL REAL ESTATE LEASE
between
KNICKERBOCKER INDUSTRIAL PROPERTIES EAST, L.P.
Landlord
and
PETCO ANIMAL SUPPLIES, INC.
Tenant
Dated as of June __, 1997
EXHIBIT A
All that certain tract or parcel of land and premises situate in the
Township of South Brunswick, County of Middlesex, and State of New Jersey,
and more particularly described as follows:
BEGINNING at a point in the northwesterly side line of Jamesburg Road, also
known as Dayton-Jamesburg Road (33 feet in width), at the division point
between lands herein conveyed (Lot 8 in Block 18) and lands now or formerly
of Charles H. Holsten, Jr., et ux (Lot 9.02 in Block 18); thence
(1) North 23 degrees 09 minutes 24 seconds West, along the line of said
Holsten, 781.44 feet; thence
(2) South 79 degrees 45 minutes 38 seconds East 1834.66 feet; thence
(3) South 56 degrees 32 minutes 32 seconds East 421.29 feet to a point
in the northerly side line of Jamesburg Road; thence
(4) in a general southwesterly direction, along the said northerly and
northwesterly side line of Jamesburg Road, on a curve to the left
with a radius of 1176.50 feet, an arc distance of 998.15 feet to a
point of reverse curve therein; thence
(5) in a general southwesterly direction, along the said northwesterly
side line of Jamesburg Road, on a curve to the right with a radius
of 1383.50 feet, an arc distance of 424.81 feet to a point of
tangency therein; thence
(6) still along the said northwesterly side line of Jamesburg Road,
South 83 degrees 33 minutes 36 seconds West, 475.90 feet to the
place of BEGINNING.
The aforesaid premises being also known as Dayton Industrial Park, South
Brunswick, New Jersey, and designated as Block 18, Lot 8 on the Official
Tax Map of South Brunswick, Middlesex, New Jersey.
Exhibit 10.6
BUILD TO SUIT
LEASE AGREEMENT
BETWEEN
INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC.
AS LANDLORD
AND
PETCO ANIMAL SUPPLIES, INC.
AS TENANT
DATED FEBRUARY 20, 1998
LEASE INDEX
Section Subject
1 Basic Lease Provisions
2 Demised Premises
3 Term
4 Minimum Rent
5 Tenant's Right to Cease Operations
6 Additional Rent
7 Use of Demised Premises
8 Insurance
9 Utilities
10 Taxes and Other Impositions
11 Maintenance and Repairs
12 Tenants' Personal Property; Indemnity
13 Tenant's Fixtures
14 Signs
15 [INTENTIONALLY OMITTED]
16 Governmental Regulations
17 Environmental Matters
18 Plans and Specifications for Construction of Demised
Premises
19 Tenant Alterations and Additions
20 Services by Landlord
21 Fire and Other Casualty
22 Condemnation
23 Tenant's Default
24 Landlord's Right of Entry
25 Mortgagee's Rights
26 Estoppel Certificate
27 Landlord Liability
28 Notices and Payments
29 Brokers
30 Assignment and Subleasing
31 Termination or Expiration
32 Late Payments
33 Protective Covenants
34 Dispute Resolution Procedure
35 Waiver of Landlord's Lien
36 Quiet Enjoyment
37 Miscellaneous
Exhibit "A" Legal Description
Exhibit "A-1" Site Plan
Exhibit "B" Permitted Encumbrances
Exhibit "C" Expansion Land
Exhibit "C-1" Alternate Expansion Land
Exhibit "D" Prevailing Market Rate
Exhibit "E" Allowance Work
Exhibit "F" Environmental Reports
Exhibit "G" Base Building Plans and Specifications
Exhibit "G-1" Additional Plans and Specifications
Exhibit "G-2" Tenant's Work
Exhibit "H" Subordination, Non-Disturbance and Attornment
Agreement
Exhibit "I" Protective Covenants
Exhibit "J" Landlord's Agreement
BUILD TO SUIT
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made this 20th day of
February, 1998 ("Lease Date"), by and between INDUSTRIAL DEVELOPMENTS
INTERNATIONAL, INC., a Delaware corporation ("Landlord"), and PETCO
ANIMAL SUPPLIES, INC., a _______________________ corporation ("Tenant")
(the words "Landlord" and "Tenant" to include their respective legal
representatives, successors and permitted assigns where the context
requires or permits).
W I T N E S S E T H:
1. Basic Lease Provisions. The following constitute the "Basic
Lease Provisions" of this Lease:
(a) Demised Premises: As described in Section 2 of this
Lease. The term "Base Building", as used in this
Lease, shall mean the Building (as hereinafter
defined) constructed by Landlord in accordance with
this Lease prior to construction of Expansion
Improvements (as defined in Section 3.1), if any.
(b) Building Square Footage: Approximately 258,000 square
feet (subject to adjustment pursuant to Section 18(j)
of this Lease), as such amount may be increased by the
square footage of the Expansion Improvements, if any.
(c) Annual Minimum Rent (subject to adjustment pursuant to
Section 18(j) of this Lease):
Lease Year one (1) $745,620.00
Lease Year two (2) $758,520.00
Lease Years three (3) through five (5) $771,420.00
Lease Years six (6) and seven (7) $879,780.00
The Annual Minimum Rent for the Base Building is
sometimes referred to in this Lease as the "Base
Building Annual Minimum Rent".
(d) Monthly Minimum Rent Installments (subject to
adjustment pursuant to Section 18(j) of this Lease):
Lease Year one (1) $62,135.00
Lease Year two (2) $63,210.00
Lease Years three (3) through five (5) $64,285.00
Lease Years six (6) and seven (7) $73,315.00
(e) Lease Commencement Date: The date of Substantial
Completion (as defined in Section 3 of this Lease) or
April 7, 1998, whichever is later.
(f) Minimum Rent Commencement Date: The Lease
Commencement Date
(g) Term: Seven (7) years following the Lease
Commencement Date (subject to adjustment in accordance
with Section 3 of this Lease).
(h) [INTENTIONALLY OMITTED]
(i) Permitted Use: Storage, warehousing and distribution
of pet supplies, pet food and pet-related goods of all
kinds and general office use ancillary thereto
(collectively, the "Primary Use") and (2) subject to
the limitations hereinafter specified in Section 7(a)
of this Lease and in this subsection (i), storage,
warehousing and distribution permissible under
applicable laws and regulations of governmental
authorities having jurisdiction over the Demised
Premises (collectively, "Governmental Requirements")
and under the Protective Covenants (as defined in
Section 33), and general office use ancillary thereto;
the Permitted Use (a) shall never include any use
prohibited by Section 17 of this Lease, (b) shall
never extend to or allow the use of radioactive or
biohazardous materials at the Demised Premises,
(c) shall never include any heavy manufacturing, the
manufacture or production of chemicals or petroleum
(or distillates thereof) or any other use wherein a
Hazardous Substance (as defined in Section 17)
constitutes the principal or primary product of the
business to be conducted at the Demised Premises and
(d) must not result in a material increase in the wear
and tear on the Demised Premises, as compared to the
Primary Use; and with respect to any Permitted Use
other than the Primary Use, such Permitted Use must
not, in the reasonable judgment of Landlord, result in
a material increase in the risk of Contamination (as
defined in Section 17) at the Demised Premises, as
compared to the Primary Use. The Primary Use may be
altered only in accordance with Section 7(a) of this
Lease..
.
(j) Addresses for notice:
Landlord: Industrial Developments
International, Inc.
Monarch Tower
3424 Peachtree Road, Suite 1500
Atlanta, Georgia 30326
Attention: Chief Operating
Officer
Tenant: PETCO ANIMAL SUPPLIES, INC.
9125 Rehco Road
San Diego, California 92121-2270
Attn: Property Manager
AND:
PETCO ANIMAL SUPPLIES, INC.
3801 Rock Creek Boulevard
Joliet, Illinois 60431
Attn: Property Manager
(k) Address for rental payments:
Industrial Developments
International, Inc.
P.O. Box 930190
Atlanta, Georgia 31193
(l) Broker(s): Lee & Associates
3535 Inland Empire Boulevard
Ontario, California 91764
2. Demised Premises. For and in consideration of the rent
hereinafter reserved and the mutual covenants hereinafter contained,
Landlord does hereby lease and demise unto Tenant, and Tenant does
hereby lease and accept from Landlord, that certain parcel of real
property (the "Land") containing approximately 13.23 acres, which Land
is situated in DuPage County, City of Joliet, Illinois, within Rock Run
Business Park (the "Project") and is more particularly described in
Exhibit "A" attached hereto and by this reference made a part hereof,
together with and including all buildings, structures, driveways,
parking lots, walkways, landscaping and other appurtenances thereto and
all other improvements constructed or placed on the Land in accordance
with this Lease, at any time during the Term, including specifically,
but without limitation, a building (the "Building") containing
approximately 258,000 square feet of office and warehouse space, which
is located on the Land as shown on Exhibit "A-1" attached hereto
(collectively, the "Demised Premises"). This Lease and the rights of
Landlord andTenant under this Lease are subject to the matters set forth
on Exhibit "B" attached hereto (herein referred to as "Permitted
Encumbrances").
3. Term.
(a) To have and to hold the Demised Premises for a term
("Term") which will commence on the Lease Date and shall expire seven
(7) years after the Lease Commencement Date; provided, however, that if
the Lease Commencement Date is a day other than the first day of a
calendar month, the first Lease Year (as hereinafter defined) will also
include the period between the Lease Commencement Date and the end of
the calendar month in which the Lease Commencement Date occurs and,
thereafter, each Lease Year shall commence on the anniversary of the
first calendar day of the first full calendar month after the Lease
Commencement Date. The Term of this Lease shall end on the final day
thereof without the requirement of notice from either party to the
other. The term "Lease Year", as used in this Lease, shall mean the 12-
month period commencing on the Lease Commencement Date, and each 12-
month period thereafter during the Term. If this Lease terminates in
accordance with its terms on a day other than the last day of the final
Lease Year, Minimum Rent (as defined in Section 4) and Additional Rent
(as defined in Section 5) for the Lease Year in which such termination
occurs shall be prorated as of the date of such termination.
3.1 Option to Expand and Extend. Landlord hereby grants to
Tenant a continuing right and option to expand the Demised Premises and
to extend the Term, upon and subject to the following terms and
conditions:
(a) At any time prior to the end of the third (3rd) Lease
Year, Tenant shall have the right and option ("Expansion Option") to
expand the Demised Premises by causing Landlord to construct the
Expansion Improvements (as that term is herein defined) in accordance
with all the provisions of this Section 3.1; provided that Tenant shall
have the right to extend the term ("Expansion Option Term") of the
Expansion Option in the manner provided in Section 3.2; provided
further, however, that the right of Tenant to exercise the Expansion
Option shall be subject to the conditions precedent set forth in
Section 3.4. Tenant shall exercise the Expansion Option by giving
written notice ("Expansion Notice") to Landlord prior to expiration of
the Expansion Option Term. If Tenant fails to give the Expansion Notice
timely, the Expansion Option granted Tenant in this Section 3.1 shall
lapse unexercised and shall be of no further force or effect; provided,
however, that if Tenant fails to exercise the Expansion Option prior to
the end of the Expansion Option Term, the right of Tenant to exercise
the Expansion Option shall not finally lapse and terminate until the
tenth (10th) business day following the receipt of a written notice from
Landlord (which may not be given prior to the expiration of the
Expansion Option Term) advising Tenant that the Expansion Option Term
has expired and Landlord did not receive the Expansion Notice.. The
term "Expansion Improvements", as such term is used in this Section 3.1,
shall mean an expansion of the Building containing a maximum of
approximately 250,000 square feet (subject to limitations of applicable
zoning and other laws) and an absolute minimum of 100,000 square feet of
additional space, together with additional parking area as may be
required by applicable law or the Final Expansion Plans (as defined in
Section 3.1(d) of this Lease), whichever is greater; provided that such
Expansion Improvements shall otherwise be, in all respects, subject to
then applicable laws. If Tenant timely exercises the Expansion Option,
and the Expansion Improvements will exceed 100,000 square feet, the
Demised Premises must expand to include the 13.38 acres of land
("Expansion Land") more particularly described on Exhibit "C" attached
to this Lease and made a part hereof by this reference. If Tenant
exercises the Expansion Option, and elects to cause Landlord to
construct the minimum of 100,000 square feet of additional space, only
that portion of the Expansion Land containing 4.73 acres and described
on Exhibit C-1 attached to this Lease and made a part hereof by this
reference ("Alternate Expansion Land") shall become part of the Demised
Premises and the remaining acreage of the Expansion Land will no longer
be available to become part of the Demised Premises and will no longer
be subject to this Lease in any respect. Accordingly, the Expansion
Land (or only the Alternate Expansion Land, if applicable) shall become
part of the Demised Premises as of the Expansion Completion Date (as
defined in Section 3.1(e), below) and thereafter be subject to all of
the terms and provisions of this Lease. Landlord and Tenant stipulate
and agree that the term "Expansion Land Value", as used in this
Section 3.1, shall mean a sum of money calculated by multiplying the
square footage of the Expansion Land (or so much thereof as becomes part
of the Demised Premises), as calculated to the nearest ten thousandth of
a foot, times the Expansion Land Cost Per Foot (as hereinafter defined).
The term "Expansion Land Cost Per Foot" shall mean the sum of $2.00. So
long as the Expansion Option remains in effect and unexercised by
Tenant, Landlord agrees that Landlord will not utilize or permit to be
utilized the Expansion Land for any purpose without the prior written
consent of Tenant, to be given or withheld by Tenant in its sole
discretion.
(b) The Expansion Notice shall include proposed
specifications and a proposed site plan, prepared at the expense of
Tenant, (i) describing the Expansion Improvements as contemplated by
Tenant, (ii) showing the location and configuration of the Expansion
Improvements, including, without limitation, the manner in which the
Expansion Improvements will be connected to the Building (collectively
"Expansion Requirements") and (iii) specifying an amount of money which
Tenant authorizes Landlord to expend to prepare the Preliminary
Expansion Plans (the "Preliminary Plan Expenses"). The Expansion Notice
must also include the financial information described in Section 3.4.
(c) Within forty-five (45) days after receipt of the
Expansion Notice, Landlord will, at the expense of Tenant, cause to be
prepared preliminary construction drawings and preliminary construction
specifications, including an estimated construction cost breakdown and a
construction schedule (collectively "Preliminary Expansion Plans") for
the Expansion Improvements. The Preliminary Plan Expenses actually and
reasonably incurred by Landlord in obtaining the Preliminary Expansion
Plans shall either (i) if Tenant withdraws its exercise of the Expansion
Option in accordance with subsection (c) below, be reimbursed to
Landlord by Tenant within thirty (30) calendar days after receipt from
Landlord of a written request for payment, supported by invoices or
other reasonable documentation which evidence the costs or (ii) be
included in the Expansion Costs (as hereinafter defined). Landlord
agrees that the Preliminary Expansion Plans will be prepared on the
basis of the Expansion Requirements and such additional requirements and
comments as may be provided by Tenant to Landlord in writing; provided,
however, that Landlord shall have no duty or obligation to incur any
expense in obtaining the Preliminary Expansion Plans in excess of the
Preliminary Plan Expenses (as such sum may be increased in the
discretion of Tenant). Tenant will, in good faith, cooperate with
Landlord in the preparation of the Preliminary Expansion Plans and shall
provide Landlord with such additional information as Landlord may
reasonably request in order to prepare the Preliminary Expansion Plans
in a manner which will be consistent with the intended use by Tenant of
the Expansion Improvements. The Preliminary Expansion Plans shall be
prepared with a level of detail sufficient to allow computation of the
Expansion Costs for the purpose of calculating the Expansion Rent (as
hereinafter defined). Landlord and Tenant agree that the exterior
appearance and general quality of the Expansion Improvements shall be
consistent with the exterior appearance and general quality of the
Building; in addition, the Expansion Improvements must (i) have bay size
and clear height the same as the Base Building, (ii) have no greater
proportion of office space than the Base Building, (iii) have the same
level and quality of sprinkler and fire safety systems as the Base
Building, (iv) have no improvements in the warehouse area other than
improvements consistent with the Base Building or mandated by
Governmental Requirements and (v) provide for truck docks such that the
ratio of the number of truck docks to the total square footage of the
Expansion Improvements will not exceed the same ratio for the Base
Building. Not later than forty-five (45) calendar days after receipt of
the Expansion Notice, Landlord shall submit to Tenant the proposed
Preliminary Expansion Plans together with an estimated cost statement
associated therewith. With respect to the cost of the general
construction contract, Landlord shall include, as part of the estimated
cost statement, not less than three (3) competitive bids; the general
contractors from whom bids are solicited shall be subject to the
approval of Tenant, such approval not to be unreasonably withheld or
delayed. Tenant shall have thirty (30) calendar days from receipt of
the proposed Preliminary Expansion Plans and estimated cost statement to
notify Landlord of approval or disapproval by Tenant. Any such notice
of disapproval shall set forth in detail and with specificity the
aspects of the Preliminary Expansion Plans which are not acceptable to
Tenant. Landlord shall make those changes in the Preliminary Expansion
Plans which are reasonably requested by Tenant and, within ten (10)
business days after receipt of the written notice from Tenant, submit
the revised portion of the Preliminary Expansion Plans to Tenant; as
part of such revisions, Landlord shall also revise, to the extent
necessary as a result of the changes requested by Tenant, and submit to
Tenant the construction schedule and cost estimate for the Expansion
Improvements. Tenant shall have the right to approve or disapprove any
such resubmission for a period of ten (10) business days after receipt;
if no written notice of approval or disapproval is given by Tenant, the
resubmission shall conclusively be deemed to have been disapproved.
Tenant shall have no obligation to accept the cost estimate of Landlord
and Landlord shall have no obligation to change its cost estimate except
as a result of manifest error; as set forth below, the estimated costs
shall become the "Expansion Costs" only on the basis of mutual approval
of Landlord and Tenant. Landlord shall (A) use its best efforts to
obtain final, unappealable approval of the Preliminary Expansion Plans
and the Final Expansion Plans (as hereinafter defined) by all
governmental authorities having jurisdiction, and by the Association to
the extent required by the Protective Covenants and otherwise satisfy
all Governmental Requirements (as defined in Section 16) applicable to
the construction of the Expansion Improvements and development of the
Expansion Land, in accordance with the Final Expansion Plans, (B) timely
file all applications required to obtain such approvals and respond
timely to requests by the applicable authority for additional
information and otherwise diligently pursue such approvals, (C) keep
Tenant generally apprised of the status of the efforts by Landlord to
obtain the approvals and (D) allow Tenant to participate, at its own
expense, in the efforts to obtain the approvals. If a required approval
is denied, Landlord shall diligently pursue any available appeal
process. If Tenant does not approve the cost estimates or construction
schedule submitted by Landlord to Tenant, or if Landlord is unable to
provide Tenant with assurance (which shall be described or set forth in
a written notice from Landlord) acceptable to Tenant that the Expansion
Improvements contemplated by the Preliminary Expansion Plans and the
Final Expansion Plans can be constructed in accordance with requirements
of the Association and all applicable Governmental Requirements, Tenant
may, as its exclusive remedy, by written notice to Landlord, withdraw
its election to exercise the Expansion Option. Upon such withdrawal,
the Expansion Option shall automatically be reinstated just as though
the prior exercise of the Expansion Option had not occurred. If Tenant
approves in writing the Preliminary Expansion Plans, cost estimate and
construction schedule for the Expansion Improvements, as submitted and
resubmitted by Landlord in accordance with this subsection (c), the cost
estimate and construction schedule which are so approved in writing by
Tenant are hereinafter referred to as the "Expansion Costs" and the
"Expansion Construction Schedule", respectively. At such time, if ever,
that Tenant approves in writing the Preliminary Expansion Plans, the
Expansion Costs, and the Expansion Construction Schedule, Landlord
shall, if Landlord is not then the owner of the Expansion Land, proceed
to acquire title to the Expansion Land or the Alternate Expansion Land,
as may be required, in the manner described in Section 3.1(j). Tenant
acknowledges that the estimated cost of the Expansion Improvements to be
submitted by Landlord to Tenant (and which will become the Expansion
Costs only when approved by Tenant in accordance with this
subsection (c)) will be the sum of (1) the Expansion Land Value, plus
(2) all costs and expenses of any nature, whether generally
characterized as "hard" or "soft" costs, which Landlord estimates will
be incurred by Landlord and payable to a third party in connection with
the design and construction ("Construction Costs") of the Expansion
Improvements plus (3) interest on all Construction Costs, accruing from
each particular date the cost or expense is estimated to be paid, at a
rate equal to the Prime Rate (as defined in Section 32) plus one percent
(1%), and plus (4) a construction management fee payable to Landlord
(which shall be in addition to any fees payable to the general
contractor) which will not exceed ten percent (10%) of the Construction
Costs. Landlord and Tenant agree that the Expansion Costs shall
constitute the basis for the calculation of Expansion Rent and shall be
subject to adjustment only for Change Orders (as defined in
Section 18(a)) approved by Tenant. Landlord and Tenant shall each act
in good faith in their efforts to develop Preliminary Expansion Plans,
Expansion Costs and an Expansion Construction Schedule which are
mutually acceptable.
(d) After approval by Tenant of the Preliminary Expansion
Plans, the Expansion Construction Schedule and the Expansion Costs,
Landlord shall promptly and diligently proceed with preparation of final
plans and specifications for the Expansion Improvements. Within thirty
(30) calendar days after the occurrence of such approval by Tenant,
Landlord shall prepare (with the cost of such preparation being part of
the Expansion Costs) and submit to Tenant a set of proposed plans and
specifications, based upon the Preliminary Expansion Plans, covering all
work to be performed by Landlord in constructing the Expansion
Improvements. Tenant shall have ten (10) business days after receipt
thereof to review the proposed plans and specifications and give to
Landlord a written notice of approval or disapproval; provided that each
day after the tenth (10th) business day that the notice is given by
Tenant shall constitute a day of Permitted Delay. Tenant acknowledges
that the Expansion Improvements will likely be constructed on a "fast
track" basis and that Landlord shall have the right and option to submit
various parts of the proposed plans and specifications from time to time
during said 30-day period and the time period for approval of any part
of the proposed plans and specifications shall commence upon receipt of
each submission. If Tenant gives written notice of disapproval of any
of the proposed plans and specifications, such notice of disapproval
shall set forth in detail and with specificity the aspects of the
proposed plans and specifications which are not acceptable to Tenant.
Landlord shall make those changes which are reasonably requested by
Tenant and promptly submit the revised portion of the proposed plans and
specifications to Tenant. Landlord must, in any event, make such
changes as may be necessary to achieve conformance with the Preliminary
Expansion Plans. Tenant shall have no right to request any changes
which would materially alter the exterior appearance or basic nature of
the Building or the Expansion Improvements, as contemplated by the
Preliminary Expansion Plans. If Tenant fails to approve any portion of
the proposed plans and specifications so resubmitted to Tenant within
seven (7) business days after receipt of such resubmission, each day
after the seventh (7th) business day that the approval is given by
Tenant shallconstitute a day of Permitted Delay. Tenant may not
disapprove the revisions of the proposed plans and specifications unless
Landlord has unreasonably failed to incorporate comments of Tenant.
Tenant shall, in its review of the proposed plans and specifications,
act reasonably and in good faith. The final plans and specifications
for the Expansion Improvements, as so approved by Tenant, are
hereinafter referred to as the "Final Expansion Plans." After approval
by Tenant of the Final Expansion Plans, Landlord shall proceed with
construction of the Expansion Improvements with reasonable diligence
(and with the same quality materials and workmanship that the Building
was constructed), and otherwise in accordance with this Lease,
Governmental Requirements and the Permitted Encumbrances, free of all
liens arising in any manner out of such construction. The Expansion
Improvements will be constructed in accordance with the Expansion
Construction Schedule, subject to extension for Permitted Delay. There
shall be no material variation from the Final Expansion Plans and no
change in the Expansion Costs, except pursuant to Change Orders approved
by Tenant in the same manner as Change Orders for the Plans and
Specifications (and at the sole cost and expense of Tenant). In
connection with construction of the Expansion Improvements, Landlord and
its contractors shall undertake all such steps as may be reasonable and
practicable to prevent interference of such construction with the use
and enjoyment by Tenant of the Demised Premises. If, after
determination of the Expansion Costs, the imposition or enactment of any
Governmental Requirement necessitates a change in either the Preliminary
Expansion Plans or the Final Expansion Plans which will increase the
Expansion Costs, Landlord shall pay such increase (without increasing
the Expansion Costs, the Minimum Rent or the Additional Rent) unless the
required change is necessary because of the particular use of the
Demised Premises by Tenant; if the required change is necessary because
of the particular use of the Demised Premises by Tenant, the increase in
cost shall be included in the Expansion Costs, in accordance with this
subsection (d), and shall be payable by Landlord in the same manner as
all other Expansion Costs. Without limiting any of the foregoing
provisions of this subsection (d), the provisions of Sections 18(f) and
(h) shall, in the manner set forth therein, apply to the Expansion
Improvements.
(e) Upon the Expansion Completion Date (as that term is
herein defined), the Expansion Improvements and the Expansion Land (or
the Phase I Expansion Land, if applicable) shall become part of the
Demised Premises and the Expansion Improvements shall automatically be
governed by all the terms and provisions of this Lease, and shall be
deemed to be included in the definition of "Demised Premises" for all
purposes, except that, commencing on the Expansion Completion Date,
Tenant shall pay, in addition to the Base Building Annual Minimum Rent
and as part of the Minimum Rent, the Expansion Rent (as that term is
hereinafter defined). The Expansion Rent shall commence to accrue on
the date (the "Expansion Completion Date") on which the Expansion
Improvements are Substantially Completed (as defined in Section 18(i).
Within ten (10) calendar days after the Expansion Completion Date, the
architect who prepared the Final Expansion Plans shall execute and
deliver to Landlord and Tenant a written certification of the square
footage contained in the Expansion Improvements, such computation of
square footage to be made on a "drip-line" basis. The square footage so
certified by such architect shall (subject to the right of Tenant to
dispute the measurement, as hereinafter provided) conclusively determine
the square footage of the Expansion Improvements for all purposes under
this Lease and such square footage shall become part of the Building
Square Footage. In the event Tenant shall dispute the determination by
such architect of the square footage of the Expansion Improvements, the
parties shall utilize the Dispute Resolution Procedure (as defined in
Section 34), with qualified architects serving as "Officials".
(f) If the Expansion Option is timely exercised by Tenant
and not thereafter withdrawn in accordance with subsection 3.1(c),
above, prior to written agreement by Landlord and Tenant regarding the
Preliminary Expansion Plans, the Expansion Construction Schedule and the
Expansion Costs, then, provided that the Expansion Improvements are
Substantially Completed in accordance with the terms of this Lease, the
Term shall, if necessary, automatically be extended for a period of time
so that this Lease will expire not less than five (5) years after the
first day of the first full calendar month following the Expansion
Completion Date. The period of time between the Expansion Completion
Date and the end of such extended period is herein sometimes referred to
as the "Extension Term". If the Expansion Completion Date occurs not
later than the end of the second Lease Year, there will be no Extension
Term. The Extension Term shall be governed by all the terms and
provisions of this Lease, with the exception that, for the period
between the end of the initial Primary Term, i.e., the end of the
seventh (7th) Lease Year, and the end of the Extension Term, the Base
Building Annual Minimum Rent (which is in addition to the Expansion
Rent) shall (to the extent necessary, depending upon the expiration date
of the Extension Term) escalate on the first day of the eighth (8th)
Lease Year by an amount equal to five and thirty-four one hundredths
percent (5.34%) of the Base Building Annual Minimum Rent in effect
during the sixth (6th) and seventh (7th) Lease Years and, if required
because of the duration of the Extension Term, again on the first day of
the ninth (9th) Lease Year and on the first day of each subsequent Lease
Year during the Extension Term, by an amount equal to two and sixty-
seven one-hundredths percent (2.67%) of the Base Building Annual Minimum
Rent in effect during the immediately preceding Lease Year.
(g) The term "Expansion Rent", as used in this Section
3.1, shall be an amount calculated by multiplying the Expansion Costs
times eleven percent (11%). The Expansion Rent is an annual amount of
Minimum Rent payable in equal, monthly installments on the first day of
each calendar month in the same manner as Base Building Monthly Minimum
Rent Installments.
(h) Landlord and Tenant agree to enter into an amendment
to this Lease to document the expansion of the Demised Premises, the
Expansion Completion Date, the extension of the Term pursuant to this
Section 3.1 and the Expansion Rent.
(i) Landlord acknowledges and agrees that Tenant shall
have no obligation of any kind to pay any fee or commission to any real
estate broker or agent in connection with expansion of the Demised
Premises in accordance with the Expansion Option.
(j) Tenant acknowledges that Landlord may, at any time
prior to incorporation of the Expansion Land (or, if applicable, the
Alternate Expansion Land) into the Demised Premises pursuant to this
Section 3.1, sell and convey to a third party the interest of Landlord
in and to the Land and the Demised Premises (subject to this Lease), and
retain title to the Expansion Land. In such event, Landlord shall,
simultaneously with such sale of the Land and the Demised Premises,
grant and deliver to the purchaser or transferee an exclusive,
irrevocable option to acquire the Expansion Land at a purchase price
equal to the Expansion Land Value and otherwise upon such terms as will
enable the Landlord from time to time to carry out its obligations under
this Lease with respect to the Expansion Land ("Expansion Land Option").
After a sale and conveyance of the Demised Premises to a third party,
Industrial Development International, Inc. ("IDI") shall not, except as
hereinafter provided, sell, transfer or convey the Expansion Land to any
person or entity other than the owner of the Demised Premises; IDI shall
have the right to transfer or convey the Expansion Land to any entity
which owns or controls IDI, which is owned or controlled by IDI or which
is under common control with IDI (any such entity being hereafter called
an "IDI Affiliate"), and subsequently from one IDI Affiliate to another.
The Expansion Land Option shall run with the title to the Land and shall
not be assignable to any person other than the holder of the Landlord
interest under this Lease. The Expansion Land Option shall remain in
effect so long as the Expansion Option remains in effect. If, at the
time Tenant gives the Expansion Notice, the Expansion Land Option is
then in effect, Landlord shall, after written agreement by Landlord and
Tenant regarding the Preliminary Expansion Plans, the Expansion
Construction Schedule and the Expansion Costs, give such notices and
take such action as may be necessary to acquire, pursuant to the
Expansion Land Option, either the Expansion Land or the Alternate
Expansion Land, as may be required; Landlord shall exercise its best
efforts to carry out such acquisition in a manner which will enable
Landlord to achieve Substantial Completion of the Expansion Improvements
in accordance with the Expansion Construction Schedule.
3.2 Extension of Expansion Option Term. So long as no Event of
Default (as defined in Section 23) has occurred and is then continuing,
Tenant shall have the right to extend the Expansion Option Term through
and including the last day of the fourth (4th) Lease Year by giving
written notice to Landlord not later than the last day of the third
(3rd) Lease Year and by paying to Landlord, with such written notice, a
non-refundable fee in the amount of $51,500.00 (which shall be fully
earned by Landlord when received and shall not constitute a credit
against either Minimum Rent or Addtional Rent). If Tenant timely and
properly exericses its right to extend the Expansion Option Term for the
fourth (4th) Lease Year, and so long as no Event of Default has occurred
and is then continuing, Tenant shall have the right to extend the
Expansion Option Term through and including the last day of the fifth
(5th) Lease Year by giving written notice to Landlord not later than the
last day of the fourth (4th) Lease Year and by paying to Landlord, with
such written notice, a non-refundable fee in the amount of $51,500.00
(which shall be fully-earned by Landlord when received and shall not
constitute a credit against either Minimum Rent or Addtional Rent).
Tenant shall have not be entitled to exercise its right under this
Section 3.2 to extend the Expansion Option Term whenever an Event of
Default has occurred and is continuing.
3.4 Conditions Precedent. Notwithstanding anything to the
contrary in Section 3.1, Tenant shall not have the right to exercise the
Expansion Option if, at the time Tenant desires to exercise such right,
either (i) an Event of Default has occurred and is continuing or (ii)
the stockholder equity of Tenant is less than $150,000,000.00 (U.S.)
("Minimum Net Worth"). At such time as Tenant may give the Expansion
Notice, Tenant must provide simultaneously such audited financial
statements or other finacial information as may be reasonably required
by Landlord to establish to the reasonable satisfaction of Landlord
that, as of the date on which the Expansion Notice is received by
Landlord, the stockholder equity of Tenant equals or exceeds the Minimum
Net Worth. If Tenant fails to provide the financial information
required by this Section 3.4 or if such financial information fails to
establish to the reasonable satisfaction of Landlord that the
stockholder equity of Tenant then equals or exceeds the Minimum Net
Worth, the exercise by Tenant shall be void and of no force or effect.
3.5. Renewal Option.
(a) Provided that no Event of Default has ccurred and is
then continuing, Tenant shall have the right and option to extend the
Primary Term (as it may have been extended for the Extension Term in
accordance with Section 3.1) of this Lease for three (3) successive
additional periods of five (5) years each (the "First Renewal Term", the
"Second Renewal Term" and the "Third Renewal Term", respectively). The
option for the First Renewal Term may be exercised by Tenant by written
notice given to Landlord not less than six (6) months prior to the end
of the Primary Term. The option for the Second Renewal Term may be
exercised by Tenant by written notice given to Landlord not less than
six (6) months prior to the end of the First Renewal Term; provided,
however, that unless Tenant timely exercises its option to extend the
Primary Term for the First Renewal Term, Tenant will have no right to
exercise its option for the Second Renewal Term or the Third Renewal
Term. The option for the Third Renewal Term may be exercised by Tenant
by written notice given to Landlord not less than six (6) months prior
to the end of the Second Renewal Term; provided, however, that unless
Tenant timely exercises its option to extend the First Renewal Term for
the Second Renewal Term, Tenant wil have no right to exercise its option
for the Third Renewal Term. Subject to the terms of subsection (b) of
this Section 4, all of the terms and provisions of this Lease (excluding
any allowances provided by Landlord and excluding any construction
obligation of Landlord whatsoever, whether relating to the Base Building
or the Expansion Improvements) shall govern and be applicable to the
First Renewal Term, the Second Renewal Term and the Third Renewal Term
in accordance with and subject to all the provisions of this
subsection (a). The First Renewal Term, the Second Renewal Term and the
Third Renewal Term are hereinafter sometimes referred to collectively as
the "Renewal Terms".
(b) Tenant shall pay to Landlord as Minimum Rent during
the First Renewal Term (herein, the "First Renewal Minimum Rent") in
lawful money of the United States commencing at the commencement of the
First Renewal Term, a per annum amount equal to the greater of
(i) ninety-five percent (95%) of the product obtained by multiplying the
Building Square Footage (including the Expansion Improvements, if
applicable) times an amount equal to the Prevailing Market Rate
calculated in the manner set forth in Exhibit "D" attached to this Lease
and made a part hereof by this reference or (ii) the Minimum Rent for
the Demised Premises in effect as of the expiration of the Primary
Term, payable in equal monthly installments of one twelfth 1/12th of
said sum, in advance, without demand and, except as expressly provided
to the contrary in this Lease, without abatement, reduction, set-off or
deduction, on the first day of each calendar month during the First
Renewal Term. If Tenant timely and properly exercises its right to the
extend the Term for the Second Renewal Term, Tenant shall pay to
Landlord as Minimum Rent during the Second Renewal Term (herein, the
"Second Renewal Minimum Rent") in lawful money of the United States
commencing at the commencement of the Second Renewal Term, a per annum
amount equal to the greater of (i) ninety-five percent (95%) of the
product obtained by multiplying the Building Square Footage (including
the Expansion Improvements, if applicable) times an amount equal to the
Prevailing Market Rate or (ii) the Minimum Rent for the Demised Premises
in effect as of the expiration of the First Renewal Term, payable in
equal monthly installments of one twelfth 1/12th of said sum, in
advance, without demand and, except as expressly provided to the
contrary in this Lease, without abatement, reduction, set-off or
deduction, on the first day of each calendar month during the Second
Renewal Term. If Tenant timely and properly exercises its right to the
extend the Term for the Third Renewal Term, Tenant shall pay to Landlord
as Minimum Rent during the Third Renewal Term (herein, the "Third
Renewal Minimum Rent") in lawful money of the United States commencing
at the commencement of the Third Renewal Term, a per annum amount equal
to the greater of (i) ninety-five percent (95%) of the product obtained
by multiplying the Building Square Footage (including the Expansion
Improvements, if applicable) times an amount equal to the Prevailing
Market Rate or (ii) the Minimum Rent for the Demised Premises in effect
as of the expiration of the Second Renewal Term, payable in equal
monthly installments of one twelfth 1/12th of said sum, in advance,
without demand and, except as expressly provided to the contrary in this
Lease, without abatement, reduction, set-off or deduction, on the first
day of each calendar month during the Third Renewal Term.
(c) If Tenant timely exercises its right to the First Renewal
Term and makes the first payment of Base Rent due after commencement of
the First Renewal Term, Landlord will, at any time during the First
Renewal Term, provide an allowance of $45,000.00 ("Refurbishment
Allowance"), which will be applied as an automatic credit against the
first installment of Base Rent due after the commencement of the First
Renewal Term. Landlord will have no obligation to perform any work of
any nature in connection with the Refurbishment Allowance.
4. Minimum Rent. Tenant shall pay to Landlord at the
address set forth in Section 1(k) as base rent for the Demised Premises,
commencing on the Minimum Rent Commencement Date and continuing
throughout the Term in lawful money of the United States the annual
amount set forth in Section 1(c) payable in equal monthly installments
as set forth in Section 1(d) (the "Minimum Rent"), payable in advance,
without demand and, except as expressly provided to the contrary in this
Lease, without abatement, reduction, set-off or deduction, on the first
day of each calendar month during the Term. If the Minimum Rent
Commencement Date shall fall on a day other than the first day of a
calendar month, the Minimum Rent shall be apportioned pro rata on a per
diem basis for the period between such Minimum Rent Commencement Date
and the first day of the following calendar month and such apportioned
sum shall be paid on the Minimum Rent Commencement Date.
4.1 Allowance. Landlord is providing to Tenant an
allowance in the amount of $369,000.00 ("Maximum Construction
Allowance") for the installation of general office space and a
shipping/receiving office at the Demised Premises, generally as
described on Exhibit E ("Allowance Work"), which Allowance Work is part
of the Landlord's Work (as defined in Section 18(b)). If Tenant does
not utilize the full Maximum Construction Allowance, the unused portion
("Allowance Savings") may be applied by Tenant either to pay the cost of
Change Orders (as defined in Section 18(a)) requested by Tenant which
increase the cost of the Landlord's Work or as a credit against Base
Rent which would otherwise accrue in accordance with this Lease;
provided, however, that the Allowance Savings may never exceed
$25,000.00. At any time after the occurrence of Substantial Completion,
Landlord and Tenant shall, within thirty (30) days after receipt by
Tenant of a written request from Landlord, execute and deliver an
amended and restated version of this Lease which will delete this
Section 4.1 in its entirety and delete any other references in this
Lease to this Section 4.1; such restated version of this Lease will not
otherwise alter or modify any provision of this Lease.
5. Tenant's Right to Cease Operations. Notwithstanding any
provision to the contrary in this Lease, nothing herein shall be
construed as an obligation for Tenant to open or operate its business in
the Demised Premises. Subject to all the provisions of this Lease,
Tenant shall determine in all instances its methods and times of
operation at the Demised Premises. Tenant shall have the right to
remove Tenant's personal property and cease operations at the Demised
Premises at any time and at Tenant's sole discretion. However, the
right to cease the operation of its business shall not affect Tenant's
obligation to pay all amounts due under this Lease and to perform all
covenants and obligations under this Lease. Landlord acknowledges that
Tenant has notified Landlord that Tenant would not enter into this Lease
unless and until the rights contained in this Section 5 were included
and made a part of this Lease.
6. Additional Rent. Any amounts required to be paid by Tenant
under this Lease (in addition to Minimum Rent) hereunder and any charges
or expenses incurred by Landlord on behalf of Tenant under the terms of
this Lease, including, without limitation, any expenses incurred for
taxes, insurance, maintenance, repairs, replacements and utilities which
are the obligation of Tenant hereunder, shall be considered additional
rent (herein, "Additional Rent") payable in the same manner and upon the
same terms and conditions as Minimum Rent reserved hereunder except as
expressly set forth herein to the contrary. Any failure on the part of
Tenant to pay such Additional Rent when due shall entitle Landlord to
the remedies available to it for non-payment of Minimum Rent, including,
without limitation, late charges and interest thereon at the Interest
Rate (as herein defined) pursuant to Section 32 hereof. Tenant's
obligations for payment of Additional Rent shall begin to accrue on the
Minimum Rent Commencement Date.
7. Use of Demised Premises.
(a) The Demised Premises shall be used for the Permitted
Use set forth in Section 1(i) and for no other purpose, except as
hereinafter provided to the contrary. If Tenant or any permitted
assignee or subtenant desires to use the Demised Premises for a
Permitted Use other than the Primary Use, Tenant shall submit to
Landlord a written request setting forth in detail the nature of the
additional or altered Permitted Use proposed by Tenant or a permitted or
proposed assignee or subtenant. Landlord agrees that Landlord may not
unreasonably withhold, delay or condition its consent to the proposed
additional or altered Permitted Use, subject to the condition that the
proposed additional or altered Permitted Use must comply with the
requirements and conditions of Section 1(i) of this Lease. Landlord
shall, within ten (10) business days after receipt of the written notice
from Tenant regarding a proposed alteration of the Primary Use, give
written notice to Tenant approving or disapproving the proposal. A
notice of approval may contain reasonable conditions, based on the
nature of the proposed use. If the written notice from Landlord
disapproves the proposed use, the reasons for such determination shall
be set forth in reasonable detail.
(b) Tenant will permit no liens to attach or exist against
the Demised Premises, if such liens are held by persons claiming through
or under Tenant. If any such lien is filed against the Demised
Premises, Tenant shall cause such lien to be discharged of record by
payment or bonding within thirty (30) calendar days after Tenant
receives written notice from Landlord of the existence of the lien. A
written notice given by Landlord pursuant to this subsection (b) may
also constitute the written notice required by Section 23(a)(ii) so long
as the notice expressly references both Sections of this Lease. Tenant
shall not commit any waste.
(c) The Demised Premises shall not be used for any illegal
purposes, and Tenant shall not cause any vibration, noise, odor, light
or other effect to occur within or around the Demised Premises that
constitutes a nuisance or trespass. Upon notice by Landlord to Tenant
that any of the aforesaid prohibited uses are occurring, Tenant agrees
to promptly remove or control the same.
(d) Tenant shall not in any way violate any law, ordinance
or any restrictive covenant affecting the Demised Premises as shown by
and included in the Permitted Encumbrances, including specifically, but
without limitation, the Protective Covenants (as defined in Section 33),
and shall not in any manner use the Demised Premises so as to cause
cancellation of, or impair coverage under the fire and extended coverage
insurance policy required pursuant to Section 8.
8. Insurance.
(a) Tenant covenants and agrees that from and after the
date of delivery of the Demised Premises from Landlord to Tenant, Tenant
will carry and maintain, at its sole cost and expense, the following
types of insurance, in the amounts specified and in the form hereinafter
provided for:
(i) Liability insurance in the commercial general
liability form covering the Demised Premises and Tenant's use thereof
against claims for personal injury or death, property damage and product
liability occurring upon, in or about the Demised Premises, such
insurance to be written on an occurrence basis (not a claims made
basis), with combined single limit primary coverage of not less than One
Million Dollars ($1,000,000.00) and umbrella coverage of not less than
an additional Four Million Dollars ($4,000,000.00), for each policy
year. The insurance coverage required under this Section 8(a)(i) shall,
in addition, extend to any liability of Tenant arising out of the
indemnities by Tenant in Section 11 and, if necessary, the policy shall
contain a contractual endorsement to that effect.
(ii) (A) insurance on the "All-Risk" or equivalent
form on a replacement cost basis against loss or damage to the Building
and all other improvements now or hereafter located on the Land
(including, without in any manner limiting the generality of the
foregoing, flood insurance if the Demised Premises are located in a
flood hazard area), exclusive of footings and foundation, having a
deductible not greater than Twenty-Five Thousand Dollars ($25,000.00);
and in an amount sufficient to prevent Landlord or Tenant from becoming
a co-insurer of any loss, but in any event in amounts not less than 100%
of the actual replacement value of the Building and such other
improvements; provided, however, that whenever the stockholder equity of
Tenant equals or exceeds $100,000,000.00, as evidenced by financial
statements prepared and certified by independent public accountants and
delivered to Landlord, Tenant shall have the right to increase the
deductible to $250,000.00. Notwithstanding anything in this Section 8,
Tenant shall not be required to include, in any of the "All-Risk"
insurance covering the Building or any component thereof, any coverage
against loss or damage resulting from earthquake, unless such coverage
is available without incremental premium cost to Tenant or Landlord
elects, at its option, to pay such incremental cost.
(B) insurance on the "All-Risk" or equivalent
form against abatement or loss of rental by reason of the occurrences
covered by the insurance described in clause (A) above and by reason of
any utility service interruptions in an amount equal to Minimum Rent and
all Additional Rent for at least twelve (12) months following the
occurrence of such casualty;
(C) boiler and machinery insurance covering
losses to or from any steam boilers, pressure vessels or similar
apparatus requiring inspection under applicable state or municipal laws
or regulations which are located at the Demised Premises or on any other
building systems for which such coverage is available, in amounts
determined by Tenant to be appropriate or for such higher amounts as may
at any time be reasonably required by Landlord and having a deductible
of not more than Twenty-Five Thousand Dollars ($25,000.00)(provided,
however, that whenever the stockholder equity of Tenant equals or
exceeds $100,000,000.00, as evidenced by financial statements prepared
and certified by independent public accountants and delivered to
Landlord, Tenant shall have the right to increase the deductible to
$250,000.00); coverage shall be on a broad form comprehensive basis,
including loss of income with a limit of coverage which is reasonably
acceptable to Landlord; and
(D) workmen's compensation and employer's
liability insurance to the extent required by the laws of the state of
Illinois.
(b) All policies of the insurance provided for in
Section 8(a) shall be issued in form acceptable to Landlord by insurance
companies with a rating of not less than "A," and financial size of not
less than Class XII, in the most current available "Best's Insurance
Reports", and licensed to do business in the state in which the Building
is located. Tenant shall have the right to increase the deductible
amounts under the policies of insurance required by Sections 8(a)(ii)(A)
and (C) above, subject to the approval of Landlord, such approval not to
be unreasonably withheld; provided, however, that Landlord shall be
entitled to withhold such approval unless Tenant is able to demonstrate
that the requested increase in any such deductible is commercially
reasonable for improvements comparable to the Building. Each and every
such policy:
(i) shall name Landlord as well as Landlord's
Mortgagee, as defined in Section 24, and any other party reasonably
designated by Landlord, as an additional insured. In addition, the
coverage described in Section 8(a)(ii) shall also name Landlord as "loss
payee";
(ii) shall be delivered to Landlord prior to delivery
of possession of the Demised Premises to Tenant and thereafter within
thirty (30) days prior to the expiration of each such policy, and, as
often as any such policy shall expire or terminate. Renewal or
additional policies shall be procured and maintained by Tenant in like
manner and to like extent;
(iii) shall contain a provision that the insurer
waives any right of subrogation against Landlord on account of any loss
or damage occasioned to Landlord, its property, the Demised Premises or
its contents arising from any risk covered by all risks fire and
extended coverage insurance of the type and amount required to be
carried hereunder, provided that such waiver does not invalidate such
policies or prohibit recovery thereunder;
(iv) shall contain a provision that the insurer will
give to Landlord and such other parties in interest at least ten (10)
days notice in writing in advance of any material change, cancellation,
termination or lapse, or the effective date of any reduction in the
amounts of insurance; and
(v) shall be written as a primary policy which does
not contribute to and is not in excess of coverage which Landlord may
carry.
(c) Tenant shall, from and after the Lease Commencement
Date, carry and maintain, at its sole cost and expense, insurance on the
"all-risk" or equivalent form against loss or damage to the personal
property of Tenant within the Building including, without limitation,
stored inventory, with companies, amounts and terms of coverage
reasonably deemed prudent by Tenant. Landlord shall have no interest in
or claim of any nature to the proceeds of any such insurance. Any such
policy of insurance covering personal property of Tenant shall contain a
provision that the insurer waives any right of subrogation against
Landlord. At the request of Landlord, Tenant shall provide Landlord
with a certificate of such insurance, issued by the carrier or its
agent, setting forth the terms of coverage. Tenant waives any claim
against Landlord for damage to the personal property of Tenant arising
from negligence of Landlord only to the extent such damage is covered by
the insurance which Tenant is required to maintain pursuant to this
subsection (c).
(d) Any insurance provided for in Section 8(a) may be
maintained by means of a policy or policies of blanket insurance,
covering additional items or locations or insureds; provided, however,
that:
(i) Landlord and any other parties in interest from
time to time designated by Landlord to Tenant shall be named as an
additional insured thereunder as its interest may appear;
(ii) the coverage afforded Landlord and any such
other parties in interest will not be reduced or diminished by reason of
the use of such blanket policy of insurance;
(iii) any such policy or policies shall specify
therein the amount of the total insurance allocated to the Tenant's
improvements and property; and
(iv) the requirements set forth in this Section 8 are
otherwise satisfied.
(e) In the event that Tenant shall fail to carry and
maintain the insurance coverages set forth in this Section 8, Landlord
may upon ten (10) days written notice to Tenant (unless such coverages
will lapse, in which event no such notice shall be necessary) procure
such policies of insurance and Tenant shall promptly reimburse Landlord
therefor; provided that no Event of Default may occur until Landlord has
given the written notice required by Section 23(a)(iv). A single
written notice from Landlord may constitute the written notice required
by this subsection (e) and by Section 23(a)(iv) so long as the notice
expressly references both Sections.
(f) Each party may, at any time, but not more than one (1)
time in any three (3) year period, require a review of the insurance
coverage and limits of liability set forth in Section 8 to determine
whether the coverage and the limits are reasonable and adequate in the
then existing circumstances. The review shall be undertaken on a date
and at a time set forth in a party's notice requesting a review and
shall be conducted at the Demised Premises. If the parties are, after a
review, unable to agree on either the coverage or the limits, then the
parties shall employ the Dispute Resolution Procedure (as defined in
Section 34) with insurance advisors having at least ten (10) years
experience in insurance for commercial and industrial properties serving
as Officials. In rendering the decision the Officials shall consider
the requirements of Section 8, the cost of the insurance to be obtained,
inflation, changes in condition, and the insurance then being carried by
similar light-industrial use developments in the area of the Project.
9. Utilities. Commencing on the Lease Commencement Date and
continuing through the remainder of the Term, Tenant shall be
responsible for maintaining the portion of the utility lines located
between the Land boundary line and the Building and shall promptly pay
as billed to Tenant all rents and charges for water and sewer services
and all costs and charges for gas, steam, electricity, fuel, light,
power, telephone, heat and any other utility or service used or consumed
in or servicing the Demised Premises and all other costs and expenses
involved in the care, management and use thereof to the extent charged
by the applicable utility companies. Landlord will cause separate
meters to be installed (to the extent not installed as of the Lease
Date) at the Demised Premises to measure usage by Tenant of water,
electricity and natural gas. If Tenant fails to pay any utility bills
or charges, Landlord may, at its option and upon reasonable notice to
Tenant, pay the same and in such event, the amount of such payment,
together with interest thereon at the Interest Rate as defined in
Section 32 from the date of such payment by Landlord, will be added to
Tenant's next due payment, as Additional Rent.
10. Taxes and Other Impositions.
(a) Commencing on the Lease Commencement Date and
continuing through the remainder of the Term, Tenant shall be solely
obligated to pay in full all Real Estate Taxes and Other Impositions (as
hereinafter defined) for the Demised Premises, including the Building
and the Land, which accrue during the Term. Tenant acknowledges and
agrees that Real Estate Taxes and other Impositions are payable by
Tenant on an accrual basis and, accordingly, Tenant shall be liable for
all Real Estate Taxes and Other Impositions which accrue from and after
the Lease Commencement Date and thereafter throughout the Term, without
regard for the date or dates on which installments of Real Estate Taxes
and Other Impositions may, in fact, be due. With respect to any Real
Estate Taxes or Impositions, Tenant shall have the right to file with or
against the authority imposing such tax or imposition a protest or
challenge of the validity of any such sum provided that (i) Tenant shall
timely file and diligently pursue to protest or challenge and keep
Landlord apprised in writing of the status thereof, and (ii) neither
Landlord nor the Demised Premises will be subject to levy or other legal
action of any kind resulting from non-payment so long as Tenant is
pursuing the protest or challenge.
(b) The term "Real Estate Taxes and Other Impositions", as
used in this Lease shall mean all ad valorem taxes, water and sanitary
taxes, assessments, liens, licenses and permit fees or any other taxes
imposed, assessed or levied against the Land and the Demised Premises,
and all other charges, impositions or burdens of whatever kind and
nature, whether or not particularized by name, and whether general or
special, ordinary or extraordinary, foreseen or unforeseen, which at any
time during the Term may be created, assessed, confirmed, adjudged,
imposed or charged upon or with respect to the Demised Premises, the
Land, or any improvements made thereto, or on any part of the foregoing
or any appurtenances thereto, or directly upon this Lease or the rent
payable hereunder or amounts payable by any subtenants or other
occupants of the Demised Premises, or upon this transaction or any
documents to which Tenant is a party or successor-in-interest, or
against Landlord because of Landlord's estate or interest herein, by any
governmental authority, or under any law, including among others, all
rental, sales, use, inventory or other similar taxes and any special tax
bills and general, special or other assessments and liens or charges
made on local or general improvements or any governmental or public
power or authority whatsoever.
(c) Notwithstanding the foregoing, if any Real Estate
Taxes or Other imposition shall be created, levied, assessed, adjudged,
imposed, charged or become a lien with respect to a period of time which
commences before the Lease Commencement Date or ends after the
expiration date of the Term (other than an expiration date of the Term
by reason of breach of any of the terms hereof by Tenant), then Tenant
shall only be required to pay that portion which accrues during the
Term. If Tenant is permitted to pay (by the assessing and collecting
authorities) and elects to pay any imposition in installments, Tenant
shall nevertheless pay any and all installments thereof which are due
prior to the expiration of the Term or sooner termination of the Term.
Nothing contained in this Lease shall require Tenant to pay any income
or excess profits or taxes assessed against Landlord, or any
corporation, capital stock, franchise,estate, single business,
inheritance, succession or transfer taxes imposed upon Landlord.
Landlord agrees to deliver to Tenant copies of all notices of Real
Estate Other Taxes and impositions which Landlord receives.
(d) Tenant agrees to pay all Real Estate Taxes and Other
Impositions directly to the appropriate authority prior to the
delinquency thereof. Tenant acknowledges that ad valorem real property
taxes for the Demised Premises are payable in arrears. Accordingly, the
property taxes (or a portion thereof) which will accrue during the final
Lease Year will not be payable until a date after the end of the Term.
During the final Lease Year of the Term, Tenant shall, after receipt of
prior written notice from Landlord making specific reference to this
Section 10 (d), pay to Landlord, in addition to making the payments
which are due to the taxing authority during the Term, an amount equal
to 1/12th of the Real Estate Taxes and Other Impositions which will
accrue during such final Lease Year, but will not be due and payable
until a date after the end of the Term. Landlord shall estimate the
amount of such monthly installments, based on the most recent
information officially available from the relevant taxing authorities
and shall give written notice to Tenant of the amount of the required
payment. Tenant acknowledges and agrees that the installments payable
pursuant to this Section 10(d) are in addition to the Minimum Rent and
Additional Rent otherwise required by this Lease. At such time as the
actual tax bill or bills (to the extent that the tax year or years
covered by such bill or bills are within the final Lease Year) become
available for the final Lease Year, Landlord shall send to Tenant copies
of such bills. To the extent, if any, that the amounts paid to Landlord
may be insufficient to pay such bill or bills, Tenant shall pay any
deficiency to Landlord within thirty (30) calendar days after receipt of
a copy of the tax bill from Landlord, establishing the amount of the
deficiency. After payment in full of the actual tax bill or bills for
the tax year or years covered by the final Lease Year, the amount, if
any, by which the estimated payments by Tenant exceed the actual taxes
shall be refunded to Tenant within thirty (30) calendar days after the
date Landlord receives the applicable tax bill. The provisions of this
Section 10(d) shall survive expiration of this Lease.
(e) Tenant shall furnish Landlord, within thirty (30) days
after receipt of a written request from Landlord, evidence of the
payment of all Real Estate Taxes and Other Impositions during the twelve
(12) months preceding recipt of the notice.
11. Maintenance and Repairs.
(a) From and after the Lease Commencement Date and throughout
the Term, Tenant shall, at its own cost and expense, but subject to all
of the obligations of Landlord under Sections 11(b), 18(f) and 18(h) of
this Lease, maintain the Demised Premises, exterior and interior (but
excluding maintenance and repair which is the obligation of the Landlord
under subsection (b) of this Section 11 and under Sections 18(f)), in
good condition and repair, including, without limitation, repair,
maintenance and replacement (except as hereinafter provided to the
contrary with respect to certain replacement obligations of Landlord) of
the exterior walls (maintenance only, and not replacement, which is the
responsibility of Landlord under subsection (b) of this Section 11), the
floor (including both maintenance and replacement except as expressly
provided to the contrary in subsection (b) of this Section 11), floor
coverings, non-load bearing walls and columns of the Building and the
interior of the Building, including but not limited to the electrical
systems, heating, air conditioning and ventilation systems, plate glass,
windows and doors, sprinkler and plumbing systems (but only to the
extent such systems serve only the Demised Premises). Tenant shall
maintain in full force and effect a service contract for the heating,
ventilation and air conditioning systems. Tenant's obligations to
repair and maintain the Demised Premises shall also include, without
limitation, repair, maintenance and replacement of all plumbing and
sewage facilities within and about the Demised Premises (including,
specifically, but without limitation, the portion of water and sewer
lines between the boundary of the Land and Building), fixtures, interior
walls, floors, ceilings, windows, doors, storefronts, plate glass,
skylights, all electrical facilities and equipment including, without
limitation, lighting fixtures, lamps, fans and any exhaust equipment and
systems, electrical motors, and all other appliances and equipment of
every kind and nature located in, upon or about the Demised Premises
including, without limitation, exterior lighting and fencing, and any
sidewalks, parking areas and access ways (including, without limitation,
curbs and striping) upon the Demised Premises and the landscaping and
grounds surrounding the Building. All glass, both interior and
exterior, is at the sole risk of Tenant; and any broken glass shall be
promptly replaced at Tenants expense by glass of like kind, size and
quality. Unless the same is caused solely by the negligence or willful
misconduct of Landlord or its agents, employees or contractors, Landlord
shall not be liable to Tenant or to any other person for any damage
occasioned by failure in any utility system or by the bursting or
leaking of any vessel or pipe in or about the Demised Premises, or for
any damage occasioned by water coming into the Demised Premises or
arising from the acts or neglects of occupants of adjacent property or
the public.
(b) Landlord acknowledges and agrees that, during the Warranty
Period (as defined in Section 18(h), below), Landlord shall be
responsible for performing, and shall promptly perform, all repairs and
maintenance of the Landlord's Work (as defined in Section 18(b)), other
than repairs and maintenance required because of improper operation,
misuse or negligence of Tenant (or its employees, agents or contractors)
or third parties other than Landlord (or its employees, agents or
contractors). Tenant acknowledges that Landlord is not required, at the
end of the Warranty Period, to have maintained the Demised Premises in a
"like-new" condition and that the Demised Premises will, during the
Warranty Period, be subject to normal wear and tear from use by Tenant
and that Landlord has no duty or responsiblilty with respect to such
wear and tear. Notwithstanding the expiration of the Warranty Period,
Landlord, at its own cost and expense, shall continue to be responsible
throughout the Term for, and shall promptly perform as necessary, all
maintenance, repair and replacement of the floor slab (but not floor
coverings, which are the exclusive responsibility of Tenant unless the
damage is caused by Landlord or its agents, employees or contractors or
by a failure of Landlord to perform its obligations under this Lease) to
the extent that the need for such maintenance, repair or replacement
arises solely out of a failure of the floor slab to conform to the Plans
and Specifications or latent defects in the materials or workmanship
used or provided by Landlord in the original installation of the floor
slab. After the end of the Warranty Period, Landlord shall, at its own
cost and expense, remain responsible throughout the Term for the repair,
maintenance and replacement of the roof (and all components of the
roof), foundation and structural frame (including load-bearing walls) of
the Building. After the end of the Warranty Period, Landlord shall
transfer and assign to Tenant, without recourse (except for a warranty
that there have been no previous assignments or pledges of such
warranties), all warranties held by Landlord which cover any portion or
component of the Demised Premises which must be maintained by Tenant
pursuant to Section 11(a).
12. Tenant's Personal Property; Indemnity. All of
Tenant's personal property in the Demised Premises shall be and remain
at Tenant's sole risk, and Landlord shall not be liable for and Tenant
hereby releases Landlord from any and all liability for theft thereof or
any damage thereto occasioned by any acts or negligence of any third
persons, or any act of God, except to the extent caused by the acts or
negligence of Landlord, its agents, employees and contractors, or a
failure of Landlord to perform its obligations under this Lease. Tenant
shall have the right at any time during the Term to remove any and all
personal property of Tenant from the Demised Premises. Each party
hereby agrees to indemnify, defend, protect and hold the other party
harmless from and against any and all losses, costs, liabilities,
damages and expenses, including, but not limited to, penalties, fines,
reasonable attorney's fees and costs actually incurred, but specifically
excluding consequential and indirect damages (collectively,"Claims"), to
the extent such Claims (i) are caused or result from the activities
(including the negligence or willful conduct) of the indemnifying party
or its respective agents, contractors or employees in or on the Demised
Premises, Building or Land, and (ii) are not insured (or required to be
insured) by the indemnified party pursuant to the provisions of this
Lease; provided, however, that the foregoing indemnity shall not extend
to any Claims to the extent resulting from the negligence or willful
misconduct of the indemnified party. The foregoing mutual indemnity is
intended to be consistent with the waivers as set forth in Section 8 (e)
of this Lease, pursuant to which (A) each party has waived its
respective rights against the other party to the extent any losses,
damages or other Claims are insured or required to be insured under
property damage policies by such party pursuant to the provisions of
this Lease, and (B) has agreed to cause such party's respective
insurance carrier to include a waiver of subrogation (to the extent
obtainable) in their respective property damage insurance policies. The
foregoing indemnities, and the waivers set forth in Section 8, are not
intended to and shall not relieve any insurance carrier of its
obligations to provide insurance coverage pursuant to insurance policies
obtained pursuant to the provisions of this Lease. The provisions of
this Section 12 shall survive the expiration or earlier termination of
this Lease.
13. Tenant's Fixtures. Tenant shall have the right to install
in the Demised Premises trade fixtures required by Tenant or used by it
in its business, and if installed by Tenant, to remove any or all such
trade fixtures from time to time during the Term and upon termination of
this Lease; provided, however, that Tenant shall repair and restore any
damage or injury to the Demised Premises (to the condition in which the
Demised Premises existed prior to such installation) caused by the
installation and/or removal of any such trade fixtures.
14. Signs. Tenant shall have the right to install interior and
exterior signs at the Demised Premises which comply with Governmental
Requirements and the Protective Covenants Any and all permitted signs
shall be installed, maintained and, upon expiration or termination of
the Term, removed by Tenant, at Tenant's sole expense.
15. [INTENTIONALLY OMITTED]
16. Governmental Regulations. From and after the Commencement
Date, Tenant shall, at Tenant's sole cost and expense, promptly comply
(so long as compliance is required (i) solely as a result of the
specific use being made by Tenant of the Demised Premises, as
distinguished from a requirement applicable to any warehouse-
distribution building comparable to the Building irrespective of the use
thereof by any particular occupant, (ii) with respect to the Base
Building, solely as a result of construction of the Expansion
Improvements or (iii) with respect to the Base Building and, if
applicable, the Expansion Improvements, solely as a result of the
installation or construction of any "Tenant Change", as defined in
Section 19) with all applicable Governmental Requirements, and notices,
orders, rules and regulations of the National Board of Fire
Underwriters, or any other body now or hereafter constituted exercising
similar functions, relating to all or any part of the Demised Premises.
Without limiting the generality of the foregoing, Tenant shall keep in
force at all times all licenses, consents and permits necessary for the
lawful use of the Demised Premises by Tenant. Tenant shall likewise
observe and comply with the requirements of all policies of public
liability, fire and other policies of insurance at any time in force
with respect to the Demised Premises pursuant to Section 8. Landlord
shall, during the Primary Term, promptly comply at Landlord's expense
with Governmental Requirements which relate to all or any part of the
Demised Premises and which are applicable to any warehouse-distribution
building comparable to the Building irrespective of the specific use
thereof by any particular occupant. If Tenant exercises its right under
Section 3.5 to extend the Primary Term, Tenant will, from and after the
end of the Primary Term, be responsible for and shall perform, at the
expense of Tenant, the duties and obligations which were the
responsibility of Landlord during the Primary Term under the preceding
sentence of this Section 16; provided that Landlord shall, in all
events, retain full and complete responsibility under this Section 16
with respect to the components of the Demised Premises which must be
maintained by Landlord at its expense pursuant to Section 11(b) after
the end of the Warranty Period. Anything in this Section 16 to the
contrary notwithstanding, Landlord shall, throughout the Term, be
responsible at its sole, cost and expense for compliance with
Governmental Requirements affecting the Demised Premises to the extent
that the Demised Premises did not comply with such Governmental
Requirements at the time of Substantial Completion (hereinafter be
referred to as "Landlord Exclusive Compliance Obligations"). Each of
Landlord and Tenant shall have the right to challenge the applicability
or validity of any Governmental Requirement which gives rise to a duty
or obligation under this Section 16, subject to the conditions that the
party instituting such action shall maintain the challenge diligently
and continuously and that the challenge will prevent the imposition of
any fine, penalty or other sanction on the other party or, with respect
to challenges pursued by the Landlord, the closure of any portion of the
Demised Premises; provided, however, that, with respect to any fine,
penalty or sanction which involves only payment of a sum of money, the
challenging party shall have the right to provide a bond or other
security reasonably acceptable to the other party in the event of actual
imposition of the fine, penalty or sanction..
17. Environmental Matters.
(a) For purposes of this Lease:
(i) "Contamination" as used herein means the
uncontained or uncontrolled presence of or release of Hazardous
Substances (as hereinafter defined) into any environmental media
from, upon, within, below, into or on any portion of the Demised
Premises, the Building, or the Project so as to require
remediation, cleanup or investigation under any applicable
Environmental Law (as hereinafter defined).
(ii) "Environmental Laws" as used herein means all
federal, state, and local laws, regulations, orders, permits,
ordinances or other requirements, concerning protection of human
health, safety and the environment, all as may be amended from
time to time.
(iii) "Hazardous Substances" as used herein means any
hazardous or toxic substance, material, chemical, pollutant,
contaminant or waste as those terms are defined by any applicable
Environmental Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ["RCRA"])
and any solid wastes, polychlorinated biphenyls, urea
formaldehyde, asbestos, radioactive materials, radon, explosives,
petroleum products and oil.
(iv) "Third Party Contamination" means Contamination
of the the Demised Premises which is caused by or arises out of
the acts or omissions of any person other than (i) Landlord or
Tenant, (ii) their respective employees, agents or contractors or
(iii) subtenants or assignees of the interest of Tenant under this
Lease.
(b) Landlord represents that, except as set forth in
environmental reports delivered by Landlord to Tenant (i) Landlord has
not treated, stored or disposed of any Hazardous Substances upon or
within the Demised Premises, (ii) to Landlord's actual knowledge,
without inquiry or investigation, no Hazardous Substances are present on
or under the Land as of the date of this Lease, except as may be set
forth in the environmental reports described on Exhibit "E" attached to
this Lease, copies of which have been delivered to Tenant prior to the
Lease Date, (iii) all activities of Landlord in constructing the
Landlord's Work pursuant to Section 17 of this Lease will be conducted
in compliance with Environmental Laws, (iv) Landlord has received no
written notices of any violation of Environmental laws pertaining to the
Land or the Building, and (v) Landlord will not treat, store or dispose
of any Hazardous Substances upon or within the Demised Premises in
connection with the construction of the Landlord's Work, except such
Hazardous Substances which are routinely used in connection with such
construction work or activities, but then only in compliance with
Environmental Laws.
(c) Tenant represents that all its activities on the
Demised Premises or the Project during the course of this Lease will be
conducted in compliance with Environmental Laws. Tenant represents
that, with respect to its activities affecting the Demised Premises, it
is currently in compliance with all applicable Environmental Laws and
that there are no pending or threatened notices of deficiency, notices
of violation, orders, or judicial or administrative actions involving
alleged violations by Tenant of any Environmental Laws which could
affect the Demised Premises or the performance by Tenant of its
obligations under this Lease. Tenant, at Tenant's sole cost and
expense, shall be responsible for obtaining all permits or licenses or
approvals under Environmental Laws necessary for Tenant's operation of
its business on the Demised Premises and shall make all notifications
and registrations required by any applicable Environmental Laws.
Tenant, at Tenant's sole cost and expense, shall at all times comply
with the terms and conditions of all such permits, licenses, approvals,
notifications and registrations and with any other applicable
Environmental Laws affecting in any way the Demised Premises. Tenant
represents and agrees that it will obtain all such permits, licenses or
approvals and make all such notifications and registrations required by
any applicable Environmental Laws necessary for Tenant's operation of
its business on the Demised Premises.
(d) Tenant shall not cause or knowingly permit any
Hazardous Substances to be brought upon, kept, stored or used in or
about the Demised Premises, the Building, or the Project without the
prior written consent of Landlord, which consent may be granted or
withheld in the absolute discretion of Landlord; provided, however, that
the consent of Landlord shall not be required for the use at the Demised
Premises of (i) cleaning supplies, toner for photocopying machines and
other similar materials, in containers and quantities reasonably
necessary for and consistent with normal and ordinary use by Tenant, at
the Demised Premises, in the routine operation or maintenance of
Tenant's office equipment or in the routine janitorial service, cleaning
and maintenance for the Demised Premises and (ii) Hazardous Substances
which are components of the products associated with the Primary Use,
e.g. (but not by way of limitation) pet shampoos and flea treatments;
provided that such products will be stored and distributed in and from
the Demised Premises only in bottles and other containers which are
filled at locations other than the Demised Premises.
(e) Tenant shall not cause or knowingly permit the release
of any Hazardous Substances by Tenant or its agents, contractors or
employees into any environmental media such as air, water or land, or
into or on the Demised Premises, the Building or the Project in any
manner that violates any Environmental Laws. If such release shall
occur, Tenant shall (i) take all steps reasonably necessary to contain
and control such release and any associated Contamination, (ii) clean up
or otherwise remedy such release and any associated Contamination to the
extent required by, and take any and all other actions required under,
applicable Environmental Laws and (iii) notify and keep Landlord
reasonably informed of such release and response.
(f) Regardless of any consents granted by Landlord
pursuant to Section 17(d) allowing Hazardous Substances upon the Demised
Premises, Tenant shall under no circumstances whatsoever (i) cause or
knowingly permit any activity on the Demised Premises which would cause
the Demised Premises to become subject to regulation as a hazardous
waste treatment, storage or disposal facility under RCRA or the
regulations promulgated thereunder; (ii) discharge Hazardous Substances
into the storm sewer system serving the Project; or (iii) install any
underground storage tank or underground piping on or under the Demised
Premises.
(g) Tenant shall and hereby does indemnify Landlord and
hold and defend Landlord harmless from and against any and all
reasonable and actual expense, loss, and liability suffered by Landlord
(but excluding indirect or consequential damages and excluding expenses,
losses, and liabilities arising from Landlord's own negligence or
willful act), by reason of Tenant's storage, generation, handling,
treatment, transportation, disposal, or arrangement for transportation
or disposal, of any Hazardous Substances (whether accidental,
intentional, or negligent) or by reason of Tenant's breach of any of the
provisions of this Section 17. Such expenses, losses and liabilities
shall include, without limitation, (i) any and all reasonable expenses
that Landlord may incur to comply with any Environmental Laws as a
result of Tenant's failure to comply therewith; (ii) any and all
reasonable costs that Landlord may actually incur in studying or
remedying any Contamination at or arising from the Demised Premises as a
result of a failure by Tenant to comply with this Section 17 or
Environmental Laws; (iii) any and all costs that Landlord may incur in
studying, removing, disposing or otherwise addressing any Hazardous
Substances which are present at the Demised Premises as a result of a
failure by Tenant to comply with this Section 17 or Environmental Laws;
(iv) any and all fines, penalties or other sanctions assessed upon
Landlord by reason of Tenant's failure to comply with Environmental
Laws; and (v) any and all reasonable legal and professional fees and
costs incurred by Landlord in connection with the foregoing.
Notwithstanding the foregoing, Tenant shall have the right and
obligation to undertake and perform all such studying, remedying,
removing, disposing or otherwise addressing any Hazardous Substances
which are the responsibility of Tenant under this subsection (g), and
Landlord shall not perform such acts unless Tenant has failed or refused
to perform such acts within thirty (30) calendar days after receipt of
written notice from Landlord; provided that if the condition requiring
action by Tenant cannot be corrected or remediated within such thirty
(30) day period, Landlord shall not be entitled to act so long as Tenant
commences the required action within said thirty (30) day period and
thereafter diligently pursues such action to completion within a
reasonable time. The indemnity contained herein shall survive the
termination or expiration of this Lease.
(h) Landlord shall have the right, but not the obligation,
to enter the Demised Premises at reasonable times throughout the Term,
after prior written notice to Tenant, to audit and inspect the Demised
Premises for Tenant's compliance with this Section 17.
(i) Landlord hereby agrees to indemnify Tenant and hold
Tenant harmless from and against any and all reasonable and actual
expense, loss and liability suffered by Tenant (but excluding indirect
or consequential damages and excluding expenses, losses, and liabilities
arising from Tenant's own negligence or willful act) as a result of
Landlord's breach of Section 17(b), or by reason of storage, generation,
handling, treatment, transportation or disposal or arrangement for
transportation or disposal of any Hazardous Substances upon or within
the Demised Premises by Landlord, its agents, employees or contractors.
For purposes of such indemnity, Tenant's permissible expenses shall
include only (A) any and all reasonable expenses which Tenant may
actually incur to comply with any Environmental Laws, (B) any and all
reasonable expenses which Tenant may actually incur in studying or
remedying any Contamination, (C) any and all reasonable costs which
Tenant may actually incur in studying, removing, disposing at the
Demised Premises or otherwise addressing any Hazardous Substances at the
Demised Premises, (D) any and all fines, penalties or other sanctions
assessed upon Tenant, and (E) any and all reasonable legal and
reasonable professional expenses which Tenant may actually incur in
connection with the foregoing. Notwithstanding the foregoing, Landlord
shall have the right and obligation to undertake and perform all such
studying, remedying, removing, disposing or otherwise addressing any
Hazardous Substances which are the responsibility of Landlord under this
subsection (i), and Tenant shall not perform such acts unless (x) Tenant
is specifically required by Environmental Laws to perform such acts, and
(y) Landlord has failed or refused to perform such acts within thirty
(30) calendar daysafter receipt of written notice from Tenant; provided
that if the condition requiring action by Landlord cannot be corrected
or remediated within such thirty (30) day period, Tenant shall not be
entitled to act so long as Landlord commences the required action within
said thirty (30) day period and thereafter diligently pursues such
action to completion within a reasonable time. In addition to the
foregoing indemnity, if, as a result of Third Party Contamination, (1)
Tenant vacates the Demised Premises pursuant to subsection (j), below,
and (2) a federal, state or local governmental authority files suit
against Landlord and obtains a final judgment holding Landlord liable
for the cost of remediating the Third Party Contamination which caused
Tenant to vacate, Landlord shall and hereby does indemnify Tenant and
hold and defend Tenant harmless from and against (i) any and all
reasonable out-of-pocket moving expenses which Tenant actually incurred
in relocating the business conducted at the Demised Premises to another
facility in the Chicago, Illinois metropolitan area (but no
consequential or indirect costs or damages of any kind) and (ii) the
unamortized value of the Tenant's Work, as calculated on a straight-line
basis over the Primary Term. After Substantial Completion, Tenant
shall, within thirty (30) calendar days after receipt of a written
request from Landlord, provide Landlord reasonable written evidence of
the original cost of the Tenant's Work (which may not include any cost
for items of movable personal property).The indemnities contained herein
shall survive the termination or expiration of this Lease.
(j) If Contamination not caused by Tenant is found to
exist in, on or under the Demised Premises and such Contamination
actually prevents (by virtue of the application or enforcement of
applicable Environmental Laws by a governmental authority or a
demonstrable hazard to human health) Tenant from occupying any material
part of the Demised Premises for the conduct of Tenant's normal business
operations for a period of thirty (30) or more continuous calendar days,
then Tenant shall have the right to terminate this Lease by giving
written notice to Landlord; if such written notice is properly given,
this Lease shall terminate on the later to occur of the date on which
Tenant gives the written notice or actually vacates the Demised
Premises. Unless the Contamination is the result of facts or
circumstances which constitute a breach by Landlord of or material
inaccuracy in the representations, warranties and covenants of Landlord
contained in subsection (b) of this Section 17 or is otherwise within
the scope of Landlord's indemnities of Tenant in Section 17(i), above,
the foregoing right to terminate this Lease shall be the sole and
exclusive remedy of Tenant with respect to the existence of such
Contamination. If the Contamination results from a breach or material
inaccuracy of the representations, warranties and covenants by Landlord
in subsection (b) of this Section 17 or is otherwise within the scope of
Landlord's indemnities of Tenant in Section 17(i), above, nothing
contained in this subsection (j) is intended to limit or impair the
right of Tenant to demand performance by Landlord of its indemnity and
other obligations under subsection (i) of this Section 17.
18. Plans and Specifications for Construction of Demised
Premises.
(a) Tenant hereby approves the plans and specifications
for the base Building described on Exhibit G attached hereto and
incorporated herein by this reference ("Base Building Plans and
Specifications"). Within thirty (30) days after the Lease Date,
Landlord shall prepare, at Landlord's sole cost and expense, and submit
to Tenant a set of plans and specifications and/or construction drawings
for the office improvements in the Building (collectively, the
"Additional Plans and Specifications") based on the preliminary plans
and specifications and/or preliminary floor plans set forth on Exhibit
G-1 attached hereto and incorporated herein, covering certain work to be
performed by Landlord in completing the Building and constructing
interior improvements for the Demised Premises. Tenant shall have ten
(10) business days to approve the proposed Additional Plans and
Specifications. A failure of any proposed plans or specifications to
conform to Exhibit G-1 shall be a proper basis for disapproval. Any
subsequent changes to the Additional Plans and Specifications requested
by Tenant shall be at Tenant's sole cost and expense and subject to
Landlord's written approval. Any change in the Additional Plans and
Specifications initiated by a party other than Tenant shall be
undertaken at the expense of a party other than Tenant. Tenant shall
have no right or power to request or require any changes in the Base
Building Plans and Specifications. Landlord shall have the right to
make substitutions for materials called for in the Base Building Plans
and Specifications without Tenant's written consent, so long as any
substituted materials have a quality equal to or higher than the quality
specified in the Base Building Plans and Specifications. Tenant shall
have the right to propose or request changes in the Additional Plans and
Specifications subject to Landlord's written approval which approval
shall not be unreasonably with held or delayed (herein referred to as a
"Change Order"); provided that Tenant shall have no right to request any
change which would materially alter the scope of Landlord's Work, alter
the exterior appearance of the Building or result in a delay in the
occurrence of Substantial Completion. The cost to Tenant for Change
Orders shall be Landlord's cost plus ten percent (10%) of such amount as
Landlord's overhead.
(b) Landlord shall, at its sole cost and expense perform
the work contemplated by the Additional Plans and Specifications, and in
accordance with the terms and conditions of this Lease ("Landlord's
Work"). Landlord shall make no changes to the Additional Plans and
Specifications without Tenant's written consent, with the exception of
immaterial details which will not affect Tenant's use and occupancy of
the Building. Landlord shall have the Additional Plans and
Specifications sealed by the Architect, obtain all required building
permits, certificates and licenses and thereafter, in accordance with
all applicable law and insurance requirements, perform Landlord's Work
in a diligent and good and workmanlike manner, subject to Permitted
Delay and Tenant Delay (as those terms are defined below).
(c) Landlord shall use reasonable speed
and diligence to achieve Substantial Completion, at Landlord's
sole cost and expense, on or before April 7, 1998, provided that,
except for certain liquidated damages hereinafter described,
Landlord shall not be liable to Tenant in any way for achieving
Substantial Completion after such target date. In the event
Landlord fails to achieve Substantial Completion by April 7, 1998,
as extended by Permitted Delay, then, in such event, this Lease
shall remain in full force and effect and Tenant shall be entitled
to the following:
(i) If Substantial Completion is achieved after April 7,
1998, as such date may be extended by Permitted Delay, but not
later than April 14, 1998, as such date may be extended by
Permitted Delay, Landlord shall pay to Tenant liquidated damages,
for late delivery, in the amount of $1125.00 per day for each
calendar day after April 7, 1998, through and including April 14,
1998, as extended by Permitted Delay, that Substantial Completion
is not achieved, payable to Tenant in the form of a credit against
Base Rent; and
(ii) If Substantial Completion is achieved on or
after April 15, 1998, as such date may be extended by
Permitted Delay, Landlord shall pay to Tenant liquidated
damages, for late delivery, in the amount of $5,000.00 per
day for each calendar day after April 14, 1998, to but not
including the date that Substantial Completion is actually
achieved, as those dates may be extended by Permitted Delay,
payable to Tenant in the form of a credit against Base Rent.
(d) Landlord acknowledges that Tenant desires to obtain
access to the Demised Premises prior to the occurrence of Substantial
Completion for the purpose of performing the work described on
Exhibit "G-2" (collectively, the "Tenant's Work"). Landlord shall
exercise a good faith effort to achieve, thirty (30) calendar days prior
to Substantial Completion, a level of completion of the Landlord's Work
which will allow the Tenant lawful access to the Demised Premises for
the purpose of performing Tenant's Work ("Partial Completion").
Landlord shall likewise endeavor in good faith to give to Tenant
reasonable prior notice of the anticipated date of Partial Completion.
Tenant shall have the right, upon the occurrence of Partial Completion,
to enter the Demised Premises in order to perform the Tenant's Work.
Prior to commencement of installation of Tenant's Work, Tenant shall
submit to Landlord reasonably detailed plans and specifications for
Tenant's Work, which shall be subject to the approval of Landlord, not
to be unreasonably withheld, delayed or conditioned. Landlord shall
have no liability for a failure to achieve Partial Completion by the
date specified in this subsection (d). In connection with entry by
Tenant after Partial Completion, (i) Tenant shall not interfere with
Landlord's completion of the Landlord's Work, provided that Landlord
shall use reasonable efforts to accommodate Tenant's Work, (ii) Tenant
shall not begin operation of its business or store any inventory or
other personal propety in the Demised Premises and (iii) Tenant shall
enter the Demised Premises at its sole risk, whether from personal
injury, property damage, theft or otherwise.
(e) The Substantial Completion target date of April 7,
l998, shall be extended for one (1) day for each day that Substantial
Completion is delayed:
(i) solely as a result of the failure by Tenant to
timely approve or disapprove the Plans and Specifications, or as a
result of Change Orders or other changes requested by Tenant in the
Additional Plans and Specifications after the Tenant's approval thereof
(collectively referred to herein as "Tenant Delay"); or
(ii) due to strikes or other labor troubles not
specific to the Demised Premises, governmental moratoria, war or other
national emergency, non-availability of materials or supplies, delay in
transportation, accidents, floods, fire, damage or other casualties,
weather or acts or omissions of Tenant,all beyond the reasonable control
of Landlord (collectively referred to herein as "Permitted Delay"). The
inability or refusal of Landlord to make any monetary payment shall not
constitute or result in an Permitted Delay. Any extension of time for
Permitted Delay will be allowed only if the party claiming the extension
gives written notice to the other party of the facts or circumstances
which gave rise to the claim within ten (10) business days after the
occurrence of the event or circumstance.
(f) On or prior to the date of Substantial Completion of
the Demised Premises, a representative of Landlord and a representative
of Tenant together shall inspect the Demised Premises and, within
fifteen (15) days thereafter, generate a punchlist of defective or
uncompleted items relating to the completion of construction of the
improvements within the Demised Premises, which punchlist shall indicate
the estimation by the parties of the cost of each item. Landlord shall,
within a reasonable time after such punchlist is prepared and agreed
upon by Landlord and Tenant, complete such incomplete work and remedy
such defective work as are set forth on the punchlist.
(g) Upon the Lease Commencement Date, Tenant shall execute
and deliver to Landlord a letter confirming the Lease Commencement Date
and expiration date of this Lease.
(h) Landlord hereby warrants to Tenant that the materials
and equipment furnished by Landlord's contractors in the completion of
Landlord's Work will be of good quality and new, that during the one (1)
year period following the date of Substantial Completion of Landlord's
Work ("Warranty Period"), such materials and equipment and the work of
such contractors shall be free from defects not inherent in the quality
required or permitted hereunder, and that such work will conform to the
Plans and Specifications (the foregoing referred to herein as
"Landlord's Warranty"). This warranty shall exclude damages or defects
to the extent caused by abuse by Tenant, its employees, invitees,
licensees, contractors and agents, improper or insufficient maintenance,
improper operation, or normal wear and tear under normal usage.
(i) For purposes of this Lease, the term "Substantial
Completion" or any grammatical variation thereof shall mean sufficient
completion of construction of the Demised Premises in accordance with
the Plans (as defined in Section 18), so that Tenant can lawfully occupy
the Demised Premises, as evidenced by the delivery by Landlord to Tenant
of a Certificate of Occupancy or its equivalent (or Temporary
Certificate of Occupancy or its equivalent) for the Building issued by
the appropriate governmental authority if so required by applicable law.
Tenant acknowledges that (i) because of weather conditions at the time
of Substantial Completion, the landscaping for the Demised Premises will
not be installed and a portion of the parking, dock and trailer areas
will not be paved.and (ii) the absence of landscaping and the existence
of the unpaved areas will not prevent the occurrence of Substantial
Completion. Landlord will cover the unpaved areas with gravel in a
manner which will permit use thereof by Tenant as of the time of
Substantial Completion of the Building. Landlord will cause the
landscaping and paving to be completed in accordance with the Plans and
Specifications as soon as (1) weather permits and (2) asphalt plants in
the area reopen in the spring. In the event completion to such extent
is delayed because of Tenant Delay, as defined herein, then Substantial
Completion shall be deemed to mean the date when the Demised Premises
would have been completed to such extent but for such Tenant Delay, as
determined by Philip Prince & Associates ("Architect"). In the event
Tenant shall dispute the determination of such date by the Architect,
the parties shall utilize the Dispute Resolution Procedure as defined in
Section 34, with Qualified Architects serving as Officials. For
purposes of this Lease, the Architect shall be deemed a "Qualified
Architect" for Landlord. Tenant shall be entitled to designate its
"Qualified Architect" at any time by written notice to Landlord.
(j) Within thirty (30) calendar days after the Lease
Commencement Date, Tenant shall execute and deliver to Landlord a letter
of acceptance confirming that the Lease Commencement Date and Expiration
Date remain as set forth in Section 1, or if revised pursuant to the
terms hereof, setting forth such dates as so revised. Within thirty
(30) calendar days after Substantial Completion, Landlord shall deliver
to Tenant a written certification of an architect, duly licensed as such
under the laws of the State of Illinois, of the square footage contained
in the Building, based on a "drip-line" measurement from the outside of
the exterior walls of the Building. The square footage so certified by
such architect shall determine the Building Square Footage for all
purposes under this Lease, including, without limitation, calculation of
Annual Minimum Rent, Monthly Minimum Rent Installments and the amount of
the Purchase Price. The Annual Minimum Rent and Monthly Minimum Rent
Installments shall be adjusted on the basis of the square footage of the
Building so certified by such architect, using the following amount for
calculation:
Lease Year one (1) $2.89 per square foot
Lease Year two (2) $2.94 per square foot
Lease Years three (3)
through five (5) $2.99 per square foot
Lease Years six (6)
and seven (7) $3.41 per square foot
Tenant shall have the right to accompany the Architect when the
measurements are being made. If Tenant is not reasonably satisfied with
said measurements, Tenant shall have the right to require a second set
of measurements pursuant to the Dispute Resolution Procedure (as defined
in Section 34).
18.2 Landlord Warranties. In connection with the
performance by Landlord of its obligations under this Section 18,
Landlord hereby represents and warrants to Tenant as follows:
(a) Landlord is the owner of the Demised Premises, subject
to the Permitted Encumbrances;
(b) The Building, including the Landlord's Work, will,
upon achieving Substantial Completion, comply with all applicable
Governmental Requirements;
(c) As of the Lease Date, the Primary Use is lawful under
all applicable Governmental Requirements and is permissible under the
Protective Covenants; and
(d) As of the Lease Date, no default has occurred and is
continuing under the Protective Covenants with respect to the Demised
Premises (and no event has occurred which, with the passage of time or
the giving of notice, or both, would become a default) and Landlord has
received no notice (and has no actual knowledge) of any violation by the
Demised Premises of any Governmental Requirements.
19. Tenant Alterations and Additions.
(a) Any alteration, improvement, or addition to the
Demised Premises performed by Tenant pursuant to this Section 19 is
hereinafter referred to as a "Tenant Change". Subject to compliance
with the provisions of this Section 19, Tenant shall, so long as Tenant
maintains the Minimum Net Worth, have the right to undertake Tenant
Changes without the prior consent of Landlord, but subject to compliance
with all the provisions of this Section 19, if, and only if, (i) the
Tenant Change affects only the interior of the Demised Premises, (ii)
the Tenant Change does not affect the roof or any structural element of
the Demised Premises and (iii) the Tenant Change does not alter any of
the utility systems of the Building; provided, however, that, not less
than ten (10) calendar days prior to commencing the performance of any
Tenant Change which Tenant has determined does not require the prior
consent of Landlord, Tenant shall give Landlord prior written notice of
the intended Tenant Change, which notice must describe the nature of the
work to be perfomed with sufficient detail to enable Landlord to
determine that the requirements of this Section 19 have been satisfied.
Tenant shall not make or permit to be made any other Tenant Change
without first obtaining on each occasion Landlord's prior written
consent (which consent Landlord agrees not unreasonably to withhold) and
Mortgagee's prior written consent (if such consent is required). With
respect to any such Tenant Change requiring Landlord's prior written
consent, Tenant shall furnish Landlord with a full set of plans and
specifications for any such Tenant Change prior to the commencement
thereof together with an original builder's risk policy of insurance in
form and amount of coverage reasonably acceptable to Landlord, showing
Tenant as named insured, and Landlord and Mortgagee (if applicable) as
loss payees. If Landlord, at the time of giving its approval to any
Tenant Change, notifies Tenant that approval is conditioned upon
restoration, then upon written request of Landlord, Tenant shall, at its
sole cost and expense and upon the termination of this Lease, remove the
same and restore the Demised Premises to its condition prior to such
Tenant Change, ordinary wear and tear excepted. Any Tenant Change not
requiring the consent of Landlord and which is performed or undertaken
by Tenant must, absent written agreement by Landlord to the contrary, be
fully removed from the Demised Premises prior to the end of the Term and
the Demised Premises must be restored to its condition prior to such
Tenant Change, ordinary wear and tear excepted. The term "Tenant
Change", as used in this Lease, does not include either the Allowance
Work or the Tenant's Work.
(b) All Tenant Changes shall be performed in accordance
with all legal requirements applicable thereto and in a good and
workmanlike manner with materials having a quality not lower than the
quality of materials used in the Building and, upon completion of any
Tenant Change, Tenant shall furnish to Landlord "as-built" drawings
showing the location and type thereof. No Tenant Change shall impair
the structural strength of the Building or reduce its value, Tenant
shall take or cause to be taken all steps that are required or permitted
by law in order to avoid the imposition of any materialmen's or
mechanics' liens upon the Building or the Demised Premises, and Tenant
shall pay the full cost of any Tenant Change.If, but only if, the
stockholder equity of Tenant is less than the Minimum Net Worth,
Landlord shall have the right to require from Tenant, as a condition of
granting its consent, reasonable security, such as payment and
performance bonds, to insure payment of the cost of the requested Tenant
Change. Subject to the obligation of Tenant to remove Tenant Changes in
the manner described above in this Section 19, Tenant Changes shall
immediately upon completion or installation thereof be and become part
of the Demised Premises and the property of Landlord without payment
therefor by Landlord and shall be surrendered to Landlord upon the
expiration or earlier termination of the Term. With respect to any
Tenant Change, whether or not requiring Landlord's prior consent,
Landlord shall have no duty or obligation to make any replacement or
repair thereto, whether interior or exterior, structural or non-
structural, ordinary or extraordinary or as required to comply with any
law.
20. Services by Landlord. From and after the Lease Commencement
Date, Landlord shall be responsible for providing no services to the
Demised Premises whatsoever, except for the services for which Landlord
is specifically obligated pursuant to Section 11(b) and Sections 18 (f)
and (h).
21. Fire and Other Casualty.
(a) If the Building or other improvements on the Land
shall be damaged or destroyed by fire or other casualty, Tenant, at
Tenant's sole cost and expense, shall promptly and diligently proceed to
adjust the loss with the insurance companies (subject to the approval of
the Mortgagee (if applicable) and of Landlord, not to be unreasonably
withheld, delayed or conditioned) and arrange for the disbursement of
insurance proceeds, and repair, rebuild or replace such Building and
other improvements, so as to restore the Demised Premises to the
condition in which they were immediately prior to such damage or
destruction. The net proceeds of any insurance recovered by reason of
such damage or destruction in excess of the cost of adjusting the
insurance claim and collecting the insurance proceeds (such excess being
referred to herein as the "Net Insurance Proceeds") shall be held by the
Mortgagee (provided that such Mortgagee is a bank, savings association,
insurance company or other similar institutional lender; herein called
"Institutional Lender"), or, if no Institutional Lender then holds a
mortgage lien, or deed of trust on the Demised Premises, by any national
or state chartered bank which is reasonably acceptable to Landlord and
Tenant; and the Net Insurance Proceeds shall be released for the purpose
of paying the fair and reasonable cost of restoring such Building and
other improvements. Such Net Insurance Proceeds shall be released to
Tenant, or to Tenant's contractors, from time to time as the work
progresses, pursuant to such requirements and limitations as may be
reasonably acceptable to Landlord and Mortgagee (if the Mortgagee so
requires), including, without limitation, lien waivers from each of the
contractors, subcontractors, materialmen and suppliers performing the
work. If the Net Insurance Proceeds (less any applicable deductible)
are insufficient to restore the Demised Premises, Tenant shall be
obligated to pay such deficiency and the amount of any such deductible.
Notwithstanding the foregoing, if the Net Insurance Proceeds are less
than Twenty-Five Thousand Dollars ($25,000.00)(which amount will
automatically be increased to $250,000.00 whenever the stockholder
equity of Tenant equals or exceeds the Minimum Net Worth), and if the
Mortgagee agrees in writing, such Net Insurance Proceeds may be held by
Tenant and used by Tenant to pay the fair and reasonable cost of
restoring such Demised Premises and other improvements. If the Net
Insurance Proceeds exceed the full cost of the repair, rebuilding or
replacement of the damaged Building or other improvements, if the
Mortgagee does not retain such excess proceeds and apply the same on
account of the debt owed to it, then the amount of such excess Net
Insurance Proceeds shall be paid to Tenant upon the completion of such
repair, rebuilding or replacement. Landlord agrees not unreasonably to
withhold or delay any approvals required to be obtained by Tenant from
Landlord pursuant to the provisions of this Section 21(a).
(b) Whenever Tenant shall be required to carry out any
work or repair and restoration pursuant to this Section 21, Tenant,
prior to the commencement of such work, shall deliver to Landlord for
Landlord's prior approval (which shall not be unreasonably withheld or
delayed) a full set of the plans and specifications therefor, together
with a copy of all approvals and permits which shall be required from
any governmental authority having jurisdiction. After completion of any
major repair or restoration, Tenant shall, as soon as reasonably
possible, obtain and deliver to Landlord a Certificate of Substantial
Completion from the inspecting architect and a permanent Certificate of
Occupancy (or amended Certificate of Occupancy), if required by
applicable laws, issued by the appropriate authority with respect to the
use of the Demised Premises, as thus repaired and restored. Any such
work or repair and restoration, in all cases, shall be carried out by
Tenant in a good and workmanlike manner with materials at least equal in
quality to the original materials used therefor prior to the damage or
destruction. If, after a default by Tenant, Landlord shall carry out
any such work or repair and restoration pursuant to the provisions of
this Section 21, then Landlord shall be entitled to withdraw monies held
for application to the costs of such work from time to time as such
costs are incurred.
22. Condemnation.
(a) If all of the Demised Premises is taken or condemned
for a public or quasi-public use, this Lease shall terminate as of the
earlier of the date title to the condemned real estate vests in the
condemnor and the date on which Tenant is deprived of possession of all
of the Demised Premises. In such event, the Minimum Rent herein
reserved and all Additional Rent and other sums payable hereunder shall
be apportioned and paid in full by Tenant to Landlord to that date, all
Minimum Rent, Additional Rent and other sums payable hereunder prepaid
for periods beyond that date shall forthwith be repaid by Landlord to
Tenant, and neither party shall thereafter have any liability hereunder,
except that any obligation or liability of either party, actual or
contingent, under this Lease which has accrued on or prior to such
termination date shall survive.
(b) In the event of a taking of "Substantially All of the
Demised Premises" (as herein defined), Tenant may, at its option, upon
thirty (30) days' written notice to Landlord, which shall be given no
later than sixty (60) days following the taking, have the right to
terminate this Lease. All Minimum Rent and other sums payable by Tenant
hereunder shall be apportioned and paid through and including the date
of taking, and neither Landlord nor Tenant shall have any rights in any
compensation or damages payable to the other in connection with such
condemnation. For purposes of this provision, "Substantially All of the
Demised Premises" shall mean (i) so much of the Demised Premises as,
when taken, leaves the untaken portion unsuitable, in the reasonable
opinion of Tenant and Landlord, for the continued feasible and economic
operation of the Demised Premises by Tenant for the same purposes as
immediately prior to such taking or as contemplated herein, or (ii) so
many of the parking spaces on the Land as reduces the parking ratio
below that which is required by the zoning ordinance applicable to the
Project, and Landlord's failure to provide substantially similar
alternative parking reasonably acceptable to Tenant within sixty (60)
days after such taking, or (iii) so much of the Demised Premises that
access to the Demised Premises is materially impeded, as reasonably
determined by Landlord and Tenant.
(c) If only part of the Demised Premises is taken or
condemned for a public or quasi-public use and this Lease does not
terminate pursuant to Section 22(b) above, Tenant shall restore, using
all reasonable speed and diligence, the Demised Premises to a condition
and to a size as nearly comparable as reasonably possible to the
condition and size thereof immediately prior to the taking and Landlord,
to the extent of the award it receives in excess of the costs of
collecting the award and value of the Land taken (herein, the "Net
Condemnation Proceeds"), shall release the Net Condemnation Proceeds to
Tenant for that purpose and Tenant shall have the right to participate
in any proceeding relating to the awarding of restoration damages.
Tenant shall not be required to expend more than the Net Condemnation
Proceeds disbursed by Landlord in connection with such restoration.
There shall be an equitable abatement of the Minimum Rent and Additional
Rent according to the loss of use of the Demised Premises after the
taking. Determination of such value of the Demised Premises after a
partial taking shall be mutually agreed to by the parties within sixty
(60) days from the date of the taking and if the parties can not so
agree, then such value shall be determined in accordance with the
Dispute Resolution Procedure (as defined in Section 34), with real
estate appraisers having at lease ten (10) years experience appraising
commercial real estate, including build-to-suit leases, serving as
Officials. Pending such determination, Tenant shall continue to pay the
Minimum Rent and Additional Rent as herein originally specified, and
upon such determination, if Tenant is entitled to a refund because of an
overpayment of Minimum Rent or Additional Rent, Landlord shall make the
same promptly, or in lieu thereof credit the amount thereof to future
installments of Minimum Rent or Additional Rent as they become due.
(d) Landlord shall be entitled to receive the entire award
in any proceeding with respect to any taking provided for in this
Section 22, without deduction therefrom for any estate vested in Tenant
by this Lease, and Tenant shall receive no part of such award. Nothing
herein contained shall be deemed to prohibit Tenant from making a
separate claim, against the condemnor, to the extent permitted by law,
for the value of the unamortized tenant improvements (installed in
accordance with Section 19 at Tenant's expense), Tenant's moveable trade
fixtures, machinery and moving expenses, provided that, in any case, the
making of such claim shall not and does not adversely affect or diminish
Landlord's award.
23. Tenant's Default.
(a) The occurrence of any one or more of the following
events shall constitute an event of default (herein referred to as an
"Event of Default") of Tenant under this Lease:
(i) if Tenant fails to pay Minimum Rent or any
Additional Rent hereunder as and when such rent becomes due and such
failure shall continue for more than ten (10) days after receipt of
written notice from Landlord of such failure;
(ii) if Tenant permits to be done anything which
creates a lien upon the Demised Premises and fails either (A) to
discharge or bond such lien or (B) to post security with Landlord
reasonably acceptable to Landlord within thirty (30) calendar days after
Landlord gives Tenant written notice of such failure;
(iii) if Tenant violates the provisions of Section 30
of this Lease by making an unpermitted assignment or sublease;
(iv) if Tenant fails to maintain in force all
policies of insurance required by this Lease and such failure shall
continue for more than ten (10) calendar days after Landlord gives
Tenant written notice of such failure;
(v) if any petition is filed by or against Tenant or
any guarantor of this Lease under any present or future section or
chapter of the Bankruptcy Code, or under any similar law or statute of
the United States or any state thereof (which, in the case of an
involuntary proceeding, is not permanently discharged, dismissed,
stayed, or vacated, as the case may be, within sixty (60) days of
commencement), or if any order for relief shall be entered against
Tenant or any guarantor of this Lease in any such proceedings;
(vi) if Tenant or any guarantor of this Lease becomes
insolvent or makes a transfer in fraud of creditors or makes an
assignment for the benefit of creditors;
(vii) if a receiver, custodian, or trustee is
appointed for the Demised Premises or for all or substantially all of
the assets of Tenant or of any guarantor of this Lease, which
appointment is not vacated within sixty (60) days following the date of
such appointment; or
(viii if Tenant fails to perform or observe any other
term of this Lease and such failure shall continue for more than thirty
(30) days after Landlord gives Tenant notice of such failure, or, if
such failure cannot be corrected within such thirty (30) day period, if
Tenant does not commence to correct such default within said thirty (30)
day period and thereafter diligently prosecute the correction of same to
completion within a reasonable time and in any event prior to the time a
failure to complete such correction could cause Landlord to be subject
to prosecution for violation of any law, rule, ordinance or regulation
or causes, or could cause a default under any mortgage or other
Permitted Encumbrance.
(b) Upon the occurrence of any one or more of the
aforesaid Events of Default, or upon the occurrence of any other default
or defaults by Tenant under this Lease, Landlord may, at Landlord's
option, without any demand or notice whatsoever (except as expressly
required in this Section 23):
(i) Terminate this Lease by giving Tenant notice of
termination, in which event this Lease shall expire and terminate on the
date specified in such notice of termination with the same force and
effect as though the date so specified were the date herein originally
fixed as the termination date of the Term, and all rights of Tenant
under this Lease and in and to the Demised Premises shall expire and
terminate and Tenant shall remain liable for all obligations under this
Lease arising up to the date of such termination, and Tenant shall
surrender the Demised Premises to Landlord on the date specified in such
notice, and if Tenant fails to so surrender Landlord shall have the
right, without notice, to enter upon and take possession of the Demised
Premises and to expel or remove Tenant and its effects without being
liable for prosecution or any claim for damages therefor; or
(ii) Terminate this Lease as provided in Section
23(b)(i) hereof and recover from Tenant all damages Landlord may incur
by reason of Tenant's default, including, without limitation, a sum
which, at the date of such termination, represents the value of the
excess, if any, of (1) the Minimum Rent, Additional Rent and all other
sums which would have been payable hereunder by Tenant for the period
commencing with the day following the date of such termination and
ending with the expiration date had this Lease not been terminated, over
(2) the aggregate reasonable rental value of the Demised Premises for
the period commencing with the day following the date of such
termination and ending with the expiration date had this Lease not been
terminated, plus (3) the costs of recovering possession of the Demised
Premises and all other out-of-pocket expenses actually incurred by
Landlord due to Tenant's default, including, without limitation,
reasonable attorney's fees, plus (4) the unpaid Minimum Rent and
Additional Rent earned as of the date of termination plus any interest
and late fees due hereunder, plus other sums of money and damages owing
on the date of termination by Tenant to Landlord under this Lease or in
connection with the Demised Premises, all of which excess sum shall be
deemed immediately due and payable; provided, however, that such
payments shall not be deemed a penalty but shall merely constitute
payment of liquidated damages, it being understood and acknowledged by
Landlord and Tenant that actual damages to Landlord are extremely
difficult, if not impossible, to ascertain. The excess, if any, of
subparagraph (ii)(1) over subparagraph (ii)(2) herein shall be
discounted to present value at the "Treasury Yield" rate. "Treasury
Yield" shall mean the rate of return in percent per annum of Treasury
Constant Maturities for the length of time specified as published in
document H.15(519) (presently published by the Board of Governors of the
U.S. Federal Reserve System titled "Federal Reserve Statistical
Release") for the calendar week immediately preceding the calendar week
in which the termination occurs. If the rate of return of Treasury
Constant Maturities for the calendar week in question is not published
on or before the business day preceding the date of the Treasury Yield
in question is to become effective, then the Treasury Yield shall be
based upon the rate of return of Treasury Constant Maturities for the
length of time specified for the most recent calendar week for which
such publication has occurred. If no rate of return for Treasury
Constant Maturities is published for the specific length of time
specified, the Treasury Yield for such length of time shall be the
weighted average of the rates of return of Treasury Constant Maturities
most nearly corresponding to the length of the applicable period
specified. If the publishing of the rate of return of Treasury Constant
Maturities is ever discontinued, then the Treasury Yield shall be based
upon the index which is published by the Board of Governors of the U.S.
Federal Reserve System in replacement thereof or, if no such replacement
index is published, the index which, in Landlord's reasonable
determination, most nearly corresponds to the rate of return of Treasury
Constant Maturities. In determining the aggregate reasonable rental
value pursuant to subparagraph (ii)(2) above, the parties hereby agree
that, at the time Landlord seeks to enforce this remedy, all relevant
factors should be considered, including, but not limited to, (a) the
length of time remaining in the Term, (b) the then current market
conditions in the general area in which the Building is located, (c) the
likelihood of reletting the Demised Premises for a period of time equal
to the remainder of the Term, (d) the net effective rental rates then
being obtained by landlords for similar type space of similar size in
similar type buildings in the general area in which the Building is
located, (e) the vacancy levels in the general area in which the
Building is located, (f) current levels of new construction that will be
completed during the remainder of the Term and how this construction
will likely affect vacancy rates and rental rates and (g) inflation; or
(iii) Without terminating this Lease, and with or
without notice to Tenant, Landlord may in its own name but as agent for
Tenant enter into and upon and take possession of the Demised Premises
or any part thereof, and, at Landlord's option, remove persons and
property therefrom and such property, if any, may be removed and stored
in a warehouse or elsewhere at the cost of, and for the account of
Tenant, all without being deemed guilty of trespass or becoming liable
for any loss or damage which may be occasioned thereby, and Landlord may
rent the Demised Premises or any portion thereof as the agent of Tenant
with or without advertisement, and by private negotiations and for any
term upon such terms and conditions as Landlord may deem necessary or
desirable in order to relet the Demised Premises. Landlord shall in no
way be responsible or liable for any failure to rent the Demised
Premises or any part thereof, or for any failure to collect any rent due
upon such reletting. Upon each such reletting, all rentals received by
Landlord from such reletting shall be applied: first, to the payment of
any indebtedness (other than any rent due hereunder) from Tenant to
Landlord; second, to the payment of any costs and expenses of such
reletting, including, without limitation, brokerage fees and attorney's
fees and costs of alterations and repairs; third, to the payment of rent
and other charges then due and unpaid hereunder; and the residue, if
any, shall be held by Landlord to the extent of and for application in
payment of future rent, if any becomes owing, as the same may become due
and payable hereunder. In reletting the Demised Premises as aforesaid,
Landlord may grant rent concessions and Tenant shall not be credited
therefor. If such rentals received from such reletting shall at any
time or from time to time be less than sufficient to pay to Landlord the
entire sums then due from Tenant hereunder, Tenant shall pay any such
deficiency to Landlord. Such deficiency shall, at Landlord's option, be
calculated and paid monthly. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this
Lease for any such previous default provided same has not been cured; or
(iv) Without terminating this Lease, and with or
without notice to Tenant, Landlord may enter into and upon the Demised
Premises and without being liable for prosecution or any claim for
damages therefor, maintain the Demised Premises and repair or replace
any damage thereto or do anything or make any payment for which Tenant
is responsible hereunder. Tenant shall reimburse Landlord immediately
upon demand for any expenses which Landlord incurs in thus effecting
Tenant's compliance under this Lease, and Landlord shall not be liable
to Tenant for any damages with respect thereto; or
(v) Allow the Demised Premises to remain
unoccupied and collect rent from Tenant as it comes due; provided that
nothing contained in this Lease will relieve Landlord of its obligation
under the laws of the state of Illinois to mitigate its damages arising
from any Event of Default; or
(vi) Pursue such other remedies as are available at
law or in equity.
(c) If this Lease shall terminate as a result of or while
there exists a default hereunder, any funds of Tenant held by Landlord
may be applied by Landlord to any damages payable by Tenant (whether
provided for herein or by law) as a result of such termination or
default.
(d) Neither the commencement of any action or proceeding,
nor the settlement thereof, nor entry of judgment thereon shall bar
Landlord from bringing subsequent actions or proceedings from time to
time, nor shall the failure to include in any action or proceeding any
sum or sums then due be a bar to the maintenance of any subsequent
actions or proceedings for the recovery of such sum or sums so omitted.
(e) If any statute or rule of law shall limit any of
Landlord's remedies as hereinabove set forth, Landlord shall nonetheless
be entitled to any and all other remedies hereinabove set forth.
(f) No agreement to accept a surrender of the Demised
Premises and no act or omission by Landlord or Landlord's agents during
the Term shall constitute an acceptance or surrender of the Demised
Premises unless made in writing and signed by Landlord. No re-entry or
taking possession of the Demised Premises by Landlord shall constitute
an election by Landlord to terminate this Lease unless a written notice
of such intention is given to Tenant.
(g) No provision of this Lease shall be deemed to have
been waived by either party unless such waiver is in writing and signed
by the party making such waiver. Landlord's acceptance of Minimum Rent
or Additional Rent following an Event of Default hereunder shall not be
construed as a waiver of such Event of Default. No custom or practice
which may grow up between the parties in connection with the terms of
this Lease shall be construed to waive or lessen either party's right to
insist upon strict performance of the terms of this Lease, without a
written notice thereof the other party.
(h) The rights granted to Landlord in this Section 23
shall be cumulative of every other right or remedy provided in this
Lease or which Landlord may otherwise have at law or in equity or by
statute, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other
rights or remedies or constitute a forfeiture or waiver of Minimum Rent,
Additional Rent or damages accruing to Landlord by reason of any Event
of Default. If an Event of Default shall occur, Tenant shall pay to
Landlord, on demand, all reasonable expenses actually incurred by
Landlord as a result thereof, including reasonable attorneys' fees,
court costs and expenses. Other than in connection with a claim arising
from the negligence, intentional misconduct or other wrongful act of
Landlord, its employees, agents or representatives, if Landlord shall be
made a party to any litigation commenced against Tenant solely as a
result of Landlord's ownership of the Demised Premises or the
relationship of Landlord and Tenant arising by virtue of this Lease,
Tenant shall pay all costs and reasonable attorneys' fees incurred by
Landlord in connection with such litigation.
23.1 Landlord Default. If Landlord fails to perform or
observe or otherwise breaches any term of this Lease and such failure
shall continue for more than thirty (30) days after Tenant gives
Landlord written notice of such failure, or, if such failure does not
arise out of a failure by Landlord to pay a sum of money and cannot
reasonably be corrected within such 30-day period, if Landlord does not
commence to correct such default within such 30-day period and
thereafter diligently prosecute the correction of same to completion
within a reasonable time, a "Landlord Event of Default" shall exist
under this Lease; provided that if a condition exists by virtue of a
failure of Landlord to perform an obligation of Landlord under this
Lease which interferes in a material manner with the use and occupancy
by Tenant of the Demised Premises and such interference continues for
thirty (30) days after the required written notice to Landlord, a
Landlord Event of Default will exist notwithstanding that Landlord may
still be pursuing corrective efforts at the end of such 30-day period.
Upon the occurrence of a Landlord Event of Default, Tenant may at
Tenant's option, cure the Landlord Event of Default and the actual cost
of such cure shall be payable by Landlord to Tenant within thirty (30)
calendar days after written demand and shall bear interest at the
Interest Rate from the date paid by Tenant until repayment in full by
Landlord occurs; provided, however, that if a failure by Landlord to
perform or observe any term of this Lease gives rise to circumstances or
conditions which constitute an emergency threatening human health or
safety or substantial damage to the Demised Premises or Tenant's
personal property, or materially impeding the conduct of the business of
Tenant at the Demised Premises, Tenant shall be entitled to take
immediate curative action (prior to the expiration of any notice and
cure period set forth above) to the extent necessary to eliminate the
emergency . If Landlord does not pay to Tenant the amount of such cost
and accrued interest, upon written demand, Tenant may set off such cost
against installments of Base Rent or other amounts due Landlord under
this Lease. Such cost must be reasonably incurred and must not exceed
the scope of the Landlord Event of Default in question; and if such
costs are chargeable as a result of labor or materials provided directly
by Tenant, rather than by unrelated third parties, the costs shall not
exceed the amount which would have been charged by a qualified third
party unrelated to Tenant. The quality of all work performed by Tenant
must equal or exceed the quality of Landlord's Work. Such costs must be
reasonably documented and copies of such documentation must be delivered
to Landlord with the written demand for reimbursement. Tenant shall be
permitted to continue to set off against succeeding installments of Base
Rent or other amounts due Landlord under this Lease until the total
amount of such cost actually incurred by Tenant has been recovered by
Tenant. Once Tenant has fully set off all of such cost, Landlord shall
no longer be deemed to be in default under this Lease with respect to
the Landlord Event of Default that was the subject of the set off.
Nothing contained in this Section 23.1 shall create or imply the
existence of any obligation by Tenant to cure any Landlord Event of
Default.
24. Landlord's Right of Entry. Tenant agrees to permit Landlord
and the authorized representatives of Landlord and of the Mortgagee to
enter upon the Demised Premises at all reasonable times for the purposes
of inspecting them and making any necessary repairs thereto and
performing any work therein that may be necessary by reason of Tenant's
failure to make such repairs or perform any such work required of Tenant
under this Lease; provided that, except in the case of an emergency,
Landlord shall give the Tenant reasonable prior written notice not less
than two (2) days in advance of Landlord's intended entry upon the
Demised Premises. Nothing herein shall imply any duty upon the part of
Landlord to do any such work, and the performance thereof by Landlord
shall not constitute a waiver of Tenant's default in failing to perform
it. Landlord shall not be liable for inconvenience, annoyance,
disturbance or other damage to Tenant by reason of making such repairs
or the performance of such work in the Demised Premises or on account of
bringing materials, supplies and equipment into or through the Demised
Premises during the course thereof, and the obligations of Tenant under
this Lease shall not thereby be affected; provided, however, that
Landlord shall use reasonable efforts not to annoy, disturb or otherwise
interfere with Tenant's operations in the Demised Premises in making
such repairs or performing such work. Landlord also shall have the
right to enter the Demised Premises at all reasonable times, upon not
less than 48 hours prior notice to Tenant (which may be given by
telephone), to exhibit the Demised Premises to any prospective purchaser
or mortgagee or, during the last six months of the Term, prospective
tenant.
25. Mortgagee's Rights.
(a) Landlord represents and warrants that no Mortgage
encumbers or will encumber the Demised Premises as of the Lease
Commencement Date. Subject to all the provisions of this Section 25,
this Lease may be either superior or subordinate to any "Mortgage". The
term "Mortgage", as used in this Lease, shall mean any and all
mortgages, deeds to secure debt, deeds of trust, or other instruments
creating a lien or conveying a security title at any time and from time
to time, granted by Landlord and affecting or encumbering the title of
Landlord to the Demised Premises or this Lease. The term "Mortgagee"
refers to the holder of the Mortgage. Landlord shall have no right to
grant to any Mortgagee in any Mortgage any rights which, if exercised,
would violate the obligations of Landlord or the rights of Tenant under
this Lease.
(b) Unless this Lease is subordinated to a Mortgage
pursuant to subsection (c), below, this Lease shall be superior to such
Mortgage. If the Lease is superior, any person or entity acquiring
title to the Demised Premises by virtue of foreclosure of a Mortgage
would automatically be subject to this Lease, and bound by the
obligations of the Landlord, arising under this Lease from and after the
date of foreclosure and for so long as such person or entity holds
title, without execution of any form of non-disturbance agreement. Upon
the request by any Mortgagee, Tenant shall execute and deliver a written
instrument, in a form reasonably to Tenant and acceptable for recording
in the real estate records of DuPage County, Illinois, recognizing that
this Lease is superior to the Mortgage held by the requesting Mortgagee
and that, upon foreclosure of or exercise of the power of sale contained
in the Mortgage, Tenant shall recognize and attorn to the purchaser at
the foreclosure sale as the Landlord under this Lease, subject to all
the terms and provisions of this Lease.
(c) If a Mortgagee desires for this Lease to be
subordinate to its Mortgage, Tenant agrees that it shall subordinate
this Lease by execution and delivery of the Subordination, Non-
Disturbance and Attornment Agreement attached to this Lease as
Exhibit "H" and by this reference made a part hereof in recordable form;
provided, however, that, to be effective, such Agreement must be fully
executed by all parties thereto and properly recorded in the real estate
records of Will County, Illinois. This Lease will not be subordinate to
any Mortgage except in the manner provided in this subsection (c).
Tenant shall have no duty whatsoever to consider any amendment of
Exhibit H which would affect in any way the rights of Tenant under
Section 23.1.
26. Estoppel Certificate. Landlord and Tenant agree, at any
time, and from time to time, within fifteen (15) days after written
request from the other, to execute, acknowledge and deliver to the
requesting party and/or its designee a statement in writing in
recordable form certifying that: (i) 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 (ii) the dates to
which Minimum Rent, Additional Rent and other charges have been paid,
(iii) whether or not, to the best knowledge of the signer of such
certificate, there exists any failure by the requesting party to perform
any term, covenant or condition contained in this Lease, and, if so,
specifying each such failure of which the signer may have knowledge,
(iv) (if such be the case) the Tenant has unconditionally accepted the
Demised Premises, (v) and as to such additional matters as may be
reasonably requested by Landlord, it being intended that any such
statement delivered pursuant hereto may be relied upon by the requesting
party (or its designee) and by any purchaser of title to the Demised
Premises or by any Mortgagee or any assignee thereof or any party to any
sale-leaseback of the Demised Premises, or the landlord under a ground
lease affecting the Demised Premises.
27. Landlord Liability. No owner of the Demised Premises,
whether or not named herein, shall have liability hereunder after it
ceases to hold title to the Demised Premises, except for obligations
which may have theretofore accrued. Neither Landlord nor any officer,
director, shareholder, partner or principal of Landlord, whether
disclosed or undisclosed, shall be under any personal liability with
respect to any of the provisions of this Lease, and if Landlord is in
breach or default with respect to Landlord's obligations or otherwise
under this Lease, Tenant shall look solely to the equity of Landlord in
the Demised Premises and insurance and condemnation proceeds arising
from the Building and the Land which are actually received by Landlord
and not applied in accordance with this Lease for the satisfaction of
Tenant's remedies. It is expressly understood and agreed that
Landlord's liability under the terms, covenants, conditions, warranties
and obligations of this Lease shall in no event exceed the loss of
Landlord's equity interest in the Demised Premises (and such insurance
and condemnation proceeds).
28. Notices and Payments. Any notice or payment required or
permitted to be given or served by either party to this Lease shall be
deemed given when made in writing and either (i) personally delivered,
(ii) deposited with the United States Postal Service, postage prepaid,
to be mailed by certified or registered mail, return receipt requested,
or (iii) delivered by overnight delivery service providing proof of
delivery, properly addressed to the address set forth in Section 1(j)
(as the same may be changed by giving written notice of the aforesaid in
accordance with this Section 28); provided, however, that the time
period allowed for a response to any notice so given shall not commence
until the date of actual receipt of the notice. Refusal to accept
delivery or inability to deliver as a result of a change of address as
to which no notice was properly given shall be deemed receipt.
29. Brokers. Neither Landlord nor Tenant has engaged any
brokers who would be entitled to any commission or fee based on the
execution of this Lease, other than as set forth in Section 1(l) (the
"Broker") who shall be paid pursuant to separate agreement. Further,
neither Landlord nor Tenant have had any conversations or negotiations
with any broker except the Broker concerning the leasing of the Demised
Premises to Tenant. Landlord and Tenant hereby indemnify each other
against and from any claims for any brokerage commissions (except those
payable to the Broker, all of which are payable pursuant to a separate
agreement) and all costs, expenses and liabilities in connection
therewith, including, without limitation, reasonable attorneys' fees and
expenses, for any breach of the foregoing. The foregoing
indemnification shall survive the expiration or termination of the Lease
for any reason.
30. Assignment and Subleasing.
(a) Tenant may not assign, mortgage, pledge, encumber or
otherwise transfer this Lease, or any interest hereunder, or sublet the
Demised Premises, in whole or in part, without on each occasion first
obtaining the prior express written consent of Landlord, which consent
shall not be unreasonably withheld or conditioned. In making a
determination to grant or withhold such consent, Landlord shall be
entitled to consider the creditworthiness of the proposed assignee or
sublessee, the nature of the use of the Demised Premises contemplated by
the proposed assignee or sublessee (to the extent such use amends or
alters the Permitted Use then in effect) and whether or not the proposed
use will materially increase wear and tear on the Demised Premises.
Landlord shall never be required to consent to any proposed use
involving heavy manufacturing or chemical processing. In addition, if
the intended use by the proposed assignee or sublessee involves in any
way different amounts or types of Hazardous Substances than the
Hazardous Substances then being used or stored by Tenant at the Demised
Premises, in accordance with Section 17 of this Lease, at the time of
the proposed assignment or sublease, which different or additional
Hazardous Substances create, in the reasonable judgment of Landlord a
materially increased risk of Contamination at the Demised Premises,
Landlord shall be unconditionally entitled to withhold consent of the
proposed assignment or sublease in its absolute discretion. Permitted
subtenants or assignees shall become liable directly to Landlord for all
obligations of Tenant hereunder, without, however, relieving Tenant of
any of its liability hereunder; provided, however, that Landlord will
allow Tenant to collect all amounts payable by any permitted assignee or
sublessee so long as no Event of Default has occurred and is continuing.
No such assignment, subletting, occupancy or collection shall be deemed
the acceptance of the assignee, tenant or occupant, as Tenant, or a
release of Tenant from the further performance by Tenant of Tenant's
obligations under this Lease.
(b) Notwithstanding subsections (a), (c), (d), (e) or (g)
of this Section 30, provided that no Event of Default has occurred and
is then continuing, Tenant shall have the right, without the consent of
Landlord but upon thirty (30) days prior written notice to Landlord,
(i) to sublet all or part of the Demised Premises to any entity which is
controlled by, under common control with, or which controls Tenant (any
of such entities being herein called a "Petco Affiliate"); or (ii) to
assign this Lease (x) to a Petco Affiliate or to (y) a successor
corporation into which or with which Tenant is merged or consolidated or
which acquired substantially all of Tenant's assets and property,
provided that, with respect to an assignment pursuant to (ii)(y), such
successor corporation assumes substantially all of the obligations and
liabilities of Tenant and, after such merger, shall have total assets
and stockholder equity at least equal to the total assets and
stockholder equity of Tenant immediately prior to the merger, as
determined by generally accepted accounting principles. With respect to
any assignment, Tenant shall provide in its notice to Landlord such
information as may be reasonably required by Landlord to determine that
the requirements of this subsection (b) have been satisfied. The terms
"controls", "controlled by" or "under common control with", as used in
this subsection (b), shall mean the ownership of a direct or indirect
majority interest.
(c) If Tenant should desire to assign this Lease or sublet
the Demised Premises (or any part thereof), Tenant shall give Landlord
written notice no later than thirty (30) days in advance of the proposed
effective date of any proposed assignment or sublease, specifying
(i) the name and business of the proposed assignee or sublessee, (ii) a
detailed description of the intended use of the Demised Premises by the
proposed assignee or sublessee, with particular detail regarding any
Hazardous Substances which will be used in any manner at the Demised
Premises; (iii) the amount and location of the space within the Demised
Premises proposed to be so subleased, (iv) the proposed effective date
and duration of the assignment or subletting, and (v) the proposed rent
or consideration to be paid to Tenant by such assignee or sublessee.
Tenant shall promptly supply Landlord with available financial
statements and other information related to the decision being made by
Landlord as Landlord may reasonably request to evaluate the proposed
assignment or sublease.
(d) Landlord shall have a period of fifteen (15) days
following receipt of such notice and other information requested by
Landlord within which to notify Tenant in writing that Landlord elects:
(i) to permit Tenant to assign or sublet such space; or (ii) to refuse
to consent to Tenant's assignment or subleasing of such space and to
continue this Lease in full force and effect as to the entire Demised
Premises; any such refusal shall state with reasonable specificity the
reasons for the refusal. If Landlord should fail to notify Tenant in
writing of such election within the aforesaid fifteen (15) day period,
Landlord shall be deemed to have consented to such assignment or
sublease. Tenant agrees to reimburse Landlord for reasonable legal fees
and any other reasonable costs actually incurred by Landlord in
connection with any requested assignment or subletting, not to exceed
$1000 in the aggregate for any one assignment or subletting. Tenant
shall deliver to Landlord copies of all documents executed in connection
with any permitted assignment or subletting, which documents shall be in
form and substance reasonably satisfactory to Landlord and which shall
require such assignee to assume performance of all terms of this Lease
on Tenant's part to be performed. No acceptance by Landlord of any rent
or any other sum of money from any assignee, sublessee or other category
of transferee shall be deemed to constitute Landlord's consent to any
assignment, sublease, or transfer.
(e) Any attempted assignment or sublease by Tenant in
violation of the terms and provisions of this Section 30 shall be void
and such act shall constitute a material breach of this Lease. In no
event shall any assignment, subletting or transfer, whether or not with
Landlord's consent, relieve Tenant of its primary liability under this
Lease for the entire Term, and Tenant shall in no way be released from
the full and complete performance of all the terms hereof. If Landlord
takes possession of the Demised Premises before the expiration of the
Term of this Lease, Landlord shall have the right, at its option to take
over any sublease of the Demised Premises or any portion thereof and
such subtenant shall attorn to Landlord, as its landlord, under all the
terms and obligations of such sublease occurring from and after such
date, but excluding previous acts, omissions, negligence or defaults of
Tenant and any repair or obligation in excess of available net insurance
proceeds or condemnation award.
(f) Landlord shall have the right to sell, transfer,
assign, pledge, and convey all or any part of the Demised Premises and
any and all of Landlord's rights under this Lease; provided, however,
that Landlord shall not be entitled to exercise such right, whether by
operation or law or otherwise, prior to the Lease Commencement Date
without the prior written consent of Tenant. In the event Landlord
assigns or otherwise conveys its rights under this Lease, Landlord shall
be entirely freed and released from any obligations accruing thereafter
under this Lease (provided such obligations are assumed in writing by
the purchaser or transferee), and Tenant agrees to look solely to
Landlord's successor in interest for performance of such obligations.
(g) If Tenant transfers or assigns this Lease or sublets
the Demised Premises in whole or in part to any permitted assignee or
sublessee, Landlord shall be entitled to receive, as Additional Rent,
fifty percent (50%) of any "Rental Profit" (as hereinafter defined)
received by Tenant. The term "Rental Profit" shall mean the amount,
calculated on a per square foot basis and not on an aggregate or
cumulative basis, by which (i) the total rental and other consideration
of any nature whatsoever and however characterized paid or delivered to
Tenant by an assignee of the interest of Tenant or sublessee of all or
any part of the Demised Premises, for the purpose of compensating Tenant
directly or indirectly for the assignment or sublease, exceeds (ii) the
Monthly Minimum Rent Installments paid by Tenant to Landlord pursuant to
this Lease; provided, however, that Landlord shall not be entitled to
receive any Rental Profit until Tenant has received an amount of Rental
Profit equal to the sum of (x) the actual, out-of-pocket cost of
leasehold improvements installed by Tenant at its expense specifically
for and and as an inducement tothe assignee or sublessee (subject to the
limitation hereinafter specified), plus (y) subject to the limitation
hereinafter specified, any other reasonable, documented expenses
actually paid by Tenant to a third party and "free rent" or similar
concessions granted by Tenant in connection with the assignment or
subletting, including, without limitation, reasonable attorneys' fees
and expenses and brokerage commissions (but expressly excluding any
overhead or other internally charged expenses of Tenant, or any amounts
paid for tenant improvements, free rent or other lease concessions given
as an inducement to the assignee or sublessee which materially exceed in
the aggregate the tenant improvements, free rent or other lease
concessions given in aggregate on the basis of then prevailing market
conditions for a comparable sublease or assignment)(the sum of (x) and
(y) shall collectively constitute "Rental Expenses"). By way of
example, if Landlord grants the required written consent to a sublease
by Tenant of 10,000 square feet of the Demised Premises and the total
rental and other consideration received by Tenant for the sublease
equals a per annum rate of $3.70 per square foot and the per annum rate
per square foot for the Annual Minimum Rent then payable by Tenant is
$3.50 per square foot, the Rental Profit would be 20 cents per square foot
and Landlord would be entitled to received fifty percent (50%) of such
Rental Profit concurrently with receipt of each payment by the sublessee
to Tenant; provided that Rental Profit would be retained by Tenant until
Tenant had fully recovered the amount of its Rental Expenses. Landlord
shall be entitled to receive payment of its share of Rental Profit as
and when payments are received by Tenant. Any dispute between Landlord
and Tenant regarding the calculation of Rental Expenses will be resolved
by the Dispute Resolution Procedure.
31. Termination or Expiration.
(a) No termination of this Lease prior to the normal
ending thereof, by lapse of time or otherwise, shall affect Landlord's
right to collect rent for the period prior to termination thereof.
(b) At the expiration or earlier termination of the Term,
Tenant shall surrender the Demised Premises and all improvements,
alterations and additions thereto, and keys therefor to Landlord, clean
and neat, and in the same condition as at the commencement of the Term,
ordinary wear and tear only excepted.
(c) If Tenant remains in possession of the Demised
Premises after expiration of the Term, with or without Landlord's
acquiescence and without any express agreement of the parties, Tenant
shall be a tenant-at-sufference at the greater of (i) one hundred fifty
percent (150%) of the Minimum Rent in effect at the end of the Term or
(ii) one hundred fifty percent (150%) of the then current fair market
rental value of the Demised Premises. Tenant shall also continue to pay
all other Additional Rent due hereunder, and there shall be no renewal
of this Lease by operation of law.
32. Late Payments. In the event any installment of rent,
inclusive of Base Rent, or Additional Rent or other sums due hereunder,
if any, is not paid (i) within ten (10) days after Tenant's receipt of
written notice of such failure to pay on the first two occasions during
any twelve (12) month period , or (ii) as and when due with respect to
any subsequent late payments in any twelve (12) month period, Tenant
shall pay a late charge equal to three percent (3%) of such past due
amount. Any installment of Base Rent which is not paid within sixty
(60) calendar days after the date when such rent is due shall, after
such 60-day period, bear interest at the Interest Rate. The term
"Interest Rate", as used in this Lease, shall mean a per annum rate of
interest equal to five percent (5%) in excess of the Prime Rate (as
herein defined) in effect from time to time. The term "Prime Rate", as
used in this Lease, shall mean the prime rate of interest charged at the
applicable time by Chase Manhattan Bank, N.A. of New York. If Chase
Manhattan Bank, N.A. ceases to publish or announce the Prime Rate,
Landlord shall designate a comparable reference rate.
33. Protective Covenants. Tenant agrees to abide by the
Declaration of Covenants for the Project, attached hereto as Exhibit "I"
as it may be amended from time to time in accordance with the terms
thereof (herein, the "Protective Covenants"), which Protective Covenants
shall run with the Land and be binding on Tenant, its successors and
permitted assigns. The non-profit corporation which acts as the owners'
association under the Protective Covenants is referred to in this Lease
as the "Association". Without limiting the foregoing, Tenant shall pay,
as Additional Rent, all assessments imposed upon the Demised Premises
pursuant to the Protective Covenants. Landlord agrees that Landlord
will not, at any time during the Term, in its capacity as an owner of
land subject to the Protective Covenants, execute or vote in favor of
any amendment of the Protective Covenants which would increase the
assessments or other amounts due by Tenant pursuant to this Section 33
or would materially and adversely affect in any way the Primary Use,
access to the Demised Premises or the right of Tenant to use and enjoy
the Demised Premises in accordance with this Lease.
34. Dispute Resolution Procedure.
(a) In the event that a dispute arises between Landlord
and Tenant under the Lease, and only if the Lease specifically provides
that the dispute resolution procedure outlined in this Section 34
(herein referred to as the "Dispute Resolution Procedure") shall be
utilized, the parties shall proceed as follows:
(i) The party electing to proceed under the
procedures outlined herein (the "Electing Party") shall give written
notice of such election to the other party (the "Other Party"), and
shall designate in writing the Electing Party's selection of an
individual with the qualifications outlined in the section of the Lease
giving rise to this remedy (the "Official") who shall act on the
Electing Party's behalf in determining the disputed fact.
(ii) Within twenty (20) days after the Other Party's
receipt of the Electing Party's selection of an Official, the Other
Party, by written notice to the Electing Party, shall designate an
Official who shall act on the Other Party's behalf in determining the
disputed fact.
(iii) Within twenty (20) days of the selection of the
Other Party's Official, the two (2) Officials shall render a joint
written determination of the disputed fact. If the two (2) Officials
are unable to agree upon a joint written determination within such
twenty (20) day period, each Official shall render his or her own
written determination and the two Officials shall select a third
Official within such twenty (20) day period. In the event the two
Officials are unable to select a third Official within such twenty (20)
day period, then either party may apply to a court of original
jurisdiction in DuPage County, Illinois for appointment by such court of
such third Official.
(iv) Within twenty (20) days after the appointment of
the third Official, the third Official shall select one of the
determinations of the two (2) Officials originally selected, without
modification or qualification.
(v) If either Landlord or Tenant fails or refuses to
select an Official, the Official selected shall alone determine the
disputed fact. Landlord and Tenant agree that they shall be bound by
the determination of disputed fact pursuant to this subsection.
Landlord shall bear the fee and expenses of its Official, Tenant shall
bear the fee and expenses of its Official, and Landlord and Tenant shall
share equally the fee and expense of the third Official, if any.
35 Waiver of Landlord's Lien. Landlord hereby waives and
releases any lien or claim of lien, statutory or otherwise, which
Landlord may be entitled to assert under the laws of the State of
California upon or against any personal property and trade fixtures of
tenant situated in and upon the Demised Premises. From time to time
during the Term, Landlord shall, within ten (10) business days after
receipt of written request from Tenant, execute and deliver the form of
Landlord's Agreement attached to this Lease as Exhibit "J" to any lender
providing financing to Tenant for personal property or trade fixtures or
any equipment lessor leasing personal property or trade fixtures to
Tenant which will be located in the Demised Premises. Landlord will not
unreasonably withhold its approval of an alternative form of Landlord's
Agreement proposed by such lender or equipment lessor, provided such
alternative Landlord's Agreement contains provisions substantially the
same as Exhibit J.
36. Quiet Enjoyment. Landlord covenants with Tenant that,
during the periods that no Event of Default has occurred and is
continuing, Tenant shall have the right to quiet and peaceful use and
enjoyment of the Demised Premises, subject to the Permitted Encumbrances
and all the provisions of this Lease.
37. Miscellaneous.
(a) The parties hereto hereby covenant and agree that
Landlord shall receive the Minimum Rent and Additional Rent and all
other sums payable by Tenant hereinabove provided as net income from the
Demised Premises, without any abatement, reduction, set-off,
counterclaim, defense or deduction, except as expressly provided to the
contrary in this Lease.
(b) If any clause or provision of this Lease is determined
to be illegal, invalid or unenforceable under present or future laws
effective during the Term, then and in that event, it is the intention
of the parties hereto that the remainder of this Lease shall not be
affected thereby, and that in lieu of such illegal, invalid or
unenforceable clause or provision there shall be substituted a clause or
provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and
enforceable. If such invalidity is essential to the rights of either or
both parties, then the affected party shall have the right to terminate
this Lease on written notice to the other.
(c) All rights, powers, and privileges conferred hereunder
upon the parties hereto shall be cumulative, but not restrictive to
those given by law, except as may be expressly provided to the contrary
in this Lease.
(d) Time is of the essence of this agreement.
(e) No failure of Landlord or Tenant to exercise any power
given Landlord or Tenant hereunder or to insist upon strict compliance
by Landlord or Tenant with its obligations hereunder, and no custom or
practice of the parties at variance with the terms hereof shall
constitute a waiver of Landlord's or Tenant's rights to demand exact
compliance with the terms hereof.
(f) This Lease contains the entire agreement of the
parties hereto and no representations, inducements, promises or
agreements, oral or otherwise, between the parties not embodied herein
shall be of any force and effect. The masculine (or neuter) pronoun,
singular number shall include the masculine, feminine and neuter gender
and the singular and plural number.
(g) This contract shall create the relationship of
Landlord and Tenant between Landlord and Tenant; no estate shall pass
out of Landlord; Tenant has a usufruct, not subject to levy and sale,
and not assignable by Tenant except as expressly set forth herein.
(h) Landlord and Tenant agree to execute, upon request of
the other, a short form memorandum of this Lease in recordable form and
the requesting party shall pay the costs and charges for the recording
of such short form memorandum of lease. Under no circumstances shall
Tenant have the right to record this Lease (other than a short form
memorandum of Lease, as approved by Landlord), and should Tenant do so,
Tenant shall be in default hereunder.
(i) The captions of this Lease are for convenience only
and are not a part of this Lease, and do not in any way define, limit,
describe or amplify the terms or provisions of this Lease or the scope
or intent thereof.
(j) This Lease may be executed in multiple counterparts,
each of which shall constitute an original, but all of which taken
together shall constitute one and the same agreement.
(k) This Lease shall be interpreted under the laws of the
State in which the Demised Premises is located.
(l) The parties acknowledge that this Lease is the result
of negotiations between the parties, and in construing any ambiguity
hereunder no presumption shall be made in favor of either party. No
inference shall be made from any item which has been stricken from this
Lease other than the deletion of such item.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands under seals, the day and year first above written.
LANDLORD:
INDUSTRIAL DEVELOPMENTS
INTERNATIONAL, INC.
By:
Name:
Title:
Attest:
Name:
Title:
(CORPORATE SEAL)
[signatures continue on following page]
TENANT:
PETCO ANIMAL SUPPLIES, INC.
By:
Name:
Title:
Attest:
Name:
Title:
(CORPORATE SEAL)
EXHIBIT A
Legal Description
The legal description of the Land will conform to the Site Plan and will
be determined by a ground run survey within sixty (60) calendar days
after the Lease Date. As of the Lease Date the Land is part of a larger
unsubdivided parcel. Landlord will have the right during the Term, at
the expense of Landord to file a subdivision plat with the City of
Joliet to cause the Land to be separate, subdivided lot.
EXHIBIT A-1
Site Plan
EXHIBIT B
Permitted Encumbrances
1. Declaration of Protective Covenants for Rock Run Business Park,
dated June 16, 1995, recorded as Document No. R95-041407, Records of
Will County, Illinois, as modified by First Amendment dated March 14,
1996, recorded as Document No. R96-023013, said Records.
2. Development Agreement dated July 17, 1990, recorded as Document
No. R90-56433, said Records.
3. Utility and drainage easements serving or crossing the Demised
Premises or required by Governmental Requirements for subdivision of the
Land; provided that no such easements may interfere with use of the
Demised Premises by Tenant in accordance with this Lease.
EXHIBIT C
EXPANSION LAN
EXHIBIT C-1
ALTERNATE EXPANSION LAN
EXHIBIT D
PREVAILING MARKET RATE
For purposes of this Lease, the phrase "Prevailing Market Rate"
shall mean the then prevailing market rate for base minimum rental
calculated on a per square foot per annum basis for leases containing
comparable terms, covering space comparable to the Demised Premises,
with improvements of comparable age and nature within buildings
comparable to the Building located in the area (hereinafter referred to
as the "Market Area") designated as "Joliet, Illinois Market Area".
The Prevailing Market Rate shall be determined by an appraisal
procedure as follows:
In the event that Tenant notifies Landlord that Tenant elects to
extend the Term for any one or more of the Renewal Terms in accordance
with Section 3.5 of this Lease, Landlord and Tenant shall negotiate in
good faith for a period of thirty (30) calendar days after the timely
giving of the written notice from Tenant required by Section 3.5 to
reach mutual agreement regarding the Prevailing Market Rate. Each of
Landlord and Tenant shall submit to the other during such thirty (30)
day period at least one written proposal for the Prevailing Market Rate.
If Landlord and Tenant are unable to reach agreement during the thirty
(30) day period, each of Landlord and Tenant shall, by written notice to
the other within ten (10) business days after expiration of the thirty
(30) day period, select a real estate appraiser. For a period of ten
(10) business days after designation of the second appraiser, the two
appraisers so designated shall attempt to reach mutual agreement
regarding the Prevailing Market Rate. If the two appraisers are unable
to reach agreement, each of the two appraisers shall, not later than the
twentieth (20th) business day following the designation of the second
appraiser, render a separate written determination of the Prevailing
Market Rate. The two appraisers shall also select a third appraiser
prior to the end of the period when their separate appraisals must be
rendered. Within twenty (20) business days after the appointment of the
third appraiser, the third appraiser shall render a written
determination of the Prevailing Market Rate. From the three appraisals,
the appraisal which is the farthest from the median appraisal shall be
disregarded and the average of the remaining two appraisals shall
conclusively constitute the Prevailing Market Rate. All appraisers
selected in accordance with this paragraph shall have at least ten years
experience in the commercial leasing market in the Market Area and shall
be members of the American Institute of Real Estate Appraisers or
similar professional organization. If either Landlord or Tenant fails
or refuses to select an appraiser, the other appraiser shall alone
determine the Prevailing Market Rate. Landlord and Tenant agree that
they shall be bound by the determination of Prevailing Market Rate
pursuant to this paragraph. Landlord shall bear the fee and expenses of
its appraiser; Tenant shall bear the fee and expense of its appraiser;
and Landlord and Tenant shall share equally the fee and expenses of the
third appraiser, if any.
EXHIBIT E
ALLOWANCE WORK
The Allowance Work is described in Exhibit G-2.
EXHIBIT F
ENVIRONMENTAL REPORTS
1. Beling Consultants Phase I Environmental Property Assessment
Report dated January 19, 1990.
2. Beling Consultants Phase I Environmental Property Assessment
Report dated October 17, 1989.
3. ERM Underground Storage Tank Removal Report dated April 13, 1995.
EXHIBIT G
BUILDING PLANS AND SPECIFICATIONS
Plans and Specifications by Philip Prince & Associates, dated May 19,
1997, consisting of Sheets A-1 through A-6.
EXHIBIT G-1
ADDITIONAL PLANS AND SPECIFICATIONS
EXHIBIT G-2
TENANT'S WORK
EXHIBIT H
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
(this "Agreement") is made as of the ____ day of ______________, 199__
between _____________________, a _________________ (hereinafter called
"Mortgagee"), which has an office at _________________________ (Attn:
_____________________) and ______________________________________, a
____________ corporation (hereinafter called "Tenant"), which has an
office at __________________________.
W I T N E S S E T H:
WHEREAS, Tenant has entered into that certain Lease
("Lease") dated ___________________, 199__ with INDUSTRIAL DEVELOPMENTS
INTERNATIONAL, INC. (hereinafter called "Landlord"), as Landlord, which
Lease demises certain premises (the "Premises") located on the real
property described on Exhibit A attached hereto and made a part hereof
(the "Property");
WHEREAS, Mortgagee has agreed to make a loan to Landlord in
the face principal amount of $__________, to be secured by a Mortgage
and Security Agreement (herein, together with all amendments,
modifications, extensions, renewals, consolidations and replacements
thereof now existing or hereafter entered into, collectively called the
"Mortgage") on the Property; and
WHEREAS, Mortgagee and Tenant have reached certain
agreements regarding the Lease and the Mortgage hereinafter set forth in
this Agreement.
NOW, THEREFORE, in consideration of the sum of Ten Dollars
($10.00) in hand paid by Mortgagee to Tenant and other valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed as follows:
1. In accordance with and subject to all the provisions
of this Agreement, the Lease is and shall be subject and subordinate to
the Mortgage, to the full extent of any and all amounts from time to
time secured thereby and interest thereon.
2. Tenant, for itself and its successors and assigns,
agrees that it will attorn to and recognize any purchaser of the
Property at a foreclosure sale under the Mortgage or any transferee who
acquires the Property by deed in lieu of foreclosure or otherwise, and
the successors and assigns of such purchaser or transferee, as its
landlord for the unexpired balance (and any extensions or renewals,
whether previously, at that time or thereafter exercised by Tenant) of
the term of the Lease, subject to and in accordance with the terms and
conditions set forth in the Lease.
3. Mortgagee, for itself and its successors and assigns,
and for any purchaser at a foreclosure sale under the Mortgage, any
transferee who acquires the Property by deed in lieu of foreclosure or
otherwise, and the successors and assigns of such purchaser or
transferee (herein, Mortgagee and each such other party is called a "New
Landlord"), hereby covenants and agrees with Tenant that in the event
Mortgagee shall commence any proceedings to foreclose the Mortgage for
any reason whatsoever or in the event any other New Landlord shall
succeed to the interest of Landlord by foreclosure, deed in lieu thereof
or otherwise, that: (a) the Lease shall, in accordance with its terms,
remain in full force and effect as a direct indenture of lease between
Mortgagee or other New Landlord (as the case may be), and Tenant, with
the same force and effect as if originally entered into with Mortgagee,
or such other New Landlord (as the case may be); and (b) Tenant's
possession of the Premises and Tenant's rights and privileges under the
Lease shall not be diminished, interfered with or disturbed by such
Mortgagee or such other New Landlord by such foreclosure under the
Mortgage or by any such attempt to foreclose or to succeed to the
interests of Landlord by foreclosure, deed in lieu thereof or otherwise;
provided that the rights of possession of Tenant are subject to all the
terms of the Lease.
4. Without the prior written consent of Mortgagee,
Landlord will have no right or power to (a) enter into any agreement
amending or terminating the Lease or (b) cancel the term of, or
surrender, the Lease, or (c) waive or release Tenant from any obligation
of Tenant under the Lease; provided that regarding only any proposed
amendment of the Lease which does not reduce the amount of rental
payable under the Lease by Tenant, relieve Tenant of any obligation
under the Lease, increase the responsibilities of Landlord or otherwise
impair or reduce the economic value of the Lease to Mortgagee, Mortgagee
agrees not unreasonably to withhold or delay its consent.
5. The Tenant hereby agrees to provide Mortgagee with a
copy of any written notice given by Tenant to Landlord of any default
under the Lease by the Landlord (such copy to Mortgagee to be given
simultaneously with the giving of the notice to Landlord) and to allow
Mortgagee the same right and opportunity to remedy or cure such default
as may be available to Landlord under the Lease prior to exercising any
right or remedy of the Tenant under the Lease. Notwithstanding the
foregoing, Tenant agrees that Mortgagee shall have no obligation to
remedy or cure any such default.
6. In the event that Mortgagee or any other New Landlord
shall succeed to the interest of Landlord under the Lease, Tenant agrees
that Mortgagee or such other New Landlord shall not be: (i) except as
provided to the contrary in Section 23.1 of the Lease, subject to any
credits, offsets, defenses, claims or counterclaims which Tenant might
have against any prior landlord (including Landlord), (ii) bound by any
rent or additional rent which Tenant shall have paid more than one month
in advance to any prior landlord (including Landlord), or (iii) bound by
any amendment or modification to the Lease, or waiver of any provision
of the Lease, which has not been consented to in writing by Mortgagee.
7. Each notice, demand or other communication in
connection with this Agreement shall be in writing and shall be deemed
to be given to and served upon the addressee thereof on the earlier of
(i) actual delivery to such addressee at its address set out above or
(ii) the third business day after the deposit thereof in the United
States mails, registered or certified mail, return receipt requested,
first-class postage prepaid, addressed to such addressee at its address
set out above. By notice complying with this section, any party may
from time to time designate a different address in the continental
United States as its address for the purpose of the receipt of notice
hereunder.
8. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, and their respective successors
and assigns.
9. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed, sealed
and delivered this Agreement as of the day and year first above written.
MORTGAGEE:
By:
Name:
Title:
TENANT:
_________________________________, a
_______________
By:
Name:
Title:
Attest:
Name:
Title:
(Affix Corporate Seal)
[TO BE EXECUTED IN FORM ACCEPTABLE FOR RECORDING
UNDER THE LAWS OF THE STATE OF ILLINOIS]
EXHIBIT A
Legal Description
EXHIBIT I
PROTECTIVE COVENANTS
EXHIBIT J.
LANDLORD'S AGREEMENT
THIS LANDLORD'S AGREEMENT (this "Agreement"), is executed and
delivered as of this _____ day of _____________________, 199__, by
("Landlord"), in favor
of ("Secured Party").
WITNESSETH:
WHEREAS, Secured Party and
("Borrower"), have entered, are entering, and may from time to time
hereafter enter into various agreements, instruments and documents
(collectively the "Loan Agreements") providing for certain financial
accommodations for the benefit of Borrower; and
WHEREAS, to secure payment and performance of all of Borrower's
obligations and liabilities under the Loan Agreements ("Borrower's
Liabilities"), Secured Party has required that Borrower grant to Secured
Party a security interest in certain machinery, equipment, inventory and
other personal property owned by Borrower and all proceeds of the
foregoing (the "Collateral"); and
WHEREAS, all or some of the Collateral is now or from time to time
hereafter may be located at the premises known as
(the "Premises") [and legally described
on Exhibit A hereto], which Premises are owned and leased by Landlord to
Borrower pursuant to that certain Lease Agreement dated
, 199__ (the "Lease"); and
WHEREAS, Borrower may require loans or advances pursuant to the
Loan Agreements, and Secured Party, as a condition precedent to making
such additional loans or advances, has required Landlord to execute and
deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Landlord hereby covenants and agrees with
Secured Party as follows:
1. So long as Secured Party has an interest in the Collateral
under the Loan Agreements, and subject to all the provisions of this
Agreement, Landlord waives each and every right which Landlord now has
or hereafter may have, under the laws of the State of Illinois, or by
virtue of the Lease, or any renewals, extensions, amendments,
modifications, substitutions or replacements thereof (a "New Lease") or
by virtue of Borrower's occupation of the Premises, to claim or assert
any lien, right, claim or title to any or all of the Collateral, which
now or hereafter may be placed or located on the Premises.
2. Landlord agrees, subject to the provisions of Paragraph 6 of
this Agreement, that the Collateral (a) is and shall remain personal
property and (b) is not and shall not become or be deemed to be
fixtures.
3. Subject to all the provisions of this Agreement, Landlord
recognizes and acknowledges that Secured Party's security interest in
the Collateral pursuant to the Loan Agreements is superior to any lien,
right or claim of title of any nature which Landlord now has or
hereafter may have or assert in or to the Collateral by statute, the
Lease, any New Lease, any other agreement or otherwise.
4. If Landlord gives to Tenant written notice of the occurrence
of an Event of Default (as that term is defined in the Lease) by Tenant
under the Lease, Landlord shall send to Secured Party a copy of such
written notice concurrently with the giving of the notice to Tenant.
Landlord agrees that, with respect to any Event of Default which arises
as a result of a failure by Tenant to pay a sum of money required by the
Lease to be paid by Tenant, Landlord will allow Secured Party to cure
such monetary Event of Default by Tenant for the same period of time
that Tenant is entitled to cure such Event of Default. Nothing
contained in this Agreement will (i) extend or create any right to cure
any Event of Default except as expressly provided in the Lease and
(ii) limit, restrict, alter or modify the rights of Landlord under the
Lease which are available to Landlord as a result of the occurrence of
an Event of Default by Tenant.
5. In the event of default by Borrower in the payment or
performance of any of Borrower's Liabilities, Landlord, in accordance
with all the provisions of this Agreement (a) will not impede or
interfere with Secured Party in its efforts to assemble all of the
Collateral located on the Premises, (b) will not interfere with lawful
efforts by Secured Party to remove the Collateral from the Premises and
(c) will not hinder Secured Party's lawful actions in enforcing its
security interest in the Collateral.
6. Secured Party may, without affecting the validity of this
Agreement, extend, amend or in any way modify the terms of payment or
performance of any of Borrower's Liabilities, without the consent of
Landlord and without giving notice thereof to Landlord.
7. As a material part of the consideration to Landlord for
entering into this Agreement, Secured Party hereby agrees as follows:
(a) Landlord shall have no duty or obligation under this
Agreement to grant or facilitate access to the Premises by or for
the benefit of Secured Party, and nothing contained in this
Agreement shall be deemed or construed to grant to Secured Party
any right of access to the Premises or the Collateral;
(b) Notwithstanding any provisions which may be contained
in the Loan Agreements, Secured Party shall not have any right to
undertake or attempt forcible entry to the Premises or to achieve
entry in any manner which causes any damage to the Premises;
access by Secured Party to the Premises shall be gained only by
consent of the Borrower or pursuant to legal process, but always
without damage to the Premises;
(c) If any of the Collateral is affixed in any way to the
Premises, then, irrespective of the agreement of Landlord in this
Agreement that Collateral does not constitute fixtures, Secured
Party shall have the same obligations as Tenant under the Lease to
restore any damage to the Premises which may be caused by the
removal of such affixed Collateral; and
(d) Any entry by Secured Party into the Premises pursuant
to this Agreement or the Loan Agreements shall be at the sole risk
and expense of Secured Party and Secured Party hereby releases
Landlord from any loss, claim, liability, damage, cost or expense
of any nature whatsoever which Secured Party may incur in
connection with the exercise of its rights under this Agreement.
8. This Agreement shall inure to the benefit of the successors
and assigns of Secured Party and shall be binding upon the heirs,
personal representatives, successors and assigns of Landlord.
9. This Agreement shall continue in force until all of
Borrower's Liabilities are paid and satisfied in full and the Loan
Agreements have been terminated.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered as of the day and year specified at the beginning hereof.
LANDLORD:
By:
Its:
ACKNOWLEDGED AND AGREED:
TENANT
By:
Name:
Title:
SECURED PARTY:
By:
Its:
EXHIBIT A
Legal Description of the Premises
Exhibit 10.7
GROUND LEASE AGREEMENT
Between
OPUS WEST CORPORATION, a Minnesota corporation - Landlord
and
RPM Transportation, Inc., a California corporation - Tenant
Dated: , 1998
|| TABLE OF CONTENTS
Page
ARTICLE 1 LEASE OF PREMISES AND LEASE TERM 1
1.1 Premises 1
1.2 Term of Lease 1
ARTICLE 2 RENTAL AND OTHER PAYMENTS 1
2.1 Basic Rent 1
2.2 Additional Rent 1
2.3 Delinquent Rental Payments 1
2.4 Independent Obligations 1
ARTICLE 3 PAYMENT OF PERSONAL PROPERTY TAXES 1
3.1 Payment of Property Taxes 1
ARTICLE 4 USE 2
4.1 Permitted Use 2
4.2 Acceptance of Premises 2
4.3 Increase Insurance 2
4.4 Rules and Regulations 2
4.5 Tenant's Obligations 2
ARTICLE 5 HAZARDOUS MATERIALS 2
5.1 Hazardous Materials 2
5.2 Hazardous Materials Laws 2
5.2.1 Federal 3
5.2.2 California 3
5.2.3 Other Laws and Regulations 3
5.2.4 Phase 1 Environmental Analysis 3
5.3 Compliance with Hazardous Materials Laws 3
5.4 Notice of Actions 3
5.5 Disclosure and Warning Obligations 4
5.6 Indemnification 4
5.7 Termination of Lease 4
ARTICLE 6 SERVICES AND UTILITIES 5
ARTICLE 7 MAINTENANCE, REPAIR AND ALTERATION OF PREMISES 5
7.1 Tenant's Maintenance 5
7.2 Tenant's Waiver of Claims Against Landlord 5
ARTICLE 8 CHANGES AND ALTERATIONS 5
8.1 Tenant's Changes and Alterations 5
8.2 Liens 5
ARTICLE 9 RIGHTS RESERVED BY LANDLORD 6
9.1 Landlord's Entry 6
9.2 Landlord's Cure 6
ARTICLE 10 INDEMNITY AND INSURANCE 6
10.1 Insurance Coverage 6
10.2 Insurance Provisions 6
10.3 Waiver of Subrogation 7
10.4 Indemnification by Tenant 7
ARTICLE 11 NO ASSIGNMENT OR SUBLETTING 7
11.1 Restriction on Other Transfers 7
ARTICLE 12 INTENTIONALLY OMITTED 7
ARTICLE 13 CONDEMNATION 7
13.1 Condemnation of Entire Premises 7
13.2 Partial Condemnation/Termination of Lease 7
13.3 Partial Condemnation/Continuation of Lease 8
13.4 Continuance of Obligations 8
13.5 Tenant's Waiver 8
ARTICLE 14 DEFAULTS; REMEDIES 8
14.1 Events of Default 8
14.1.1 Intentionally Omitted 8
14.1.2 Failure to Pay 8
14.1.3 Failure to Perform 8
14.1.4 Other Defaults 8
14.1.5 Remedies 8
14.1.6 Right of Landlord to Re-Enter 9
14.1.7 Cumulative Remedies 9
14.2 Legal Costs 9
14.3 No Waiver 9
14.4 Waiver by Tenant 10
14.5 Default by Landlord 10
ARTICLE 15 PROTECTION OF CREDITORS 10
15.1 Subordination 10
15.2 Attornment 10
15.3 Estoppel Certificates 10
15.4 Mortgagee Protection Clause 11
ARTICLE 16 TERMINATION OF LEASE 11
16.1 Surrender of Premises 11
16.2 Holding Over 11
ARTICLE 17 MISCELLANEOUS PROVISIONS 11
17.1 Notices 11
17.2 Landlord's Continuing Obligations 11
17.3 Net Lease 12
17.4 Successors 12
17.5 Memorandum of Lease 12
17.6 Captions and Interpretation 12
17.7 Relationship of Parties 12
17.8 Entire Agreement 12
17.9 Severability 12
17.10 Landlord's Limited Liability 12
17.11 Transfer of Landlord's Interest 12
17.12 Survival 12
17.13 Attorneys' Fees 12
17.14 Broker 13
17.15 Governing Law 13
17.16 Time is of the Essence 13
17.17 Joint and Several Liability 13
17.18 Tenant's Waiver 13
17.19 Delivery of Corporate Documents 13
17.20 Provisions are Covenants and Conditions 13
17.21 Business Days 13
17.22 Force Majeure 13
17.23 Submission of Lease 13
17.24 Tenant's Financial Condition 14
||
Ground Lease Agreement
Summary of Basic Lease Information
10 Lease Date:
, 199
20 Landlord: Opus West Corporation,
a Minnesota corporation
30 Address of Landlord Opus West Management Corporation
for Payment of Rent: 2415 East Camelback Road, Suite 840
Phoenix, AZ 85016-4201
Attn: Bret Borg
Telephone No.: (602) 912-8880
Facsimile No.: (602) 912-8881
40 Address of Landlord Opus West Corporation
2030 Main Street, Suite 250
Irvine, CA 92614
Attn: Paul A. Marshall
Telephone No: (714) 475-0977
Facsimile No: (714) 475-0970
With a copy to: Opus U.S. Corporation
2415 East Camelback Road, Suite 800
Phoenix, AZ 85016-4201
Attn: Daniel T. Haug, Esq.
Telephone No.: (602) 468-7000
Facsimile No.: (602) 468-7045
With another copy to: Opus West Corporation
2415 East Camelback Road, Suite 800
Phoenix, AZ 85016-4201
Attn: Mr. Thomas W. Roberts, President
Telephone No.: (602) 468-7000
Facsimile No.: (602) 468-7045
50 Tenant: RPM Transportation Inc., a California
corporation
60 Address of Tenant RPM Transportation Inc.
for Notices: 13827 Carmenita Road, Unit E
Santa Fe Springs, CA 90670
Attn: Paul Duke
Telephone No.:(562) 921-7035
Facsimile No.:(562) 802-9010
70 Premises The parcel of land situated in the County of
Riverside, State of California, described on
Exhibit "A."
80 Lease Term Initial Lease Term: 1 year from the
Commencement Date. Thereafter, the Tenant
may lease the Premises on a month to month
basis with a ninety (90) day notice
termination right pursuant to Section 1.2
below.
90 Rent: Basic Rent:
Monthly: $5,000
Annually: $60,000
Maximum Rate of Interest: Prime Plus four
percent (4%). For purposes of this Lease
and the Basic Provisions hereof, the term
"Prime" shall mean the rate announced from
time to time by Bank of America, N.A., as
its prime or reference rate. If Bank of
America shall cease to announce its prime or
reference rate, then Landlord shall select
the rate of another financial institution to
be substituted therefor.
Late Charge: 5% of the overdue amount per
month ("Late Charge")
100 Use: The Premises shall be used by Tenant for the
storage of trucks, trailers and other
vehicles, subject to any applicable
covenants, conditions and restrictions
affecting the Premises and for no other use
or purpose.
12. Security Deposit: None.
110 Brokers: None
120 Exhibit: The following exhibit is attached hereto and
incorporated into this Lease:
Exhibit "A" Legal Description of Land
The foregoing Basic Terms are hereby incorporated into and made a part
of this Lease. Each reference in this Lease to the Basic Terms shall mean the
information set forth above and shall be construed to incorporate all of the
terms provided under the particular Lease paragraph pertaining to such
information. In the event of a conflict between the Basic Terms and the
Lease, the Lease shall prevail.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By:
Thomas W. Roberts, President
Dated:_____________________ TENANT:
RPM Transportation, Inc., a
California corporation
By:
Name:
Title:
By:
Name:
Title:
GROUND LEASE AGREEMENT
This Ground Lease Agreement (the "Lease"), which includes the Basic
Terms (as hereinafter defined), dated as of , 199__
("Effective Date"), is made by and between Landlord and Tenant.
ARTICLE 1
LEASE OF PREMISES AND LEASE TERM
1.1 Premises. Landlord, for and in consideration of the rents,
covenants and agreements hereinafter set forth, hereby leases to Tenant and
Tenant hereby leases from Landlord, upon and subject to the terms, covenants
and conditions hereinafter set forth, all that certain parcel of land situated
in the County of Riverside, and State of California delineated on Exhibit "A"
attached hereto and incorporated herein ("Land" or "Premises"). Tenant
acknowledges that, prior to execution of this Lease, Tenant has had the
opportunity to inspect the Premises and, by its execution of this Lease,
Tenant hereby accepts the Premises in an "as-is" condition without any
representations or warranties from Landlord. Tenant acknowledges that this
Lease is subordinate and subject to all liens, encumbrances, deeds of trust,
reservations, restrictions and other matters affecting the Premises,
("Permitted Encumbrances") and any law, regulation, rule, order or ordinance
of any governmental entity applicable to the Premises or the use or occupancy
thereof, in effect on the execution of this Lease or thereafter promulgated.
1.2 Term of Lease. The initial term of this Lease ("Initial Term")
shall commence on January 1, 1998 ("Commencement Date") and shall end on the
date which is one (1) year after the Commencement Date. Tenant may thereafter
continue to lease the Premises on a month to month basis; provided that either
party may terminate this Lease upon delivery of ninety (90) days written
notice to the other party.
ARTICLE 2
RENTAL AND OTHER PAYMENTS
2.1 Basic Rent. In consideration of the leasing of the Premises,
Tenant covenants to pay Landlord in advance, on the first day of each and
every calendar month during the Term, at the address of Landlord as specified
in Item 3 of the Basic Terms, or at such other place as Landlord may from time
to time designate in writing, a rental for the Initial Term of this Lease
calculated based upon the amounts specified in Item 9 of the Basic Terms
("Basic Rent"). The first calendar month's Rent payment shall be made by
Tenant upon Tenant's execution of this Lease.
2.2 Additional Rent. All charges payable by Tenant to Landlord other
than Basic Rent, however denoted, are called "Additional Rent." Unless this
Lease provides otherwise, all Additional Rent shall be paid with the next
installment of Basic Rent falling due. Basic Rent and Additional Rent are
sometimes collectively referred to as "Rent" or "rent." Rent for any partial
month shall be prorated on the basis of the number of days within such
calendar month and paid within ten (10) days of the Commencement Date.
2.3 Delinquent Rental Payments. Any installment of Basic Rent or
Additional Rent or any other charges payable by Tenant under the provisions
hereof which shall not be paid when due or within ten (10) days thereafter
shall bear interest at the Maximum Rate of Interest specified in Item 10 of
the Basic Terms from the date when the same is due hereunder until the same
shall be paid, but in no event in excess of the maximum lawful rate permitted
to be charged by Landlord against Tenant. In addition, any installment of
Rent which shall not be paid when due and which remains unpaid five (5)
business days thereafter shall be subject to a late payment fee of five
percent (5%) of the unpaid amount. Tenant acknowledges that Tenant's failure
to pay Basic Rent or Additional Rent when due may cause Landlord to incur
unanticipated costs. The exact amount of such costs are impractical or
extremely difficult to ascertain. The parties agree that such charge
specified above represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment and acceptance of such late
charge does not constitute a waiver of Tenant's default or limit any other
remedy of Landlord. The late charge shall be deemed Rent and the rights to
require it shall be in addition to all of Landlord's rights and remedies
hereunder or at law.
2.4 Independent Obligations. Any term or provision of this Lease to
the contrary notwithstanding, the covenants and obligations of Tenant to pay
Basic Rent and Additional Rent hereunder shall be independent from any
obligations, warranties or representations, express or implied, if any, of
Landlord herein contained.
ARTICLE 3
PAYMENT OF PERSONAL PROPERTY TAXES
3.1 Payment of Property Taxes. Tenant shall pay, prior to
delinquency, all taxes, assessments, license fees and public charges levied,
assessed or imposed upon its business operation, fixtures, improvements and
other personal property in, on or upon the Premises. If any such items of
property are assessed with property of Landlord, then the assessment shall be
equitably divided between Landlord and Tenant. Landlord shall determine the
basis of prorating and dividing any of those assessments and its determination
shall be binding.
ARTICLE 4
USE
4.1 Permitted Use. Tenant may use the Premises only for the Permitted
Uses specified in Item 11 of the Basic Terms. Tenant shall not use or occupy
the same, or permit them to be used or occupied, contrary to any statute,
governmental, quasi-governmental or administrative rule, order, ordinance,
requirement or regulation applicable thereto ("Regulatory Requirement"), or
in any manner which would make void or voidable any insurance then in force
with respect thereto or which would cause the value or usefulness of the
Premises, or any portion thereof, substantially to diminish (reasonable wear
and tear excepted), or which would constitute a public or private nuisance or
waste and Tenant agrees that it will promptly, upon discovery of any such use,
take all necessary steps to compel the discontinuance of such use.
4.2 Acceptance of Premises. Tenant acknowledges that neither Landlord
nor any agent of Landlord has made any representation or warranty with respect
to the Premises or with respect to the suitability or fitness of either for
the conduct of Tenant's business or for any other purpose and, Tenant accepts
the Premises in an "as is" condition. Tenant shall comply with any recorded
covenants, conditions, restrictions and encumbrances affecting the Premises
as of the commencement of this Lease or which are recorded during the Term.
4.3 Increase Insurance. Tenant shall not do or permit to be done
anything which will (i) increase the premium of any insurance policy covering
the Premises or any adjoining property owned by Landlord ("Project") and/or
the property located therein; (ii) cause a cancellation of or be in conflict
with any such insurance policies; (iii) result in a refusal by insurance
companies in good standing to issue or continue any such insurance in amounts
satisfactory to Landlord; or (iv) subject Landlord to any liability or
responsibility for injury to any person or property by reason of any operation
in the Premises. Tenant shall, at Tenant's expense, comply with all rules,
orders, regulations and requirements of insurers and of the American Insurance
Association or any other organization performing a similar function. Tenant
shall promptly, upon demand, reimburse Landlord for any additional premium
charges for such policy or policies caused by reason of Tenant's failure to
comply with the provisions of this Section.
4.4 Rules and Regulations. Tenant shall comply with all rules and
regulations adopted by Landlord from time to time for the Project.
4.5 Tenant's Obligations. Tenant shall obtain and pay for all
permits, required for Tenant's occupancy of the Premises and shall promptly
take all substantial and non-substantial actions necessary to comply with all
applicable Regulatory Requirements regulating the use by Tenant of the
Premises, including, without limitation, the Occupational Health and Safety
Act and the Americans with Disabilities Act.
ARTICLE 5
HAZARDOUS MATERIALS
5.1 Hazardous Materials. The term "Hazardous Material(s)" shall mean
any toxic or hazardous substance, material or waste or any pollutant or
contaminant or infectious or radioactive material, including but not limited
to those substances, materials or wastes regulated now or in the future under
any of the statutes or regulations listed in Section 5.2, and any and all of
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "hazardous waste," "hazardous chemical substance or
mixture," "imminently hazardous chemical substance or mixture," "toxic
substances," "hazardous air pollutant," "toxic pollutant," or "solid waste"
in the statutes or regulations in Section 5.2. Hazardous Materials shall also
mean any and all other similar terms defined in other federal, state and local
laws, statutes, regulations, orders or rules, and materials and wastes which
are, or in the future become, regulated under applicable local, state or
federal law for the protection of health or the environment, or which are
classified as hazardous or toxic substances, materials or wastes, pollutants
or contaminants, as defined, listed or regulated by any federal, state or
local law, regulation or order or by common law decision, including, without
limitation, (i) trichloroethylene, tetrachloroethylene, perchloroethylene and
other chlorinated solvents, (ii) oil or any petroleum products or fractions
thereof, (iii) asbestos, (iv) polychlorinated biphenyls, (v) flammable
explosives, (vi) urea formaldehyde and (vii) radioactive materials and waste,
and (viii) infectious waste.
5.2 Hazardous Materials Laws. The term "Hazardous Materials Law(s)"
shall mean any federal, state or local laws, ordinances, codes, statutes,
regulations, administrative rules, policies and orders, and other authority,
existing now or in the future, which classify, regulate, list or define
hazardous substances, materials, wastes contaminants, pollutants and/or the
Hazardous Materials, including without limitation the following statutes and
regulations, and any other legal authority, regulations, or policies relating
to or implementing such statutes and regulations:
5.2.1 Federal. Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"), as amended
by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42
U.S.C. ' 9601 et seq.; Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. ' 6901 et seq.; Clean Water Act ("CWA"), 33 U.S.C. ' 1251
et seq.; Clean Air Act ("CAA"), 42 U.S.C. ' 78401 et seq.; Toxic Substances
Control Act ("TSCA"), 15 U.S.C. ' 2601 et seq.; The Refuse Act of 1899, 33
U.S.C. ' 407; Occupational Safety and Health Act ("OSHA"), 29 U.S.C. ' 651 et
seq.; Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.;
United States Department of Transportation Table (49 CFR 172.101 and
amendments thereto) and the Environmental Protection Agency Table (40 CFR Part
302 and amendments thereto);
5.2.2 California. Carpenter-Presley-Tanner Hazardous Substance
Account Act ("California Superfund"), Cal. Health & Safety Code ' 25300 et
seq.; California Hazardous Waste Control Act, Cal. Health & Safety Code
Sections 25100 et seq.; Porter-Cologne Water Quality Control Act ("Porter-
Cologne Act"), Cal. Water Code ' 13000 et seq.; Hazardous Waste Disposal Land
Use Law, Cal. Health & Safety Code ' 25220 et seq.; Safe Drinking Water and
Toxic Enforcement Act of 1986 ("Proposition 65"), Cal. Health & Safety Code
' 25249.5 et seq.; Hazardous Substances Underground Storage Tank Law, Cal.
Health & Safety Code ' 25280 et seq.; California Hazardous Substance Act, Cal.
Health & Safety Code ' 28740 et seq.; Air Resources Law, Cal. Health & Safety
Code ' 39000 et seq.; Hazardous Materials Release Response Plans and
Inventory, Cal. Health & Safety Code '' 25500-25541; Toxic Pits Cleanup Act
of 1984 ("TCPA"), Cal. Health & Safety Code '' 25208-25208.17;
5.2.3 Other Laws and Regulations. All other regulations
promulgated pursuant to said foregoing laws or any amendments or replacement
thereof, provided such amendments or replacements shall in no way limit the
original scope and/or definition of Hazardous Materials defined herein as of
the execution date of this Lease.
5.2.4 Phase 1 Environmental Analysis. Landlord has delivered to
Tenant a Phase 1 Environmental Analysis Report ("Phase 1 Report") covering the
Premises, and Tenant acknowledges that this shall be deemed satisfaction of
any obligation on the part of Landlord to disclose any and all Hazardous
Materials on or relating to the Premises as required hereunder or by any
Hazardous Materials Laws.
5.3 Compliance with Hazardous Materials Laws. Tenant shall not cause
or permit any Hazardous Materials to be brought upon, kept, or used in
connection with the Premises or by Tenant, its agents, employees, contractors
or invitees in a manner or for a purpose prohibited by or which could result
in liability under any applicable law, regulation, rule or ordinance,
including, without limitation, the Hazardous Materials Laws. Tenant shall,
at its own expense, at all times and in all respects comply with all Hazardous
Materials Laws relating to the industrial hygiene, environmental protection
or the use, analysis, generation, manufacture, storage, presence, disposal or
transportation of any Hazardous Materials. Tenant shall, at its own expense,
procure, maintain in effect and comply with all conditions of any and all
permits, licenses and other governmental and regulatory approvals relating to
the presence of Hazardous Materials within, on, under or about the Premises
or required for Tenant's use of the Premises, Tenant shall cause any and all
Hazardous Materials to be removed from the Premises and transported in
accordance with and in compliance with all Hazardous Materials Laws. Tenant
shall in all respects, handle, treat, deal with and manage any and all
Hazardous Materials in, on, under or about the Premises in complete conformity
with all applicable Hazardous Materials Laws and prudent industry practices
regarding the management of such Hazardous Materials. Upon expiration or
earlier termination of this Lease, Tenant shall at its own expense, cause all
Hazardous Materials (to the extent such Hazardous Materials are generated,
stored, released or disposed of during the Term of this Lease by Tenant or
Tenant's agents, employees, contractors or invitees ("Tenant's Agents")) to
be removed from the Premises and transported for use, storage or disposal in
accordance and in compliance with all applicable Hazardous Materials Laws.
Tenant shall not take any remedial action in response to the presence of any
Hazardous Materials in, on, about or under the Premises or in any Improvements
situated on the Land, nor enter into any settlement agreement, consent, decree
or other compromise in respect to any claims relating to or in any way
connected with the Premises or the Landlord's Improvements on the Land without
first notifying Landlord of Tenant's intention to do so and affording Landlord
ample opportunity to appear, intervene or otherwise appropriately assert and
protect Landlord's interest with respect thereto.
5.4 Notice of Actions. Tenant shall immediately notify Landlord in
writing of (a) any enforcement, clean-up, removal or other governmental or
regulatory action instituted, completed or threatened against Tenant,
Landlord, or against the Premises pursuant to any Hazardous Materials Laws;
(b) any claim made or threatened by any person against Landlord, Tenant, or
the Premises for which Tenant receives notice, relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from or
claimed to result from any Hazardous Materials; and (c) any reports made to
any environmental agency arising out of or in connection with any Hazardous
Materials in, on or about the Land or the Premises or with respect to any
Hazardous Materials removed from the Land or the Premises, including, any
complaints, notices, warnings, reports or asserted violations in connection
therewith. Tenant shall also provide to Landlord, as promptly as possible,
and in any event within five (5) business days after Tenant first receives or
sends the same, with copies of all claims, reports, complaints, notices,
warnings or asserted violations relating in any way to the Land or the
Premises or Tenant's or Tenant's Agents use thereof. Upon written request of
Landlord (to enable Landlord to defend itself from any claim or charge related
to any Hazardous Materials Law), Tenant shall promptly deliver to Landlord
notices of hazardous waste manifests reflecting the legal and proper disposal
of all such Hazardous Materials removed or to be removed from the Premises.
All such manifests shall list the Tenant or its agent as a responsible party
and in no way shall attribute responsibility for any such Hazardous Materials
to Landlord. Tenant shall also immediately notify Landlord if Tenant knows
or has reason to believe Hazardous Materials have or will be released on or
about the Premises.
5.5 Disclosure and Warning Obligations. Tenant shall also comply with
all laws, ordinances and regulations regarding warning obligations with
respect to the presence or danger of Hazardous Materials or as otherwise may
be required by law. Tenant acknowledges and agrees that it will promptly
notify Landlord prior to reporting to any governmental or quasi-governmental
agencies any matters relating to Hazardous Materials and Landlord shall have
the right to review such reports. So long as Tenant will not be in violation
of any laws requiring Tenant to make such reports, Landlord shall have the
right to assume control over the making of such reports to the applicable
governmental or quasi-governmental agencies. Tenant further agrees to
cooperate with Landlord in complying with all Hazardous Materials Laws
regarding the disclosure of, the presence or danger of Hazardous Materials,
including, without limitation, all notices or other requirements under
California Health and Safety Code Section 25915 et seq., and 25249.5 et seq.
and California Code of Regulations Section 12000 et seq. Notwithstanding the
foregoing, Tenant shall prior to delivering any notices required by this
Section 5.5, to any governmental entity or agency, deliver written notice to
Landlord of the same so as to afford Landlord ample opportunity to take over
such obligation if Landlord so desires.
5.6 Indemnification. Tenant shall indemnify, defend (with counsel
reasonably acceptable to Landlord), protect and hold Landlord and each of
Landlord's officers, directors, partners, employees, agents, attorneys,
successors and assigns (collectively "Indemnitees") free and harmless from and
against any and all claims, liabilities, damages, costs, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death or
injury to any person or damage to any property whatsoever (including water
tables and atmosphere) ("Claims") arising or resulting in whole or in part,
directly or indirectly, from the presence or discharge of Hazardous Materials,
in, on, under, upon or from the Premises or any improvements located thereon
or from the transportation or disposal of Hazardous Materials to or from the
Premises to the extent caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees. Landlord shall indemnify, defend (with
legal counsel reasonable acceptable to Tenant) and hold Tenant and Tenant's
Indemnities harmless from and against any and all Claims arising or resulting
in whole or in part from the presence or discharge of Hazardous Materials by
Landlord in, on, under, upon or for the Premises or the Improvements thereon
or from the transportation or disposal of Hazardous Materials by Landlord.
Each parties' obligations hereunder shall include, without limitation, and
whether foreseeable or unforeseeable, all costs of any required or necessary
repairs, clean-up or detoxification or decontamination of the Premises or the
Improvements, and the presence and implementation of any closure, remedial
action or other required plans in connection therewith, and shall survive the
expiration of or early termination of the term of this Lease and any costs and
fees incurred in the enforcement of the indemnity action.
5.7 Environmental Audits. Upon request by Landlord during the Term
of this Lease, prior to the exercise of any renewal term and/or prior to
vacating any portion of the Premises, Tenant shall undertake and submit to
Landlord an environmental audit from an environmental company reasonably
acceptable to Landlord which audit shall evidence Tenant's compliance with
this Article 5. If the audit confirms the presence of Hazardous Materials in
the soil or surface or the groundwater, or likelihood thereof, Landlord shall
have the right to require Tenant to immediately commence all necessary
remediation, abatement, removal and cleanup actions to return the Premises and
any other property of whatever nature to their condition existing prior to the
appearance of Hazardous Materials. Any plan of remediation, abatement,
removal and cleanup shall be subject to the prior approval of Landlord, in its
sole discretion. Except as specified above, Tenant shall not perform or cause
to be performed, any Hazardous Materials surveys, studies, reports or
inspections, relating to the Premises without obtaining Landlord's advance
written consent.
5.7 Termination of Lease. Landlord shall have the right to terminate
the Lease in Landlord's sole and absolute discretion in the event that (i) any
anticipated use of the Premises by Tenant involves the generation or storage,
use, treatment or disposal of Hazardous Materials in a manner or for a purpose
prohibited by any governmental agency or authority; (ii) Tenant has been
required by any lender or governmental authority to take remedial action in
connection with Hazardous Materials contaminating the Premises if the
contamination resulted from Tenant's action, inaction or use of the Premises;
or (iii) Tenant is subject to an enforcement order issued by any governmental
authority in connection with the use, disposal or storage of Hazardous
Materials on the Premises (unless Tenant is diligently seeking compliance with
such enforcement order).
ARTICLE 6
SERVICES AND UTILITIES
During the Term of this Lease, Tenant will pay, when due, all charges
of every nature, kind or description (including, without limitation, charges
imposed by any utility company as a condition precedent to furnishing or
continuing to furnish utilities or services to the Premises) for utilities
furnished to the Premises or chargeable against the Premises, to the extent
there are any, including all charges for water, sewage, heat, gas, light,
garbage, electricity, telephone, steam, power, or other public or private
utility services and any charges or fees for present or future water or sewer
capacity to serve the Premises, any charges for the underground installation
of gas or other utilities or services, and other charges relating to the
extension of or change in the facilities necessary to provide the Premises
with adequate utility services. No interruption in, or temporary stoppage of,
any utility service or blockage of access to the Premises caused by repairs,
renewals, improvements, alterations, stripes, walk outs, labor controversy,
accidents, inability to obtain fuel or supplies, or other causes shall be
deemed an eviction of disturbance of Tenant's use and possession, or render
Landlord liable for damages, by abatement of rent or otherwise, or relieve
Tenant from any obligation whatsoever under this Lease. Nothing contained in
this Article 6 shall be construed to impose any obligation or duty upon
Landlord to supply any utilities to the Premises.
ARTICLE 7
MAINTENANCE, REPAIR AND ALTERATION OF PREMISES
7.1 Tenant's Maintenance. Tenant, at its sole cost and expense,
throughout the Term of this Lease, whether Tenant is occupying or has vacated
the Premises, shall take good care of the Premises and shall keep the same in
at least the same order, condition and repair, as when received and shall make
and perform all routine maintenance thereof and all necessary repairs thereto,
ordinary and extraordinary, foreseen and unforeseen, of every nature, kind and
description. The maintenance obligation shall apply even if Tenant has
vacated the Premises.
7.2 Tenant's Waiver of Claims Against Landlord. Landlord shall not
be required to furnish any services or facilities or to make any repairs or
alterations in, about or to the Premises or any improvements hereafter erected
thereon. Tenant hereby assumes the full and sole responsibility for the
condition, operation, repair, replacement, maintenance and management of the
Premises and any improvements hereafter erected thereon, and Tenant hereby
waives any rights created by any law now or hereafter in force to make repairs
to the Premises or improvements hereafter erected thereon at Landlord's
expense. Tenant hereby waives and releases its right to perform repairs at
Landlord's expense under any law, statute, or ordinance now or hereafter in
effect in the State in which the Project is located, including, without
limitation, the provisions of Civil Code Sections 1941 and 1942.
ARTICLE 8
CHANGES AND ALTERATIONS
8.1 Tenant's Changes and Alterations. Tenant shall not make any
alterations, additions or improvements ("Alterations") to the Property,
without Landlord's prior written consent, which may be withheld in Landlord's
sole and absolute discretion ("Alterations"). Tenant shall promptly remove
any Alterations constructed in violation of this Section upon Landlord's
written request.
8.2 Liens. Tenant shall keep the Premises free from any mechanics',
materialmen's, designer's or other liens arising out of any work performed,
materials furnished or obligations incurred by or for Tenant or any person or
entity claiming by, through or under Tenant. Landlord shall have the right
at all times to post and keep posted on the Premises any notices which it
deems necessary for protection from such liens. If any such liens are filed
and are not released of record by payment or posting of a proper bond within
thirty (30) days after such filing, Landlord may, without waiving its rights
and remedies based on such breach by Tenant and without releasing Tenant from
any obligations hereunder, cause such liens to be released by any means it
shall deem proper, including payment of the claim giving rise to such lien or
posting security to cause the discharge of such lien, in which event all
amounts paid by Landlord shall immediately be due and payable by Tenant as
Additional Rent. Tenant hereby indemnifies, protects, defends and holds
Landlord and Landlord's Indemnitees and the Premises harmless from any
liability, cost, obligation, expense (including, without limitation,
reasonable attorneys' fees and expenses and attorneys' fees incurred in
enforcing of this indemnity), or claim of any mechanics', materialmen's,
design professional's or other liens in any manner relating to any work
performed, materials furnished or obligations incurred by or for Tenant or any
person or entity claiming by, through or under Tenant. Tenant shall notify
Landlord in writing thirty (30) days prior to commencing any Alterations so
that Landlord shall have the right to record and post notices of non-
responsibility or any other notices deemed necessary by Landlord on the
Premises. Tenant shall not create, and shall promptly discharge and satisfy
of record, any other lien, encumbrance, charge, security interest, or other
right or interest which shall be or become a lien, encumbrance, charge or
security interest upon the Premises, or any portion thereof.
ARTICLE 9
RIGHTS RESERVED BY LANDLORD
9.1 Landlord's Entry. In addition to any other right of entry
provided to Landlord in this Lease, Landlord reserves the right at all
reasonable times and upon reasonable notice to Tenant to enter the Premises
to: (i) inspect them; (ii) show the Premises to prospective purchasers,
mortgagees or tenants, or to the ground or underlying Landlords; (iii) post
notices of non-responsibility or other notices as may be customary in the
State of California or (iv) for any other purpose Landlord deems reasonably
necessary. Except in cases of emergency, two (2) business days prior notice
shall be deemed reasonable notice. Landlord and its authorized
representatives may enter the Premises at any time in case of emergency and
shall have the right to use any and all means which Landlord may deem proper
to open such doors during an emergency in order to obtain entry to any
vehicles or improvements or fixtures on the Premises. Any such entry obtained
by Landlord in the event of any emergency shall not, under any circumstances,
be construed or deemed to be a forcible or unlawful entry into, or detainer
of, the Premises, or to be an eviction of Tenant from the Premises or any
portion thereof.
9.2 Landlord's Cure. If Tenant shall default in the performance of
its obligations under this Lease and if such default is not cured within the
applicable periods provided in Article 14, Landlord may, but shall not be
obligated to, make any such payment or perform any such act on Tenant's part
without waiving its right based upon any default of Tenant and without
releasing Tenant from any obligations hereunder. Except as may be
specifically provided to the contrary in this Lease, Tenant shall pay to
Landlord, within ten (10) days after delivery by Landlord to Tenant of
statements therefor, sums equal to expenditures reasonably made and
obligations incurred by Landlord in connection with the remedying by Landlord
of Tenant's defaults. If there are any outstanding monetary obligations of
Tenant under this Lease attributable to the period prior to the expiration or
termination of this Lease, such obligations shall survive the termination or
expiration of this Lease and such amount shall be payable to Landlord within
ten (10) days after receipt of notice therefor from Landlord. Tenant hereby
agrees to indemnify, protect, defend (with legal counsel reasonably acceptable
to Landlord) and save Landlord harmless from and against such impositions,
insurance premiums, utility charges, maintenance, repair and replacement
expenses, all expenses relating to compliance with laws, and all other costs,
fees, charges, expenses, reimbursements and obligations above referred to.
ARTICLE 10
INDEMNITY AND INSURANCE
10.1 Insurance Coverage. During the Term of this Lease, Tenant, at its
sole cost and expense, shall obtain and continuously maintain in full force
and effect the following insurance coverage:
(a) Comprehensive general liability insurance against any loss,
liability or damage on, about or relating to the Premises, or any portion
thereof, with limits of not less than Five Million Dollars ($5,000,000.00)
combined single limit, per occurrence and aggregate, coverage on an occurrence
basis. Such insurance shall specifically insure (by contractual liability
endorsement) Tenant's indemnity obligations under this Lease. Such insurance
shall also afford coverage for all claims based upon acts, omissions, injury
or damage, which claims occurred or arose (or the onset of which occurred or
arose) in whole or in part during the policy period;
(b) Such other insurance and in such amounts as may from time to time
be reasonably required by Landlord, against any other insurable hazards which
at the time are commonly insured against in the case of premises similar to
those of the Premises; and
The insurance set forth in this Section 10.1 shall be maintained by
Tenant at not less than the limits set forth herein (or if not specified
herein, as reasonably required by Landlord) until reasonably required to be
changed from time to time by Landlord, in writing, whereupon Tenant shall
obtain and maintain thereafter such additional coverage.
10.2 Insurance Provisions. Any such insurance obtained and maintained
by Tenant shall name Landlord, and, if requested by Landlord, Landlord's
mortgagee, as named insured therein and such insurance shall be obtained and
maintained from and with a reputable and financially sound insurance company
authorized to issue such insurance in California. Each policy required under
this Article 10 shall have attached thereto (a) an endorsement that such
policy shall not be canceled or materially changed without at least thirty
(30) days prior written notice to Landlord, and (b) an endorsement to the
effect that the insurance as to the interest of Landlord shall not be
invalidated by any act or neglect of Landlord or Tenant and an "agreed value"
endorsement. All policies of insurance, together with any endorsements
reflecting the changes to the policy required to comply with this Lease, shall
be written by companies reasonably satisfactory to Landlord and licensed in
the state in which the Premises are located. Such certificates of insurance
shall be in a form reasonably acceptable to Landlord, shall be delivered to
Landlord upon commencement of the Term and prior to expiration of such policy,
new certificates of insurance, shall be delivered to Landlord not less than
twenty (20) days prior to the expiration of the then current policy term. In
the event Tenant shall fail to procure such insurance, or to deliver such
policies or certificates and appropriate endorsements, Landlord may, at its
option, procure such policies for the account of Tenant, and the cost thereof
plus a ten percent (10%) handling charge shall be paid by Tenant to Landlord
as Additional Rent within five (5) days after delivery to Tenant of bills
therefor.
10.3 Waiver of Subrogation. Tenant shall cause to be inserted in the
policy or policies of insurance required by this Article 10 hereof a so-called
"Waiver of Subrogation Clause" as to Landlord. Tenant hereby waives, releases
and discharges Landlord, its agents and employees from all claims whatsoever
arising out of loss, claim, expense or damage to or destruction covered or
coverable by insurance required under this Article 10 notwithstanding that
such loss, claim, expense or damage may have been caused by Landlord, its
agents or employees, and Tenant agrees to look to the insurance coverage only
in the event of such loss.
10.4 Indemnification by Tenant. To the fullest extent allowed by law,
Tenant shall at all times indemnify, protect, defend (with legal counsel
acceptable to Landlord) and hold Landlord and Landlord's shareholders,
officers, directors, partners, employees, lender, managing agent, successors
and/or assigns (collectively, "Landlord's Indemnities") harmless against and
from any and all claims, costs, liabilities, actions and damages (including,
without limitation, attorneys' fees and costs and costs related to the
enforcement of this indemnity provision) arising from or out of any occurrence
in, upon or about the Premises or the occupancy or use by Tenant of the
Premises, or the condition of the Premises or occasioned wholly or in part by
any act or omission of Tenant, its agents, contractors, servants, tenants,
invitees or licensees (collectively "Tenant's Agents") or arising from any act
or negligence of Tenant or Tenant's Agents, or a default by Tenant under this
Lease or arising from any accident, injury or damage whatsoever caused to any
person, or entity occurring during the Term of this Lease, in or about the
Premises, and from and against all costs, attorney's fees, expenses and
liabilities incurred in or about any such claim or action or proceeding
brought thereon. In case any action or proceeding be brought against Landlord
by reason of any such claim, Tenant, upon notice from Landlord, covenants to
defend such action or proceeding by counsel reasonably satisfactory to
Landlord. Landlord shall not be liable for injury or damage which may be
sustained by a person, goods, wares, merchandise, or other property of Tenant,
or Tenant's employees, invitees, customers, or of any other person in or about
the Premises caused by or resulting from any peril which may affect the
Premises, whether such damage or injury results from conditions arising upon
the Premises or from other sources.
ARTICLE 11
NO ASSIGNMENT OR SUBLETTING
11.1 Restriction on Other Transfers. Tenant shall not assign,
mortgage, pledge, transfer, sublease or otherwise encumber or dispose of this
Lease, or any interest therein, or in any manner assign, mortgage, pledge,
transfer or otherwise encumber or dispose of its interest or estate in the
Premises, or any portion thereof ("Transfer").
ARTICLE 12
INTENTIONALLY OMITTED
ARTICLE 13
CONDEMNATION
13.1 Condemnation of Entire Premises. If, during the Term of this
Lease, the entire Premises shall be taken as the result of the exercise of the
power of eminent domain (hereinafter referred to as the "Proceedings"), this
Lease shall terminate on the date of vesting of title pursuant to such
Proceedings. In any taking of the Premises, or any portion thereof, whether
or not this Lease is terminated as in this Article provided, Tenant shall not
be entitled to any portion of the award for the taking of the Premises, all
such award, damages, consequential damages and compensation being hereby
assigned to Landlord, and Tenant hereby waives any right it now has or may
have under present or future law to receive any separate award of damages for
its interest in the Premises, or any portion thereof, or its interest in this
Lease, except that Tenant shall have, nevertheless, the limited right to prove
in the Proceedings and to receive any award which may be made for damages to
or condemnation of Tenant's movable trade fixtures and equipment, and for
Tenant's relocation costs in connection therewith.
13.2 Partial Condemnation/Termination of Lease. If, during the Term
of this Lease, less than the entire Premises, but more than twenty-five
percent (25%) of the Premises, shall be taken in any such Proceedings, this
Lease shall, upon vesting of title in the Proceedings, terminate as to the
portion of the Premises so taken, and Tenant or Landlord shall have the right
to terminate this Lease if the business of Tenant conducted in the portion of
the Premises taken cannot reasonably be carried on with substantially the same
utility and efficiency in the remainder of the Premises. Such termination as
to the remainder of the Premises shall be effected by notice in writing given
not more than sixty (60) days after the date of vesting of title in such
Proceedings, and shall specify a date not more than sixty (60) days after the
giving of such notice as the date for such termination.
13.3 Partial Condemnation/Continuation of Lease. If twenty-five
percent (25%), or less, of the Land, shall be taken in such Proceedings, this
Lease shall, upon vesting of title in the Proceedings, terminate as to the
parts so taken. The net amount of the award (after deduction of all costs and
expenses, including attorneys' fees), shall be held by Landlord and Tenant's
Basic Rent shall be abated proportionately.
13.4 Continuance of Obligations. In the event this Lease is not
terminated, then from and after the date of vesting of title in such
Proceedings, Tenant shall continue to pay the Basic Rent and Additional Rent
and other charges payable hereunder, as in this Lease provided, to be paid by
Tenant, subject to an abatement of a just and proportionate part of the Basic
Rent according to the extent and nature of such taking as may be mutually
agreed upon by Tenant and Landlord.
13.5 Tenant's Waiver. Tenant waives the protection of any statute,
code or judicial decision which grants Tenant a right to terminate this Lease
or to obtain any compensation other than that set forth in this Article in the
event of a taking, including, but not limited to, California Code of Civil
Procedure Section 1265.150 or any successor statute or law.
ARTICLE 14
DEFAULTS; REMEDIES
14.1 Events of Default. The occurrence of any of the following shall
constitute a default and breach of this Lease by Tenant:
14.1.1 Intentionally Omitted
14.1.2 Failure to Pay. If Tenant fails to pay such Rent or such
charge as and when due where such failure continues for ten (10) days after
written notice thereof by Landlord to Tenant;
14.1.3 Failure to Perform. If Tenant fails to perform any of
Tenant's nonmonetary obligations under this Lease for a period of thirty (30)
days after written notice from Landlord; provided that if more time is
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.
14.1.4 Other Defaults. (i) If Tenant makes a general assignment
or general arrangement for the benefit of creditors; (ii) a petition for
adjudication of bankruptcy or for reorganization or rearrangement is filed by
or against Tenant and is not dismissed within thirty (30) days; (iii) if a
trustee or receiver is appointed to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in the Lease
and possession is not restored to Tenant within thirty (30) days; or (iv) if
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court of
competent jurisdiction determines that any of the acts described in this
Subsection 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 difference between the Rent (or any other
consideration) paid in connection with such assignment or sublease and the
Rent payable by Tenant hereunder.
The notices required by this Section are intended to satisfy any and all
notice requirements imposed by law on Landlord and are not in addition to any
such requirement.
14.1.5 Remedies. On the occurrence of any default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(ai Terminate Tenant's right to possession of the Premises
at any time by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises 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 without
limitation (i) the worth at the time of the award of the unpaid 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 Basic 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 Basic Rent, Additional
Rent and other charges which Tenant would have paid for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves Landlord could have reasonable avoided; and (iv) any other
amount, including court costs 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 Premises after such default,
the cost of recovering possession of the Premises, expenses of reletting,
including necessary repairs to the Premises and any real estate commission
paid or payable; and Landlord's reasonable attorneys' fees incurred in
connection therewith. 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 Maximum Rate of Interest, 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 Premises, Landlord shall have the
option of (i) retaking possession of the Premises and recovering from Tenant
the amount specified in this Paragraph 14.1.5(a), or (ii) proceeding under
Paragraph 14.1.5(b) or (c);
(bi Maintain Tenant's right to possession, in which case
this Lease shall continue in effect whether or not Tenant has abandoned the
Premises. 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. The Landlord has the remedy described in California Civil Code
Section 1951.4. (Landlord may continue Lease in effect after Tenant's breach
and abandonment and recover Rent as it becomes due, if Tenant has right to
sublet or assign, subject only to reasonable limitations). During the period
Tenant is in default, Landlord may enter the Premises and relet them, or any
part of them, to third parties for Tenant's account. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including brokers' commissions, expenses of repairing the Premises
required by the reletting, and like costs. Reletting can be for a period
shorter or longer than the remaining Term of this Lease. Tenant shall pay to
Landlord the Rent due under this Lease on the dates the Rent is due, less the
Rent Landlord receives from reletting. No act by Landlord allowed by this
Section 14.1.5 will terminate this Lease unless Landlord notifies Tenant in
writing that Landlord elects to terminate this Lease. After Tenant's default
and for so long as Landlord does not terminate Tenant's right to possession
of the Premises, if Tenant obtains Landlord's consent, Tenant will have the
right to assign or sublet its interest in this Lease, but Tenant will not be
released from liability. If Landlord elects to relet the Premises as provided
in this Section 14.1.5, Rent that Landlord receives from reletting will be
applied to the payment of: (i) first, any indebtedness from Tenant to Landlord
other than Rent due from Tenant; (ii) second, all costs, including costs for
maintenance, incurred by Landlord in reletting; and (iii) third, Rent due and
unpaid under the Lease. After deducting the payments referred to in this
Section 14.1.5, any sum remaining from the Rent Landlord receives from
reletting will be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. If, on the date Rent is due under this
Lease, the Rent received from the reletting is less than the Rent due on that
date, Tenant will pay to Landlord, in addition to the remaining Rent due, all
costs, including for maintenance, Landlord incurred in reletting which remain
after applying the Rent received from the reletting; and/or
(ci 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.
14.1.6 Right of Landlord to Re-Enter. In the event of any
termination of this Lease, Landlord shall have the immediate right to enter
upon and repossess the Premises, and any personal property or equipment of
Tenant may be removed from the Premises and stored in any public warehouse at
the risk and expense of Tenant.
14.1.7 Cumulative Remedies. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
14.2 Legal Costs. Tenant shall reimburse Landlord, upon demand, for
any reasonable costs or expenses incurred by Landlord in connection with any
breach or default of Tenant under this Lease, whether or not suit is commenced
or judgment entered. Such costs shall include reasonable legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. If an action is commenced between the parties relating to this
Lease, the prevailing party shall be entitled to recover it attorneys' fees
in accordance with Section 19.13 below. Tenant shall also indemnify, protect,
defend and hold Landlord harmless from all costs, expenses, demands and
liability (including, without limitation, attorneys' fees and costs, including
attorneys fees as a result of the enforcement of this indemnity) incurred by
Landlord if Landlord becomes or is made a party to any claim or action (a)
instituted by Tenant, or by any third party against Tenant, or by or against
any person holding any interest under or using the Premises by license of or
agreement with Tenant; (b) for foreclosure of any lien for labor or material
furnished to or for Tenant or such other person; (c) otherwise arising out of
or resulting from any act or transaction of Tenant or such other person; or
(d) necessary to protect Landlord's interest under this Lease in a bankruptcy
proceeding, or other proceeding under Title 11 of the United States Code, as
amended. Tenant shall defend Landlord against any such claim or action at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or
costs incurred by Landlord in any such claim or action.
14.3 No Waiver. No failure by Landlord or by Tenant to insist upon the
performance of any of the terms of this Lease or to exercise any right or
remedy consequent upon a breach thereof, and no acceptance by Landlord of full
or partial rent from Tenant or any third party during the continuance of any
such breach, shall constitute a waiver of any such breach or of any of the
terms of this Lease. None of the terms of this Lease to be kept, observed or
performed by Landlord or by Tenant, and no breach thereof, shall be waived,
altered or modified except by a written instrument executed by Landlord and/or
by Tenant, as the case may be. No waiver of any default of Tenant shall be
implied from any omission by Landlord to take any action on account of such
default. One or more waivers by Landlord shall not be construed as a waiver
of a subsequent breach of the same covenant, term or condition. 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.
14.4 Waiver by Tenant. Tenant hereby waives all claims by Landlord's
re-entering and taking possession of the Premises and removing and storing the
property of Tenant as permitted under this Lease and will save Landlord
harmless from all losses, costs or damages occasioned Landlord thereby. No
such reentry shall be considered or construed to be a forcible entry by
Landlord. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed for any cause, or in the event of Landlord obtaining
possession of the Premises, by reason of the violation by Tenant of any of the
covenants or conditions of this Lease, or otherwise.
14.5 Default by Landlord. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within thirty (30)
days after written notice by Tenant to Landlord and to the holder of any first
mortgage or deed of trust covering the Premises whose name and address shall
have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
ARTICLE 15
PROTECTION OF CREDITORS
15.1 Subordination. This Lease and all rights of Tenant therein, and
all interest or estate of Tenant in the Premises, or any portion thereof,
shall be subject and subordinate to the lien of any mortgage, deed of trust,
or other document of like nature ("Mortgage"), which at any time may be placed
upon the Premises, or any portion thereof, by Landlord, and to any
replacements, renewals, amendments, modifications, extensions or refinancing
thereof, and to each and every advance made under any Mortgage. Tenant agrees
at any time hereafter, and from time to time on demand of Landlord, to execute
and deliver to Landlord any instruments, releases or other documents that may
be reasonably required for the purpose of subjecting and subordinating this
Lease to the lien of any such Mortgage. It is agreed, nevertheless, that so
long as Tenant is not in default in the payment of Basic Rent and Additional
Rent and the performance and observance of all covenants, conditions,
provisions, terms and agreements to be performed and observed by Tenant under
this Lease, that such subordination agreement or other instrument, release or
document shall not interfere with, hinder or molest Tenant's right to quiet
enjoyment under this Lease, nor the right of Tenant to continue to occupy the
Premises, and all portions thereof, and to conduct its business thereon in
accordance with the covenants, conditions, provisions, terms and agreements
of this Lease. The lien of any such Mortgage shall not cover Tenant's trade
fixtures or other personal property located in or on the Premises.
15.2 Attornment. If Landlord's interest in the Premises is acquired
by any beneficiary under a deed of trust, mortgagee, or purchaser at a
foreclosure sale or by any new person or entity as a result of any transfer
by Landlord, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Premises and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Premises upon the transfer of Landlord's
interest.
15.3 Estoppel Certificates.
15.3.1 Within ten (10) business days after Landlord's written
request, Tenant shall execute, acknowledge and deliver to Landlord a written
statement certifying: (i) that this Lease (and all guaranties, if any) is
unmodified and in full force and effect (or, if there have been any
modifications, that the same is in full force and effect, as modified, and
stating the modifications); (ii) that this Lease has not been canceled or
terminated; (iii) the last date of payment of the Basic Rent and other charges
and the time period covered by such payment; (iv) whether or not there are
then existing any breaches or defaults by such party or the other party known
by such party under this Lease, and specifying such breach or default, if any,
or any setoffs or defenses against the enforcement of any such breach of this
Lease (or of any guaranties) upon the part of Landlord or Tenant (or any
guarantor), as the case may be, to be performed or complied with (and, if so,
specifying the same and the steps being taken to remedy the same) and (v) such
other statements as required by Landlord, or any lender or prospective lender,
investor or purchaser. Tenant shall deliver such statement to Landlord within
ten (10) business days after Landlord's request. Any such statement by Tenant
may be given by Landlord to any prospective purchaser or encumbrancer of the
Premises. Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
15.3.2 If Tenant does not deliver such statement to Landlord
within such ten (10) business day period, (i) Tenant irrevocably constitutes
and appoints Landlord as its special attorney-in-fact to execute and deliver
the certificate to any third party and (ii) such failure shall constitute a
default under this Lease entitling Landlord to terminate this Lease. Further,
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 Basic
Monthly Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under this Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
15.4 Mortgagee Protection Clause. Tenant agrees to give any mortgagees
and/or trust deed holders, by registered mail, a copy of any notice of
default, served upon the Landlord, provided that prior to such notice Tenant
has been notified in writing (by way of Notice of Assignment of Rents and
Leases, or otherwise) of the addresses of such mortgagees and/or trust deed
holders. Tenant further agrees that if Landlord shall have failed to cure such
default within the time provided for in this Lease, then the mortgagees and/or
trust deed holders shall have an additional thirty days (30) within which to
cure such default or if such default cannot be cured within that time, then
such additional time as may be necessary if within such thirty days (30) any
mortgagee and/or trust deed holder has commenced and is diligently pursuing
the remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being
so diligently pursued.
ARTICLE 16
TERMINATION OF LEASE
16.1 Surrender of Premises. At the expiration of the Term of this
Lease or earlier termination of this Lease, Tenant shall surrender the
Premises in the same condition as the same were in upon delivery of possession
thereto at the Commencement Date of the term of this Lease, reasonable wear
and tear excepted. Tenant shall at such time remove all of its property
therefrom and all equipment, alterations and improvements placed thereon by
Tenant. Tenant shall repair any damage to the Premises caused by such
removal, and any and all such property not so removed shall, at Landlord's
option, become the exclusive property of Landlord or be disposed of by
Landlord, at Tenant's cost and expense, without further notice to or demand
upon Tenant. If the Premises be not surrendered as above set forth, Tenant
shall indemnify, protect, defend and hold Landlord harmless against loss or
liability resulting from the delay by Tenant in so surrendering the Premises,
including, without limitation, any claim made by any succeeding occupant
founded on such delay. All property of Tenant not removed within thirty (30)
days after the last day of the Term of this Lease shall be deemed abandoned.
Tenant hereby appoints Landlord its agent to remove, at Tenant's cost, all
property of Tenant from the Premises upon termination of this Lease and to
cause its transportation and storage for Tenant's benefit, all at the sole
cost and risk of Tenant and Landlord shall not be liable for damage, theft,
misappropriation or loss thereof and Landlord shall not be liable in any
manner in respect thereto.
16.2 Holding Over. If Tenant remains in possession of the Premises
after expiration of the Lease Term or earlier termination of this Lease, such
occupancy shall be deemed to be a tenancy at sufferance, subject to all the
provisions, conditions and obligations of this Lease, except that Basic Rent
shall be escalated to two hundred percent (200%) of the previous Basic Rent.
In addition, Tenant shall indemnify, defend and hold Landlord harmless from
any and all claims, losses, damages, costs and expenses (including reasonable
attorneys' fees and costs), incurred by Landlord in connection with any
holdover by Tenant, including any claims, losses or damages relating to any
prospective tenant of the Premises.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 Notices. All notices, demands and requests which may be or are
required to be given, demanded or requested by either party to the other shall
be in writing. All notices, demands and requests shall be sent by United
States registered or certified mail, postage prepaid or by an independent
overnight courier service, addressed at the addresses specified in the Basic
Terms or at such other place as either party may designate to the other party
by written notice. Notices, demands and requests which shall be served upon
Landlord by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall
be deemed to be sufficiently served or given for all purposes hereunder three
(3) business days after being mailed for delivery within the United States,
or one (1) business day after being sent by overnight courier.
17.2 Landlord's Continuing Obligations. The term "Landlord," as used
in this Lease so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or owners at
the time in question of the fee of the Premises, and in the event of any
transfer or transfers or conveyance the then grantor shall be automatically
freed and relieved from and after the date of such transfer or conveyance of
all liability as respects the performance of any covenants or obligations on
the part of Landlord contained in this Lease arising thereafter to be
performed, provided that any funds in the hands of such landlord or the then
grantor at the time of such transfer, in which Tenant has an interest, shall
be turned over to the grantee, and any amount then due and payable to Tenant
by Landlord or the then grantor under any provision of this Lease shall be
paid to Tenant.
17.3 Net Lease. Landlord and Tenant do each state and represent that
it is the intention of each of them that all Basic Rent and Additional Rent
shall be paid by Tenant to Landlord without abatement, deduction, diminution,
deferment, suspension, reduction or setoff, and the obligations of Tenant
shall not be affected by reason of damage to Premises; nor shall the
obligations of Tenant be affected by reason of any condemnation, eminent
domain or like proceedings (except as provided in Article 13 hereof); nor
shall the obligations of Tenant be affected by reason of any other cause
whether similar or dissimilar to the foregoing or by any laws or customs to
the contrary.
17.4 Successors. The covenants and agreements herein contained shall
bind and inure to the benefit of Landlord, its successors and assigns, and
Tenant and its permitted successors and assigns.
17.5 Memorandum of Lease. Upon not less than ten (10) days prior
written request by Landlord, Tenant agrees to execute and deliver to Landlord
a Memorandum of Lease, in recordable form, setting forth the following: (a)
the date of this Lease; (b) the parties to this Lease; (c) the term of this
Lease; (d) the legal description of the Premises; and (e) such other matters
reasonably requested by Landlord to be stated therein.
17.6 Captions and Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Premises with
Tenant's expressed or implied permission.
17.7 Relationship of Parties. This Lease does not create the
relationship of principal and agent, or of partnership, joint venture, or of
any association or relationship between Landlord and Tenant, the sole
relationship between Landlord and Tenant being that of landlord and tenant.
17.8 Entire Agreement. Any exhibits, addenda and schedules attached
hereto shall be incorporated herein as though fully set forth herein. All
preliminary and contemporaneous negotiations are merged into and incorporated
in this Lease. This Lease Agreement together with the Exhibits contains the
entire agreement between the parties. No subsequent alteration, amendment,
change or addition to this Lease shall be binding upon Landlord or Tenant
unless reduced to writing and signed by the party to be charged with their
performance.
17.9 Severability. If any covenant, condition, provision, term or
agreement of this Lease shall, to any extent, be held invalid or
unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Lease shall not be affected thereby, but each covenant,
condition, provision, term or agreement of this Lease shall be valid and in
force to the fullest extent permitted by law.
17.10 Landlord's Limited Liability. Tenant agrees to look solely to
Landlord's interest in the Premises for recovery of any judgment from
Landlord, it being agreed that Landlord (and if Landlord is a partnership, its
partners, whether general or limited, and if Landlord is a corporation, its
directors, officers or shareholders) shall never be personally liable for any
personal judgment or deficiency decree or judgment against it.
17.11 Transfer of Landlord's Interest. Should Landlord sell, exchange
or assign this Lease (other than a conditional assignment as security for a
loan), then Landlord, as transferor, shall be relieved of any and all
obligations on the part of Landlord accruing under this Lease from and after
the date of the transfer and the express assumption of such obligations by the
assignee. If any security deposit or prepaid rent has been paid by Tenant,
Landlord may transfer the security deposit or prepaid rent to Landlord's
successor and on such transfer Landlord shall be discharged from any further
liability with respect to the security deposit or prepaid rent.
17.12 Survival. All obligations (together with interest or money
obligations at the Maximum Rate of Interest) accruing prior to expiration of
the Term of this Lease shall survive the expiration or other termination of
this Lease.
17.13 Attorneys' Fees. In the event of any litigation or judicial
action in connection with this Lease or the enforcement thereof or the
enforcement of any indemnity obligation hereunder, the prevailing party in any
such litigation or judicial action shall be entitled to recover all costs and
expenses of any such judicial action or litigation (including, but not limited
to, reasonable attorneys' fees, costs and expenditures fees) from the other
party. Tenant shall pay Landlord's reasonable attorneys' fees incurred in
connection with Tenant's request for Landlord's consent under any provision
of this Lease or in connection with any act which Tenant proposes to do and
which requires Landlord's consent.
17.14 Broker. Each party represents to the other party that no other
broker has negotiated or participated in negotiations of this Lease or is
entitled to any commission in connection therewith. Each party shall
indemnify and hold the other harmless from and against any and all
commissions, fees and expenses and all claims therefor by any broker, salesman
or other party in connection with or arising out of such party's actions in
entering into this Lease.
17.15 Governing Law. This Lease shall be governed by the laws of the
State of California. All covenants, conditions and agreements of Tenant
arising hereunder shall be performable in the county wherein the Premises are
located. Any suit arising from or relating to this Lease shall be brought in
the county wherein the Premises are located, and the parties hereto waive the
right to be sued elsewhere.
17.16 Time is of the Essence. Time is of the essence with respect to
the performance of every provision of this Lease in which time of performance
is a factor.
17.17 Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
17.18 Tenant's Waiver. Notwithstanding anything to the contrary
contained herein, any claim which Tenant may have against Landlord for default
in performance of any of the obligations herein contained to be kept and
performed by Landlord shall be deemed waived unless such claim is asserted by
written notice thereof to Landlord within ten (10) days of commencement of the
alleged default or of accrual of the cause of action and unless suit be
brought thereon within six (6) months subsequent to the accrual of such cause
of action. Furthermore, Tenant agrees to look solely to Landlord's interest
in the Premises for the recovery of any judgment from Landlord, it being
agreed that Landlord, or if Landlord is a partnership, its partners whether
general or limited, or if Landlord is a corporation, its directors, officers
or shareholders, shall never be personally liable for any such judgment.
17.19 Delivery of Corporate Documents. In the event that Tenant is a
corporation, Tenant shall, without charge to Landlord, at any time and from
time to time within ten (10) days after written request by Landlord, deliver
to Landlord, in connection with any proposed sale or mortgage of the Premises,
the following instruments and documents:
(a) Certificate of Good Standing in the state of incorporation
of Tenant and in the state in which the Premises are
located issued by the appropriate state authority and
bearing a current date;
(b) A copy of Tenant's articles of incorporation and bylaws,
and any amendments or modifications thereof certified by
the secretary or assistant secretary of Tenant.
17.20 Provisions are Covenants and Conditions. All provisions, whether
covenants or conditions, on the part of the Landlord, or on the part of
Tenant, shall be deemed to be both covenants and conditions.
17.21 Business Days. As used herein, the term "business days" shall mean
any day which is not a Saturday, Sunday or a legal holiday in the State of
California.
17.22 Force Majeure. If Landlord shall be delayed or prevented from the
performance of any act required hereunder by reason of acts of God, strikes,
lockouts, labor troubles, inability to procure materials, inclement weather,
respect of governmental laws or regulations, or by reason of any order or
direct of any legislative, administrative or judicial body, or any government
department, or by reason of not being able to obtain any licenses, permissions
or authorities required therefor, or other causes without fault or beyond the
reasonable control of Landlord, performance of such acts by Landlord shall be
excused for the period of the delay and the period of the performance of any
such acts shall be extended for a period equivalent to the period of such
delay and Landlord shall not be responsible for any costs or expenses incurred
by Tenant or any other party as a result of such delay. (Herein such delays
are sometimes referred to as "Force Majeure").
17.23 Submission of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or an
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
[Remainder of Page Intentionally Left Blank]
17.24 Tenant's Financial Condition. Prior to the Effective Date, and
within fifteen (15) days after written request from Landlord (so long as
Landlord has a reasonable basis for requesting such information based upon
Tenant's financial condition), Tenant shall deliver to Landlord financial
statements prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP") as are reasonably required by
Landlord to verify the net worth of Tenant, or any assignee, subtenant, or
guarantor of Tenant; provided that Lessee shall not be required to provide any
information that would constitute a violation of the rules and regulations of
the Securities Exchange Commission. In addition, Tenant shall deliver to any
lender or proposed purchaser of the Premises or Project or any portion thereof
designated by Landlord any financial statements prepared in accordance with
GAAP required by any lender or purchaser to facilitate the sale, financing or
refinancing of the Premises or Project or any portion thereof. Tenant
represents and warrants to Landlord that (a) each such financial statement is
a true and accurate statement as of the date of such statement; and (b) at all
times after the date of any such statement during the Lease Term or any
extension thereof, Tenant's net worth, as stated therein, shall not be
reduced. All financial statements shall be confidential and shall be used
only for the purposes set forth herein. Each such financial statement shall
be executed by Tenant and shall, if requested by Landlord, be certified by
Tenant to be true and correct.
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialed all Exhibits
and Addenda which are attached to or incorporated by reference in this Lease.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By:
Thomas W. Roberts, President
Dated:_____________________ TENANT:
RPM Transportation, Inc., a
California corporation
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT "A"
PREMISES
[To Be Attached]
FIRST AMENDMENT TO
LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made as of
__________, 1998, by and between PETCO ANIMAL SUPPLIES, INC., a Delaware
corporation ("Tenant"), and OPUS WEST CORPORATION, a Minnesota corporation
("Landlord"), with reference to the facts set forth below.
RECITALS
A. Landlord and Tenant entered into that certain Lease Agreement
dated as of November 24, 1997 ("Lease Agreement"), pursuant to which Tenant
leased from Landlord certain real property identified in Exhibit "A" to the
Lease Agreement ("Premises") and pursuant to which Landlord granted Tenant an
option ("Expansion Option") to expand the Premises to include space to be
constructed on land adjacent to the Premises, which land is described on
Exhibit "A-1" to the Lease ("Expansion Land").
B. Buyer and Seller now desire to enter into this First Amendment to
amend the terms of the Lease Agreement with respect to the Expansion Option.
NOW, THEREFORE, in consideration of the Recitals set forth above, and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as set forth below.
1. Defined Terms. Any capitalized term not otherwise defined herein
shall have the same meaning as set forth in the Lease Agreement.
2. Expansion Space Lease. The Lease Agreement shall be amended to
provide that Landlord and Tenant acknowledge and agree that Landlord may enter
into a lease agreement with R.P.M. Transportation, Inc., a California
corporation ("RPM") under which Landlord would Lease the Expansion Space to
RPM, commencing on January 1, 1998 for a term of one (1) year followed by a
month to month tenancy, which month to month tenancy would be terminable upon
ninety (90) days prior written notice from Landlord or RPM, in substantially
the form of the lease attached hereto as Attachment "1" ("Expansion Space
Lease"). Landlord and Tenant further acknowledge and agree that
notwithstanding anything to the contrary contained in the Lease Agreement or
the Expansion Space Lease: (a) Landlord would be entitled to receive one
hundred percent of the rent under the Expansion Space Lease until such time
as Tenant's obligation to pay Basic Rent commences under the Lease Agreement
(i.e. two (2) calendar months following commencement of the Initial Term of
the Lease Agreement); (b) Thereafter, Landlord and Tenant agree to enter into
an assignment of the Expansion Space Lease in form of Attachment "2" attached
hereto and incorporated, under which Tenant would upon execution of such
assignment be entitled to collect all of the Basic Rent under the Expansion
Space Lease and Tenant would assume all of Landlord's obligations thereunder;
(c) Tenant agrees to refrain from exercising its Expansion Option until after
December 31, 1998; (d) Tenant, in exercising its Expansion Option, must
deliver its Notice of Exercise at least twelve (12) months prior to the
desired occupancy date for the Premises; and (e) in the event that RPM fails
to vacate the Premises as and when required after receipt of termination
notice from Landlord pursuant to the terms of the Expansion Space Lease, then
the deadline for delivery of the Expansion Space by Landlord (i.e. the Desired
Occupancy Date) under Article 18 of the Lease Agreement would be extended, on
a day for day basis one (1) day for each day that RPM fails to timely vacate
the Premises in accordance with the terms of the Expansion Space Lease.
3. Counterparts. This First Amendment may be executed in
counterparts, each of which, when taken together shall constitute fully
executed originals.
4. Full Force and Effect. Except as amended hereby, the Lease
Agreement is in full force and effect between the parties.
IN WITNESS WHEREOF, this First Amendment has been made and executed as
of the date first above.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
Attachment "1"
Expansion Space Lease
[To Be Attached]
Attachment "2"
Assignment and Assumption of Lease
[To Be Attached]
ATTACHMENT 2
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (the "Assignment") is made as
of _________________, 199__, by and between OPUS WEST CORPORATION, a Minnesota
corporation ("Assignor"), and PETCO ANIMAL SUPPLIES, INC., a Delaware
corporation ("Assignee"), with reference to the facts set forth below.
RECITALS
A. Pursuant to that certain Lease Agreement between Assignor and
Assignee dated as of November 24, 1997, as amended by that certain First
Amendment to Lease Agreement dated as of ____________, 1998 (collectively,
"Petco Lease"), Assignee has an option to expand Assignee's premises under the
Petco Lease into space to be constructed on that certain real property owned
by Assignor and more particularly described on Schedule "1" attached hereto
and incorporated herein (the "Expansion Property").
B. Assignor has also entered into that certain Ground Lease Agreement
with R.P.M. Transportation, Inc., a California corporation ("RPM") dated as
of _______, 1998 ("RPM Lease"), pursuant to which Assignor has leased the
Expansion Property to RPM on the terms and conditions set forth in the RPM
Lease.
C. As of the Effective Date of this Assignment, Assignee has
commenced to pay rent to Assignor under the Petco Lease and pursuant to the
terms of the Petco Lease, Assignor and Assignee have agreed that upon the
commencement of the payment of Basic Rent (exclusive of the initial two month
free rent period) under the Petco Lease, (i) Assignor would (a) exclusively
assign the right to collect Basic Rent under the RPM Lease from Assignor to
Assignee and (b) non exclusively assign Assignor's other rights under the RPM
Lease as the landlord to Assignee and (ii) Assignee would assume all of
Assignor's obligations under the RPM Lease.
NOW, THEREFORE, in consideration of the recitals set forth above and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Assignor and Assignee agree as set forth below.
1. Assignment by Assignor. Commencing on the Effective Date of this
Assignment, Assignor hereby non-exclusively assigns and transfers to Assignee
the right to enforce all of the provisions of the RPM Lease against RPM, as
if Assignee were the Landlord; provided that, except for the exclusive
assignment set forth below, as the owner of the Expansion Property, Assignor
shall also be entitled to enforce the rights of the landlord under the RPM
Lease as against RPM. Assignor hereby exclusively assigns and transfers to
Assignee all of its right, title and interest in and to the Basic Rent under
the RPM Lease commencing on the Effective Date of this Assignment.
2. Acceptance of Assignment. Assignee hereby accepts the assignment
of the RPM Lease as set forth above and assumes and agrees to keep, perform
and fulfill all of the duties, covenants, provisions, conditions and
obligations of the landlord under the RPM Lease which shall arise or be
incurred or are related to events occurring from and after the date hereof.
3. Indemnification by Assignor. Assignor indemnifies, defends,
protects and holds harmless Assignee and Assignee's employees, partners,
directors, officers, affiliates, subsidiaries, shareholders, agents and
representatives from any and all liabilities, claims, damages, costs or
expenses (including reasonable attorneys' fees) arising under the RPM as a
result of any obligations and duties of the landlord thereunder arising prior
to the date hereof.
4. Indemnification by Assignee. Assignee indemnifies, defends,
protects and holds harmless Assignor and Assignor's employees, partners,
directors, officers, affiliates, subsidiaries, shareholders, agents and
representatives from any and all liabilities, claims, damages, costs or
expenses (including reasonable attorneys' fees) as a result of any obligations
and duties of the landlord thereunder which shall arise or be incurred or are
related to events occurring from and after the date hereof.
5. Successors and Assigns. This Assignment shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.
6. Authority. Each of the parties signing this Assignment hereby
warrants and represents that it has the full legal power, authority and right
to execute, deliver and perform the obligations under this Assignment, that
this Assignment has been duly authorized by all requisite actions on the part
of such warranting party, and that no remaining action or third party action
is required to make this Assignment binding upon such party.
7. Governing Law. This Assignment shall be construed and enforced
in accordance with the laws of the State of California.
8. Attorneys' Fees. If either party commences litigation against the
other for the specific performance of this Assignment, the interpretation of
this Assignment, for damages for the breach hereof or otherwise for
enforcement of any remedy hereunder, the parties hereto agree, in the event
of any such commencement of litigation, the prevailing party shall be entitled
to recover from the other party such costs and reasonable attorneys' fees as
may have been incurred. Any attorneys' fees incurred in enforcing any right
of indemnity set forth in this Assignment shall be recoverable and deemed to
be within the scope of such indemnity and/or this attorneys' fees provision.
9. Counterparts. This Assignment may be executed in any number of
counterparts, each of which, when so executed and when delivered, shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as
of the day and year first set forth above.
ASSIGNOR:
OPUS WEST CORPORATION, a Minnesota
corporation
By: __________________________________
Thomas W. Robert, President
ASSIGNEE:
PETCO ANIMAL SUPPLIES, INC.,
a Delaware corporation
By: __________________________________
Name: __________________________________
Title:
__________________________________
By: __________________________________
Name: __________________________________
Title:
__________________________________
SCHEDULE 1
LEGAL DESCRIPTION OF THE PROPERTY
[To be completed with final legal description.]
AGREEMENT FOR PAYMENT OF RENT
This Agreement for Payment of Rent ("Agreement"), dated as of November
__, 1997 ("Effective Date"), is made by and between Opus West Corporation, a
Minnesota corporation ("Landlord") and Petco Animal Supplies, Inc., a Delaware
corporation ("Tenant").
RECITALS
1. Landlord and Tenant have entered into that certain Lease Agreement
("New Lease"), dated as of November __, 1997, pursuant to which Tenant agreed
to lease certain real property identified in Exhibit A to the New Lease ("New
Premises").
2. Tenant has an existing lease ("Previous Lease") for that certain
property located at 10401 Seventh Street, Rancho Cucamonga ("Previous
Premises"), pursuant to which Tenant is obligated to pay rent ("Previous Lease
Rent Obligations"). The Previous Lease expires on May 31, 1999 ("Previous
Lease Expiration Date").
3. In connection with the New Lease, Landlord and Tenant desire to
enter into this separate Agreement pursuant to which Landlord shall reimburse
Tenant for certain of Tenant's Previous Lease Rent Obligations, subject to the
following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Landlord and Tenant agree as
follows:
OPERATIVE PROVISIONS
1. Defined Terms. Any capitalized term not otherwise defined herein
shall have the same meaning as set forth in the New Lease.
2. Payment of Rent Obligations. Subject to the conditions precedent
set forth in Section 4 below, commencing on the Delivery Date of the New
Premises (as defined in the New Lease) and continuing until the earlier of (a)
the Previous Lease Expiration Date or (b) the earlier termination of Tenant's
obligation to pay the Previous Rent Obligation under the Previous Lease, on
the first day of each month Landlord shall make monthly payments to Tenant in
the amount of Fifty-Six Thousand Two Hundred One and No/100 Dollars
($56,201.00) ("Landlord's Payment") as an offset to Tenant's Previous Lease
Rent Obligations. Landlord's Payment for any partial month shall be prorated
based on the number of days within such calendar month and paid with the next
Landlord's Payment. In the event that the Landlord fails to timely make any
required Landlord's Payment, Tenant may deliver to Landlord a reminder notice
("Reminder Notice"). If Landlord fails to pay the required Landlord's Payment
within twenty (20) days of receipt of the Reminder Notice, Tenant shall be
entitled to deduct the required Landlord's Payment from Tenants next monthly
installment of Basic Rent under the New Lease.
3. Subletting of Previous Premises.
3.1 Tenant shall use good faith efforts to sublet the Previous
Premises.
3.2 Landlord shall have the right, but not the obligation, to
assist Tenant in subletting the Previous Premises. In the event Landlord
exercises its right to assist Tenant in subletting the Previous Premises,
Tenant shall cooperate in good faith with Landlord in the effort to sublet the
Previous Premises.
3.3 In the event all or any portion of the Previous Premises is
sublet, Landlord and Tenant shall share equally any monies derived as a result
of the sublease.
4. Conditions Precedent. The obligations of Landlord and Tenant
contained in this Agreement shall be contingent upon Tenant's prior acceptance
of the New Premises from Landlord and delivery to Landlord of the Delivery
Date Acknowledgment and Commencement Date Acknowledgment and (b) that there
shall not have occurred any event of default by Tenant under the New Lease or
this Agreement.
5. Miscellaneous Provisions.
5.1 Successors. The covenants and agreements herein contained
shall bind and inure to the benefit of Landlord, its successors and assigns,
and Tenant and its permitted successors and assigns.
5.2 Captions and Interpretation. The captions of this Agreement
are to assist the parties in reading this Agreement and are not a part of the
terms or provisions of this Agreement. Whenever required by the context of
this Agreement, 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 New Premises
with Tenant's expressed or implied permission.
5.3 Entire Agreement. All preliminary and contemporaneous
negotiations are merged into and incorporated in this Agreement. This
Agreement contains the entire agreement between the parties. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon Landlord or Tenant unless reduced to writing and signed by the party to
be charged with their performance.
5.4 Severability. If any covenant, condition, provision, term
or agreement of this Agreement shall, to any extent, be held invalid or
unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Agreement shall not be affected thereby, but each covenant,
condition, provision, term or agreement of this Agreement shall be valid and
in force to the fullest extent permitted by law.
5.5 Governing Law. This Agreement shall be governed by the laws
of the State of California.
[Remainder of Page Intentionally Left Blank]
5.6 Counterparts. This Agreement may be executed in
counterparts, which when taken together shall constitute a fully executed
original.
Landlord and Tenant have signed this Agreement on the dates specified
adjacent to their signatures below.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
LEASE AGREEMENT
FORM
OPUS WEST CORPORATION,
a Minnesota corporation ("Landlord")
PETCO ANIMAL SUPPLIES, INC.,
a Delaware corporation ("Tenant")
Dated: November __, 1997
|| TABLE OF CONTENTS
Page
ARTICLE 1 LEASE OF PREMISES AND LEASE TERM 4
1.1 Premises 4
1.2 Term of Lease 4
1.2.1 Acknowledgment of Commencement Date 4
1.2.2 Early Occupancy 4
1.3 Delivery of Premises 5
1.3.1 Acknowledgment of Delivery Date 5
ARTICLE 2 RENTAL AND OTHER PAYMENTS 5
2.1 Basic Rent 5
2.1.1 Free Rent Periods 5
2.2 Additional Rent 5
2.3 Rental Deposit 6
ARTICLE 3 PAYMENT OF PROPERTY TAXES AND ASSESSMENTS 6
3.1 Payment of Property Taxes 6
3.2 Property Taxes 6
3.3 Tenant's Right to Contest Property Taxes. 6
3.4 Landlord's Right to Contest Property Taxes 7
ARTICLE 4 USE 7
4.1 Permitted Use 7
4.2 Acceptance of Premises 7
4.3 Rules and Regulations 7
4.4 Tenant's Obligations 7
4.5 Condition of Premises 7
ARTICLE 5 HAZARDOUS MATERIALS 8
5.1 Hazardous Materials 8
5.2 Hazardous Materials Laws 8
5.2.1 Federal 8
5.2.2 California 8
5.2.3 Other Laws and Regulations 8
5.2.4 Phase I Environmental Analysis 8
5.3 Compliance with Hazardous Materials Laws 8
5.4 Notice of Actions 9
5.5 Disclosure and Warning Obligations 9
5.6 Tenant Indemnification 9
5.7 Landlord Indemnification 10
5.8 Environmental Audits 10
5.9 Assignment and Subletting 10
ARTICLE 6 SERVICES AND UTILITIES 10
ARTICLE 7 MAINTENANCE, REPAIR AND ALTERATION OF PREMISES 10
7.1 Construction Warranty and Landlord Obligations 10
7.2 Tenant's Maintenance 11
7.3 Tenant's Waiver of Claims Against Landlord 11
ARTICLE 8 CHANGES AND ALTERATIONS 11
8.1 Tenant's Changes and Alterations 11
8.2 Liens 12
8.3 Compliance with Laws 12
ARTICLE 9 RIGHTS RESERVED BY LANDLORD 13
9.1 Landlord's Entry 13
9.2 Landlord's Cure 13
ARTICLE 10 INDEMNITY AND INSURANCE 13
10.1 Tenant's Insurance Obligations 13
10.2 Insurance Coverage 13
10.3 Insurance Provisions 14
10.4 Waiver of Subrogation 14
10.5 Rental Abatement Insurance 14
10.6 Indemnification by Tenant 14
10.7 Indemnification by Landlord 15
ARTICLE 11 ASSIGNMENT AND SUBLETTING 15
11.1 Restriction on Other Transfers 15
11.2 Permitted Transfers 15
11.3 Sublease Requirements. 16
11.4 No Merger 16
11.5 Profits on Transfer 16
11.5.1 Tenant's Profit Statement 16
ARTICLE 12 DAMAGE OR DESTRUCTION 16
12.1 Destruction and Restoration 16
12.2 Application of Insurance Proceeds 16
12.3 Continuance of Tenant's Obligations 16
12.4 Damage or Destruction at End of Lease Term 17
12.5 Waiver of California Statutes 17
ARTICLE 13 CONDEMNATION 17
13.1 Condemnation of Entire Premises 17
13.2 Partial Condemnation/Termination of Lease 17
13.3 Partial Condemnation/Continuation of Lease 17
13.4 Continuance of Obligations 18
13.5 Tenant's Waiver 18
ARTICLE 14 DEFAULTS; REMEDIES 18
14.1 Events of Default 18
14.1.1 Failure to Pay 18
14.1.2 Failure to Perform 18
14.1.3 Other Defaults 18
14.2 Remedies 18
14.3 Right of Landlord to Re-Enter 19
14.4 Cumulative Remedies 19
14.5 Mitigation 19
14.6 Limitation on Remedies 19
14.7 Legal Costs 19
14.8 No Waiver 19
14.9 Waiver by Tenant 20
14.9.1 Delinquent Rental Payments 20
ARTICLE 15 PROTECTION OF CREDITORS 20
15.1 Subordination 20
15.2 Attornment 21
15.3 Estoppel Certificates 21
15.4 Mortgagee Protection Clause 21
15.5 Non-Disturbance 21
ARTICLE 16 TERMINATION OF LEASE 21
16.1 Surrender of Premises 21
16.2 Holding Over 22
ARTICLE 17 RENEWAL OPTIONS 22
17.1 Options to Renew 22
17.1.1 No Event of Default 22
17.1.2 Fair Market Rent 22
17.1.3 Exercise of Renewal Term(s) 22
17.1.4 Determination of Fair Market Rent 22
17.1.5 Arbitration 23
ARTICLE 18 EXPANSION OPTION 23
18.1 Option to Expand 23
18.2 No Event of Default 23
18.3 Exercise of Expansion Option 23
18.4 Expansion Terms 23
18.5 Expansion Space Basic Rent 24
18.6 Free Rent Period 24
18.7 Failure to Exercise Expansion Option 24
ARTICLE 19 MISCELLANEOUS PROVISIONS 24
19.1 Notices 24
19.2 Landlord's Continuing Obligations 25
19.3 Net Lease 25
19.4 Successors 25
19.5 Memorandum of Lease 25
19.6 Captions and Interpretation 25
19.7 Relationship of Parties 25
19.8 Entire Agreement 25
19.9 Severability 25
19.10 Landlord's Limited Liability 25
19.11 Survival 25
19.12 Attorneys' Fees 25
19.13 Broker 26
19.14 Governing Law 26
19.15 Time is of the Essence 26
19.16 Joint and Several Liability 26
19.17 Delivery of Corporate Documents 26
19.18 Tenant's Financial Condition 26
19.19 Provisions are Covenants and Conditions 26
19.20 Business Days 26
19.21 Force Majeure 26
19.22 No Continuous Operation 26
19.23 Waiver of Landlord's Lien 27
19.24 Submission of Lease 27
||
Lease Agreement
Summary of Basic Lease Information
10 Lease Date: November __, 1997
20 Landlord: Opus West Corporation
30 Address of Landlord Opus West Management Corporation
for Payment of Rent: 2415 East Camelback Road, Suite 840
Phoenix, AZ 85016-4201
Telephone No.: (602) 912-8880
Facsimile No.: (602) 912-8881
40 Address of Landlord Opus West Corporation
for Notices: 2030 Main Street, Suite 520
Irvine, CA 92614
Attn: Paul A. Marshall
Telephone No.: (714) 475-0977
Facsimile No.: (714) 475-0970
With a copy to: Opus U.S. Corporation
2415 East Camelback Road, Suite 800
Phoenix, AZ 85016-4201
Attn: Daniel T. Haug, Esq.
Telephone No.: (602) 468-7000
Facsimile No.: (602) 468-7045
With another copy to: Opus West Corporation
2415 East Camelback Road, Suite 800
Phoenix, AZ 85016-4201
Attn: Mr. Thomas W. Roberts, President
Telephone No.: (602) 468-7000
Facsimile No.: (602) 468-7045
50 Tenant: PETCO Animal Supplies, Inc., a Delaware
corporation
60 Address of Tenant PETCO Animal Supplies, Inc.
for Notices: 9125 Rehco Road
San Diego, CA 92121-2270
Attn: Mark Drasin
Telephone No.: (619) 453-7845
Facsimile No.: (619) 677-3000
With a copy to: Leslie Coughlan, Esq.
Attorney at Law
5010 Shoreham Place, Suite 100
San Diego, CA 92122
Telephone No.: (619) 626-8494
Facsimile No.: (619) 626-8450
70 Premises The parcel of land situated in the County of
Riverside, State of California, described on
Exhibit "A," together with all Improvements
thereon (as defined in Section 1.1).
80 Landlord's The Landlord's Improvements to be constructed
by Landlord as
Improvements described in the Work Letter (See Exhibit
"B").
90 Lease Term Initial Lease Term: 86 months from the
Commencement Date
Renewal Terms: Two (2) Renewal Terms each
for five (5) years.
100 Rent: Basic Rent:
Lease Months: 1-2:
Monthly Rent for Premises: Basic Rent
is abated for first two (2)
months. Additional Rent is not
abated.
Lease Months: 3-62:
Monthly Rent for Premises: $89,991.00
($.2727 per square foot)
Monthly Rent for Expansion Land:
Prior to Expansion Land
Commencement Date: $4,125 ($.0125
per square foot of the Building)
After Expansion Land Commencement
Date: Calculated pursuant to
Article 18
Lease Months: 63-86 (and Lease months 87-
122 if Extension Election under Article 18
is exercised):
Monthly Rent for the Premises:
$100,782 ($.3054 per square foot)
Monthly Rent for Expansion Land:
Prior to Expansion Land
Commencement Date: $4,125 ($.0125
per square foot of the Building)
After Expansion Land Commencement
Date: Calculated pursuant to
Article 18
Lease Months: 123-146: (if Extension
Election under Article 18 is exercised):
Monthly Rent for the Premises:
$112,860 ($.3420 per square foot)
Monthly Rent for Expansion Land:
Calculated pursuant to Article 18
Renewal Terms:
Calculated pursuant to Article 17.
The Basic Rent is subject to adjustment
pursuant to the provisions of Section 2.1
and 2.1.1 of this Lease.
The term "Basic Rent" as used in this Lease
includes the portion of the rent for the
Expansion Land.
Maximum Rate of Interest: Prime plus two
percent (2%) per annum. For purposes of
this Lease, the term "Prime" shall mean the
rate announced from time to time by Bank of
America, N.A., as its prime or reference
rate. If Bank of America shall cease to use
its prime or reference rate, then Landlord
shall select the rate of another financial
institution to be substituted therefor,
which shall be a major money center
commercial bank.
Late Charge: 2% of the overdue amount.
110 Use: General Office and Warehouse Uses ("Permitted
Use")
120 Deposit: None
130 Rental Deposit: $196,482.00 applicable to third (3rd) and
fourth (4th) month's Basic Rent.
140 Brokers: Landlord's and Tenant's Broker: Lee &
Associates
150 Exhibits: The following exhibits are attached hereto and
incorporated into this Lease:
Exhibit "A" Legal Description of Land
Exhibit "A-1" Legal Description of Expansion Land
Exhibit "A-2" Expansion Space
Exhibit "B" Work Letter
Schedule 1 to Work Letter Final Plans and Specifications
Exhibit "C" Preliminary Report
Exhibit "D" Commencement Date Acknowledgment
Exhibit "E" Delivery Date Acknowledgment
Exhibit "F" Subordination, Non-Disturbance and Attornment Agreement
The foregoing Basic Terms are hereby incorporated into and made a part
of this Lease. Each reference in this Lease to the Basic Terms shall mean the
information set forth above and shall be construed to incorporate all of the
terms provided under the particular Lease paragraph pertaining to such
information. In the event of a conflict between the Basic Terms and the
Lease, the Lease shall prevail.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
LEASE AGREEMENT
This Lease Agreement (the "Lease"), which includes the Basic Terms (as
hereinafter defined), dated as of November __, 1997 ("Effective Date"), is
made by and between Landlord and Tenant.
ARTICLE 1
LEASE OF PREMISES AND LEASE TERM
1.1 Premises. Landlord, for and in consideration of the rents,
covenants and agreements hereinafter set forth, hereby leases to Tenant and
Tenant hereby leases from Landlord, upon and subject to the terms, covenants
and conditions hereinafter set forth, all that certain parcel of land situated
in the County of Riverside, and State of California delineated on Exhibit "A"
attached hereto and incorporated herein ("Land"), together with those certain
Landlord's Improvements as defined in the Work Letter attached hereto as
Exhibit "B" ("Work Letter") to be constructed by Landlord, including an
approximately three hundred thirty thousand (330,000) square foot building
("Building") and all other improvements, machinery, equipment, fixtures and
other property (except Tenant's trade fixtures), to be installed or located
thereon and all additions, alterations and replacements thereof (collectively
"Improvements"). Herein the Land and the Improvements are referred to
collectively as the "Premises". Tenant acknowledges that this Lease is
subordinate and subject to (a) all liens, encumbrances, deeds of trust,
reservations, covenants, conditions, restrictions and other matters affecting
the Premises ("Title Matters") (i) in effect on the Effective Date of this
Lease as specified in Exhibit "C" attached hereto and incorporated herein
("Preliminary Report") or (ii) approved or deemed approved pursuant to this
Section 1.1, ("Permitted Encumbrances") and (b) any law, regulation, rule,
order or ordinance of any governmental entity applicable to the Premises or
the use or occupancy thereof, in effect on the execution of this Lease or
thereafter promulgated. In the event that, after the Effective Date any new
Title Matters appear of record, such matters shall be subject to the review
and approval of Tenant which approval shall not be withheld so long as the new
Title Matter does not materially and adversely impair the use or occupancy by
Tenant of the Premises for its intended purpose. Tenant shall deliver written
notice to Landlord of its approval or disapproval of such Title Matters within
ten (10) days after delivery by Landlord to Tenant of such new Title Matter.
If Tenant fails to respond within such ten (10) day period and Landlord
delivers a written reminder notice to Tenant and Tenant fails to respond
within five (5) days of the delivery of the written reminder notice, the new
Title Matter shall be deemed approved.
1.2 Term of Lease. The initial term of this Lease ("Initial Term")
shall commence on the Delivery Date (defined in Section 1.3 below) as such
date may be extended until (i) the date of Substantial Completion of the
Landlord's Improvements (as defined in the Work Letter) ("Commencement Date");
provided Tenant shall be permitted by the City to occupy and use the Premises
at such time. The Initial Term shall end on the date which is eighty-six (86)
months after the Commencement Date unless sooner terminated pursuant to the
terms of this Lease. Any reference to the Term of this Lease or similar
reference shall be a reference to the Initial Term together with any renewal
terms of this Lease specified in Article 17. Any reference to Lease Year
shall refer to each consecutive twelve (12) month period during the Term
commencing on the Commencement Date. For purposes of this Lease, a "Lease
Month" shall be defined as those successive calendar month periods beginning
with the Commencement Date and continuing through the Initial Term or any
Renewal Term of this Lease.
1.2.1 Acknowledgment of Commencement Date. Tenant shall, within
ten (10) business days of request therefor by Landlord, execute an
acknowledgment of the Commencement Date prepared by Landlord in the form of
Exhibit "D" attached hereto and incorporated herein ("Commencement Date
Acknowledgment"), provided, however, that the failure of Tenant to execute
such acknowledgment shall not affect any obligation of Tenant hereunder or the
Landlord's determination of the Commencement Date. If the Tenant fails to
execute and deliver such Commencement Date Acknowledgment or provide written
notice of Tenant's disagreement with the contents thereof, then Landlord may
deliver a written reminder notice. If Tenant fails to respond in writing to
the written reminder notice within five (5) days, Landlord may deliver a
second written reminder notice. If Tenant fails to respond in writing to the
second written reminder notice within five (5) days, then Landlord and any
prospective purchaser or encumbrancer may conclusively presume and rely upon
the fact that the Commencement Date is the date specified in the Commencement
Date Acknowledgment.
1.2.2 Early Occupancy. Tenant shall be entitled to early
occupancy of the Premises thirty (30) days prior to the Commencement Date in
accordance with this Section 1.2.2 and the Work Letter. Tenant's early
occupancy of the Premises for installation of furniture, fixtures and
equipment shall be subject to all the terms and conditions of this Lease,
other than the obligation to pay Basic Rent. Early occupancy of the Premises
shall not advance the expiration date of this Lease. Landlord shall have the
right to charge Tenant for any utility costs incurred as a result of Tenant's
early occupancy of the Premises. If during Tenant's early occupancy of the
Premises, Tenant desires to have security for the Premises, Tenant shall
provide such security at no cost to Landlord.
1.3 Delivery of Premises. Landlord shall use its commercially
reasonable efforts to deliver the Premises to Tenant on or before August 1,
1998 ("Delivery Date" with Landlord's Improvements) (as defined in the Work
Letter) Substantially Completed. If Landlord is unable to deliver the
Premises to Tenant by August 1, 1998, then Tenant shall be entitled to receive
from Landlord the amount of Five Thousand Dollars ($5,000) per day for the
first fifteen (15) days beyond August 1, 1998 that Landlord fails to deliver
the Premises (subject to force majeure as provided in Section 19.21) and Ten
Thousand Dollars ($10,000) per day for the fifteen (15) days beyond August 15,
1998 that Landlord fails to deliver the Premises (subject to force majeure as
provided in Section 19.21) and the Delivery Date shall be deemed to have
occurred on such later date. If Landlord fails to deliver the Premises on or
before September 1, 1998 subject to extension for force majeure as provided
in Section 19.21 of this Lease, then Tenant shall, as Tenant's sole and
exclusive remedy, have the option to terminate this Lease by delivering
written notice ("Termination Note") to Landlord. If Tenant accepts delivery
of the Premises, then Tenant shall be deemed to have waived its right to
terminate the Lease as provided for under this Section 1.3. Notwithstanding
anything herein to the contrary, in the event Landlord tenders possession of
the Premises to Tenant in a substantially completed condition during that
period of time from October 1, 1998 through and including November 30, 1998
(the "Non-Acceptance Period"), then, Tenant shall have the right not to accept
possession of the Premises during such period by notifying Landlord, within
five (5) days of the tender of possession of the Premises to Tenant, in which
case the Commencement Date shall not occur until December 1, 1998.
1.3.1 Acknowledgment of Delivery Date. Tenant shall, within ten
(10) business days of request therefor by Landlord, execute an acknowledgment
of the Delivery Date prepared by Landlord in the form of Exhibit "E" attached
hereto and incorporated herein ("Delivery Date Acknowledgment"), provided,
however, that the failure of Tenant to execute such acknowledgment shall not
affect any obligation of Tenant hereunder or the Landlord's determination of
the Delivery Date. If the Tenant fails to execute and deliver such
Commencement Date Acknowledgment or provide written notice of Tenant's
disagreement with the contents thereof, then Landlord may deliver a reminder
notice. If Tenant fails to respond to the reminder notice within five (5)
days, Landlord may deliver a second reminder notice. If Tenant fails to
respond to the second reminder notice within five (5) days, then Landlord and
any prospective purchaser or encumbrancer may conclusively presume and rely
upon the following facts: (i) the Delivery Date is the date specified in the
Delivery Date Acknowledgment and (ii) that the Premises were in acceptable
condition and were delivered in compliance with all of the requirements of
Work Letter.
ARTICLE 2
RENTAL AND OTHER PAYMENTS
2.1 Basic Rent. In consideration of the leasing of the Premises and
the construction of the Landlord's Improvements described in the Work Letter,
Tenant covenants to pay Landlord in advance, on the first day of each and
every calendar month during the Term, at the address of Landlord as specified
in Item 3 of the Basic Terms, or at such other place as Landlord may from time
to time designate in writing, a rental for the Initial Term of this Lease
calculated based upon the amounts specified in Item 10 of the Basic Terms
("Basic Rent"). Upon Substantial Completion (as defined in the Work Letter)
of the Landlord's Improvements, Landlord shall deliver to Tenant a certificate
from Landlord's architect certifying the square footage of the Premises
("Square Footage Certification") together with a calculation of the Basic
Rent. For purposes of calculating the Basic Rent, the Premises shall be
measured from the face of the exterior walls. Tenant shall have the right to
independently confirm such square footage by an architect certified in the
state of California. In the event Tenant's confirmation of such square
footage differs from the calculation provided by Landlord, Tenant shall
provide notice to Landlord within fifteen (15) days after Landlord's delivery
of its Square Footage Certification. Landlord and Tenant shall have fifteen
(15) days after delivery of Tenant's notice to reach agreement on the final
measurement of the square footage of the Premises. In the event Landlord and
Tenant fail to reach agreement on the square footage of the Premises within
such fifteen-day period, then Landlord's architect and Tenant's architect
shall together select a third architect whose determination shall be binding
on the parties. Such selection shall be made within fifteen (15) days after
Landlord and Tenant determine that they cannot reach agreement on the square
footage of the Premises. In the event Landlord's architect and Tenant's
architect cannot reach agreement on a third architect, then the matter shall
be referred to the local office of the American Institute of Architects who
shall make such selection. The third architect so selected shall then make
a final determination of the square footage within fifteen (15) days of such
architect's selection and Landlord shall revise the Square Footage
Certification to reflect this final determination. The parties shall each
bear the costs of their own architect and shall share the costs equally of any
third architect. If the Square Footage Certification differs from the
approximate square footage of the Building set forth in Section 1.1 above,
then the Basic Rent shall be adjusted to reflect the square footage set forth
in the Square Footage Certification.
2.1.1 Free Rent Periods. During the first two (2) calendar
months of the Initial Term, Basic Rent shall be abated ("Free Rent Period").
2.2 Additional Rent. Except as otherwise specifically provided in
Section 7.1 of this Lease, the Basic Rent shall be net to Landlord so that
this Lease shall yield, net to Landlord, the Basic Rent payable under this
Lease for each year of the Term of this Lease and that all charges payable by
Tenant under this Lease for Property Taxes, insurance premiums, utility
charges, maintenance, repair and replacement expenses, all expenses relating
to compliance with laws, and all other costs, fees, charges, expenses,
reimbursements and obligations of every kind and nature whatsoever relating
to the operation and use of the Premises, and/or the Expansion Land (defined
below) (whether or not Tenant has exercised the Expansion Land Option) which
may arise or become due during the Term or by reason of events occurring
during the Term of this Lease or which relate to the performance by Tenant of
all the terms, covenants, conditions and agreements to be performed, paid or
observed by Tenant hereunder shall be paid or discharged by Tenant, at
Tenant's sole cost and expense. Notwithstanding anything to the contrary,
Tenant shall not be responsible for any property management fees or earthquake
insurance premiums paid by Landlord during the Term of this Lease. Except as
otherwise provided in Section 7.1 or 14.9 of this Lease, all payments of Basic
Rent and Additional Rent shall be payable without previous demand therefor and
without any right of setoff or deduction whatsoever. All charges payable by
Tenant other than Basic Rent, however denoted, are called "Additional Rent."
Unless this Lease provides otherwise, all Additional Rent shall be paid with
the next installment of Basic Rent falling due. Rent for any partial month
shall be prorated on the basis of the number of days within such calendar
month and paid within ten (10) days of the later of (a) invoice from Landlord
or (b) the Commencement Date. Basic Rent and Additional Rent are sometimes
collectively referred to as "Rent" or "rent."
2.3 Rental Deposit. Upon execution of this Lease, Tenant shall
deposit with Landlord the sum specified in the Basic Lease Provisions as the
Rental Deposit. The Rental Deposit shall be held by Landlord without
obligation or liability for payment of interest thereon as security for the
faithful payment of Basic Rent by Tenant, but shall be applicable to the third
(3rd) and fourth (4th) month's Basic Rent payments without offset or deduction
therefrom.
ARTICLE 3
PAYMENT OF PROPERTY TAXES AND ASSESSMENTS
3.1 Payment of Property Taxes. Provided Landlord delivers the
Property Tax bill to Tenant (if delivered to Landlord) promptly upon receipt
thereof, but no later than twenty (20) days prior to the day on which any
fine, penalty, interest or cost may be added thereto for the non-payment
thereof, Tenant covenants and agrees to pay during the Term of this Lease, as
Additional Rent, before any fine, penalty, interest or cost may be added
thereto for the nonpayment thereof, all Property Taxes (as defined in Section
3.2 below), which become due and payable during the Term of this Lease.
Within ten (10) days of written request from Landlord, Tenant shall furnish
Landlord with satisfactory evidence that the Property Taxes have been paid.
If any Property Taxes shall cover any period of time prior to or after the
term of this Lease, Tenant's share of such Property Taxes shall be equitably
prorated to cover only the period of time within the tax fiscal year during
which this Lease shall be in effect.
3.2 Property Taxes. "Property Taxes" shall include general real
property and improvement taxes, any form of assessment, special assessment or
reassessment, license, permit or inspection fee or tax, commercial rental tax
(but only to the extent the same is in lieu of some existing Property Taxes),
levy, charge, penalty or similar imposition, whatsoever or at all imposed by
any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
drainage or other improvement or special assessment district thereof, or any
agency or public body, and all other charges or burdens of whatsoever kind and
nature incurred in the use, occupancy, ownership, operation, leasing or
possession of the Premises, and/or the Expansion Land (whether or not Tenant
has exercised the Expansion Land Option) without particularizing by any known
name or by whatever name hereafter called, and whether any of the foregoing
be general or special, ordinary or extraordinary, foreseen or unforeseen.
Property Taxes shall include, without limitation, the following: (i) any tax
imposed upon the transaction or based upon a reassessment of the Premises,
and/or the Expansion Land (whether or not Tenant has exercised the Expansion
Land Option) due to a change in ownership or transfer of all or part of
Landlord's interest in the Premises the Land, and/or the Expansion Land
(whether or not Tenant has exercised the Expansion Land Option); (ii) any
assessments, taxes, fees, levies or charges in addition to, or in
substitution, partially or totally, for any items previously included within
the definition of Real Property Taxes; (iii) any tax or charge for fire
protection, street lighting streets, sidewalks, road maintenance, refuse,
sewer, water or other services provided to the Premises, and/or the Expansion
Land (whether or not Tenant has exercised the Expansion Land Option) by any
governmental agency; and (iv) capital levy, sales or use tax, gross receipts
tax or other tax on the rents received therefrom, or a franchise tax, or an
assessment, levy or charge measured by or based in whole or in part upon such
rents or value, now or hereafter imposed. Property Taxes do not, however,
include Landlord's state or federal income, franchise, estate or inheritance
taxes.
3.3 Tenant's Right to Contest Property Taxes. Tenant shall have the
right at its own expense, and upon prior notice to Landlord, to contest the
amount or validity, in whole or in part, of any Property Taxes by appropriate
proceedings diligently conducted in good faith, but only after payment of such
Property Taxes, unless such payment, or a payment thereof under protest, would
operate as a bar to such contest or interfere materially with the prosecution
thereof, in which event, notwithstanding the provisions of Section 3.1 hereof,
Tenant may defer payment of such Property Taxes if neither the Premises,
and/or the Expansion Land (whether or not Tenant has exercised the Expansion
Land Option)] nor any portion thereof would, by reason of such deferment, be
in danger of being forfeited or lost and so long as such deferment will not
otherwise materially and adversely impact the Premises, and/or the Expansion
Land (whether or not Tenant has exercised the Expansion Land Option) or impair
the value of the Premises, and/or the Expansion Land (whether or not Tenant
has exercised the Expansion Land Option). Upon the termination of any such
proceedings, Tenant shall pay the amount of such Property Taxes as finally
determined in such proceedings, with any costs, fees, including attorney's
fees, interest, penalties, fines and other liability in connection therewith.
Landlord shall not be required to join in any proceedings referred to in this
Section unless the provisions of any law, rule or regulation at the time in
effect shall require that such proceedings be brought by or in the name of
Landlord, in which event Landlord shall join in such proceedings. Landlord
shall not ultimately be subject to any liability for the payment of any fees,
including attorney's fees, costs and expenses in connection with such
proceedings and Tenant shall reimburse Landlord for all such fees (including
reasonable attorney's fees), costs and expenses on demand.
3.4 Landlord's Right to Contest Property Taxes. In addition to the
right of Tenant under Section 3.3 to contest the amount or validity of
Property Taxes, Landlord shall also have the right, but not the obligation,
to contest the amount or validity, in whole or in part, of any Property Taxes
not contested by Tenant. Any such contests by Landlord shall be at Landlord's
sole expense; provided, however, that if the amounts payable by Tenant for
Property Taxes are reduced (or if a proposed increase in such amounts is
avoided or reduced) by reason of Landlord's contest of Property Taxes, Tenant
shall reimburse Landlord for the costs incurred by Landlord in contesting
Property Taxes, but such reimbursements shall not be in excess of the amount
saved by Tenant by reason of Landlord's actions in contesting such Property
Taxes.
ARTICLE 4
USE
4.1 Permitted Use. Tenant may use the Premises only for the Permitted
Use specified in Item 11 of the Basic Terms. Tenant shall not use or occupy
the same, or knowingly permit them to be used or occupied, contrary to any
statute, governmental, quasi-governmental or administrative rule, order,
ordinance, requirement or regulation applicable thereto ("Regulatory
Requirement"), or in any manner which would violate any certificate of
occupancy affecting the same, or which would make void or voidable any
insurance then in force with respect thereto or which would cause structural
injury to the Improvements or cause the value or usefulness of the Premises,
or any portion thereof, substantially to diminish (reasonable wear and tear
excepted), or which would constitute a public or private nuisance or waste and
Tenant agrees that it will promptly, upon discovery of any such use, take all
necessary steps to compel the discontinuance of such use. Landlord represents
that the Premises are zoned for the Permitted Use.
4.2 Acceptance of Premises. Tenant shall accept delivery of the
Premises with Landlord's Improvements, as set forth on Exhibit "B"
substantially completed. Within thirty (30) days of Substantial Completion
(as defined below) of Landlord's Improvements, Landlord and Tenant shall
provide a "punchlist" identifying the corrective work of the type commonly
found on an architectural punchlist with respect to Landlord's Improvements,
which list shall be based on whether such items were required by the approved
Final Plans and Specifications. Within ten (10) Business Days after delivery
of the punchlist, Landlord shall commence the correction of punchlist items
and diligently pursue such work to completion. The punchlist procedure to be
followed by Landlord and Tenant shall in no way limit Tenant's obligation to
occupy the Premises under the Lease nor shall it in any way excuse Tenant's
obligation to pay Rent as provided under the Lease unless such punch list
items preclude Tenant from occupying the Premises as reasonably determined by
Tenant. Nothing in this Section 4.2 shall be deemed to diminish any
obligation of Landlord under Section 7.1. Tenant acknowledges, that except
as specifically provided in this Lease and the Work Letter, neither Landlord
nor any agent of Landlord has made any representation or warranty with respect
to the Premises or the Building or with respect to the suitability or fitness
of either for the conduct of Tenant's business or for any other purpose.
Tenant shall comply with the Permitted Encumbrances.
4.3 Rules and Regulations. Tenant shall comply with all rules and
regulations adopted by Landlord from time to time for the Project; provided
that such rules and regulations are applied in a non-discriminatory manner,
and do not adversely affect Tenant's hours of operation or otherwise adversely
affect the operation of Tenant's business. In the event of any conflict
between such rules and regulations and the provisions of this Lease, this
Lease shall prevail.
4.4 Tenant's Obligations. Tenant shall obtain and pay for all
permits, required for Tenant's occupancy of the Premises and shall promptly
take all substantial and non-substantial actions necessary to comply with all
applicable Regulatory Requirements regulating the particular type of use by
Tenant of the Premises, including, without limitation, the Occupational Health
and Safety Act and the Americans with Disabilities Act
4.5 Condition of Premises. Landlord shall deliver the Premises to
Tenant clean and free of debris on the Commencement Date, with Landlord's
Improvements Substantially Completed as provided in the Work Letter and,
except as disclosed in the Phase 1 Report, (defined below), the improvements
constructed by Landlord as Landlord's Improvements shall, as of the
Commencement Date, not contain Hazardous Materials (defined below) in
violation of any of the Hazardous Materials Laws (defined below).
ARTICLE 5
HAZARDOUS MATERIALS
5.1 Hazardous Materials. The term "Hazardous Material(s)" shall mean
any toxic or hazardous substance, material or waste or any pollutant or
contaminant or infectious or radioactive material, including but not limited
to those substances, materials or wastes regulated now or in the future under
any of the statutes or regulations listed in Section 5.2, and any and all of
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "hazardous waste," "hazardous chemical substance or
mixture," "imminently hazardous chemical substance or mixture," "toxic
substances," "hazardous air pollutant," "toxic pollutant," or "solid waste"
in the statutes or regulations in Section 5.2. Hazardous Materials shall also
mean any and all other similar terms defined in other federal, state and local
laws, statutes, regulations, orders or rules, and materials and wastes which
are, or in the future become, regulated under applicable local, state or
federal law for the protection of health or the environment, or which are
classified as hazardous or toxic substances, materials or wastes, pollutants
or contaminants, as defined, listed or regulated by any federal, state or
local law, regulation or order or by common law decision, including, without
limitation, (i) trichloroethylene, tetrachloroethylene, perchloroethylene and
other chlorinated solvents, (ii) oil or any petroleum products or fractions
thereof, (iii) asbestos, (iv) polychlorinated biphenyls, (v) flammable
explosives, (vi) urea formaldehyde and (vii) radioactive materials and waste,
and (viii) infectious waste.
5.2 Hazardous Materials Laws. The term "Hazardous Materials Law(s)"
shall mean any federal, state or local laws, ordinances, codes, statutes,
regulations, administrative rules, policies and orders, and other authority,
existing now or in the future, which classify, regulate, list or define
hazardous substances, materials, wastes contaminants, pollutants and/or the
Hazardous Materials, including without limitation the following statutes and
regulations, and any other legal authority, regulations, or policies relating
to or implementing such statutes and regulations:
5.2.1 Federal. Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"), as amended
by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42
U.S.C. ' 9601 et seq.; Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. ' 6901 et seq.; Clean Water Act ("CWA"), 33 U.S.C. ' 1251
et seq.; Clean Air Act ("CAA"), 42 U.S.C. ' 78401 et seq.; Toxic Substances
Control Act ("TSCA"), 15 U.S.C. ' 2601 et seq.; The Refuse Act of 1899, 33
U.S.C. ' 407; Occupational Safety and Health Act ("OSHA"), 29 U.S.C. ' 651 et
seq.; Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.;
United States Department of Transportation Table (49 CFR 172.101 and
amendments thereto) and the Environmental Protection Agency Table (40 CFR Part
302 and amendments thereto);
5.2.2 California. Carpenter-Presley-Tanner Hazardous Substance
Account Act ("California Superfund"), Cal. Health & Safety Code ' 25300 et
seq.; California Hazardous Waste Control Act, Cal. Health & Safety Code
Sections 25100 et seq.; Porter-Cologne Water Quality Control Act ("Porter-
Cologne Act"), Cal. Water Code ' 13000 et seq.; Hazardous Waste Disposal Land
Use Law, Cal. Health & Safety Code ' 25220 et seq.; Safe Drinking Water and
Toxic Enforcement Act of 1986 ("Proposition 65"), Cal. Health & Safety Code
' 25249.5 et seq.; Hazardous Substances Underground Storage Tank Law, Cal.
Health & Safety Code ' 25280 et seq.; California Hazardous Substance Act, Cal.
Health & Safety Code ' 28740 et seq.; Air Resources Law, Cal. Health & Safety
Code ' 39000 et seq.; Hazardous Materials Release Response Plans and
Inventory, Cal. Health & Safety Code '' 25500-25541; Toxic Pits Cleanup Act
of 1984 ("TCPA"), Cal. Health & Safety Code '' 25208-25208.17;
5.2.3 Other Laws and Regulations. All other regulations
promulgated pursuant to said foregoing laws or any amendments or replacement
thereof, provided such amendments or replacements shall in no way limit the
original scope and/or definition of Hazardous Materials defined herein as of
the execution date of this Lease.
5.2.4 Phase I Environmental Analysis. Landlord has delivered to
Tenant two (2) Phase I Environmental Analysis Reports ("Phase 1 Reports")
covering the Premises, and the Expansion Land, respectively and Tenant
acknowledges that this shall be deemed satisfaction of any obligation on the
part of Landlord to disclose any and all Hazardous Materials on or relating
to the Premises, and the Expansion Land as required hereunder or by any
Hazardous Materials Laws.
5.3 Compliance with Hazardous Materials Laws. Tenant shall not cause
or knowingly and intentionally permit any Hazardous Materials to be brought
upon, kept, or used in connection with the Premises or by Tenant, its agents,
employees or contractors in a manner or for a purpose prohibited by or which
could result in liability under any applicable law, regulation, rule or
ordinance, including, without limitation, the Hazardous Materials Laws.
Tenant shall, at its own expense, at all times and in all respects comply with
all Hazardous Materials Laws relating to the industrial hygiene, environmental
protection or the use, analysis, generation, manufacture, storage, presence,
disposal or transportation of any Hazardous Materials brought thereon by
Tenant, its agents, employees, or contractors. Tenant shall, at its own
expense, procure, maintain in effect and comply with all conditions of any and
all permits, licenses and other governmental and regulatory approvals relating
to Hazardous Materials that are brought upon, knowingly and intentionally
permitted to be brought upon, kept, or used in connection with the Premises
and/or the Expansion Land by Tenant or Tenant's agents, employees, or
contractors ("Tenant's Agents") and Tenant shall cause any and all said
Hazardous Materials to be removed from the Premises and/or the Expansion Land
and transported in accordance with and in compliance with all Hazardous
Materials Laws. Tenant shall in all respects, handle, treat, deal with and
manage any and all Hazardous Materials that are brought upon, knowingly and
intentionally permitted to be brought upon, kept, or used in connection with
the Premises by Tenant or Tenant's Agents, in complete conformity with all
applicable Hazardous Materials Laws and prudent industry practices regarding
the management of such Hazardous Materials. Upon expiration or earlier
termination of this Lease, Tenant shall at its own expense, cause all
Hazardous Materials (to the extent such Hazardous Materials are generated,
stored, released or disposed of during the Term of this Lease by Tenant or
Tenant's Agents) to be removed from the Premises and/or the Expansion Land
and transported for use, storage or disposal in accordance and in compliance
with all applicable Hazardous Materials Laws. Tenant shall not take any
remedial action in response to the presence of any Hazardous Materials in, on,
about or under the Premises and/or the Expansion Land or in any Improvements
situated on the Land and/or the Expansion Land, nor enter into any settlement
agreement, consent, decree or other compromise in respect to any claims
relating to any way connected with the Premises or the Improvements on the
Land and/or the Expansion Land without first notifying Landlord of Tenant's
intention to do so and affording Landlord ample opportunity to appear,
intervene or otherwise appropriately assert and protect Landlord's interest
with respect thereto.
5.4 Notice of Actions. Tenant shall immediately notify Landlord in
writing of (a) any enforcement, clean-up, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any
Hazardous Materials Laws; (b) any written claim made or threatened by any
person against Landlord, or the Premises, relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from or claimed to
result from any Hazardous Materials; and (c) any written reports made to any
environmental agency arising out of or in connection with any Hazardous
Materials in, on or about the Premises or with respect to any Hazardous
Materials removed from the Premises, including, any complaints, notices,
warnings, reports or asserted violations in connection therewith. Tenant
shall also provide to Landlord, as promptly as possible, and in any event
within five (5) business days after Tenant first receives or sends the same,
with copies of all written claims, reports, complaints, notices, warnings or
asserted violations relating in any way to the Premises or Tenant's use
thereof. Upon written request of Landlord (to enable Landlord to defend
itself from any claim or charge related to any Hazardous Materials Law),
Tenant shall promptly deliver to Landlord notices of hazardous waste manifests
reflecting the legal and proper disposal of all such Hazardous Materials
removed or to be removed from the Premises and/or the Expansion Land. All
such manifests shall list the Tenant or its agent as a responsible party only
if such Hazardous Materials were caused or knowingly and intentionally
permitted to be brought upon the Premises or Expansion Land by Tenant, its
agent, employees, or contractors, and in such case shall not attribute
responsibility for any such Hazardous Materials to Landlord.
5.5 Disclosure and Warning Obligations. Tenant shall also comply with
all laws, ordinances and regulations regarding warning obligations with
respect to the presence or danger of Hazardous Materials or as otherwise may
be required by law (to the extent Tenant has knowledge thereof). Tenant
acknowledges and agrees that it will promptly notify Landlord prior to
reporting to any governmental or quasi-governmental agencies any matters
relating to Hazardous Materials and Landlord shall have the right to review
such reports. So long as Tenant will not be in violation of any laws
requiring Tenant to make such reports, Landlord shall have the right to assume
control over the making of such reports to the applicable governmental or
quasi-governmental agencies. Tenant further agrees to cooperate with Landlord
in complying with all Hazardous Materials Laws regarding the disclosure of,
the presence or danger of Hazardous Materials, including, with limitation, all
notices or other requirements under California Health and Safety Code Section
25919 et seq., and 25249.5 et seq. and California Code of Regulations Section
12000 et seq. Notwithstanding the foregoing, Tenant shall prior to delivering
any notices required by this Section 5.5 to any governmental entity or agency,
deliver written notice to Landlord of the same so as to afford Landlord
opportunity to take over such obligation if Landlord so desires.
5.6 Tenant Indemnification. Tenant shall indemnify, defend (with
counsel reasonably acceptable to Landlord), protect and hold Landlord and each
of Landlord's officers, directors, partners, employees, agents, attorneys,
successors and assigns (collectively "Landlord's Indemnitees") free and
harmless from and against any and all claims, liabilities, damages, costs,
penalties, forfeitures, losses or expenses (including reasonable attorneys'
fees) for death or injury to any person or damage to any property whatsoever
(including water tables and atmosphere) ("Claims") to the extent arising or
resulting in whole or in part from the presence or discharge of Hazardous
Materials to the extent such Hazardous Materials are in excess of legally
permissible amounts under the Hazardous Materials Laws by Tenant, Tenant's
agents, employees, or contractors in, on, under, upon or from the Premises
and/or the Expansion Land or the Improvements located thereon or from the
transportation or disposal of Hazardous Materials to or from the Premises
and/or the Expansion Land to the extent caused by Tenant.
5.7 Landlord Indemnification. Landlord shall indemnify, defend (with
legal counsel reasonable acceptable to Tenant) and hold Tenant and Tenant's
officers, directors, partners, employees, agents, attorneys, successors and
assigns (collectively, "Tenant's Indemnitees") free and harmless from and
against any and all Claims to the extent arising or resulting in whole or in
part from the presence or discharge of Hazardous Materials to the extent such
Hazardous Materials are in excess of legally permissible amounts under the
Hazardous Materials Laws by Landlord, or its employees, agents or contractors
in, on, under, upon or for the Premises and/or the Expansion Land or the
Improvements thereon or from the transportation or disposal of Hazardous
Materials by Landlord or its employees, agents, or contractors. Landlord's
obligations hereunder shall include, without limitation, and whether
foreseeable or unforeseeable, all costs of any required or necessary repairs,
clean-up or detoxification or decontamination of the Premises and/or the
Expansion Land or the Improvements, and the presence and implementation of any
closure, remedial action or other required plans in connection therewith, and
shall survive the expiration of or early termination of the term of this Lease
and any costs and fees incurred in the enforcement of the indemnity action.
In addition, with respect to any Hazardous Materials that are in excess of
the legally permissible amounts under the Hazardous Materials Laws that were
on the Land and/or the Expansion Land at the time that the Phase 1 Reports
were issued and which were not disclosed by the Phase 1 Reports ("Pre-existing
Hazardous Materials"), Landlord agrees to remediate such Pre-existing
Hazardous Materials if, as and when required by a governmental agency to the
extent required by such governmental agency. Landlord further agrees to
indemnify and hold Tenant harmless from any fines, penalties or other fees
imposed against Tenant by such governmental agency as a result of such Pre-
exiting Hazardous Materials. Notwithstanding the foregoing, nothing in this
Section 5.7 shall be deemed to impose any obligation or liability on Landlord
for remediation, indemnification or payment of any fines, penalties or other
fees if the same would not have been imposed but for some act or omission of
Tenant.
5.8 Environmental Audits. Landlord shall have the right, at any time
during the term of this Lease, to conduct an environmental audit. If Landlord
conducts such an audit, it shall be at Landlord's sole cost and expense,
except that if said audit discloses the presence of Hazardous Materials on the
Premises, or the Expansion Land in violation of Tenant's obligations under
this Article 5, then the cost of such audit shall be borne by Tenant. If the
audit confirms the presence of Hazardous Materials in on or under the
Premises, or the Expansion Land or the groundwater thereunder in violation of
Tenant obligations under this Article 5, Landlord shall have the right to
require Tenant to immediately commence all necessary remediation, abatement,
removal and cleanup actions to return the Premises, and/or the Expansion Land
and any other property of whatever nature to their condition existing prior
to the appearance of Hazardous Materials. Any plan of remediation, abatement,
removal and cleanup shall be subject to the prior approval of Landlord, in its
sole discretion. Except as specified above, Tenant shall not perform or cause
to be performed, any Hazardous Materials surveys, studies, reports or
inspections, relating to the Premises, and/or the Expansion Land without
obtaining Landlord's advance written consent.
5.9 Assignment and Subletting. If (i) any anticipated use of the
Premises by any proposed assignee or sublessee involves the generation,
storage, use, treatment or disposal of Hazardous Materials in a manner or for
a purpose prohibited by any governmental agency or authority, or (ii) the
proposed assignee or sublessee is subject to an enforcement order issued by
any governmental activity in connection with the use, disposal, or storage of
Hazardous Materials, it shall not be unreasonable for Landlord to withhold its
consent to an assignment or subletting to such proposed assignee or sublessee.
ARTICLE 6
SERVICES AND UTILITIES
During the Term of this Lease, Tenant will pay, when due, all charges
of every nature, kind or description (including, without limitation, charges
imposed by any utility company as a condition precedent to furnishing or
continuing to furnish utilities or services to the Premises) for utilities
furnished to the Premises or chargeable against the Premises, including all
charges for water, sewage, heat, gas, light, garbage, electricity, telephone,
steam, power, or other public or private utility services and any charges or
fees for present or future water or sewer capacity to serve the Premises, any
charges for the underground installation of gas or other utilities or
services, and other charges relating to the extension of or change in the
facilities necessary, and requested by Tenant, to provide the Premises with
adequate utility services. Notwithstanding the foregoing, nothing contained
herein shall be deemed to limit Landlord's obligations to complete Landlord's
Improvements pursuant to the terms of the Work Letter.
ARTICLE 7
MAINTENANCE, REPAIR AND ALTERATION OF PREMISES
7.1 Construction Warranty and Landlord Obligations. Except to the
extent caused by Tenant's specific use of the Premises or the negligent acts
or intentional misconduct of Tenant, its agents, employees, or contractors,
or as otherwise provided under this Lease, Landlord shall repair and maintain
in good order, condition and repair the foundation, exterior walls and
structural portions of the roof of the Building ("Structural Portions of the
Building"). However, Landlord shall not be obligated to maintain or repair
windows, doors, plate glass, surfaces of exterior walls, or the membrane or
other nonstructural elements of the roof and the same shall not be deemed to
be included within the definition of the Structural Portions of the Premises
Building. Landlord warrants, as Landlord's sole and exclusive warranty
concerning the Landlord's Improvements and the Improvements (including the
HVAC System), the Landlord's Improvements and the Improvements (including the
HVAC System) against defective workmanship and/or materials for a period of
one (1) year from the date of Substantial Completion (as defined in the Work
Letter) of Landlord's Improvements and Landlord agrees, at its sole cost and
expense, to repair or replace any defective item occasioned by poor
workmanship and/or materials during said one-year period, and performance of
such one-year warranty shall be Landlord's sole and exclusive obligation with
respect to defective workmanship and/or materials, and Tenant's rights to
enforce such one-year warranty shall be Tenant's sole and exclusive remedy
with respect to such defective workmanship and/or materials in limitation of
any contract, warranty or other rights, whether express or implied, that
Tenant may otherwise have under applicable law. Landlord covenants that it
will obtain, as part of the costs of the Landlord's Improvements, a ten (10)
year roof warranty. Landlord shall assign to Tenant, to the extent permitted
under any such warranties provided to Landlord, on a non-exclusive basis, all
rights Landlord may have under any warranties provided by contractors or
subcontractors. From and after the expiration of the one-year warranty of
Landlord against defective workmanship and materials, Landlord agrees to
cooperate with Tenant in the enforcement by Tenant, at Tenant's sole cost and
expense, of any express warranties or guaranties of workmanship or materials
given by subcontractors or materialmen or any service contracts that guarantee
or warrant against defective workmanship or materials or provide service or
repair for a period of time in excess of the one-year period described above.
Notwithstanding anything to the contrary, Landlord, at Landlord's sole cost
and expense, shall be solely responsible for repairing latent structural
defects in the Structural Portions of the Building during the Initial Term and
any Renewal Terms (provided that if Tenant has penetrated, attached any item
to, or otherwise damaged the same, Landlord shall not be responsible for, nor
shall Landlord remedy, any defects attributable to such actions or
conditions). During the Initial Term, Tenant shall be responsible for annual
roof inspections and clean out of gutters and down spouts and Landlord shall
be responsible for all other related maintenance of the roof structure
(exclusive of the roof membrane) including all roof leaks during the first
five (5) years of Initial Lease Term (provided that if Tenant has penetrated,
attached any item to, or otherwise damaged the same, Landlord shall not be
responsible for, nor shall Landlord remedy, any defects attributable to such
actions or conditions). Thereafter, Tenant's exposure shall be capped at Five
Thousand Dollars ($5,000.00) annually inclusive of inspections and clean out
of gutters and down spouts.
7.2 Tenant's Maintenance. Except as otherwise expressly provided in
this Lease, Tenant, at its sole cost and expense, throughout the Term of this
Lease, including the warranty period specified in Section 7.1 above, whether
Tenant is occupying or has vacated the Premises), shall take good care of the
Premises (including the Landlord's Improvements any improvements hereafter
erected or installed on the Land), and shall keep the same in at least the
same order, condition and repair (including interior repainting and
refurnishing, as needed), as when received and shall make and perform all
routine maintenance thereof and all necessary repairs thereto, interior and
exterior, structural and nonstructural, ordinary and extraordinary, foreseen
and unforeseen, of every nature, kind and description. When used in this
Article 7, "repairs" shall include all necessary replacements, renewals,
alterations, additions and betterments, interior and exterior, structural and
non-structural, ordinary and extraordinary, foreseen and unforeseen, of every
nature, kind and description, including, without limitation, any repairs,
replacements, renewals, alterations and additions required by any governmental
law, ordinance or regulations now or hereafter enacted relating to the
Premises. All repairs made by Tenant shall be at least equal in quality,
workmanship and cost to the original work and shall be made by Tenant in
accordance with all laws, ordinances and regulations whether heretofore or
hereafter enacted.
7.3 Tenant's Waiver of Claims Against Landlord. Except as otherwise
specifically provided in this Lease or the Work Letter or this Lease, Landlord
shall not be required to furnish any services or facilities or to make any
repairs or alterations in, about or to the Premises or any improvements
hereafter erected thereon.
ARTICLE 8
CHANGES AND ALTERATIONS
8.1 Tenant's Changes and Alterations. Tenant shall not make any
alterations, additions or improvements ("Alterations") to the Property,
without Landlord's prior written consent, which shall not be unreasonably
withheld, except for non structural alterations in the interior of the
Building that do not affect the Structural Portions of the Building or
exterior of the Building ("Permitted Alterations"). All Alterations shall be
done promptly and in a good and workmanlike manner and in compliance with all
laws, ordinances, orders, rules, regulations and requirements of all federal,
state and municipal governments and appropriate departments, commissions,
boards and officers thereof, and in accordance with the orders, rules and
regulations of the Board of Fire Underwriters where the Premises are located,
or any other body exercising similar functions. All such Alterations which
affect the Structural Portions of the Building or the exterior of the Building
("Structural or Exterior Alterations") shall be performed by a contractor
approved by Landlord, in its reasonable discretion. If required by Landlord,
Tenant shall provide demolition and/or lien and completion bonds in form and
amount satisfactory to Landlord in connection with any Structural or Exterior
Alterations. Tenant shall promptly remove any Alterations constructed in
violation of this Section upon Landlord's written request. All permanent
Alterations (i.e. other than Tenant's movable trade fixtures and equipment),
including the Permitted Alterations made or installed by Tenant shall
immediately, upon completion or installation thereof, become the property of
Landlord without payment therefor by Landlord, and shall be surrendered to
Landlord on the expiration of the Term of this Lease. Prior to commencement
of the Alterations, Tenant shall deliver Builder's All Risk Insurance, in an
amount acceptable to Landlord, in conformance with the requirements of Article
10 of this Lease. Notwithstanding anything to the contrary set forth herein,
Tenant agrees, at Tenant's sole cost and expense, and within ten (10) days
request therefor by Landlord at the end of the Lease Term or earlier
termination thereof, to remove any of the following types of Permitted
Alterations and repair the Premises where such Permitted Alterations were
situated to the same or better condition than existed prior to Tenant
installation of said Permitted Alterations: racking, Permitted Alterations to
create manufacturing and/or office space, drop ceilings, mezzanines, and
demising walls. To the extent Tenant removes any other Alterations, Tenant
shall also, within ten (10) days of removal thereof, restore the Premises to
the condition that existed prior to Tenant's installation of such Alterations.
8.2 Liens. Tenant shall keep the Premises free from any mechanics',
materialmen's, designer's or other liens arising out of any work performed,
materials furnished or obligations incurred by or for Tenant or any person or
entity claiming by, through or under Tenant. Landlord shall have the right
at all times to post and keep posted on the Premises any notices which it
deems necessary for protection from such liens. If any such liens are filed
and are not released of record by payment or posting of a proper bond within
thirty (30) days after such filing, Landlord may, without waiving its rights
and remedies based on such breach by Tenant and without releasing Tenant from
any obligations hereunder, cause such liens to be released by any means it
shall deem proper, including payment of the claim giving rise to such lien or
posting security to cause the discharge of such lien, in which event all
amounts paid by Landlord shall immediately be due and payable by Tenant as
Additional Rent. Tenant hereby indemnifies, protects, defends and holds
Landlord and Landlord's Indemnitees and the Premises harmless from any
liability, cost, obligation, expense (including, without limitation,
reasonable attorneys' fees and expenses and attorneys' fees incurred in
enforcing of this indemnity), or claim of any mechanics', materialmen's,
design professional's or other liens in any manner relating to any work
performed, materials furnished or obligations incurred by or for Tenant or any
person or entity claiming by, through or under Tenant. Tenant shall notify
Landlord in writing fifteen (15) days prior to commencing any Alterations so
that Landlord shall have the right to record and post notices of non-
responsibility or any other notices deemed necessary by Landlord on the
Premises. Tenant shall not create, and shall within thirty (30) days
discharge and satisfy of record, any other lien, encumbrance, charge, security
interest, or other right or interest which shall be or become a lien,
encumbrance, charge or security interest upon the Premises, or any portion
thereof.
8.3 Compliance with Laws. Landlord warrants, that provided that the
Tenant Work, and any subsequent Alterations, is in compliance with all present
laws, codes, regulations and ordinances, upon completion of Landlord's
Improvements, the utilities, including without limitation the HVAC, (as
hereinafter defined), the structural portions, the interior and the exterior
of the Premises will meet with all laws, codes, regulations and ordinances in
effect at the time the Premises is delivered by Landlord to Tenant and will
be in good working condition and order (except for punch-list items). If, at
any time, the Premises or such utilities do not meet with such laws, codes,
regulations and ordinances as required by regulations of governing authorities
(other than as a result of Tenant's negligent acts or the failure of Tenant
Work or Tenant's Alterations to comply with such laws, codes, regulations and
ordinances), then, except for work that is specifically required as a result
of the business operation being conducted by Tenant, the Premises will be
brought up to the proper standards at Landlord's expense. Landlord's receipt
of all governmental permits required for initial occupancy shall be deemed
satisfaction of the foregoing representations and obligations. Landlord shall
also be responsible for paying any and all fines or penalties assessed by any
governmental authority if the Premises fails to meet codes and regulations of
governmental authorities during the Term of this Lease, other than as a result
of the failure of the Tenant Work or Alterations and/or improvements made by
Tenant to comply with all laws, codes, regulations and ordinances as required
by regulations of governing authorities. Tenant shall be responsible for
paying any and all fines or penalties for the failure of the Tenant Work and
Alterations and/or improvements made by Tenant to comply with all laws, codes,
regulations and ordinances as required by regulations of governing authorities
during the Term of this Lease and shall cause the Tenant Work and any
Alterations and/or improvements made by Tenant to be brought up to the proper
standards at Tenant's expenses.
ARTICLE 9
RIGHTS RESERVED BY LANDLORD
9.1 Landlord's Entry. In addition to any other right of entry
provided to Landlord in this Lease, Landlord reserves the right, at all
reasonable times and upon twenty-four (24) hours prior notice to Tenant except
in case of emergency when no notice shall be required (but Landlord will use
reasonable efforts to give prior or contemporaneous notice), to enter the
Premises to: (i) inspect them; (ii) show the Premises to prospective
purchasers, mortgagees or tenants (provided that Landlord shall only show the
Premises to prospective tenants during the last (6) six months of the Lease
Term); (iii) post notices of non-responsibility or other notices as may be
customary in the State of California; (iv) for performance of any of
Landlord's repair and/or maintenance rights or obligations; or (v) to exercise
any other rights, obligations or remedies that Landlord may have under this
Lease. Landlord and its authorized representatives may enter the Premises at
any time in case of emergency and shall have the right to use any and all
means which Landlord may deem proper to open such doors during an emergency
in order to obtain entry to the Premises. Any entry to the Premises obtained
by Landlord in the event of any emergency shall not, under any circumstances,
be construed or deemed to be a forcible or unlawful entry into, or detainer
of, the Premises, or to be an eviction of Tenant from the Premises or any
portion thereof.
9.2 Landlord's Cure. If Tenant shall default in the performance of
its obligations under this Lease and if such default is not cured within the
applicable periods provided in Article 14, Landlord upon twenty (20) days
prior notice to Tenant (except in emergency in which case no notice shall be
required) may, but shall not be obligated to, make any such payment or perform
any such act on Tenant's part without waiving its right based upon any default
of Tenant and without releasing Tenant from any obligations hereunder. Except
as may be specifically provided to the contrary in this Lease, Tenant shall
pay to Landlord, within twenty (20) days after delivery by Landlord to Tenant
of statements therefor, sums equal to expenditures reasonably made and
obligations reasonably incurred by Landlord in connection with the remedying
by Landlord of Tenant's defaults. If there are any outstanding monetary
obligations of Tenant under this Lease attributable to the period prior to the
expiration or termination of this Lease, such obligations shall survive the
termination or expiration of this Lease and such amount shall be payable to
Landlord within ten (10) days after receipt of notice therefor from Landlord.
ARTICLE 10
INDEMNITY AND INSURANCE
10.1 Tenant's Insurance Obligations. Tenant, at its sole cost and
expense, shall obtain and continuously maintain in full force and effect
during the Term of this Lease, commencing with the earlier to occur of
(a) Commencement Date or (b) the date Tenant first occupies the Premises,
policies of insurance covering the Improvements constructed, installed or
located on the Premises naming the Landlord, as an additional insured, against
(a) loss or damage by fire; (b) loss or damage from such other risks or
hazards now or hereafter embraced by an "Extended Coverage Endorsement,"
including, but not limited to, windstorm, hail, explosion, vandalism, riot and
civil commotion, damage from vehicles, smoke damage, water damage and debris
removal; (c) loss for damage by earthquake if requested by Landlord (provided
that Landlord shall reimburse Tenant for the cost of insurance allocable to
earthquake coverage); (d) loss from so-called explosion, collapse and
underground hazards; and (e) loss or damage from such other risks or hazards
of a similar or dissimilar nature which are now or may hereafter be
customarily insured against with respect to improvements similar in
construction, design, general location, use and occupancy to the Improvements
other than loss for flood. At all times, such insurance coverage shall be in
an amount equal to 100% of the then "full replacement cost" of the
Improvements exclusive of excavations, foundations and footings "Full
Replacement Cost" shall be interpreted to mean the cost of replacing the
improvements without deduction for depreciation or wear and tear, and it shall
include a reasonable sum for architectural, engineering, legal, administrative
and supervisory fees connected with the restoration or replacement of the
Improvements in the event of damage thereto or destruction thereof. If a
sprinkler system shall be located in the Improvements, sprinkler leakage
insurance shall be procured and continuously maintained by Tenant at Tenant's
sole cost and expense. Prior to occupancy of the Premises, Tenant shall
deliver to Landlord a copy of such insurance policy.
10.2 Insurance Coverage. During the Term of this Lease, Tenant, at its
sole cost and expense, shall obtain and continuously maintain in full force
and effect comprehensive general liability insurance or commercial liability
insurance against any loss, liability or damage on, about or relating to the
Premises, or any portion thereof, with limits of not less than Three Million
Dollars ($3,000,000.00) combined single limit, per occurrence and aggregate,
coverage on an occurrence basis. Such insurance shall specifically insure (by
contractual liability endorsement) Tenant's indemnity obligations under this
Lease.
The insurance set forth in this Section 10.2 shall be maintained by
Tenant at not less than the limits set forth herein. To the extent it is
customary in the marketplace for insurance limits to be higher than those
specified in this Section 10.2, such limits may be increased, upon written
notice from Landlord to Tenant, at the end of each five (5) year period during
which this Lease is in effect ("Adjustment Date") based upon increases (if
any) in the Index (defined below). The most recent Index in publication prior
to the Commencement Date shall be the "Base Index." On each Adjustment Date,
the insurance limits shall be increased by the percentage equal to the
percentage increase (if any) in the most recent Index in publication prior to
the Adjustment Date ("Comparison Index") over the Base Index. The term
"Index" as used in this Lease shall mean the United States Department of
Labor, Bureau of Labor Statistics Consumer Price Index for Urban Wage Earners
and Clerical Workers, Los Angeles-Long Beach-Anaheim Average Subgroup "All
Items," (1982-84 = 100). If the 1982-84 base of the Index should hereafter
be changed, then the new base shall be converted to the 1982-84 base and the
base as so converted shall be used. If at any time the Index should not exist
in the format recited herein, Landlord shall substitute any official index
published by the Bureau of Labor Statistics, or successor or similar
governmental agency, as may then be in existence and shall, in Landlord's
opinion, be most nearly equivalent thereto.
10.3 Insurance Provisions. All policies of insurance required by this
Article shall provide that the proceeds thereof shall be payable to Tenant and
Landlord as their interests appear, and if Landlord so requests shall also be
payable to any contract purchaser of the Premises and the holder of any
mortgages now or hereafter becoming a lien on the fee of the Premises, or any
portion thereof, provided that any such mortgagee has provided Tenant with the
Non-Disturbance Agreement (defined below). Tenant shall not, on Tenant's own
initiative or pursuant to request or requirement of any third party, take out
separate insurance concurrent in form or contributing in the event of loss
with that required in Section 10.1 hereof, unless Landlord is named therein
too as an additional insured with loss payable as in said Section 10.1
provided. Tenant shall immediately notify Landlord whenever any such separate
insurance is taken out and shall deliver to Landlord original certificates
evidencing the same. Any such insurance obtained and maintained by Tenant
shall name Landlord, and, if requested by Landlord, Landlord's mortgagee, as
an additional insured therein, provided that any such mortgagee has provided
Tenant with the Non-Disturbance Agreement (defined below), and such insurance
shall be obtained and maintained from and with a reputable and financially
sound insurance company authorized to issue such insurance in California.
Each policy required under this Article 10 shall have attached thereto (a) an
endorsement that such policy shall not be canceled or materially changed
without at least thirty (30) days prior written notice to Landlord, and (b)
an endorsement to the effect that the insurance as to the interest of Landlord
shall not be invalidated by any act or neglect of Landlord or Tenant and an
"agreed value" endorsement. All policies of insurance, together with any
endorsements reflecting the changes to the policy required to comply with this
Lease, shall be written in companies reasonably satisfactory to Landlord and
licensed in the state in which the Premises are located. Such certificates
of insurance shall be in a form reasonably acceptable to Landlord, shall be
delivered to Landlord upon commencement of the Term and prior to expiration
of such policy, new certificates of insurance, shall be delivered to Landlord
not less than twenty (20) days prior to the expiration of the then current
policy Term. In the event Tenant shall fail to procure such insurance, or to
deliver such policies or certificates and appropriate endorsements, Landlord
may, at its option, procure such policies for the account of Tenant after five
(5) days' written notice, and the cost thereof shall be paid by Tenant to
Landlord as Additional Rent within fifteen (15) days after delivery to Tenant
of bills therefor.
10.4 Waiver of Subrogation. Tenant shall cause to be inserted in the
policy or policies of insurance required by this Article 10 hereof a so-called
"Waiver of Subrogation Clause" as to Landlord. Each party hereby waives,
releases and discharges the other party, its agents and employees from all
claims whatsoever arising out of loss, claim, expense or damage to or
destruction covered or coverable by insurance required under this Article 10
notwithstanding that such loss, claim, expense or damage may have been caused
by such other party, its agents or employees, and each party agrees to look
to the insurance coverage only in the event of such loss.
10.5 Rental Abatement Insurance. Landlord may maintain insurance
coverage (including loss of use and rental abatement coverage) upon Tenant's
business and upon all personal property of Tenant or the personal property of
others kept, stored or maintained on the Premises against loss or damage by
fire, windstorm or any other casualties or causes for such amount as Landlord
may desire. Tenant shall reimburse Landlord for the actual and commercially
reasonable costs of such rental abatement insurance, covering a period not to
exceed eighteen (18) months, on an annual basis. Tenant shall pay such
amounts to Landlord as Additional Rent, no later than thirty (30) days after
receipt of a statement therefor from Landlord. Landlord shall have the right
to require payments on a semi-annual or annual basis. The failure of Landlord
to deliver a statement for such charges shall not constitute a waiver of
Landlord's rights to collect such amounts if delivered within six (6) months.
Tenant shall have the right, upon at least six (6) months prior notice, to
elect to carry its own business interruption or rental abatement insurance,
in amounts reasonably acceptable to Landlord and which satisfy the
requirements set forth in Section 10.3 and this Section 10.5 of this Lease.
In such case, Landlord shall cancel the rental abatement insurance. Tenant
agrees that such policies shall contain a waiver of subrogation clause as to
Landlord.
10.6 Indemnification by Tenant. To the fullest extent allowed by law,
Tenant shall at all times indemnify, protect, defend with legal counsel
reasonably acceptable to Landlord) and hold Landlord and Landlord's
shareholders, officers, directors, partners, employees, lender, managing
agent, successors and/or assigns (collectively, "Landlord's Indemnities")
harmless against and from any and all claims, costs, liabilities, actions and
damages (including, without limitation, attorneys' fees and costs and costs
related to the enforcement of this indemnity provision) arising from or out
of any occurrence in, upon or about the Premises or the occupancy or use by
Tenant of the Premises, or the condition of the Premises to the extent caused
by any act or omission of Tenant, its agents, contractors, servants, tenants,
invitees (i.e. persons directed or requested by Tenant to enter the Premises)
or licensees (collectively "Tenant's Agents") or arising from any act or
negligence of Tenant or Tenant's Agents, or a default by Tenant under this
Lease or, to the extent covered by insurance Tenant is required to carry under
this Lease, arising from any accident, injury or damage whatsoever caused to
any person, or entity occurring during the Term of this Lease, in or about the
Premises, and from and against all costs, attorney's fees, expenses and
liabilities incurred in or about any such claim or action or proceeding
brought thereon. Notwithstanding the foregoing, Tenant shall not have any
liability hereunder or otherwise with respect to any claim, cost, liability,
action or damage caused by the negligence or wilful misconduct of Landlord or
any of Landlord's Indemnitees or Landlord's Agents or any material default by
Landlord under this Lease. In case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant, upon notice from
Landlord, covenants to defend such action or proceeding by counsel reasonably
satisfactory to Landlord.
10.7 Indemnification by Landlord. To the fullest extent allowed by
law, Landlord shall at all times indemnify, protect, defend (with legal
counsel reasonably acceptable to Tenant) and hold Tenant and Tenant's
shareholders, officers, directors, partners, employees, affiliates, successors
and/or assigns (collectively, "Tenant's Indemnitees") harmless against and
from any and all claims, costs, liabilities, actions and damages (including,
without limitation, attorneys' fees and costs and costs related to the
enforcement of this indemnity provision) arising from or out of any negligence
or wilful misconduct by Landlord or any of the Landlord's Indemnities or
Landlord's Agents, in, on, or about the Premises or any breach by Landlord of
its obligations under this Lease, and from and against all costs, attorneys'
fees, expenses and liabilities incurred in or about any such claim or action
or proceeding brought thereon; provided, however, that in no event shall
Landlord be obligated to indemnify, defend and hold Tenant or any of Tenant's
Indemnitees or Tenant's Agents harmless to the extent of any claims, costs,
liabilities, actions or damages arising from or out of, or occasioned in whole
or in part by, the negligence or wilful misconduct of Tenant, Tenant's
Indemnitees or Tenant's Agents or any material default by Tenant under this
Lease. In case any action or proceeding be brought against Tenant by reason
of any such claim, Landlord, upon notice from Tenant, covenants to defend such
action or proceeding by counsel reasonably satisfactory to Tenant. Landlord
shall cause the obligations under this Section 10.7 to be covered under
Landlords policy of commercial general liability insurance.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 Restriction on Other Transfers. Except as specifically permitted
in Section 11.2 below, Tenant shall not assign, sublease, mortgage, pledge,
transfer, or otherwise encumber or dispose of this Lease, or any interest
therein, or in any manner assign, mortgage, pledge, transfer or otherwise
encumber or dispose of its interest or estate in the Premises, or any portion
thereof ("Transfer"), without obtaining Landlord's prior written consent in
each and every instance, which consent shall not be unreasonably withheld,
delayed or conditioned. If Landlord fails to respond to any request by Tenant
for Landlord's consent or approval within twenty (20) days of such request,
Tenant shall provide Landlord with a second written request. If Landlord
fails to respond to such second written request within ten (10) days of
Landlord's receipt thereof, Landlord shall be deemed to have consented to such
Transfer; provided that such second written request specifically states that
Landlord's failure to respond within ten (10) days shall be deemed consent
under this Section 11.1 of this Lease. No Transfer shall release Tenant from
its liability under this Lease. Tenant acknowledges and agrees that this
covenant and agreement is a material inducement to the decision of Landlord
to lease the Premises to Tenant and that Landlord may use its sole and
absolute discretion hereunder. Landlord shall have the right to withhold
consent to any sublessee in the event any of the conditions set forth in
Section 5.8 of this Lease apply.
11.2 Permitted Transfers. Notwithstanding the provisions of
Section 11.1, Tenant shall have the right, without Landlord's prior consent,
to Transfer all or any portion of the Premises to a related entity or
affiliate of Tenant. Tenant may also Transfer the lease to any successor
entity, whether by merger, consolidation or otherwise, and to any entity that
purchases all or substantially all of Tenant's assets. Finally Tenant shall
be permitted to assign or sublease to an Affiliate (as hereinafter defined)
of Tenant. The foregoing Transfers described in this Section 11.2 are
referred to as "Permitted Transfers." No such Permitted Transfer shall
require Landlord's prior approval or consent, provided that Tenant shall
provide to Landlord written notice of the Transfer, within a reasonable time
thereafter, including the name of the transferee and the terms of the
Transfer, and an agreement executed by the transferee acceptable to and in
favor of Landlord whereby the transferee agrees to assume Tenant's obligations
under this Lease. No such Permitted Transfer shall release Tenant from its
liability under this Lease. As used herein, the term "Affiliate" shall mean
any person, directly or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with the person in
question, which, in the case of a person which is a partnership, shall include
each of the partners thereof and each of their Affiliates. The term
"control," as used in the immediately preceding sentence, means, with respect
to a person that is a corporation, the right to exercise, directly or
indirectly, more than twenty percent (20%) of the voting rights attributable
to the shares of the controlled corporation, and, with respect to a person
that is not a corporation, the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of the
controlled person.
11.3 Sublease Requirements. Any sublease permitted under this Article
11 shall contain provisions to the effect that, except as may otherwise be
specifically agreed to by Landlord in writing, (i) such sublease is only for
actual use and occupancy by the sublessee; (ii) such sublease is subject and
subordinate to all of the terms, covenants and conditions of this Lease and
to all of the rights of Landlord thereunder; and (iii) Tenant shall continue
to be and remain liable under the Lease. In the case of a sublease, a copy
of any sublease fully executed and acknowledged by Tenant and the sublessee
shall be mailed to Landlord ten (10) days prior to the effective date of such
sublease, which sublease shall be in form and content reasonably acceptable
to Landlord.
11.4 No Merger. No merger shall result from Tenant's sublease of the
Premises under this Article 11, Tenant's surrender of this Lease or the
termination of this Lease in any other manner.
11.5 Profits on Transfer. In the event that Tenant shall make a
permitted Transfer hereunder of all or any portion of the Premises (the
"Transfer Space"), then the following shall apply: Tenant shall pay Landlord
monthly, as Additional Rent, at the same time as the monthly installment of
Basic Rent required hereunder, fifty percent (50%) of the "Profit" payable by
the Transferee pursuant to the terms reserved in the Transfer agreement,
assignment or sublease. For purposes of this Section 11.5, "Profit" shall
mean all rent and other amounts paid or payable by the Transferee to Tenant
pursuant to the terms of the Transfer which are in excess of the applicable
Basic Rent and Additional Rent (if the obligation to pay Additional Rent is
not passed through to or assumed by the Transferee under this Lease) after
deducting therefrom Tenant's actual and reasonable costs incurred in
connection with the Transfer, including but not limited to reasonable real
estate commissions, costs of renovations or improvements, reasonable tenant
improvement allowances, reasonable attorneys fees and reasonable rent
concessions.
11.5.1 Tenant's Profit Statement. Tenant shall and hereby agrees
that it will furnish to Landlord upon written request from Landlord a complete
statement, setting forth in detail the computation of all profit derived and
to be derived from such assignment or sublease, such computation to be made
in accordance with generally accepted accounting principles. Tenant agrees
that Landlord or its authorized representatives shall be given access, at all
reasonable times (at Tenant's Southern California office) upon ten (10)
business days advance notice, not to exceed more than one (1) time per year
per Transfer, to the books, records and papers of Tenant relating directly to
any such assignment or subletting.
ARTICLE 12
DAMAGE OR DESTRUCTION
12.1 Destruction and Restoration. Tenant covenants and agrees that in
case of damage to or destruction of the Improvements after the Commencement
Date by fire or otherwise, Tenant at its sole cost and expense, shall promptly
restore, repair, replace and rebuild the same ("Restoration") as nearly as
possible to the condition that the same were in immediately prior to such
damage or destruction with such changes or alterations as may be reasonably
acceptable to Tenant or required by law. Tenant shall forthwith give Landlord
written notice of such damage or destruction upon the occurrence thereof and
specify in such notice, in reasonable detail, the extent thereof. The
Restoration shall be carried on and completed in accordance with the
provisions and conditions of this Lease. All insurance proceeds shall be held
by Landlord and Tenant as co-trustee. If the insurance moneys in the hands
of Landlord and Tenant as co-trustees shall be deemed to be insufficient by
Landlord to pay the entire costs of the Restoration, Tenant agrees, only to
the extent Tenant failed to maintain the insurance Tenant is required to
maintain under this Lease, to pay any deficiency promptly upon demand that
would have been paid by the insurance company had Tenant maintained the
required insurance.
12.2 Application of Insurance Proceeds. All insurance moneys recovered
by Landlord or Tenant shall be held by Landlord and Tenant as co-trustees on
account of such damage or destruction, less the costs, if any, to Landlord of
such recovery, shall be applied to the payment of the costs of the Restoration
and shall be paid out from time to time as the Restoration progresses, in
accordance with requirements imposed by Landlord or any mortgagee of record,
provided that any such mortgagee has theretofore or concurrently provided,
Tenant with the Non-Disturbance Agreement (defined below). Tenant shall
furnish Landlord at the time of any such payment with lien releases and
evidence reasonably satisfactory to Landlord that there are no unpaid bills
in respect to any work, labor, services or materials performed, furnished or
supplied in connection with such Restoration.
12.3 Continuance of Tenant's Obligations. No destruction of or damage
to the Premises, or any portion thereof, by fire, casualty or otherwise shall
permit Tenant to surrender this Lease or shall relieve Tenant from its
liability to pay to Landlord the Basic Rent and Additional Rent payable under
this Lease or from any of its other obligations under this Lease, and Tenant
waives any rights now or hereafter conferred upon Tenant by present or future
law or otherwise to quit or surrender this Lease or the Premises, or any
portion thereof, to Landlord or to any suspension, diminution, abatement or
reduction of rent on account of any such damage or destruction.
12.4 Damage or Destruction at End of Lease Term. In the event the
damage or destruction occurs during the last eighteen (18) months of the Lease
Term, then, notwithstanding the provisions of Section 12.1 and 12.2, Tenant
shall not be obligated to complete such Restoration so long as Tenant assigns
to Landlord all insurance proceeds except those amortized and allocable to
Tenant's Work (as defined in the Work Letter) (including the amount of any
deductibles and any other amounts necessary) so that Landlord can complete
such Restoration.
12.5 Waiver of California Statutes. 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 damage or destruction of the Premises,
including, but not limited to, the provisions of Sections 1932(2) and 1933(4)
of the Civil Code or any successor statute or law. Tenant agrees that the
provisions of this Article shall govern the rights and obligations of Landlord
and Tenant in the event of any damage or destruction of the Premises.
Notwithstanding the foregoing, Basic Rent and Additional Rent shall be abated
proportionately during any period of repair under this Article for a period
not to exceed eighteen (18) months; provided that Tenant has complied with the
requirements of Section 10.5.
ARTICLE 13
CONDEMNATION
13.1 Condemnation of Entire Premises. If, during the Term of this
Lease, the entire Premises shall be taken as the result of the exercise of the
power of eminent domain (hereinafter referred to as the "Proceedings"), this
Lease shall terminate on the date of vesting of title pursuant to such
Proceedings. In any taking of the Premises, or any portion thereof, whether
or not this Lease is terminated as in this Article provided, Tenant shall not
be entitled to any portion of the award for the taking of the Premises or
damage to the Improvements, except as otherwise provided for in Section 13.3
with respect to the restoration of the Improvements, or for the estate or
interest of Tenant therein, all such award, damages, consequential damages and
compensation being hereby assigned to Landlord, and Tenant hereby waives any
right it now has or may have under present or future law to receive any
separate award of damages for its interest in the Premises, or any portion
thereof, or its interest in this Lease, except that Tenant shall have,
nevertheless, the limited right to prove in the Proceedings and to receive any
award which may be made for damages to or condemnation of Tenant's movable
trade fixtures and equipment, and for Tenant's relocation costs in connection
therewith.
13.2 Partial Condemnation/Termination of Lease. If, during the Term
of this Lease, less than the entire Premises, but more than ten percent (10%)
of the floor area of the Building, or more than fifteen percent (15%) of the
land area of the Premises, shall be taken in any such Proceedings, this Lease
shall, upon vesting of title in the Proceedings, terminate as to the portion
of the Premises so taken, and Tenant shall have the right to terminate this
Lease if the business of Tenant conducted in the portion of the Premises taken
cannot reasonably be carried on with substantially the same utility and
efficiency in the remainder of the Premises and Tenant cannot construct or
secure substantially similar space to the space so taken, on the Premises.
Such termination as to the remainder of the Premises shall be effected by
notice in writing given not more than sixty (60) days after the date of
vesting of title in such Proceedings, and shall specify a date not more than
sixty (60) days after the giving of such notice as the date for such
termination.
13.3 Partial Condemnation/Continuation of Lease. If ten percent (10%),
or less, of the floor area of the Building, or fifteen percent (15%), or less,
of the Land, shall be taken in such Proceedings, or if more than ten percent
(10%) of the floor area of the Building or more than fifteen percent (15%) of
the Land is taken (but less than the entire Premises), and this Lease is not
terminated as in Section 13.2 hereof provided, this Lease shall, upon vesting
of title in the Proceedings, terminate as to the parts so taken. The net
amount of the award (after deduction of all costs and expenses, including
attorneys' fees), shall be held by Landlord and Tenant as co-trustees and
applied as hereinafter provided. Tenant, in such case, covenants and agrees,
at Tenant's sole cost and expense (subject to reimbursement to the extent
hereinafter provided), promptly to restore that portion of the Improvements
on the Premises not so taken to a complete architectural and mechanical unit
for the use and occupancy of Tenant as in this Lease provided. In the event
that the net amount of the award (after deduction of all costs and expenses,
including attorney's fees) that may be received by Landlord and held by
Landlord and Tenant as co-trustees in any such Proceedings is insufficient to
pay all costs of such restoration work, Landlord may elect to either (a)
terminate the Lease in accordance with the provisions of Section 13.1 or (b)
continue the Lease and restore that portion of the Improvements on the
Premises not so taken to a complete architectural and mechanical unit for the
use and occupancy of Tenant as in this Lease provided. If Landlord elects to
terminate the Lease under this Section 13.3, Landlord shall deliver to Tenant
written notice of Landlord's election to terminate along with an estimate of
the amount of the deficiency between the costs of complete restoration and the
award ("Deficiency Amount"), Tenant may continue the Lease in effect by
delivery written notice to Landlord, within fifteen (15) days of receipt of
Landlord's termination notice, of its election to continue the Lease and pay
the Deficiency Amount. If Tenant elects to continue the Lease, Tenant shall
deliver to Landlord and Tenant as co-trustees the Deficiency Amount within
fifteen (15) days of written request by Landlord. If the Premises are
restored, the award amounts shall be disbursed in accordance with the same
requirements set forth in Section 12.2 of this Lease. If the Lease is
terminated, the award amounts shall be disbursed in accordance with Section
13.1.
13.4 Continuance of Obligations. In the event this Lease is not
terminated, then from and after the date of vesting of title in such
Proceedings, Tenant shall continue to pay the Basic Rent and Additional Rent
and other charges payable hereunder, as in this Lease provided, to be paid by
Tenant, subject to an abatement of a just and proportionate part of the Basic
Rent according to the extent and nature of such taking as may be mutually
agreed upon by Tenant and Landlord.
13.5 Tenant's Waiver. Tenant waives the protection of any statute,
code or judicial decision which grants Tenant a right to any compensation
other than that set forth in this Article in the event of a taking, including,
but not limited to, California Code of Civil Procedure Section 1265.150 or any
successor statute or law.
ARTICLE 14
DEFAULTS; REMEDIES
14.1 Events of Default. The occurrence of any of the following shall
constitute a default and breach of this Lease by Tenant:
14.1.1 Failure to Pay. If Tenant fails to pay such Rent or such
charge as and when due where such failure continues for ten (10) days after
written notice thereof by Landlord to Tenant.
14.1.2 Failure to Perform. If Tenant fails to perform any of
Tenant's nonmonetary obligations under this Lease for a period of thirty (30)
days after written notice from Landlord; provided that if more time is
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.
14.1.3 Other Defaults. (i) If Tenant makes a general assignment
or general arrangement for the benefit of creditors; (ii) a petition for
adjudication of bankruptcy or for reorganization or rearrangement is filed by
or against Tenant and is not dismissed within sixty (60) days; (iii) if a
trustee or receiver is appointed to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in the Lease
and possession is not restored to Tenant within sixty (60) days; or (iv) if
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within sixty (60) days. If a court of
competent jurisdiction determines that any of the acts described in this
Subsection 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 difference between the Rent (or any other
consideration) paid in connection with such assignment or sublease and the
Rent payable by Tenant hereunder.
The notices required by this Section are intended to satisfy any and all
notice requirements imposed by law on Landlord and are not in addition to any
such requirement.
14.2 Remedies. On the occurrence of any default by Tenant, Landlord
may, at any time thereafter, with or without any additional 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
at any time 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 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 Basic 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 Basic Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of
award exceeds the amount of such rental loss that Tenant proves Landlord could
have reasonable avoided; and (iv) any other amount, including court costs
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 Maximum Rate of
Interest set forth in Item 10 of the Basic Terms. 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
14.1.5(a), or (ii) proceeding under Paragraph 14.1.5(b) or (c);
(b) Maintain Tenant's right to possession, in which case
this Lease shall continue in effect whether or not Tenant has abandoned the
Property. 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. This remedy is intended to and is hereby declared to be that
described in California Civil Code Section 1951.4. During the period Tenant
is in default, Landlord may enter the Premises and relet them, or any part of
them, to third parties for Tenant's account. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including brokers' commissions, expenses of remodeling the Premises
required by the reletting, and like costs. Reletting can be for a period
shorter or longer than the remaining Term of this Lease. Tenant shall pay to
Landlord the Rent due under this Lease on the dates the Rent is due, less the
Rent Landlord receives from reletting. No act by Landlord allowed by this
Section 14.2(b) will terminate this Lease unless Landlord notifies Tenant in
writing that Landlord elects to terminate this Lease. After Tenant's default
and for so long as Landlord does not terminate Tenant's right to possession
of the Premises, if Tenant obtains Landlord's consent, Tenant will have the
right to assign or sublet its interest in this Lease, but Tenant will not be
released from liability. If Landlord elects to relet the Premises as provided
in this Section 14.2(b), Rent that Landlord receives from reletting will be
applied to the payment of: (i) first, any indebtedness from Tenant to Landlord
other than Rent due from Tenant; (ii) second, all costs, including for
maintenance, incurred by Landlord in reletting; and (iii) third, Rent due and
unpaid under the Lease. After deducting the payments referred to in this
Section 14.2(b), any sum remaining from the Rent Landlord receives from
reletting will be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. If, on the date Rent is due under this
Lease, the Rent received from the reletting is less than the Rent due on that
date, Tenant will pay to Landlord, in addition to the remaining Rent due, all
costs, including for maintenance, Landlord incurred in reletting which remain
after applying the Rent received from the reletting; and/or
(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.
14.3 Right of Landlord to Re-Enter. In the event of any termination
of this Lease, Landlord shall have the immediate right to enter upon and
repossess the Premises, and any personal property of Tenant may be removed
from the Premises and stored in any public warehouse at the risk and expense
of Tenant.
14.4 Cumulative Remedies. Landlord's exercise of any right or remedy
shall not prevent it from exercising any other right or remedy.
14.5 Mitigation. Landlord shall have the obligation to use all
reasonable efforts to mitigate any loss or damages suffered by Landlord on
account of any default by Tenant.
14.6 Limitation on Remedies. Notwithstanding anything to the contrary
in this Article 14, Landlord shall not be permitted to accelerate the payment
of Rent for the remainder of the Lease Term unless there has been a monetary
default by Tenant for over 60 days. Except as otherwise specifically provided
in this Lease, neither Landlord nor Tenant shall not be entitled to recover
consequential and/or punitive damages from the other as a result of the breach
of this Lease.
14.7 Legal Costs. Each party shall reimburse the other party, upon
demand, for any reasonable costs or expenses incurred by such other party in
connection with any actual breach or default of the non-performing party under
this Lease, whether or not suit is commenced or judgment entered. Such costs
shall include reasonable legal fees and costs incurred for the negotiation of
a settlement, enforcement of rights or otherwise. Tenant shall also
indemnify, protect, defend and hold Landlord harmless from all costs,
expenses, demands and liability (including, without limitation, attorneys'
fees and costs, including attorneys fees as a result of the enforcement of
this indemnity) incurred by Landlord if Landlord becomes or is made a party
to any claim or action (a) instituted by Tenant (other than against Landlord),
or by any third party against Tenant, or by or against any person holding any
interest under or using the Premises by license of or agreement with Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for
Tenant or such other person; (c) otherwise arising out of or resulting from
any act or transaction of Tenant or such other person; or (d) necessary to
protect Landlord's interest under this Lease in a bankruptcy proceeding, or
other proceeding under Title 11 of the United States Code, as amended. Tenant
shall defend Landlord against any such claim or action at Tenant's expense
with counsel reasonably acceptable to Landlord or, at Landlord's election,
Tenant shall reimburse Landlord for any legal fees or costs incurred by
Landlord in any such claim or action.
14.8 No Waiver. No failure by Landlord or by Tenant to insist upon the
performance of any of the terms of this Lease or to exercise any right or
remedy consequent upon a breach thereof, and no acceptance by Landlord of full
or partial rent from Tenant or any third party during the continuance of any
such breach, shall constitute a waiver of any such breach or of any of the
terms of this Lease. None of the terms of this Lease to be kept, observed or
performed by Landlord or by Tenant, and no breach thereof, shall be waived,
altered or modified except by a written instrument executed by Landlord and/or
by Tenant, as the case may be. No waiver of any default of either party
herein shall be implied from any omission by the other party to take any
action on account of such default. One or more waivers by either party shall
not be construed as a waiver of a subsequent breach of the same covenant, term
or condition. 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.
14.9 Waiver by Tenant. Tenant hereby waives all claims by Landlord's
re-entering and taking possession of the Premises and removing and storing the
property of Tenant as permitted under this Article 14 and will save Landlord
harmless from all losses, costs or damages occasioned Landlord thereby. No
such reentry shall be considered or construed to be a forcible entry by
Landlord. If Landlord fails to perform any of Landlord's obligations under
this Lease, which failure continues for more than fifteen (15) days after
Tenant's delivery of written notice to Landlord specifying such failure, or
if such failure is of a nature that it requires more than fifteen (15) days
to remedy and continues beyond the time reasonably necessary to cure (and
Landlord has not undertaken procedures to cure the failure withing such
fifteen (15) day period and diligently pursued such efforts to complete such
cure), Tenant may deliver a reminder notice ("Reminder Notice"). If Landlord
fails to commence to cure such failure within fifteen (15) days of receipt of
Tenant's Reminder Notice and diligently pursue the same to completion, then
Tenant may incur reasonable expenses necessary to perform the obligation of
Landlord specified in such notice and invoice Landlord therefor. If Landlord
fails to reimburse Tenant within fifteen (15) days following receipt of such
invoice, then Tenant may deliver a reminder notice ("First Reminder Notice").
If Landlord fails to reimburse Tenant within fifteen (15) days of receipt of
Tenant's First Reminder Notice, Tenant may deliver a second reminder notice
("Second Reminder Notice"). If Landlord fails to reimburse Tenant within
fifteen (15) days of receipt of Tenant's Second Reminder Notice, then Tenant
may apply the cost of such repairs against the next Basic Rent obligations due
hereunder, and invoice Landlord therefor.
Notwithstanding anything contained herein to the contrary, Tenant's
rights to deduct from Basic Rent shall be restricted to any amount per month
not in excess of the sum of twenty-five percent (25%) of the Basic Rent;
provided, however, that the sum which was not capable of offset as a result
of such cap shall bear interest at the Maximum Rate of Interest from thirty
(30) days after the date Tenant first invoiced Landlord for such expenses to
be offset until the date Tenant actually recovers such costs through offset.
It is further agreed that, if any default by Landlord cannot be cured by
Tenant by the expenditure of a sum that is recoverable from future offsets as
authorized in this Lease by the end of the then applicable Term, the aforesaid
twenty-five percent (25%) figure shall be increased to such percentage of the
Basic Rent as is necessary in order to assure that such sum is recoverable
from future offsets.
14.9.1 Delinquent Rental Payments. Any installment of Basic Rent
or Additional Rent or any other charges payable by Tenant under the provisions
hereof which shall not be paid when due or within ten (10) days thereafter
shall be subject to a late payment fee of two percent (2%) of the unpaid
amount per month commencing on the date said payment is due ("Late Payment
Fee"). Tenant acknowledges that Tenant's failure to pay Basic Rent or
Additional Rent when due may cause Landlord to incur unanticipated costs. The
exact amount of such costs are impractical or extremely difficult to
ascertain. The parties agree that such charge specified above represents a
fair and reasonable estimate of the costs Landlord will incur by reason of
such late payment and acceptance of such late charge does not constitute a
waiver of Tenant's default or limit any other remedy of Landlord. The late
charge shall be deemed Rent and the rights to require it shall be in addition
to all of Landlord's rights and remedies hereunder or at law. Notwithstanding
the foregoing, Tenant shall not be subject to the late payment fee specified
herein unless Landlord has given Tenant ten (10) days written notice of any
payment of Additional Rent or Basic Rent that is past due ("Late Payment
Notice"); provided that after Tenant's receipt of two (2) such Late Payment
Notices in any Lease Year, Landlord shall no longer be required to deliver a
Late Payment Notice in order to collect the late payment fee during said Lease
Year. Notwithstanding the foregoing, Landlord waives its right to collect the
Late Payment Fee the first time Landlord would otherwise be entitled to such
a Late Payment Fee in any Lease Year.
ARTICLE 15
PROTECTION OF CREDITORS
15.1 Subordination. This Lease and all rights of Tenant therein, and
all interest or estate of Tenant in the Premises, or any portion thereof,
shall be subject and subordinate to the lien of any mortgage, deed of trust,
or other document of like nature ("Mortgage"), which at any time may be placed
upon the Premises, or any portion thereof, by Landlord, and to any
replacements, renewals, amendments, modifications, extensions or refinancing
thereof, and to each and every advance made under any Mortgage. Tenant agrees
at any time hereafter, and from time to time on demand of Landlord, to execute
and deliver to Landlord a Subordination, Non-Disturbance and Attornment
Agreement in the form of Exhibit "F" attached hereto and incorporated herein
("SNDA") and any other instruments, releases or other documents that may be
reasonably required for the purpose of subjecting and subordinating this Lease
to the lien of any such Mortgage and which are reasonably acceptable to
Tenant. It is agreed, nevertheless, that so long as Tenant is not in default
in the payment of Basic Rent and Additional Rent and the performance and
observance of all covenants, conditions, provisions, terms and agreements to
be performed and observed by Tenant under this Lease, that such SNDA or other
instrument, release or document shall not interfere with, hinder or molest
Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant
to continue to occupy the Premises, and all portions thereof, and to conduct
its business thereon in accordance with the covenants, conditions, provisions,
terms and agreements of this Lease. The lien of any such Mortgage shall not
cover Tenant's trade fixtures or other personal property located in or on the
Premises.
15.2 Attornment. If Landlord's interest in the Premises is acquired
by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale or by any new person or entity as a result of
any transfer by Landlord, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Premises and recognize such transferee
or successor as Landlord under this Lease if all obligations and liabilities
accruing under this Lease after such acquisition are assumed in writing by
such transferee or successor. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Premises upon the transfer of Landlord's
interest.
15.3 Estoppel Certificates.
15.3.1 Within fifteen (15) business days after Landlord's or
Tenant's written request (the "Requesting Party"), the non-requesting party
(the "Responding Party") shall execute, acknowledge and deliver to the
Requesting Party a written statement certifying: (i) that this Lease (and all
guaranties, if any) is unmodified and in full force and effect (or, if there
have been any modifications, that the same is in full force and effect, as
modified, and stating the modifications); (ii) that this Lease has not been
canceled or terminated; (iii) the last date of payment of the Basic Rent and
other charges and the time period covered by such payment; (iv) whether or not
there are then existing any breaches or defaults by such party or the other
party known by such party under this Lease, and specifying such breach or
default, if any, or any setoffs or defenses against the enforcement of any
such breach of this Lease (or of any guaranties) upon the part of Landlord or
Tenant (or any guarantor), as the case may be, to be performed or complied
with (and, if so, specifying the same and the steps being taken to remedy the
same) and (v) such other statements as reasonably required by The Requesting
Party, or any lender or prospective lender, investor or purchaser. the
Responding Party shall deliver such statement to the Requesting Party within
fifteen (15) business days after the Requesting Party's request. Any such
statement by Tenant may be given by Landlord to any prospective purchaser or
encumbrancer of the Premises. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
15.3.2 If the Responding Party, does not deliver such statement
to the Requesting Party within such fifteen (15) business day period, then the
Requesting Party may deliver a second request and if the Responding Party does
not deliver such statement to Landlord within five (5) business days after
receipt of such second request, then the Requesting Party, 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 the Requesting Party;
(ii) that this Lease has not been canceled or terminated except as otherwise
represented by the Requesting Party; (iii) that not more than one month's Base
Monthly Rent or other charges have been paid in advance; and (iv) that the
Requesting Party is not in default under this Lease. In such event, the
Responding Party shall be estopped from denying the truth of such facts.
15.4 Mortgagee Protection Clause. Tenant agrees to give any mortgagees
and/or trust deed holders, by registered mail, a copy of any notice of
default, served upon the Landlord, provided that prior to delivery of such
notice Tenant has been notified in writing (by way of Notice of Assignment of
Rents and Leases, or otherwise) of the addresses of such mortgagees and/or
trust deed holders and the same have executed a Non-Disturbance Agreement as
provided and defined below. Tenant further agrees that if Landlord shall have
failed to cure such default within the time provided for in this Lease, then
the mortgagees and/or trust deed holders shall have an additional fifteen days
(15) within which to cure such default or if such default cannot be cured
within that time, then such additional time as may be necessary if within such
fifteen days (15) any mortgagee and/or trust deed holder has commenced and is
diligently pursuing the remedies necessary to cure such default (including
but not limited to commencement of foreclosure proceedings if necessary to
effect such cure), in which event this Lease shall not be terminated while
such remedies are being so diligently pursued.
15.5 Non-Disturbance. Landlord represents that as of the Effective Date
of this Lease, there is no mortgage encumbering the Land. With respect to any
future Mortgages, Tenant's subordination is expressly conditioned upon
Landlord's delivery to Tenant of a fully executed Recognition and Non-
Disturbance Agreement substantially in the form of the SNDA or in such other
form and substance as may be reasonably acceptable to Tenant with respect to
such Mortgage ("Non-Disturbance Agreement").
ARTICLE 16
TERMINATION OF LEASE
16.1 Surrender of Premises. At the expiration of the Term of this
Lease or earlier termination of this Lease, Tenant shall surrender the
Premises together with all alterations placed thereon by Tenant (except
Alterations Tenant elects to remove or Alterations Landlord, in the exercise
of reasonable discretion, informed Tenant, in connection with Landlord=s
approval of the installation thereof, that Landlord would require Tenant to
remove upon the expiration of the Lease) in the same condition as the same
were in upon delivery of possession thereto at the Commencement Date of the
term of this Lease, reasonable wear and tear excepted, and shall surrender all
keys to the Premises to Landlord at the place then fixed for the payment of
Basic Rent and shall inform Landlord of all combinations on locks, safes and
vaults, if any. Tenant shall at such time remove all of its property
therefrom and all alterations and improvements placed thereon by Tenant unless
Landlord requires Tenant to leave the same. Tenant shall repair any damage
to the Premises caused by such removal, and any and all such property not so
removed shall, at Landlord's option, after five (5) business days notice to
Tenant, become the exclusive property of Landlord or be disposed of by
Landlord, at Tenant's cost and expense, without further notice to or demand
upon Tenant. If the Premises be not surrendered as above set forth, Tenant
shall indemnify, protect, defend and hold Landlord harmless against loss or
liability resulting from the delay by Tenant in so surrendering the Premises,
including, without limitation, any claim made by any succeeding occupant
founded on such delay. All property of Tenant not removed within thirty (30)
days after the last day of the Term of this Lease shall be deemed abandoned.
Tenant hereby appoints Landlord its agent to remove, at Tenant's cost, all
property of Tenant from the Premises left thirty (30) days or longer after
termination of this Lease and to cause its transportation and storage for
Tenant's benefit, all at the sole cost and risk of Tenant and Landlord shall
not be liable for damage, theft, misappropriation or loss thereof and Landlord
shall not be liable in any manner in respect thereto.
16.2 Holding Over. In the event Tenant remains in possession of the
Premises after expiration of this Lease, and without the execution of a new
lease, it shall be deemed to be occupying the Premises as a tenant from month
to month, subject to all the provisions, conditions and obligations of this
Lease insofar as the same can be applicable to a month-to-month tenancy,
except that the Basic Rent shall be escalated to one hundred twenty-five
percent (125%) of the then current Basic Rent for the Premises.
ARTICLE 17
RENEWAL OPTIONS
17.1 Options to Renew. Tenant shall have the right, to be exercised
as hereinafter provided, to extend the term of this Lease ("Renewal Option")
for up to two (2) periods of five (5) years each (each such five (5) year
period is sometimes hereinafter referred to as a "Renewal Term") upon the
following terms and conditions and subject to the limitations set forth below.
17.1.1 No Event of Default. At the respective times hereinafter
set forth for the exercise of each Renewal Option and at the time of the
commencement of each Renewal Term, this Lease shall be in full force and
effect and there shall be no uncured Event of Default under this Lease, but
Landlord shall have the right, at its sole discretion, to waive any such
condition regarding an Event of Default.
17.1.2 Fair Market Rent. The Premises shall be leased to Tenant
on an "as is" basis on the same terms, covenants and conditions contained in
this Lease, except that the annual Basic Rent for the Premises, including all
buildings, structures and fixtures erected thereon, together with all
additions, alterations and replacements thereof (except Tenant's moveable
trade fixtures, machinery and equipment) shall be adjusted to reflect ninety-
five percent (95%) of the Fair Market Rent (as hereinafter defined) for the
Premises, as of the date of commencement of such Renewal Term ("Adjusted Basic
Rent"); provided that in no event shall such Adjusted Basic Rent be less than
the Basic Rent for the Lease Year immediately prior to the Renewal Term.
17.1.3 Exercise of Renewal Term(s). Tenant shall exercise its
right to extend the Term of this Lease for any Renewal Term set forth in this
Article 17, if at all, by notifying Landlord, in writing, of its election to
exercise the right to renew and extend the term of this Lease at least nine
(9) months prior to the expiration of the Initial Term or the applicable
Renewal Term, as the case may be.
17.1.4 Determination of Fair Market Rent. In calculating the
Fair Market Rent, the Premises shall be deemed to include all buildings,
structures and fixtures erected thereon, together with all additions and
replacements thereof (except Tenant's moveable trade fixtures, machinery and
equipment). Not earlier than eighteen (18) months prior to the expiration of
the Initial Term and each Renewal Term, Tenant may notify Landlord of its
desire to consider renewal of this Lease. Thereafter, Landlord and Tenant
shall make a good faith effort to agree upon the "Fair Market Rent" of the
Premises for the ensuing Renewal Term. In the event Landlord and Tenant fail
to agree within sixty (60) days after delivery of Tenant's notice ("Initial
Rent Determination Period"), the "Fair Market Rent" shall be determined by
arbitration in accordance with the process described below. Without limiting
the foregoing, in determining the Fair Market Rent, the following factors
shall be considered: the amount per rentable square foot that a willing,
comparable, non-equity tenant would pay, and a willing landlord of a
comparable property in the marketplace (as set forth above) would accept in
an arm's-length transaction giving appropriate consideration to rental rates
per rentable square foot, escalation clauses (including, but not limited to,
operating expenses and real estate taxes), abatement provisions reflecting
free rent, if any, length of lease term, size and location of premises being
leased, tenant improvement allowances, if any, and any other generally
applicable terms and conditions of tenancy for the subject space.
17.1.5 Arbitration. All arbitrators appointed by or on behalf of
either party or appointed pursuant to the provisions hereof shall be MAI
members of the American Institute of Real Estate Appraisers with not less than
ten (10) years of experience in the appraisal of improved commercial and
industrial real estate in the Riverside, California area and be devoting a
substantial amount of time to professional appraisal work at the time of
appointment and be in all respects impartial and disinterested. If the
parties are unable to agree upon the Fair Market Base Rent during the Initial
Rent Determination Period, then within fifteen (15) days after termination of
the Initial Rent Determination Period, each party shall deliver to the other
party a notice specifying the name, address and professional qualifications
of the person designated to act as arbitrator on its behalf. The two (2)
arbitrators so selected shall select a third arbitrator no later than thirty
(30) days after the Initial Rent Determination Period. If the party receiving
a request for arbitration fails to appoint its arbitrator within the time
above specified, or if the two (2) arbitrators so selected cannot agree on the
selection of the third arbitrator within the time above specified, then either
party, on behalf of both parties, may request such appointment of such second
or third arbitrator, as the case may be, by application to any Judge of the
District Court of the County of Riverside, State of California, upon ten (10)
days prior written notice to the other party of such intent. The decision of
the arbitrators so chosen shall be given within a period of thirty (30) days
after the appointment of such third arbitrator. The arbitrators so selected
shall have all rights and power conferred on him or her by the California Code
of Civil Procedure Sections 1280 et seq. or any successor statute or law, and
except as otherwise provided for herein, the arbitration proceedings shall be
carried on and governed by such statute. No discovery shall be permitted by
the Landlord and Tenant in the arbitration except that all parties shall make
available to the arbitrators such information as may be requested by such
arbitrators. Acting independently of each other and without consultation with
each other, each of said three arbitrators, within sixty (60) days after
appointment of the third appraiser, and his or her acceptance of such
appointment, shall make their appraisal and submit to Landlord and Tenant a
written report and appraisal setting forth the appraiser's opinion as to the
fair market value of the Premises. The two appraisals of all of the
appraisals reported by the three appraisers that are closest in amount shall
be averaged (or if the appraisal is less than one of the other appraisals and
more than the other appraisal by the same amount, all three appraisals shall
be averaged). Such averaged amount shall be the Fair Market Rent of the
Premises. All arbitrators appointed by or on behalf of either party or
appointed by the Presiding Judge of the Superior Court of Riverside County,
California as hereinafter provided, shall be in all respects impartial and
disinterested. Each party shall pay the fees and expenses of the arbitrator
appointed by or on behalf of such party and the fees and expenses of the third
arbitrator shall be borne equally by both parties. Landlord and Tenant shall
then execute an amendment recognizing the Fair Market Rent for the Renewal
Term and the fact Tenant shall pay ninety-five percent (95%) of such Fair
Market Rent or the Basic Rent for the Previous Lease Year, whichever is
greater.
ARTICLE 18
EXPANSION OPTION
18.1 Option to Expand. Tenant shall have the right, to be exercised
as hereinafter provided, to expand the Premises ("Expansion Option") into
space to be constructed on the Land adjacent to the Premises, which land is
more particularly described on Exhibit "A-1" attached hereto and incorporated
herein ("Expansion Land") together with certain improvements to be constructed
thereon, including an approximately ninety-five thousand (95,000) square foot
addition to the Building, depicted as the Expansion Space on Exhibit "A-2"
("Expansion Space"), upon the following terms and conditions and subject to
the limitations set forth below.
18.2 No Event of Default. At the respective times hereinafter set
forth for the exercise of the Expansion Option and the delivery of the
Expansion Space, this Lease shall be in full force and effect and there shall
be no uncured Event of Default (as defined below) under this Lease.
18.3 Exercise of Expansion Option. Tenant may exercise its right to
expand by notifying Landlord, in writing, of its election to exercise the
Expansion Option ("Notice of Exercise") at least nine (9) months prior to the
desired occupancy date for the Premises, which Notice of Exercise shall
specify the exact desired occupancy date ("Desired Occupancy Date"); provided
that, subject to the provisions below, there will still be at least five (5)
years remaining in the Initial Term after the Desired Occupancy Date. In the
event that there will not be at least five (5) years remaining in the Initial
Term at the time Tenant desires to exercise its Expansion Option, Tenant may
still exercise its Expansion Option up until nine (9) months prior to the end
of the Initial Term ("Expansion Option Termination Date") if, in Tenant's
Notice of Exercise, Tenant indicates that it is also electing to extend the
Initial Term by the number of days necessary to cause there to be exactly five
(5) years between the Desired Occupancy Date and the expiration of the Initial
Term ("Extension Election"). In the event, Tenant exercises the Extension
Election, the commencement date for the Expansion Space shall occur upon
Substantial Completion of the Expansion Space Landlord's Improvements (as
described in the Work Letter) ("Expansion Space Commencement Date"). The term
of the Lease for the Expansion Space shall terminate concurrently with the
Term of the Lease for the balance of the Premises.
18.4 Expansion Terms. The Expansion Space shall be leased to Tenant
on the same terms, covenants and conditions contained in this Lease, except
as provided in this Article and except that the Basic Rent for the Expansion
Space due and payable each month shall be computed in accordance with
Section 18.5 below and paid along with the Basic Rent provided in Item 10 of
the Basic Terms. The Basic Rent per rentable square foot for the Expansion
Space shall be increased from time to time in accordance with any
proportionate increases to the Basic Rent provided under Item 10 of the Basic
Terms and under Section 18.3 above (provided that increases in the Expansion
Space Rent shall not occur until the sixty-third (63rd) month after the
Expansion Space Commencement Date). If Tenant exercises any Expansion Option,
Landlord and Tenant shall enter into an amendment of this Lease setting forth
the adjusted Basic Rent and other relevant provisions based on the increase
in the area of the Premises effective on the Expansion Space Commencement
Date. If Tenant exercises its Expansion Option, then (a) all references to
the Premises shall include the Expansion Space and Expansion Land, and all
references to the Land shall include the Expansion Land, effective as of the
Expansion Space Commencement Date; (b) Landlord shall be subject to the same
monetary penalties for failure to deliver the Expansion Space by the Desired
Occupancy Date as are (provided in Section 1.3 for failure to deliver the
Premises by August 1, 1998 provided that Tenant shall not have the termination
rights set forth in Section 1.3); and (c) Tenant shall be entitled to the same
early occupancy rights for the Expansion Space as those set forth in Section
1.2.2 and in the Work Letter for the Premises.
18.5 Expansion Space Basic Rent. Commencing on the Expansion Space
Commencement Date, Tenant shall pay Basic Rent for the Expansion Space in the
amount provided in this Section 18.5 at which time Tenant shall no longer be
required to pay the portion of the Basic Rent described as "Monthly Rent for
Expansion Land" in Item 10 of the Basic Terms. The Basic Rent, paid monthly,
for the Expansion Space shall be the product of ten and one half percent
(102%), multiplied by the following costs ("Expansion Space Basic Rent"):
(1) The Expansion Land valued at $525,000;
(2) The cost of building the Expansion Space (inclusive of a
tenant improvement allowance not to exceed Five Dollars
($5.00) per square foot) as determined by (a) the lowest
competitive bid by general contractors acceptable to both
parties or (b) Landlord's in-house general contractor at
a fee of five percent (5%) of Hard Costs (defined below);
(3) Commercially reasonable and standard Architectural and
engineering fees, permit fees, governmental charges, soil
testing costs and surveying costs incurred by Landlord in
connection with the Expansion Space building;
(4) A three percent (3%) development fee on all Hard Costs.
As used herein, the term "Hard Costs" shall mean the
actual costs paid by Landlord to construct the
Improvements, including without limitation, all amounts
paid to the contractors, suppliers, and all general
contractors, all architectural, engineering and other
design consultants and on-site overhead costs directly
attributable to the Expansion Space, all standard fees
paid to the governmental agencies for the construction of
the Improvements, and other costs commonly included in
what is customarily known as "Hard Costs";
(5) The best available interim financing costs, not to exceed
the Maximum Rate of Interest specified in Item 10 of the
Basic Terms; and
(6) Any standard real estate commission paid or due and
payable by Landlord in connection with the Expansion Space
or Expansion Land.
18.6 Free Rent Period. The first two (2) calendar months of the
Expansion Space Basic Rent shall be abated.
18.7 Failure to Exercise Expansion Option. In the event Tenant fails
to exercise the Expansion Option during the Initial Term only, for so long as
there has been no Expansion Space Commencement Date, Tenant shall continue to
pay the portion of the Basic Rent described as "Monthly Rent for Expansion
Land." In the event that Tenant has not exercised the Expansion Option as of
the Expansion Option Termination Date, then notwithstanding anything to the
contrary contained herein, commencing on the first day following the Expansion
Option Termination Date, Tenant shall no longer be required to pay the Monthly
Rent for Expansion Land or any Taxes or other Additional Rent attributable to
the Expansion Land.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Notices. All notices, demands and requests which may be or are
required to be given, demanded or requested by either party to the other shall
be in writing. All notices, demands and requests shall be sent by United
States registered or certified mail, postage prepaid or by Federal Express or
other reputable independent overnight courier service, addressed at the
addresses specified in the Basic Terms or at such other place as either party
may designate to the other party by written notice, and shall be deemed to
have been delivered on the date the same is (i) postmarked, if sent by
certified mail, or (ii) deposited, if sent by Federal Express or such other
reputable overnight courier service, but shall not be deemed received until
(a) one (1) business day following deposit with Federal Express or other
reputable overnight courier service, or (b) three (3) days following deposit
in the United States Mail if sent by certified mail.
19.2 Landlord's Continuing Obligations. The term "Landlord," as used
in this Lease so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or owners at
the time in question of the fee of the Premises, and in the event of any
transfer or transfers or conveyance the then grantor shall be automatically
freed and relieved from and after the date of such transfer or conveyance of
all liability as respects the performance of any covenants or obligations on
the part of Landlord contained in this Lease thereafter to be performed,
provided (a) that such liability is assumed in writing by the transferee and
(b) that any funds in the hands of such landlord or the then grantor at the
time of such transfer, in which Tenant has an interest, shall be turned over
to the grantee, and any amount then due and payable to Tenant by Landlord or
the then grantor under any provision of this Lease shall be paid to Tenant.
19.3 Net Lease. Landlord and Tenant do each state and represent that
it is the intention of each of them that, except as otherwise provided
herein, this Lease be interpreted and construed as a net lease and, except as
otherwise provided in this Lease, all Basic Rent and Additional Rent shall be
paid by Tenant to Landlord without abatement, deduction, diminution,
deferment, suspension, reduction or setoff.
19.4 Successors. The covenants and agreements herein contained shall
bind and inure to the benefit of Landlord, its successors and assigns, and
Tenant and its permitted successors and assigns.
19.5 Memorandum of Lease. Upon not less than fifteen (15) business
days prior written request by Landlord or Tenant, the other party agrees to
execute and deliver to the requesting party a Memorandum of Lease, in
recordable form, setting forth the following: (a) the date of this Lease; (b)
the parties to this Lease; (c) the term of this Lease; and (d) the legal
description of the Premises.
19.6 Captions and Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Premises with
Tenant's expressed or implied permission.
19.7 Relationship of Parties. This Lease does not create the
relationship of principal and agent, or of partnership, joint venture, or of
any association or relationship between Landlord and Tenant, the sole
relationship between Landlord and Tenant being that of landlord and tenant.
19.8 Entire Agreement. Any exhibits, addenda and schedules attached
hereto shall be incorporated herein as though fully set forth herein. All
preliminary and contemporaneous negotiations are merged into and incorporated
in this Lease. This Lease Agreement together with the Exhibits contains the
entire agreement between the parties. No subsequent alteration, amendment,
change or addition to this Lease shall be binding upon Landlord or Tenant
unless reduced to writing and signed by the party to be charged with their
performance.
19.9 Severability. If any covenant, condition, provision, term or
agreement of this Lease shall, to any extent, be held invalid or
unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Lease shall not be affected thereby, but each covenant,
condition, provision, term or agreement of this Lease shall be valid and in
force to the fullest extent permitted by law.
19.10 Landlord's Limited Liability. Tenant agrees to look solely to
Landlord's interest in the Premises and any income derived directly therefrom
for recovery of any judgment from Landlord, it being agreed that Landlord (and
if Landlord is a partnership, its partners, whether general or limited, and
if Landlord is a corporation, its directors, officers or shareholders) shall
never be personally liable for any personal judgment or deficiency decree or
judgment against it.
19.11 Survival. All obligations of Landlord and Tenant (together with
interest or money obligations at the Maximum Rate of Interest) accruing prior
to expiration of the Term of this Lease shall survive the expiration or other
termination of this Lease.
19.12 Attorneys' Fees. In the event of any litigation or judicial
action in connection with this Lease or the enforcement thereof or the
enforcement of any indemnity obligation hereunder, the prevailing party in any
such litigation or judicial action shall be entitled to recover all costs and
expenses of any such judicial action or litigation (including, but not limited
to, reasonable attorneys' fees, costs and expenditures fees) from the other
party.
19.13 Broker. Each party represents and warrants that it has not had
any dealings with any realtors, brokers or agents in connection with the
negotiation of this Lease except for Lee & Associates, whose commission shall
be payable by Landlord, and each party agrees to hold the other party harmless
from and against the failure to pay any realtors, brokers or agents and from
any cost, expense or liability for any compensation, commission or changes
claimed by any other realtors, brokers or agents claiming by, through or on
behalf of such party with respect to this Lease and/or the negotiation hereof.
19.14 Governing Law. This Lease shall be governed by the laws of the
State of California. All covenants, conditions and agreements of Tenant
arising hereunder shall be performable in the county wherein the Premises are
located. Any suit arising from or relating to this Lease shall be brought in
the county wherein the Premises are located, and the parties hereto waive the
right to be sued elsewhere.
19.15 Time is of the Essence. Time is of the essence with respect to
the performance of every provision of this Lease in which time of performance
is a factor.
19.16 Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
19.17 Delivery of Corporate Documents. In the event that Tenant is a
corporation, Tenant shall, without charge to Landlord, at any time and from
time to time within fifteen (15) days after written request by Landlord, if
required by a prospective lender or purchaser, deliver to Landlord, in
connection with any proposed sale or mortgage of the Premises, the following
instruments and documents:
(a) Certificate of Good Standing in the state of incorporation
of Tenant and in the state in which the Premises are
located issued by the appropriate state authority and
bearing a current date;
(b) A copy of Tenant's articles of incorporation and bylaws,
and any amendments or modifications thereof certified by
the secretary or assistant secretary of Tenant.
19.18 Tenant's Financial Condition. Prior to the Effective Date, and
within fifteen (15) business days after written request from Landlord (so long
as Landlord has a reasonable basis for requesting such information based upon
Tenant's financial condition) and not more than one (1) time per twelve month
period, Tenant shall deliver to Landlord financial statements prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP") as are reasonably required by Landlord to verify the net worth of
Tenant, or any assignee, subtenant or guarantor of Tenant provided that Tenant
shall not be required to provide any information that would constitute a
violation of the rules and regulations of the Securities Exchange Commission.
In addition, Tenant shall deliver to any lender or proposed purchaser of the
Premises, Project, Land and/or Expansion Land or any portion thereof
designated by Landlord any financial statements prepared in accordance with
GAAP required by any lender or purchaser to facilitate the sale, financing or
refinancing of the Premises or Project or any portion thereof. Tenant
represents and warrants to Landlord that (a) each such financial statement is
a true and accurate statement as of the date of such statement; and (b) at all
times after the date of any such statement during the Lease Term or any
extension thereof, Tenant's net worth, as stated therein, shall not be
reduced. All financial statements shall be confidential and shall be used
only for the purposes set forth herein. Each such financial statement shall
be executed by Tenant and shall, if requested by Landlord, be certified by
Tenant to be true and correct. Notwithstanding the foregoing, if Tenant is
a publicly traded company. Tenant may provide Landlord with copies of
Tenant's latest 10-Q and 10-K filings with the Securities Exchange Commission
in lieu of the above referenced financial statements.
19.19 Provisions are Covenants and Conditions. All provisions, whether
covenants or conditions, on the part of the Landlord, or on the part of
Tenant, shall be deemed to be both covenants and conditions.
19.20 Business Days. As used herein, the term "business days" shall
mean any day which is not a Saturday, Sunday or a legal holiday in the State
of California.
19.21 Force Majeure. If either party shall be delayed or prevented from
the performance of any act required hereunder, other than the payment of Rent,
Additional Rent or any other sums required to be paid hereunder, by reason of
acts of God, strikes, lockouts, labor troubles, inability to procure
materials, respect of governmental laws or regulations, or by reason of any
order or direct of any legislative, administrative or judicial body, or any
government department, or by reason of not being able to obtain any licenses,
permissions or authorities required therefor, or other causes without fault
or beyond the reasonable control of such party, then notwithstanding anything
to the contrary contained herein, performance of such acts by such party shall
be excused for the period of the delay and the period of the performance of
any such acts shall be extended for a period equivalent to the period of such
delay; (herein such delays are sometimes referred to as AForce Majeure@.)
19.22 No Continuous Operation. Notwithstanding anything in this Lease
to the contrary, nothing herein shall be construed as an obligation for Tenant
to open or operate its business in the Premises. Tenant shall have the right
to remove Tenant's personal property and cease operations in the Premises at
any time and at Tenant's sole discretion. However, the right to cease to
operate its business shall not affect Tenant's obligation to pay all amounts
due hereunder and to perform all covenants and obligations hereunder. Tenant
agrees, at such time it is operating its business in the Premises, to conduct
its business in a first-class manner, consistent with reputable business
standards and practices.
19.23 Waiver of Landlord's Lien. Landlord hereby waives any
contractual, statutory or other Landlord's lien on Tenant's furniture,
moveable trade fixtures, supplies, equipment and inventory. Tenant shall have
the absolute right from time to time during the Term hereof and without
Landlord's further approval, written or otherwise, to grant and assign a
mortgage or other security interest Tenant's furniture, fixtures, supplies,
equipment and inventory to Tenant's lenders in connection with Tenant's
financing arrangement. Landlord agrees to execute such confirmation
certificates and other documents (except amendments to this Lease unless
Landlord hereafter consents in its sole and absolute discretion) as Tenant's
lenders may reasonably request in connection with any such financing.
19.24 Submission of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or an
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialed all Exhibits
and Addenda which are attached to or incorporated by reference in this Lease.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
EXHIBITS
Page First
Appearing
Exhibit "A" - Legal Description of Land 1
Exhibit "A-1" - Legal Description of Expansion Land 18
Exhibit "A-2" - Expansion Space 18
Exhibit "B" - Work Letter 1
Schedule 1 to Work Letter - Final Plans and Specification N/A
Exhibit "C" - Preliminary Report 1
Exhibit "D" - Commencement Date Acknowledgment 1
Exhibit "E" - Delivery Date Acknowledgment 1
Exhibit "F" - Subordination, Non-Disturbance and Attornment Agreement 15
EXHIBIT "A"
Legal Description of Land
[To Be Attached]
EXHIBIT "A-1"
Legal Description of Expansion Land
[To Be Attached]
EXHIBIT "A-2"
Depiction of Expansion Space
[To Be Attached]
EXHIBIT "B"
WORK LETTER
OPUS WEST CORPORATION, a Minnesota corporation, ("Landlord") and PETCO
ANIMAL SUPPLIES, INC., a Delaware corporation ("Tenant") as of this ___ day
of November, 1997, are executing simultaneously with this Work Letter
Agreement ("Work Letter"), a written lease (the "Lease") covering the Premises
described in the Lease.
This Work Letter defines the scope of Landlord's Improvements (as
defined below) which Landlord shall be obligated to construct or install on
the Premises. It there is a conflict between the terms and provisions of this
Work Letter and the Lease, this Work Letter shall control. Terms which have
initial capital letters and are not otherwise defined in this Letter shall
have the meaning set forth in the Lease.
This Work Letter is a part of the Lease and shall be subject to all of
its terms and condition, including all definitions contained therein. Unless
the context otherwise requires, any references to the Lease shall include the
Work Letter and the obligations contained herein shall, to the extent
applicable, continue during the Lease Term.
In consideration of the mutual covenants hereinafter contained, Landlord
and Tenant mutually agree as set forth below.
CONSTRUCTION OF IMPROVEMENTS
1. Improvements. Landlord agrees to furnish, at Landlord's sole cost
and expense, all of the material, labor, and equipment for the construction
on the Land of the improvements ("Landlord's Improvements") designated on the
Final Plans and Specifications attached hereto and as Schedule 1 and
incorporated herein ("Final Plans and Specifications" or "Construction
Documents"). When Landlord requests Tenant to specify details or layouts,
Tenant shall specify same, subject to the provisions of the Final Plans and
Specifications, so as not to delay completion of the Landlord's Improvements.
Except as specifically set forth in this Lease and delineated on the Final
Plans and Specifications, Landlord shall not provide or pay for any other
improvements related to the Premises. Landlord's Improvements shall be
constructed in a good and workmanlike manner in accordance with the Final
Plans and Specifications and Landlord agrees to complete the construction
thereof in accordance with the applicable building code as it is presently
interpreted and enforced by the governmental bodies having jurisdiction
thereof. By execution of the Lease, Tenant hereby approves of the attached
Final Plans and Specifications. Tenant shall pay to Landlord all increased
costs or damages incurred by Landlord attributable to delays caused by Tenant.
1.1 Premises Furnishings. Tenant shall be solely responsible
for the performance and expense of the design, layout, provision, delivery and
installation of any furniture, furnishings, telephone systems, computer
systems, office equipment, and any other personal property Tenant will use at
the Premises. In arranging for the performance of any of the work referred
to in the preceding sentence, Tenant shall adopt a schedule in conformance
with the schedule(s) of Landlord's Contractor(s) (defined below) and conduct
its work in such a manner as to maintain harmonious labor relations and so as
not to interfere unreasonably with or delay the work of Landlord's
Contractor(s) in substantially completing the Landlord's Improvements.
2. Construction of Landlord's Improvements. A contractor selected
by Landlord in Landlord's sole discretion ("Landlord's Contractor") shall use
its commercially reasonable efforts (a) to Substantially Complete (as defined
below) the Landlord's Improvements on or before August 1, 1998 and (b) to
ensure that the structural and exterior portions of the Premises, including
without limitation the roof (hereinafter, the "Structural Portions of the
Demised Premises"), the plumbing, electrical, gas, and other utilities,
including without limitation the HVAC (hereinafter, the "Utilities") servicing
same are in good working condition and order on the Commencement Date and are
in compliance with all existing law, codes, regulations and ordinances of any
governmental authorities, including seismic requirements and the Americans
with Disabilities Act, as evidenced by a Certificate of Occupancy issued by
the City.
3. Completion of Landlord's Improvements. Landlord shall be
responsible for the construction of the Landlord's Improvements in accordance
with the approved Final Plans and Specifications. Within thirty (30) days of
Substantial Completion (as defined below) of the Landlord's Improvements,
Landlord and Tenant shall provide a "punchlist" identifying the corrective
work of the type commonly found on an architectural punchlist with respect to
the Landlord's Improvements, which list shall be in Landlord's reasonable
discretion based on whether such items were required by the approved Final
Plans and Specifications. Within ten (10) Business Days after delivery of the
punchlist, Landlord shall commence the correction of punchlist items and
diligently pursue such work to completion. The punchlist procedure to be
followed by Landlord and Tenant shall in no way limit Tenant's obligation to
occupy the Premises under the Lease nor shall it in any way excuse Tenant's
obligation to pay Rent as provided under the Lease unless such punch list
items preclude Tenant from occupying the Premises as reasonably determined by
Landlord and Tenant.
4. Substantial Completion. "Substantial Completion" or
"Substantially Completed" as used herein shall mean delivery of written notice
to Tenant of the completion of construction of the Landlord's Improvements in
the Premises pursuant to the approved Final Plans and Specifications with the
exception of minor details of construction, installation, decoration, or
mechanical adjustments and punchlist items as certified to by Landlord.
Substantial Completion shall be deemed to have occurred, and completion of the
Landlord's Improvements shall be deemed to have occurred upon issuance of a
temporary or permanent certificate of occupancy, notwithstanding the
requirement to complete "punchlist" items or similar corrective work. Tenant
agrees that if Landlord shall be delayed in causing such work to be
Substantially Completed as a result of any of the events as defined below
(referred to herein as a "Tenant Delay"), then such delay shall be the
responsibility of Tenant, and will result in the Commencement Date of the Term
being the earlier of: (i) Tenant's opening of the Premises for business; (ii)
the date of Substantial Completion or (iii) the date when Substantial
Completion would have occurred if there had been no Tenant Delay, providing
that Landlord shall not be required to work on an overtime basis in order to
bring the Premises to Substantial Completion. For the purposes of this Work
Letter, a Tenant Delay is defined as follows: (a) Tenant's failure to comply
with any time frames set forth herein or in the Lease, (b) any changes in the
Final Plans and Specifications requested by Tenant after execution of this
Lease, or (c) Tenant's failure to perform any act or obligation imposed on
Tenant by the Lease or this Work Letter as and when requested thereunder or
hereunder, or (d) any other delay otherwise caused by Tenant, its agents,
employees or contractors which operates to delay Landlord's Substantial
Completion of the Landlord's Improvements, as reasonably determined by
Landlord.
5. Force Majeure. Landlord shall diligently proceed with the
construction of the Landlord's Improvements and complete the same and deliver
possession thereof to Tenant in accordance with the project schedule to be
submitted by Landlord to Tenant within fifteen (15) days after the Effective
Date of the Lease; provided, however, if delay is caused or contributed to by
act or neglect of Tenant, Tenant delays as described in Section 4 above or
those acting for or under Tenant, change orders requested by Tenant, labor
disputes, casualties, acts of God or the public enemy, governmental embargo
restrictions, shortages of fuel, labor, or building materials, action or non-
action of public utilities, or of local, state or federal governments
affecting the work, or other causes beyond Landlord's reasonable control, then
the time of completion of said construction shall be extended for the
additional time caused by such delay. Such delays are each hereinafter
referred to as an "Excused Delay." Landlord shall notify Tenant in writing
of any Excused Delay that is due to a Tenant Delay.
6. Possession of Premises. Tenant shall, within five (5) business
days after request therefrom by Landlord, advise Landlord of required color
selections. Tenant shall be responsible for Landlord's increased cost of
labor and materials if any, and loss of Rent, arising out of delay in the
completion of the Premises caused by Tenant's failure to comply in a timely
manner with the foregoing schedule. Landlord shall notify Tenant at least
thirty (30) days prior to its estimated date of Substantial Completion and
Tenant shall during such thirty (30) day period have the right to access the
warehouse portion of the Premises to install fixtures and equipment
("Fixturization Period") provided that Tenant does not thereby interfere with
the completion of construction or occasion any labor dispute as a result of
such installations and provided further that Tenant does hereby agree to
assume all risk of loss or damage to such machinery, equipment, fixtures and
other personal property. Tenant shall adopt a schedule in conformance with
the schedule of Landlord and conduct its work in such a manner as to maintain
harmonious labor relations so as not to interfere unreasonably with or delay
the work of Landlord. Tenant shall not be liable to Landlord for the payment
of Basic Rent or taxes during such Fixturization Period but Tenant shall be
subject to the other terms and provisions of this Lease, including the
insurance and indemnity obligations and the obligation to maintain the
Premises free of mechanic liens. Basic Rent and the payment and performance
of all other obligations to be paid by Tenant shall commence upon the
Commencement Date; provided, however, in the event that Landlord's
Improvements are partially completed and partially ready for occupancy, and
are occupied by Tenant, or Tenant is required to occupy same, the terms of
such occupancy or use of the Premises shall apply and a pro rata portion of
the Basic Rent and the pro rata portion of all other obligations to be paid
by Tenant shall be payable commencing with such date of partial occupancy, and
shall be equitably adjusted from time to time based upon the area and value
of the portion of Landlord's Improvements substantially completed and ready
for Tenant's occupancy. The failure of Tenant to take possession of or to
occupy the Premises or any portion thereof which Tenant is required to occupy
on or after the date Landlord's Improvements or such applicable portion
thereof are substantially complete and ready for occupancy by Tenant shall not
serve to relieve Tenant of said obligations or delay payments by Tenant to
Landlord.
7. Tenant Work.
7.1 Finish Work. All finish work and decoration and other work
desired by Tenant and not included within the Landlord's Improvements as set
forth in the approved Construction Documents, including specifically, without
limitation, all computer systems, telephone systems, telecommunications
systems and other items (the "Tenant Work") shall be furnished and installed
by Tenant at Tenant's sole expense.
7.1.1 Consent of Landlord. If any Tenant Work is not set
forth on the approved Construction Documents, Tenant shall secure Landlord's
prior consent for such Tenant Work in the same manner and following the same
procedures provided for in the Lease. Tenant shall not commence the
construction or installation of any improvements on the Premises, including,
specifically, the Tenant Work, without Landlord's prior written approval which
shall not be unreasonably withheld of: (i) Tenant's contractor, (ii) detailed
plans and specifications for the Tenant Work, and (iii) certificate(s) of
insurance accurately showing that Tenant's contractor maintains insurance
coverage in amounts, types, form and with companies reasonably acceptable to
Landlord. All such certificates or policies shall be endorsed to show
Landlord as an additional insured and such insurance shall be maintained by
Tenant or Tenant's contractor at all times during the performance of the
Tenant Work.
7.2 Landlord's Obligations. Landlord is under no obligation to
construct or supervise construction of any of the Tenant Work and any
inspection by Landlord shall not be construed as a representation that the
Tenant Work is in compliance with the final plans and specifications therefor
or that the construction will be free from faulty material or workmanship, or
that the Tenant Work is in conformance with any building codes or other
applicable requirements. All of the Tenant Work shall be undertaken and
performed in strict accordance with the provisions of the Lease and this Work
Letter.
8. Risk of Loss. All materials, work, installations and decorations
of any nature brought upon or installed in the Premises before the
Commencement Date shall be at the risk of the party who brought such materials
or items onto the Premises. Neither Landlord nor any party acting on
Landlord's behalf shall be responsible for any damage or loss or destruction
of such items brought to or installed in the Premises by Tenant prior to such
date, except in the event of Landlord's gross negligence or willful
misconduct.
9. Expansion Space. If Tenant exercises its Expansion Option to
lease the Expansion Space (as defined in the Lease), then the terms of this
Work Letter, to the extent applicable, shall apply with respect to the
Expansion Space; provided that an amendment to the Lease and/or this Work
Letter shall be executed by the parties which shall set forth more
specifically the provisions hereof that shall apply to the Expansion Space.
If Tenant acquires the Expansion Space, Landlord shall furnish the material,
labor and equipment for the construction of improvements similar to the
Landlord's Improvements described in Schedule 1, which shall be agreed upon
and incorporated into the amendment ("Expansion Space Landlord's
Improvements"). With respect to Expansion Space Landlord's Improvements,
Substantial Completion of such improvements shall be deemed to have occurred
in accordance with the same criteria for Substantial Completion provided under
Section 4 of this Work Letter.
10. Conformance with Laws. All work performed by Tenant, including
the Tenant Work, shall be done in conformity with applicable codes and
regulations of governmental authorities having jurisdiction over the Project
and the Premises and valid building permits and other necessary authorizations
from appropriate governmental agencies when required, shall be obtained by
Tenant for the Tenant Work at Tenant's expense. Notwithstanding any failure
by Landlord to object to any such Tenant Work, Landlord shall have no
responsibility therefor.
11. Tenant's Representative. Tenant has designated Dave Evans as its
sole representative with respect to the matters set forth in this Work Letter,
who shall have full authority and responsibility to act on behalf of Tenant
as required in this Work Letter. Tenant may change its representative under
this Work Letter at any time by providing five (5) days prior written notice
to Landlord. All inquiries, requests, instructions, authorizations and other
communications with respect to matters covered by this Work Letter from
Landlord will be made to Tenant's Representative.
12. Landlord's Representative. Landlord has designated Jeff Dickerson
as its sole representative with respect to the matters set forth in this Work
Letter, who shall have full authority and responsibility to act on behalf of
Landlord as required in this Work Letter. Landlord may change its
representative under this Work Letter at any time by providing five (5) days
prior written notice to Tenant. All inquiries, requests, instructions,
authorizations and other communications with respect to the matters covered
by this Work Letter from Tenant will be made to Landlord's representative.
Tenant will communicate solely with Landlord's Representative and will not
make any inquiries of or requests to, and will not give any instructions or
authorizations to, any other employee or agent of Landlord, including
Landlord's architect, engineers, and contractors or any of their agents or
employees, with regard to matters covered by this Work Letter.
13. Miscellaneous.
13.1 Sole Obligations. Except as herein expressly set forth with
respect to the Landlord's Improvements, Landlord has no agreement with Tenant
and has no obligation to do any work with respect to the Premises. Any other
work in the Premises which may be permitted by Landlord pursuant to the terms
and conditions of the Lease, including any alterations or improvements as
contemplated in the Lease, shall be done at Tenant's sole cost and expense and
in accordance with the terms and conditions of the Lease.
13.2 Applicability. This Work Letter shall not be deemed
applicable to: (a) any additional space added to the original Premises at any
time, whether by the exercise of any options under the Lease or otherwise, or
(b) any portion of the original Premises or any additions thereto in the event
of a renewal or extension of the original Lease Term, whether by the exercise
of any options under the Lease or any amendment or supplement thereto. The
construction of any additions or improvements to the Premises not contemplated
by this Work Letter shall be effected pursuant to a separate work letter
agreement, in the form then being used by Landlord and specifically addressed
to the allocation of costs relating to such construction.
13.3 Authority; Counterparts. Any person signing this Work
Letter on behalf of Tenant warrants and represents that such person has
authority to do so. This Work Letter may be executed in counterparts, each
of which shall be deemed an original, but all of which together constitute one
instrument.
13.4 Binding on Successors. Subject to the limitations on
assignment and subletting contained in the Lease, this Work Letter shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13.5 Time of the Essence. Time is of the essence as to each and
every term and provision of this Work Letter. In all instances where Tenant
is required to approve an item, if no written notice of disapproval is given
within the stated time period at the end of said period the item shall
automatically be deemed approved and the next succeeding time period shall
commence. Except as otherwise provided, all references herein to a "number
of days" shall mean and refer to calendar days.
13.6 Attorneys' Fees. In any action to enforce or interpret the
terms of this Work Letter, the party prevailing in that action shall be
entitled to recover its reasonable attorneys' fees and costs of suit, both at
trial and on appeal.
13.7 Incorporation. This Work Letter is and shall be
incorporated by reference in the Lease and all of the terms and provisions of
the Lease are incorporated herein for all purposes. Any default by Tenant
hereunder also constitutes a default under the Lease.
[Remainder of Page Intentionally Left Blank]
14. Tenant's Acceptance of Premises. Within a period of sixty (60)
days after commencement of the Initial Term, Tenant shall notify Landlord, in
writing, of all portions of the Landlord's Improvements which are incomplete
and Landlord shall forthwith complete such items. Failure to deliver such
notice shall constitute an acknowledgment that the Landlord's Improvements are
complete.
Dated:_____________________ LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By:
Name: Thomas W. Roberts
Title: President
Dated:_____________________ TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
SCHEDULE 1
Plans and Specification
[To Be Attached]
EXHIBIT "C"
Preliminary Report
EXHIBIT "D"
Commencement Date Acknowledgment
TO: Opus West Corporation
2030 Main Street, Suite 520
Irvine, CA 92614
Attn: Paul A. Marshall
("Landlord")
FROM: PETCO Animal Supplies
9125 Rehco Road
San Diego, CA 92121-2270
Attn: Mark Drasin
("Tenant")
RE: Lease Agreement dated ___________________, 1997 ("Lease") covering
the premises described therein ("Premises") located in the County
of Riverside, State of California.
Pursuant to the term of the Lease, Tenant has agreed to provide this
Commencement Date Acknowledgment ("Acknowledgment") to Landlord within ten
(10) business days after Landlord's request therefor. This Acknowledgment is
not in any way intended to modify any of the terms of the Lease.
1. Commencement Date. The term of the Lease commenced on
___________________, is presently in force, and, unless Tenant exercises its
renewal or extension options, will expire on __________________________.
Tenant has two (2) five (5) year Renewal Options exercisable pursuant to
Article 17 the Lease and an Extension Election exercisable pursuant to Article
18 of the Lease.
2. Amendments. The Lease has not been modified, altered or amended
in any respect, except for (indicate "None" if
none)______________________________________.
The information set forth in this Acknowledgment is true and correct as
of the date hereof. This Acknowledgment shall be binding upon the successors
and assigns of Tenant.
DATED:
TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT "E"
Delivery Date Acknowledgment
TO: Opus West Corporation
2030 Main Street, Suite 520
Irvine, CA 92614
Attn: Paul A. Marshall
("Landlord")
FROM: PETCO Animal Supplies
9125 Rehco Road
San Diego, CA 92121-2270
Attn: Mark Drasin
("Tenant")
RE: Lease Agreement dated ___________________, 1997 ("Lease") covering
the premises described therein ("Premises") located in the County
of Riverside, State of California.
Pursuant to the term of the Lease, Tenant has agreed to provide this
Delivery Date Acknowledgment ("Acknowledgment") to Landlord within ten (10)
business days after Landlord's request therefor. This Acknowledgment is not
in any way intended to modify any of the terms of the Lease.
1. Acceptance of Premises. Tenant has accepted possession of the
Premises, is the actual occupant in possession of the Premises and has not
sublet, assigned or otherwise transferred its interest in the Premises. All
improvements to be constructed on the Premises by Landlord have been completed
and accepted by Tenant (with the exception of any identified punch list
items). The Premises were in acceptable condition and were delivered in
compliance with all of the requirement of the Work Letter (as defined in the
Lease) and the Lease.
2. Delivery Date. The Delivery Date under the Lease is and the
Premises were delivered from Landlord to Tenant on ___________________
3. Substantial Completion. The date of Substantial Completion of the
Premises (as defined in the Lease) is ________________________.
4. Amendments. The Lease has not been modified, altered or amended
in any respect, except for (indicate "None" if
none)______________________________________.
The information set forth in this Acknowledgment is true and correct as
of the date hereof. This Acknowledgment shall be binding upon the successors
and assigns of Tenant.
DATED:
TENANT:
PETCO ANIMAL SUPPLIES, INC., a
Delaware corporation
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT "F"
RECORDED AT THE REQUEST OF )
)
AND )
)
WHEN RECORDED MAIL TO: )
______________________________ )
______________________________ )
______________________________ )
______________________________ )
)
Space Above This Line for Recorder's Use
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into this ___ day of October, 1997,
by and among ___________________(ALender@), whose address is_______________,
PETCO ANIMAL SUPPLIES, INC., a Delaware corporation (the "Tenant") and OPUS
WEST CORPORATION, a Minnesota corporation (ALandlord@).
RECITALS
1. Lender is the owner and holder of that certain ____________
(Promissory Note or Loan Agreement) dated ____________, in the principal sum
of
($_____________). The ___________________ is secured by a deed of trust,
assignment and security agreement recorded prior to or contemporaneously with
the recording hereof in the records of San Diego County, California, which
Deed of Trust constitutes a lien or encumbrance on that real property more
particularly described on Schedule "A" attached hereto and by this reference
incorporated herein.
2. Tenant is the holder of a leasehold estate (the "Leased
Premises") included in the real property described on Schedule "A" attached
hereto and by this reference incorporated herein, pursuant to the terms of
that lease (the "Lease") dated _______, and executed by Tenant and Landlord.
The Lease includes without limitation all right, title and interest that
Tenant may have in all or any portion of the Leased Premises.
3. Tenant and Lender desire to confirm their understanding with
respect to the Lease and the Deed of Trust.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree and covenant as follows:
1. So long as Tenant is not in default (beyond any period given
Tenant to cure such default) in the payment of rent or in the performance of
any of the terms, covenants or conditions of the Lease to be performed by
Tenant, Lender shall not disturb or interfere with Tenant's possession and
occupancy of the Leased Premises during the term of the Lease or any extension
thereof duly exercised by Tenant.
2. If the interests of Tenant shall be transferred to and owned by
Lender by judicial foreclosure, private trustee sale or any other manner, and
Lender succeeds to the interest of Landlord under the Lease, Tenant shall be
bound to Lender under all of the covenants, conditions and provisions of the
Lease for the remaining term thereof, and any extension thereof duly exercised
by Tenant, with the same force and effect as if Lender were the Landlord under
the Lease. Tenant hereby attorns to Lender as its Landlord, and that
attornment shall be self-operative and shall be effective immediately upon
Lender's succeeding to the interest of Landlord under the Lease without the
execution of any further instruments by any of the parties hereto.
3. If the interests of Landlord shall be transferred to and owned by
Lender by judicial foreclosure, private trustee sale or any other manner, and
Lender succeeds to the interest of Landlord under the Lease, Lender shall be
bound to Tenant under all of the terms, covenants and conditions of the Lease
except that Lender shall not be:
(a) Liable for any act or omission of any prior landlord
(including Landlord);
(b) Subject to any offsets or defenses that Tenant might have
against any prior landlord (including Landlord) unless Lender has been given
notice and an opportunity to cure in accordance with the terms of the Lease;
(c) Bound by any rent or additional rent or advance rent that
Tenant might have paid for more than the current month to any prior landlord
(including Landlord) and all such rent shall remain due and owing
notwithstanding such advance payment;
(d) Bound by any amendment or modification of the Lease made
without its consent and written approval;
(e) Liable for any security deposit Tenant might have paid to
any prior landlord (including Landlord), except to the extent Lender has
actually received said security deposit;
(f) Personally liable under the Lease. Lender's liability under
the Lease shall be limited to the ownership interest of Lender in the Leased
Premises and any income derived therefrom by Lender.
In addition, Lender shall not have any liability or responsibility under or
pursuant to the terms of the Lease or this Agreement after it ceases to own
an interest in or to the property described on Schedule "A."
4. The Lease is now, and shall at all times continue to be, subject
and subordinate in each and every respect to the Deed of Trust and to all
extensions, modifications, renewals, replacements, substitutions and/or
consolidations thereof; but only to the extent that such extensions,
modifications, renewals, replacements, substitutions, and/or consolidations
thereof do not materially and detrimentally alter Tenant's rights and
obligations under the Lease. Nothing contained herein shall be deemed or
construed as limiting or restricting the enforcement by Lender of any of the
covenants, conditions, provisions or remedies of the Deed of Trust, whether
or not consistent with the Lease.
5. Tenant shall give written notice to Lender of any failure by
Landlord to perform or observe any of the covenants, conditions or provisions
of the Lease, and Lender shall have the right, but not the obligation, to cure
such failure. In the event of any such failure by Landlord, Tenant shall not
take any action with respect to such failure, including without limitation any
action to terminate, rescind or avoid the Lease or to withhold any rent
thereunder, for a period of fifteen (15) days after notice thereof to Lender;
provided, however, that if such failure cannot reasonably be remedied within
that fifteen (15) day period, Tenant shall not take any action with respect
to such failure, including without limitation any action to terminate, rescind
or avoid the Lease or to withhold any rent thereunder, so long as Lender shall
commence to remedy the failure within the fifteen (15) day period and
thereafter shall diligently prosecute the remedy to completion.
6. All notices, demands and requests which may be or are required to
be given, demanded or requested by either party to the other shall be in
writing. All notices, demands and requests shall be sent by United States
registered or certified mail, postage prepaid or by Federal Express or other
reputable independent overnight courier service, addressed at the addresses
specified at the beginning of this Agreement or at such other place as either
party may designate to the other party by written notice, and shall be deemed
to have been delivered on the date the same is (i) postmarked, if sent by
certified or registered United States mail, or (ii) deposited, if sent by
Federal Express or such other reputable overnight courier service, but shall
not be deemed received until (a) one (1) business day following deposit with
Federal Express or other reputable overnight courier service, or (b) three (3)
days following deposit in the United States Mail if sent by certified or
registered mail.
7. The term "Lender" shall be deemed to include _________, a
__________, and its successors and assigns, including anyone who shall have
succeeded to Landlord's interest by or through judicial foreclosure, private
trustee's sale, or other proceedings brought pursuant to the Deed of Trust or
deed in lieu of such foreclosure or proceedings.
8. Each covenant, condition and provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law
but if any covenant, condition or provision of this Agreement shall be held
to be void or invalid, the same shall not affect the remainder hereof which
shall be effective as though the void or invalid covenant, condition or
provision had not been contained herein.
9. This Agreement may not be modified orally or in any other manner
than by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, their successors and assigns.
10. This Agreement shall be governed by and construed according to the
laws of the State of California.
11. This Agreement may be executed in any number of counterparts, and
each counterpart executed by any of the undersigned, together with all other
counterparts so executed, shall constitute a single instrument and agreement
of the parties.
IN WITNESS WHEREOF, these presents are executed as of the date indicated
above.
_____________________________, a
__________________________________
By:
Name:
Title:
Lender
PETCO ANIMAL SUPPLIES, INC.,
a Delaware corporation
By:
Name:
Title:
Tenant
OPUS WEST CORPORATION,
a Minnesota corporation
By:
Name: Thomas W. Roberts
Title: President
Landlord
STATE OF CALIFORNIA )
) ss.
County of San Diego )
On _____________ before,____________________, personally appeared
________________ personally, known to me (or proved to me on the basis of
satisfactory evidence) to the person whose name(s) are/is subscribed to the
within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity, and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS, my hand and official seal.
Notary Public
My commission expires:_____________
[SEAL]
STATE OF CALIFORNIA )
) ss.
County of San Diego )
On _____________ before,____________________, personally appeared
________________ personally, known to me (or proved to me on the basis of
satisfactory evidence) to the person whose name(s) are/is subscribed to the
within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity, and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS, my hand and official seal.
Notary Public
My commission expires:_____________
[SEAL]
STATE OF CALIFORNIA )
) ss.
County of San Diego )
On _____________ before,____________________, personally appeared
________________ personally, known to me (or proved to me on the basis of
satisfactory evidence) to the person whose name(s) are/is subscribed to the
within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity, and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS, my hand and official seal.
Notary Public
My commission expires:_____________
[SEAL]
SCHEDULE "A"
Legal Description
[TO BE ATTACHED]
Exhibit 10.17
RETENTION AGREEMENT
THIS RETENTION AGREEMENT ("Agreement") is effective as of February 1,
1998, by and between Petco Animal Supplies, Inc. ("PETCO") and
________________("Employee").
A. EMPLOYEE is currently employed by PETCO. If the employment is
pursuant to an Offer Letter of Employment ("Offer Letter"), a copy of the
Offer Letter is attached hereto as Exhibit 1.
B. Although PETCO presently anticipates no Change in Control, the
Board of Directors wishes to plan for such a possibility and to ensure
EMPLOYEE's continued dedication and efforts in such event without undue
concern for personal, financial and employment security.
C. The parties hereto desire to fulfill the above purpose
according to the terms set forth in this Agreement.
AGREEMENT
In consideration of the mutual covenants set forth in this Agreement
and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. The following words and phrases as used in this
Agreement shall have the following respective meanings.
1. Cause. A termination of employment for "Cause" is a
termination precipitated by EMPLOYEE's:
(i) failure to substantially perform EMPLOYEE's duties with
PETCO (other than due to incapacity resulting from
physical or mental illness), which failure has continued
for at least 30 days following receipt by EMPLOYEE of
written notice specifying the failure to substantially
perform,
(ii) engagement in conduct that is demonstrably and materially
injurious to PETCO, monetarily or otherwise, which
injurious conduct has continued for at least 30 days
following EMPLOYEE's receipt of written notice specifying
the injurious conduct and offering EMPLOYEE the
opportunity to explain the conduct to the President/Chief
Executive Officer; or
(iii) a material breach by Employee of any provision of this
Agreement or the Offer Letter.
2. Change in Control. A "Change in Control" shall be deemed to
occur:
(1) if any person or entity other than persons or entities
currently owning more than five percent of PETCO's
securities is or becomes the "beneficial owner" (as
defined in rule 13d-3 of the Securities Exchange Act of
1934), directly or indirectly, of securities of PETCO
representing 50% or more of the combined voting power of
PETCO's then outstanding securities;
(2) upon the approval by PETCO's stockholders and the
consummation of a Transaction; or
(3) if, during any period, members of the Incumbent Board
cease for any reason to constitute at least a majority of
the Board.
Notwithstanding the foregoing, a Change in Control pursuant to
subparagraphs (ii) and (iii) above shall not be deemed to occur
if immediately following the consummation of a Transaction or
other event approved by the Incumbent Board, holders of PETCO's
voting securities immediately prior to a Transaction either
continue to own at least 50% of the combined voting power of
PETCO's then outstanding voting securities if PETCO survives
the Transaction or then own voting securities representing at
least 50% of the combined voting power of each surviving entity
after a Transaction.
3. Good Reason. Termination of employment by EMPLOYEE for "Good
Reason" is a termination of employment due to the occurrence of
any one of the following events or conditions:
(1) a material change in EMPLOYEE's status, title, position
or responsibilities which in the EMPLOYEE's reasonable
judgment represents a substantial reduction of the
status, title, position or responsibilities in effect
immediately prior to the change;
(2) the assignment of EMPLOYEE to a position which requires
EMPLOYEE to relocate permanently to a site outside of San
Diego County;
(3) assigning EMPLOYEE any duties or responsibilities (other
than due to a promotion) which in the EMPLOYEE's
reasonable judgment are inconsistent with his/her status,
title, position or responsibilities;
(4) any removal of EMPLOYEE from or failure to reappoint or
reelect EMPLOYEE to his/her previously held position,
except in connection with a promotion, the termination of
employment for Cause, as a result of permanent disability
(as determined by EMPLOYEE's eligibility to receive
disability benefits under any long-term disability plan
PETCO may then have in effect), as a result of EMPLOYEE's
death, or by EMPLOYEE other than for Good Reason; or
(5) any material breach by PETCO of any provision of this
Agreement or the Offer Letter.
4. Incumbent Board. The "Incumbent Board" consists of the members
of the Board of Directors of PETCO as of the date of this
Agreement, to the extent they continue to serve as Board
members and any individual who becomes a Board member after the
date of this Agreement if (i) his or her election or nomination
as a director was approved by a vote of at least two-thirds of
the then Incumbent Board and such person does not own more than
20% of PETCO's securities, or (ii) such individual is a
representative of an institutional investor that either owns
less than 20% of PETCO's securities or was represented on the
Board as of the date of this Agreement.
5. Severance Period. The "Severance Period" is the twelve-month
period beginning on the date of termination of EMPLOYEE's
employment or such longer period as offered by the acquiring
company consistent with acquiring company's policies and
practices or industry practices at that time.
6. Transaction. A "Transaction" means a merger or consolidation,
reorganization, distribution of assets to stockholders by spin-
off, split-up or otherwise, a sale or disposition of all or
substantially all of PETCO's assets or a liquidation or
dissolution of PETCO.
2. At-Will Employment. Notwithstanding any of the provisions in the
Agreement, EMPLOYEE and PETCO understand and expressly agree that
EMPLOYEE's employment is not for a specified term and that, other
than during the first year following a Change in Control, EMPLOYEE's
employment may be terminated by PETCO or by EMPLOYEE at any time,
with or without notice, and with or without cause. EMPLOYEE and
PETCO expressly agree that this provision is intended by EMPLOYEE and
PETCO to be the complete and final expression of their understanding
regarding the terms and conditions under which EMPLOYEE's employment
may be terminated. EMPLOYEE and PETCO further understand and agree
that no representation contrary to this provision is valid, and that
this provision may not be augmented, contradicted or modified in any
way, except by a writing signed by EMPLOYEE and PETCO's president.
3. Severance.
1. EMPLOYEE shall be entitled to receive from PETCO severance
benefits in the amount provided in subsection b, below, if in
connection with a Change in Control or within one year after a
Change in Control, EMPLOYEE's employment with PETCO is
terminated; provided, however, that EMPLOYEE will not be
entitled to any severance benefits if EMPLOYEE's termination of
employment is (i) for Cause, (ii) by reason of permanent
disability (as determined by EMPLOYEE's eligibility to receive
disability benefits under any long-term disability plan PETCO
may then have in effect), (iii) initiated by EMPLOYEE for other
than Good Reason or (iv) by reason of EMPLOYEE's death.
Notwithstanding any other provision of this Agreement, the
consummation of a Transaction in itself shall not be deemed a
termination of employment entitling EMPLOYEE to severance
benefits hereunder even if such event results in EMPLOYEE being
employed by a different entity which assumes PETCO's
obligations under this Agreement.
2. If EMPLOYEE's services are terminated, entitling EMPLOYEE to
severance benefits pursuant to subsection a, above, EMPLOYEE
shall be entitled to the following benefits:
(1) During the Severance Period, PETCO shall continue to pay
to EMPLOYEE base salary, less applicable withholding, at
the rate and according to the payment schedule in place
immediately prior to the termination of employment.
(2) During the Severance Period, PETCO shall continue on
behalf of EMPLOYEE (and EMPLOYEE's dependents and
beneficiaries) life insurance, disability insurance, and
medical, dental, and automobile benefits, if any, which
were being provided to EMPLOYEE at the time of
termination of employment and the expense shall be
allocated between PETCO and EMPLOYEE on the same basis as
prior to the date of termination of employment. The
period of time during which such payments and
continuation of coverage shall occur under this paragraph
will run concurrently with any separate period of time
during which the law requires continuation coverage. The
benefits provided pursuant to this subsection shall be no
less favorable to EMPLOYEE than the coverage provided to
EMPLOYEE under the plans providing such benefits at the
time notice of termination was given to EMPLOYEE. The
obligation of PETCO under this subsection shall be
limited to the extent that EMPLOYEE obtains any such
benefits pursuant to a subsequent employer's benefit
plans, in which case PETCO may reduce the coverage of any
benefits it is required to provide EMPLOYEE under this
subsection, as long as the aggregate coverage of the
combined benefit plans is no less favorable to EMPLOYEE,
in terms of amounts and deductibles and costs to
EMPLOYEE, than the coverage required to be provided under
this subsection. This subsection shall not be
interpreted so as to limit any benefits to which EMPLOYEE
(or EMPLOYEE's dependents or beneficiaries) are entitled
under any of PETCO's employee benefit plans, programs or
practices following EMPLOYEE's date of termination of
employment. The provision of continued benefits to
EMPLOYEE under this subsection shall not deprive EMPLOYEE
of any independent statutory right to continue benefits
coverage pursuant to sections 601 through 606 of the
Employee Retirement Income Security Act of 1974, as
amended; and
(3) On the date of termination of employment, PETCO shall pay
EMPLOYEE an amount equal to the bonus, if any, EMPLOYEE
would have received had EMPLOYEE remained in PETCO's
employment during the Severance Period. For purposes of
this paragraph, the bonus is calculated as the greater of
the prorata bonus norm or actual bonus earned.
(4) The above provisions set forth the minimum severance
benefits and do not prohibit better severance benefits
being offered that are consistent with the acquiring
company's policies and practices or industry practices at
that time.
(5) Nothing in this Retention Agreement is meant to prohibit
an employee from continuing to contribute to his or her
401(k) plan during the Severance Period.
4. Acceleration of Options. Pursuant to the authority granted to the
Board Committee under Section 4.7 of PETCO's 1994 Stock Option Plan
(the "Plan"), in the event of the occurrence of a Change in Control,
all of EMPLOYEE's rights to exercise option(s) granted under the Plan
and held by EMPLOYEE at the time of the Change in Control shall
immediately vest resulting in these option(s) becoming immediately
exercisable for the period specified in the section of the respective
option(s) relating to vesting of options, if the period specified is
less than three months, then three months after which time the
option(s) shall expire.
5. Term of Agreement. This Agreement shall continue in full force and
effect until terminated as provided in this section. This Agreement
shall terminate on the earlier of:
1. July 31st of a year after 1996, if the Board of Directors by
the affirmative vote of a majority of its members prior to
May 1 of such year and prior to the occurrence or consideration
of a specific Change in Control, has voted to terminate this
Agreement; or
2. if EMPLOYEE's services are terminated prior to the occurrence
of a Change in Control or after the first anniversary of a
Change in Control, the date of such termination of services;
3. if EMPLOYEE's services are terminated upon or within the first
year following a Change in Control under circumstances where
EMPLOYEE would not be entitled to severance benefits pursuant
to this Agreement, the date of such termination of services; or
4. after a Change in Control, the date on which any successor to
PETCO has performed all of its obligations under Section 3 of
this Agreement and EMPLOYEE has performed all of EMPLOYEE's
obligations under Section 3 of this Agreement.
6. Agreement Not to Use Trade Secrets.
1. Trade Secrets in General. During the course of EMPLOYEE's
employment, EMPLOYEE will have access to various trade secrets
of PETCO. A "Trade Secret" is information which is not
generally known to the public and, as a result, is of economic
benefit to PETCO in the conduct of its business. EMPLOYEE and
PETCO agree that Trade Secrets shall include, but not be
limited to, all information developed or obtained by PETCO,
comprising the following items, whether or not such items have
been reduced to tangible form (e.g., physical writing): all
methods, technics, processes, ideas, trade names, service
marks, slogans, forms, customer lists, pricing structures,
menus, business forms, recipes, formulas, marketing programs
and plans, layout and design, financial structure, operational
methods and tactics, cost information, the identity of
suppliers or customers of PETCO, customer lists, accounting
procedures, databases, and any document, record or other
information of PETCO relating to the above. Trade Secrets
include not only information belonging to PETCO which existed
before the date of this Agreement, but also information
developed by EMPLOYEE or PETCO or PETCO's employees during the
term of this Agreement and thereafter.
2. Restriction on Use of Trade Secrets. EMPLOYEE agrees that
EMPLOYEE's use of trade secrets is subject to the following
restrictions during the term of this Agreement and for an
indefinite period thereafter, so long as the Trade Secrets have
not become generally known to the public.
(1) Non-Disclosure. EMPLOYEE will not publish or disclose,
or allow to be published or disclosed, Trade Secrets to
any person who is not an employee of PETCO unless such
disclosure is necessary for the performance of EMPLOYEE's
obligations under this Agreement. Disclosure to someone
who is not an employee of PETCO must first be authorized
in writing by PETCO's president.
(2) Non-Removal. EMPLOYEE will not remove any Trade Secrets
from the office of PETCO or the premises of any facility
in which PETCO is performing services, or allow such
removal, unless permitted in writing by PETCO's
president.
(3) Prohibition Against Unfair Competition. At any time
after the termination of EMPLOYEE's employment with PETCO
for any reason, EMPLOYEE will not engage in competition
with PETCO while making use of the Trade Secrets of
PETCO.
3. Solicitation of Employees. EMPLOYEE will be called upon to
work closely with employees of PETCO in performing services
under this Agreement. EMPLOYEE expressly agrees that EMPLOYEE
will not, during EMPLOYEE's employment with PETCO and for one
year thereafter, solicit or take away any employee of PETCO.
In addition, all information about such employees which becomes
known to EMPLOYEE during the course of EMPLOYEE's employment
with PETCO, and which is not otherwise known to the public, is
a Trade Secret of PETCO and shall not be used by EMPLOYEE in
soliciting or taking away employees of PETCO at any time during
or after termination of EMPLOYEE's employment with PETCO.
4. Competition During Employment. During EMPLOYEE's employment
with PETCO, EMPLOYEE will not render services or give advice
to, affiliate with (as employee, partner, consultant or
otherwise) or invest or acquire any interest in, in whole or in
significant part, any other person or organization which is
engaged in or about to become engaged in franchising,
developing, owning or operating a retail store specializing in
pet food supplies and/or services (a "Conflicting
Organization"). EMPLOYEE shall not, however, be prohibited
from investing in securities of any Conflicting Organization
that is listed on a national securities exchange or traded on
the NASDAQ stock market, providing that EMPLOYEE does not own,
or have the right to acquire, more than three percent of the
outstanding voting securities of such company.
5. Return of Property. Upon the termination of EMPLOYEE's
employment for any reason, EMPLOYEE shall immediately deliver
to PETCO all originals and copies of documents, records,
computer disks, hard copy printouts of computer disks, software
programs, keys, security access cards, credit cards, financial
information, procedures, proposals, reports, computers, and
other items and information within EMPLOYEE's possession or
control, belonging to PETCO or in any way related to the
business of PETCO or the services EMPLOYEE performed for PETCO,
including, but not limited to, any and all of PETCO's Trade
Secrets.
6. Violations of Trade Secrets, Solicitation, Competition Clauses
and/or Return of Property. EMPLOYEE agrees and acknowledges
that the violation of any of the provisions contained in
Section 6 would cause irreparable injury to PETCO, that the
remedy at law for any violation or threatened violation thereof
would be inadequate and PETCO shall be entitled to temporary
and permanent injunctive or other equitable relief without the
necessity of proving actual damages. EMPLOYEE agrees that such
relief shall be available in a court of law regardless of the
arbitration provision contained in Section 14 of this
Agreement. In any proceeding by PETCO to enforce any of the
provisions contained in Section 6, the prevailing party shall
be entitled to reimbursement of all costs and reasonable
attorneys' fees incurred in such litigation.
7. Successors. This Agreement shall bind, and then be enforced by, any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of PETCO, in the same manner and to the same
extent that PETCO would be obligated under or entitled to enforce
this Agreement if no succession had taken place. In the case of any
Transaction in which a successor would not by the foregoing provision
or by operation of law be bound by this Agreement, PETCO shall use
its best efforts to require such successor expressly and
unconditionally to assume and agree to perform PETCO's obligations
under this Agreement, in the same manner and to the same extent that
PETCO would be required to perform if no such succession had taken
place unless PETCO previously arranged to establish an escrow to
satisfy its obligations thereunder.
8. Entire Agreement. Except as otherwise provided for in this
Agreement, this Agreement, together with the Offer Letter, if any,
represents the only agreement among the parties concerning the
subject matter hereof and supersedes all prior agreements whether
written or oral, relating thereto; provided, however, that the terms
of the option(s) granted to EMPLOYEE under the Plan are not
superseded except to the extent that this Agreement provides
severance compensation and benefits which are greater than under the
Offer Letters and that this Agreement restricts competition with
PETCO for a longer period than under the option(s) or the Offer
Letters in either of which case the provision of this Agreement shall
govern.
9. Assignment. This Agreement shall not be assignable by EMPLOYEE. Any
and all assignments of this Agreement or any interest therein by
EMPLOYEE shall be void.
10. No Waiver. Any waiver of any term or condition of this Agreement by
either party shall not operate as a waiver of any continued breach of
such term or condition, or any other term or condition, nor shall any
failure to enforce a provision of this Agreement operate as a waiver
of such provision or of any other provision of this Agreement.
11. Captions. The captions and headings of this Agreement are for
convenience only and shall in no way limit or otherwise affect any of
the terms or provisions contained herein.
12. Severability. Should any provision of this Agreement, or its
application, to any extent be held invalid or unenforceable, the
remainder of this Agreement and its application, excluding such
invalid or unenforceable provisions shall not be affected by such
exclusion and shall continue to be valid and enforceable to the
fullest extent permitted by law or equity.
13. Governing Law. This Agreement shall for all purposes be governed and
interpreted in accordance with the laws of the State of California.
14. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this
Agreement, including claims of fraud in the inducement, shall be
discussed between the disputing parties in a good faith effort to
arrive at a mutual settlement of any such controversy. If, the
dispute cannot be resolved, it shall be settled by binding
arbitration. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Arbitration
will be conducted pursuant to the provisions of this Agreement, and
the Commercial Arbitration Rules of the American Arbitration
Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for
the production of documents and taking of depositions. Unresolved
discovery disputes may be brought to the attention of the arbitrator
who may dispose of such dispute. The arbitrator shall have the
authority to award any remedy or relief that a court of this state
could order or grant. The arbitrator may award to the prevailing
party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel
expenses, out-of-pocket expenses and reasonable attorneys' fees.
Unless otherwise agreed by the parties, the place of any arbitration
proceedings shall be San Diego County, California.
15. Amendments. No amendment or modification of these terms or
conditions of this Agreement shall be valid unless in writing and
signed by the parties hereto.
16. Counterparts. This Agreement may be executed in counterparts, and if
so executed, each such counterpart shall have the force and effect of
an original.
17. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, sent by mail to his/her
residence in the case of the EMPLOYEE, or hand delivered to the
EMPLOYEE, or to PETCO's principal office (corporate office) in the
case of PETCO.
18. Construction. This Agreement shall not be construed against any
party on the grounds that such party drafted the Agreement or caused
it to be drafted.
19. Authority to Sign. Each individual signing this Agreement directly
and expressly warrants that he/she has been given and has received
and accepted authority to sign and execute the Agreement on behalf of
the party for whom it is indicated he/she has signed, and further has
been expressly given and received and accepted authority to enter
into a binding agreement on behalf of such party with respect to the
matters contained herein and as stated herein.
20. Acknowledgment. EMPLOYEE acknowledges that EMPLOYEE has been advised
by PETCO to consult with independent counsel of EMPLOYEE's own
choice, at EMPLOYEE's expense, concerning this Agreement, that
EMPLOYEE has had the opportunity to do so, and that EMPLOYEE has
taken advantage of that opportunity to the extent that EMPLOYEE
desires. EMPLOYEE further acknowledges that EMPLOYEE has read and
understands this Agreement, is fully aware of its legal effect, and
has entered into it freely based on EMPLOYEE's own judgement.
IN WITNESS HEREOF, the parties have executed this Agreement as of the date
set forth above.
PETCO ANIMAL SUPPLIES, INC.
By:
-------------------------
Its:
-------------------------
EMPLOYEE
- --------------------------
Exhibit 10.18
RETENTION AGREEMENT
THIS RETENTION AGREEMENT ("Agreement") is effective as of March 22,
1998, by and between Petco Animal Supplies, Inc. ("PETCO") and
_________________("employee").
A. EMPLOYEE is currently employed by PETCO. If the employment is
pursuant to an Offer Letter of Employment ("Offer Letter"), a copy of the
Offer Letter is attached hereto as Exhibit 1.
B. Although PETCO presently anticipates no Change in Control, the
Board of Directors wishes to plan for such a possibility and to ensure
EMPLOYEE's continued dedication and efforts in such event without undue
concern for personal, financial and employment security.
C. The parties hereto desire to fulfill the above purpose
according to the terms set forth in this Agreement.
AGREEMENT
In consideration of the mutual covenants set forth in this Agreement
and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. The following words and phrases as used in this
Agreement shall have the following respective meanings.
1. Cause. A termination of employment for ACause@ is a
termination precipitated by EMPLOYEE's:
(i) failure to substantially perform EMPLOYEE's duties with
PETCO (other than due to incapacity resulting from
physical or mental illness), which failure has continued
for at least 30 days following receipt by EMPLOYEE of
written notice specifying the failure to substantially
perform,
(ii) engagement in conduct that is demonstrably and materially
injurious to PETCO, monetarily or otherwise, which
injurious conduct has continued for at least 30 days
following EMPLOYEE's receipt of written notice specifying
the injurious conduct and offering EMPLOYEE the
opportunity to explain the conduct to the President/Chief
Executive Officer; or
(iii) a material breach by Employee of any provision of this
Agreement or the Offer Letter.
2. Change in Control. A AChange in Control@ shall be deemed to
occur:
(1) if any person or entity other than persons or entities
currently owning more than five percent of PETCO's
securities is or becomes the "beneficial owner" (as
defined in rule 13d-3 of the Securities Exchange Act of
1934), directly or indirectly, of securities of PETCO
representing 50% or more of the combined voting power of
PETCO's then outstanding securities;
(2) upon the approval by PETCO's stockholders and the
consummation of a Transaction; or
(3) if, during any period, members of the Incumbent Board
cease for any reason to constitute at least a majority of
the Board.
Notwithstanding the foregoing, a Change in Control pursuant to
subparagraphs (ii) and (iii) above shall not be deemed to occur
if immediately following the consummation of a Transaction or
other event approved by the Incumbent Board, holders of PETCO's
voting securities immediately prior to a Transaction either
continue to own at least 50% of the combined voting power of
PETCO's then outstanding voting securities if PETCO survives
the Transaction or then own voting securities representing at
least 50% of the combined voting power of each surviving entity
after a Transaction.
3. Good Reason. Termination of employment by EMPLOYEE for "Good
Reason" is a termination of employment due to the occurrence of
any one of the following events or conditions:
(1) a material change in EMPLOYEE's status, title, position
or responsibilities which in the EMPLOYEE's reasonable
judgment represents a substantial reduction of the
status, title, position or responsibilities in effect
immediately prior to the change;
(2) the assignment of EMPLOYEE to a position which requires
EMPLOYEE to relocate permanently to a site outside of San
Diego County;
(3) assigning EMPLOYEE any duties or responsibilities (other
than due to a promotion) which in the EMPLOYEE's
reasonable judgment are inconsistent with his/her status,
title, position or responsibilities;
(4) any removal of EMPLOYEE from or failure to reappoint or
reelect EMPLOYEE to his/her previously held position,
except in connection with a promotion, the termination of
employment for Cause, as a result of permanent disability
(as determined by EMPLOYEE's eligibility to receive
disability benefits under any long-term disability plan
PETCO may then have in effect), as a result of EMPLOYEE's
death, or by EMPLOYEE other than for Good Reason; or
(5) any material breach by PETCO of any provision of this
Agreement or the Offer Letter.
4. Incumbent Board. The "Incumbent Board" consists of the members
of the Board of Directors of PETCO as of the date of this
Agreement, to the extent they continue to serve as Board
members and any individual who becomes a Board member after the
date of this Agreement if (i) his or her election or nomination
as a director was approved by a vote of at least two-thirds of
the then Incumbent Board and such person does not own more than
20% of PETCO's securities, or (ii) such individual is a
representative of an institutional investor that either owns
less than 20% of PETCO's securities or was represented on the
Board as of the date of this Agreement.
5. Severance Period. The "Severance Period" is the six-month
period beginning on the date of termination of EMPLOYEE's
employment or such longer period as offered by the acquiring
company consistent with acquiring company's policies and
practices or industry practices at that time.
6. Transaction. A "transaction" means a merger or consolidation,
reorganization, distribution of assets to stockholders by spin-
off, split-up or otherwise, a sale or disposition of all or
substantially all of PETCO's assets or a liquidation or
dissolution of PETCO.
2. At-Will Employment. Notwithstanding any of the provisions in the
Agreement, EMPLOYEE and PETCO understand and expressly agree that
EMPLOYEE's employment is not for a specified term and that, other
than during the first year following a Change in Control, EMPLOYEE's
employment may be terminated by PETCO or by EMPLOYEE at any time,
with or without notice, and with or without cause. EMPLOYEE and
PETCO expressly agree that this provision is intended by EMPLOYEE and
PETCO to be the complete and final expression of their understanding
regarding the terms and conditions under which EMPLOYEE's employment
may be terminated. EMPLOYEE and PETCO further understand and agree
that no representation contrary to this provision is valid, and that
this provision may not be augmented, contradicted or modified in any
way, except by a writing signed by EMPLOYEE and PETCO's president.
3. Severance
1. EMPLOYEE shall be entitled to receive from PETCO severance
benefits in the amount provided in subsection b, below, if in
connection with a Change in Control or within one year after a
Change in Control, EMPLOYEE's employment with PETCO is
terminated; provided, however, that EMPLOYEE will not be
entitled to any severance benefits if EMPLOYEE's termination of
employment is (i) for Cause, (ii) by reason of permanent
disability (as determined by EMPLOYEE's eligibility to receive
disability benefits under any long-term disability plan PETCO
may then have in effect), (iii) initiated by EMPLOYEE for other
than Good Reason or (iv) by reason of EMPLOYEE's death.
Notwithstanding any other provision of this Agreement, the
consummation of a Transaction in itself shall not be deemed a
termination of employment entitling EMPLOYEE to severance
benefits hereunder even if such event results in EMPLOYEE being
employed by a different entity which assumes PETCO's
obligations under this Agreement.
2. If EMPLOYEE's services are terminated, entitling EMPLOYEE to
severance benefits pursuant to subsection a, above, EMPLOYEE
shall be entitled to the following benefits:
(1) During the Severance Period, PETCO shall continue to pay
to EMPLOYEE base salary, less applicable withholding, at
the rate and according to the payment schedule in place
immediately prior to the termination of employment.
(2) During the Severance Period, PETCO shall continue on
behalf of EMPLOYEE (and EMPLOYEE's dependents and
beneficiaries) life insurance, disability insurance, and
medical, dental, and automobile benefits, if any, which
were being provided to EMPLOYEE at the time of
termination of employment and the expense shall be
allocated between PETCO and EMPLOYEE on the same basis as
prior to the date of termination of employment. The
period of time during which such payments and
continuation of coverage shall occur under this paragraph
will run concurrently with any separate period of time
during which the law requires continuation coverage. The
benefits provided pursuant to this subsection shall be no
less favorable to EMPLOYEE than the coverage provided to
EMPLOYEE under the plans providing such benefits at the
time notice of termination was given to EMPLOYEE. The
obligation of PETCO under this subsection shall be
limited to the extent that EMPLOYEE obtains any such
benefits pursuant to a subsequent employer's benefit
plans, in which case PETCO may reduce the coverage of any
benefits it is required to provide EMPLOYEE under this
subsection, as long as the aggregate coverage of the
combined benefit plans is no less favorable to EMPLOYEE,
in terms of amounts and deductibles and costs to
EMPLOYEE, than the coverage required to be provided under
this subsection. This subsection shall not be
interpreted so as to limit any benefits to which EMPLOYEE
(or EMPLOYEE's dependents or beneficiaries) are entitled
under any of PETCO's employee benefit plans, programs or
practices following EMPLOYEE's date of termination of
employment. The provision of continued benefits to
EMPLOYEE under this subsection shall not deprive EMPLOYEE
of any independent statutory right to continue benefits
coverage pursuant to sections 601 through 606 of the
Employee Retirement Income Security Act of 1974, as
amended; and
(3) On the date of termination of employment, PETCO shall pay
EMPLOYEE an amount equal to the bonus, if any, EMPLOYEE
would have received had EMPLOYEE remained in PETCO's
employment during the Severance Period. For purposes of
this paragraph, the bonus is calculated as the greater of
the prorata bonus norm or actual bonus earned.
(4) The above provisions set forth the minimum severance
benefits and do not prohibit better severance benefits
being offered that are consistent with the acquiring
company's policies and practices or industry practices at
that time.
(5) Nothing in this Retention Agreement is meant to prohibit
an employee from continuing to contribute to his or her
401(k) plan during the Severance Period.
4. Acceleration of Options. Pursuant to the authority granted to the
Board Committee under Section 4.7 of PETCO's 1994 Stock Option Plan
(the "Plan"), in the event of the occurrence of a Change in Control,
all of EMPLOYEE's rights to exercise option(s) granted under the Plan
and held by EMPLOYEE at the time of the Change in Control shall
immediately vest resulting in these option(s) becoming immediately
exercisable for the period specified in the section of the respective
option(s) relating to vesting of options, if the period specified is
less than three months, then three months after which time the
option(s) shall expire.
5. Term of Agreement. This Agreement shall continue in full force and
effect until terminated as provided in this section. This Agreement
shall terminate on the earlier of:
1. July 31st of a year after 1996, if the Board of Directors by
the affirmative vote of a majority of its members prior to
May 1 of such year and prior to the occurrence or consideration
of a specific Change in Control, has voted to terminate this
Agreement; or
2. if EMPLOYEE's services are terminated prior to the occurrence
of a Change in Control or after the first anniversary of a
Change in Control, the date of such termination of services;
3. if EMPLOYEE's services are terminated upon or within the first
year following a Change in Control under circumstances where
EMPLOYEE would not be entitled to severance benefits pursuant
to this Agreement, the date of such termination of services; or
4. after a Change in Control, the date on which any successor to
PETCO has performed all of its obligations under Section 3 of
this Agreement and EMPLOYEE has performed all of EMPLOYEE's
obligations under Section 3 of this Agreement.
6. Agreement Not to Use Trade Secrets.
1. Trade Secrets in General. During the course of EMPLOYEE's
employment, EMPLOYEE will have access to various trade secrets
of PETCO. A "Trade Secret" is information which is not
generally known to the public and, as a result, is of economic
benefit to PETCO in the conduct of its business. EMPLOYEE and
PETCO agree that Trade Secrets shall include, but not be
limited to, all information developed or obtained by PETCO,
comprising the following items, whether or not such items have
been reduced to tangible form (e.g., physical writing): all
methods, technics, processes, ideas, trade names, service
marks, slogans, forms, customer lists, pricing structures,
menus, business forms, recipes, formulas, marketing programs
and plans, layout and design, financial structure, operational
methods and tactics, cost information, the identity of
suppliers or customers of PETCO, customer lists, accounting
procedures, databases, and any document, record or other
information of PETCO relating to the above. Trade Secrets
include not only information belonging to PETCO which existed
before the date of this Agreement, but also information
developed by EMPLOYEE or PETCO or PETCO's employees during the
term of this Agreement and thereafter.
2. Restriction on Use of Trade Secrets. EMPLOYEE agrees that
EMPLOYEE's use of trade secrets is subject to the following
restrictions during the term of this Agreement and for an
indefinite period thereafter, so long as the Trade Secrets have
not become generally known to the public.
(1) Non-Disclosure. EMPLOYEE will not publish or disclose,
or allow to be published or disclosed, Trade Secrets to
any person who is not an employee of PETCO unless such
disclosure is necessary for the performance of EMPLOYEE's
obligations under this Agreement. Disclosure to someone
who is not an employee of PETCO must first be authorized
in writing by PETCO's president.
(2) Non-Removal. EMPLOYEE will not remove any Trade Secrets
from the office of PETCO or the premises of any facility
in which PETCO is performing services, or allow such
removal, unless permitted in writing by PETCO's
president.
(3) Prohibition Against Unfair Competition. At any time
after the termination of EMPLOYEE's employment with PETCO
for any reason, EMPLOYEE will not engage in competition
with PETCO while making use of the Trade Secrets of
PETCO.
3. Solicitation of Employees. EMPLOYEE will be called upon to
work closely with employees of PETCO in performing services
under this Agreement. EMPLOYEE expressly agrees that EMPLOYEE
will not, during EMPLOYEE's employment with PETCO and for one
year thereafter, solicit or take away any employee of PETCO.
In addition, all information about such employees which becomes
known to EMPLOYEE during the course of EMPLOYEE's employment
with PETCO, and which is not otherwise known to the public, is
a Trade Secret of PETCO and shall not be used by EMPLOYEE in
soliciting or taking away employees of PETCO at any time during
or after termination of EMPLOYEE's employment with PETCO.
4. Competition During Employment. During EMPLOYEE's employment
with PETCO, EMPLOYEE will not render services or give advice
to, affiliate with (as employee, partner, consultant or
otherwise) or invest or acquire any interest in, in whole or in
significant part, any other person or organization which is
engaged in or about to become engaged in franchising,
developing, owning or operating a retail store specializing in
pet food supplies and/or services (a "Conflicting
Organization"). EMPLOYEE shall not, however, be prohibited
from investing in securities of any Conflicting Organization
that is listed on a national securities exchange or traded on
the NASDAQ stock market, providing that EMPLOYEE does not own,
or have the right to acquire, more than three percent of the
outstanding voting securities of such company.
5. Return of Property. Upon the termination of EMPLOYEE's
employment for any reason, EMPLOYEE shall immediately deliver
to PETCO all originals and copies of documents, records,
computer disks, hard copy printouts of computer disks, software
programs, keys, security access cards, credit cards, financial
information, procedures, proposals, reports, computers, and
other items and information within EMPLOYEE's possession or
control, belonging to PETCO or in any way related to the
business of PETCO or the services EMPLOYEE performed for PETCO,
including, but not limited to, any and all of PETCO's Trade
Secrets.
6. Violations of Trade Secrets, Solicitation, Competition Clauses
and/or Return of Property. EMPLOYEE agrees and acknowledges
that the violation of any of the provisions contained in
Section 6 would cause irreparable injury to PETCO, that the
remedy at law for any violation or threatened violation thereof
would be inadequate and PETCO shall be entitled to temporary
and permanent injunctive or other equitable relief without the
necessity of proving actual damages. EMPLOYEE agrees that such
relief shall be available in a court of law regardless of the
arbitration provision contained in Section 14 of this
Agreement. In any proceeding by PETCO to enforce any of the
provisions contained in Section 6, the prevailing party shall
be entitled to reimbursement of all costs and reasonable
attorneys' fees incurred in such litigation.
7. Successors. This Agreement shall bind, and then be enforced by, any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of PETCO, in the same manner and to the same
extent that PETCO would be obligated under or entitled to enforce
this Agreement if no succession had taken place. In the case of any
Transaction in which a successor would not by the foregoing provision
or by operation of law be bound by this Agreement, PETCO shall use
its best efforts to require such successor expressly and
unconditionally to assume and agree to perform PETCO's obligations
under this Agreement, in the same manner and to the same extent that
PETCO would be required to perform if no such succession had taken
place unless PETCO previously arranged to establish an escrow to
satisfy its obligations thereunder.
8. Entire Agreement. Except as otherwise provided for in this
Agreement, this Agreement, together with the Offer Letter, if any,
represents the only agreement among the parties concerning the
subject matter hereof and supersedes all prior agreements whether
written or oral, relating thereto; provided, however, that the terms
of the option(s) granted to EMPLOYEE under the Plan are not
superseded except to the extent that this Agreement provides
severance compensation and benefits which are greater than under the
Offer Letters and that this Agreement restricts competition with
PETCO for a longer period than under the option(s) or the Offer
Letters in either of which case the provision of this Agreement shall
govern.
9. Assignment. This Agreement shall not be assignable by EMPLOYEE. Any
and all assignments of this Agreement or any interest therein by
EMPLOYEE shall be void.
10. No Waiver. Any waiver of any term or condition of this Agreement by
either party shall not operate as a waiver of any continued breach of
such term or condition, or any other term or condition, nor shall any
failure to enforce a provision of this Agreement operate as a waiver
of such provision or of any other provision of this Agreement.
11. Captions. The captions and headings of this Agreement are for
convenience only and shall in no way limit or otherwise affect any of
the terms or provisions contained herein.
12. Severability. Should any provision of this Agreement, or its
application, to any extent be held invalid or unenforceable, the
remainder of this Agreement and its application, excluding such
invalid or unenforceable provisions shall not be affected by such
exclusion and shall continue to be valid and enforceable to the
fullest extent permitted by law or equity.
13. Governing Law. This Agreement shall for all purposes be governed and
interpreted in accordance with the laws of the State of California.
14. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this
Agreement, including claims of fraud in the inducement, shall be
discussed between the disputing parties in a good faith effort to
arrive at a mutual settlement of any such controversy. If, the
dispute cannot be resolved, it shall be settled by binding
arbitration. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Arbitration
will be conducted pursuant to the provisions of this Agreement, and
the Commercial Arbitration Rules of the American Arbitration
Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for
the production of documents and taking of depositions. Unresolved
discovery disputes may be brought to the attention of the arbitrator
who may dispose of such dispute. The arbitrator shall have the
authority to award any remedy or relief that a court of this state
could order or grant. The arbitrator may award to the prevailing
party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel
expenses, out-of-pocket expenses and reasonable attorneys' fees.
Unless otherwise agreed by the parties, the place of any arbitration
proceedings shall be San Diego County, California.
15. Amendments. No amendment or modification of these terms or
conditions of this Agreement shall be valid unless in writing and
signed by the parties hereto.
16. Counterparts. This Agreement may be executed in counterparts, and if
so executed, each such counterpart shall have the force and effect of
an original.
17. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, sent by mail to his/her
residence in the case of the EMPLOYEE, or hand delivered to the
EMPLOYEE, or to PETCO's principal office (corporate office) in the
case of PETCO.
18. Construction. This Agreement shall not be construed against any
party on the grounds that such party drafted the Agreement or caused
it to be drafted.
19. Authority to Sign. Each individual signing this Agreement directly
and expressly warrants that he/she has been given and has received
and accepted authority to sign and execute the Agreement on behalf of
the party for whom it is indicated he/she has signed, and further has
been expressly given and received and accepted authority to enter
into a binding agreement on behalf of such party with respect to the
matters contained herein and as stated herein.
20. Acknowledgment. EMPLOYEE acknowledges that EMPLOYEE has been advised
by PETCO to consult with independent counsel of EMPLOYEE's own
choice, at EMPLOYEE's expense, concerning this Agreement, that
EMPLOYEE has had the opportunity to do so, and that EMPLOYEE has
taken advantage of that opportunity to the extent that EMPLOYEE
desires. EMPLOYEE further acknowledges that EMPLOYEE has read and
understands this Agreement, is fully aware of its legal effect, and
has entered into it freely based on EMPLOYEE's own judgment.
IN WITNESS HEREOF, the parties have executed this Agreement as of the date
set forth above.
PETCO ANIMAL SUPPLIES, INC.
By:
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Its:
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EMPLOYEE
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