<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 28, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 1-11752
ST. JOHN KNITS, INC.
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 95-2245070
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
17422 DERIAN AVENUE, IRVINE, CALIFORNIA 92714
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (714) 863-1171
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
---- ----
The number of outstanding shares of registrant's Common Stock, no par
value, was 16,480,998 shares as of June 4, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ST. JOHN KNITS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 28, OCTOBER 29,
1996 1995
------------ -----------
<S> <C> <C>
(unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents............................................... $11,811,937 $ 8,711,613
Investments............................................................. 6,502,184 6,399,692
Accounts receivable, net................................................ 21,135,668 21,124,306
Inventories............................................................. 16,047,156 14,909,042
Deferred income tax benefit............................................. 3,454,291 3,454,291
Other................................................................... 444,626 247,236
----------- -----------
Total current assets................................................ 59,395,862 54,846,180
----------- -----------
Property and equipment:
Machinery and equipment............................................... 28,081,487 23,614,437
Leasehold improvements................................................ 21,174,745 19,132,496
Furniture and fixtures................................................ 4,020,475 3,756,202
Construction in progress.............................................. 2,793,729 350,950
----------- -----------
56,070,436 46,854,085
Less--Accumulated depreciation and amortization....................... 20,208,704 17,245,028
----------- -----------
35,861,732 29,609,057
----------- -----------
Other assets............................................................. 2,381,896 1,517,483
----------- -----------
$97,639,490 $85,972,720
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable...................................................... $ 3,860,756 $ 4,480,794
Accrued expenses...................................................... 10,586,719 9,162,096
Income taxes payable.................................................. 2,081,221 3,073,125
----------- -----------
Total current liabilities........................................... 16,528,696 16,716,015
----------- -----------
Deferred income tax liability......................................... 29,465 29,465
----------- -----------
Shareholders' equity:
Preferred Stock, no par value: Authorized--2,000,000 shares, issued
and outstanding--none................................................ -- --
Common Stock, no par value: Authorized--40,000,000 shares, issued
and outstanding--16,480,998 and 16,468,734 shares, respectively...... 502,799 502,799
Additional paid-in capital............................................ 15,894,778 15,687,393
Retained earnings..................................................... 64,683,752 53,037,048
----------- -----------
81,081,329 69,227,240
----------- -----------
$97,639,490 $85,972,720
=========== ===========
</TABLE>
See accompanying notes.
2
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ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------ -----------------------------
April 28, April 30, April 28, April 30,
1996 1995 1996 1995
-------------- --------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales...................................... $50,028,466 $40,620,455 $95,287,195 $76,923,490
Cost of sales.................................. 22,388,015 18,800,007 43,069,603 35,884,966
------------ ----------- ----------- ------------
Gross profit................................... 27,640,451 21,820,448 52,217,592 41,038,524
Selling, general and administrative expenses... 16,150,521 13,103,856 31,508,618 25,637,248
------------ ----------- ----------- ------------
Operating income............................... 11,489,930 8,716,592 20,708,974 15,401,276
Other income................................... 235,616 103,783 845,320 289,594
------------ ----------- ----------- ------------
Income before income taxes..................... 11,725,546 8,820,375 21,554,294 15,690,870
Income taxes................................... 4,941,554 3,717,215 9,083,731 6,612,682
------------ ----------- ----------- ------------
Net income..................................... $ 6,783,992 $ 5,103,160 $12,470,563 $ 9,078,188
============ =========== =========== ============
Net income per share........................... $ 0.40 $ 0.31 $ 0.73 $ 0.55
============ =========== =========== ============
Dividends per share............................ $ 0.025 $ 0.025 $ 0.05 $ 0.05
============ =========== =========== ============
Weighted average shares outstanding............ 17,052,284 16,414,876 17,050,624 16,414,438
============ =========== =========== ============
</TABLE>
See accompanying notes.
3
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------------------
April 28, 1996 April 30, 1995
----------------- ---------------
<S> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income....................................................... $ 12,470,563 $ 9,078,188
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 3,274,492 2,512,613
Deferred income tax benefit..................................... -- (400,000)
Loss on sale of property and equipment.......................... 17,820 44,047
Partnership losses.............................................. 54,897 73,796
(Increase) decrease in accounts receivable...................... (11,362) 110,633
Increase in inventories......................................... (1,138,114) (1,693,141)
Increase in other current assets................................ (197,390) (585,218)
Increase in other assets........................................ (233,048) (16,080)
Decrease in accounts payable.................................... (620,038) (1,728,301)
Increase in accrued expenses.................................... 1,424,316 1,037,462
Increase (decrease) in income taxes payable..................... (991,904) 231,003
------------- -----------
Net cash provided by operating activities.................... 14,050,232 8,665,002
------------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment.................... -- 32,618
Purchase of property and equipment.............................. (9,544,987) (6,758,585)
Net purchase of short term investments.......................... (102,492) (98,133)
Net capital (contributions to) distributions from partnership... (686,261) 21,500
------------- -----------
Net cash used in investing activities........................ (10,333,740) (6,802,600)
------------- -----------
Cash flows from financing activities:
Dividends paid.................................................. (823,553) (410,357)
Issuance of common stock........................................ 207,385 78,748
------------- -----------
Net cash used in financing activities........................ (616,168) (331,609)
------------- -----------
Net increase in cash and cash equivalents......................... 3,100,324 1,530,793
Beginning balance, cash and cash equivalents...................... 8,711,613 8,855,445
------------- -----------
Ending balance, cash and cash equivalents......................... $ 11,811,937 $10,386,238
============= ===========
Supplemental disclosures of cash flow information:
Cash received during the twenty-six weeks for -
Interest income............................................... $ 406,555 $ 245,231
============= ===========
Cash paid during the twenty-six weeks for -
Interest expense.............................................. -- $ 242
============= ===========
Income taxes.................................................... $ 9,983,750 $ 6,807,599
============= ===========
</TABLE>
See accompanying notes.
4
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of St. John
Knits, Inc. and its subsidiaries (collectively referred to herein as "the
Company") reflect all adjustments (which include only normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods
presented. It is suggested that the accompanying unaudited consolidated
financial statements and footnotes thereto be read in conjunction with the
financial statements and footnotes included in the Company's Annual Report
on Form 10-K for the year ended October 29, 1995 as filed with the
Securities and Exchange Commission on January 26, 1996.
The results of operations for the periods presented are not necessarily
indicative of the operating results that may be expected for the year
ending November 3, 1996.
2. SUMMARY OF ACCOUNTING POLICIES
a. COMPANY OPERATIONS
The Company is a leading designer, manufacturer and marketer of women's
clothing and accessories. The Company's products are distributed primarily
through specialty retailers and the Company owned retail boutiques. All
intercompany and interdivisional transactions and accounts have been
eliminated.
b. DEFINITION OF FISCAL YEAR
The Company utilizes a 52-53 week fiscal year whereby the fiscal year
ends on the Sunday nearest to October 31. The quarters also end on the
Sunday nearest the end of the quarter, which accordingly were April 28,
1996 and April 30, 1995.
3. DIVIDENDS
The Company declared a quarterly dividend of $0.025 per share (as
adjusted for the stock split discussed below) on March 5, 1996 for all
shareholders of record on April 4, 1996. The dividend was paid on May 3,
1996. On May 31, 1996, the Company declared another quarterly cash
dividend of $0.025 per share to be paid on August 2, 1996 to shareholders
of record on July 3, 1996.
4. STOCK SPLIT
On March 12, 1996, the Company declared a 2-for-1 stock split for all
shareholders of record on April 8, 1996. Certificates evidencing the
additional shares were issued on May 6, 1996. All share and per share data
have been adjusted to reflect the stock split.
5
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5. EARNINGS PER SHARE
Beginning in the second quarter of fiscal year 1996, the weighted average
shares have been increased to reflect stock options that are issued and
outstanding.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated
Statements of Income and sets forth, for the periods indicated, the results
of operations as a percentage of net sales:
<TABLE>
<CAPTION>
Percent of Net Sales Percent of Net Sales
Thirteen Weeks Ended Twenty-Six Weeks Ended
("Second Quarter") ("Six Months")
---------------------------- -----------------------------
April 28, April 30, April 28, April 30,
1996 1995 1996 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 44.8 46.3 45.2 46.7
------- ------- ------- ------
Gross profit................................... 55.2 53.7 54.8 53.3
Selling, general and administrative expenses... 32.3 32.3 33.1 33.3
------- ------- ------- ------
Operating income............................... 22.9 21.4 21.7 20.0
Other income................................... 0.5 0.3 0.9 0.4
------- ------- ------- ------
Income before income taxes..................... 23.4 21.7 22.6 20.4
Income taxes................................... 9.8 9.2 9.5 8.6
------- ------- ------- ------
Net income..................................... 13.6% 12.5% 13.1% 11.8%
======= ======= ======= ======
</TABLE>
7
<PAGE>
SECOND QUARTER FISCAL 1996 COMPARED TO SECOND QUARTER FISCAL 1995
Net sales for the second quarter of fiscal 1996 increased by $9,408,000,
or 23.2% over the second quarter of fiscal 1995. This increase was
principally attributable to (i) an increase in sales to existing domestic
retail customers of approximately $5,928,000, (ii) an increase in sales by
Company owned retail stores of approximately $2,426,000, due in part to the
addition of three retail boutiques and two retail outlet stores since the
beginning of the second quarter of fiscal 1995 and (iii) an increase in
sales to international retail customers of $1,054,000. Net sales increased
primarily as a result of increased unit sales of various products lines.
Gross profit for the second quarter of fiscal 1996 increased by
$5,820,000, or 26.7% as compared with the second quarter of fiscal 1995,
and increased as a percentage of net sales to 55.2% from 53.7%. This
increase in the gross profit margin was due to an increase in the number of
garments being produced and sold without a corresponding increase in the
production costs, due in part to the fixed nature of some costs.
Selling, general and administrative expenses for the second quarter of
fiscal 1996 increased by $3,047,000, or 23.3% over the second quarter of
fiscal 1995, and remained constant as a percentage of net sales at 32.3%.
Although the percentage remained constant, an increase in the selling,
general and administrative expenses as a percentage of net sales for the
Retail Division was offset by a reduction in the costs incurred in
connection with the promotion and distribution of the fragrance line as
compared with the same period last year, and costs incurred during the
second quarter of fiscal 1995 related to the completion of the new
manufacturing facility.
Operating income for the second quarter of fiscal 1996 increased by
$2,773,000, or 31.8% over the second quarter of fiscal 1995. Operating
income as percentage of net sales increased to 23.0% from 21.5% during the
same period. This increase in the operating income as a percentage of net
sales was due to the increase in the gross profit margin.
FIRST SIX MONTHS FISCAL 1996 COMPARED TO FIRST SIX MONTHS FISCAL 1995
Net sales for the first six months of fiscal 1996 increased by
$18,364,000, or 23.9% over the first six months of fiscal 1995. This
increase was principally attributable to (i) an increase in sales to
existing domestic retail customers of approximately $9,546,000, (ii) an
increase in sales by Company owned retail stores of approximately
$6,334,000, due in part to the addition of three retail boutiques and two
retail outlet stores since the beginning of fiscal 1995 and (iii) an
increase in sales to international retail customers of $2,484,000. Net
sales increased primarily as a result of increased unit sales of various
products lines.
Gross profit for the first six months of fiscal 1996 increased by
$11,179,000, or 27.2% as compared with the first six months of fiscal 1995,
and increased as a percentage of net sales to 54.8% from 53.3%. This
increase in the gross profit margin was due to an increase in the number of
garments being produced and sold without a corresponding increase in the
production costs, due in part to the fixed nature of some costs.
Selling, general and administrative expenses for the first six months of
fiscal 1996 increased by $5,871,000, or 22.9% over the first six months of
fiscal 1995, and decreased as a percentage of net sales to 33.1% from
33.3%. This decrease was primarily attributable to a reduction in the
costs incurred in
8
<PAGE>
connection with the promotion and distribution of the fragrance line as
compared with the same period last year.
Operating income for the first six months of fiscal 1996 increased by
$5,308,000, or 34.5% over the first six months of fiscal 1995. Operating
income as percentage of net sales increased to 21.7% from 20.0% during the
same period. This increase in the operating income as a percentage of net
sales was due to the increase in the gross profit margin and the decrease
in selling, general and administrative expenses as a percentage of net
sales.
Other income for the first six months of fiscal 1996 increased by
$556,000 as compared with the first six months of fiscal 1995, and
increased as a percentage of net sales to 0.9% from 0.4%. This increase was
primarily due to the receipt of a workers' compensation insurance dividend
of $316,000 which related to the policy period ended December 31, 1994. In
addition, the Company reported higher interest income due to the increase
in its invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund the Company's working
capital needs, primarily inventory and accounts receivable, and for the
purchase of property and equipment. During the first six months of fiscal
1996, cash provided by operating activities was $14,050,000. Cash provided
by operating activities was primarily generated by net income, depreciation
and amortization, and an increase in accrued expenses, while cash used in
operating activities was primarily used to fund the increase in inventories
and the decrease in taxes payable. Cash used in investing activities was
$10,334,000 during the first six months of fiscal 1996. The principal use
of cash in investing activities was for the purchase of 28 computerized
knitting machines, the purchase of 3.8 acres of land which included a
35,000 sq. ft. building to be used for production and storage and the
construction of leasehold improvements for a new retail boutique.
Subsequent to the end of the second quarter, the Company purchased a 37,000
sq. ft. building situated on 1.8 acres, to be used for design and
manufacturing, for a total cost of $1,500,000.
The Company anticipates purchasing property and equipment of
approximately $9,500,000 during the remainder of fiscal 1996. The estimated
$9,500,000 will be used principally for the construction of a new design
center on the recently purchased 1.8 acres; the expansion of an existing
retail boutique located in New York City; the purchase of land and
construction of a building to replace a manufacturing facility currently
being leased in San Fernando, California; the purchase of computerized
knitting machines; and the construction of a 20,000 sq. ft. manufacturing
facility on the recently purchased 3.8 acres.
As of April 28, 1996, the Company had approximately $42,867,000 in
working capital and $18,314,000 in cash and marketable securities. The
Company's principal source of liquidity is internally generated funds. The
Company also has a $15,000,000 bank line of credit ("Line of Credit") which
expires on March 1, 1998. The Line of Credit is unsecured and borrowings
thereunder bear interest at the Company's choice of the bank's reference
rate or an offshore rate plus 1.5%. As of April 28, 1996, no amounts were
outstanding under the Line of Credit. The Company invests its excess funds
primarily in a money market fund, investment grade commercial paper,
adjustable rate tax deferred municipal obligations collateralized by
letters of credit issued by financial institutions and tax exempt municipal
bonds.
9
<PAGE>
The Company believes it will be able to finance its working capital and
capital expenditure requirements on both a short-term and long-term basis
with internally generated funds. However, the Company has entered into an
agreement with its principal lender dated as of April 26, 1996 to finance
up to $8 million related to the acquisition of certain property and the
construction of improvements thereon. The agreement provides for borrowing
of up to $8 million on a revolving basis through September 1, 1997. At
that time, any unpaid balance will be converted to a 10 year fully
amortized term loan expiring on September 1, 2007. The Loan is unsecured
and borrowings thereunder bear interest at the Company's choice of the
bank's reference rate or an offshore rate plus 1.5% during the revolving
period and at the bank's reference rate plus 0.25% or an offshore rate plus
1.625% during the term loan.
The Company declared a quarterly cash dividend of $0.025 per share (as
adjusted to reflect the stock split) on March 5, 1996 which was paid on May
3, 1996 to shareholders of record on April 4, 1996. On May 31, 1996, the
Company declared another quarterly cash dividend of $0.025 per outstanding
share to be paid on August 2, 1996 to shareholders of record on July 3,
1996. Future dividends by the Company remain subject to limitations under
applicable law and other factors the Board of Directors deems relevant,
including results of operations, financial condition and capital
requirements.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) On March 14, 1996, an annual meeting of shareholders was held.
(b) The shareholders approved the election of all of the nominees for
the Board of Directors. The nominees elected were Robert E.
Gray, Marie St. John Gray, Robert C. Davis, Kelly A. Gray, Roger
G. Ruppert, Richard A. Gadbois, III and David A. Krinsky.
(c) The only matter voted upon at the annual meeting was the election
of directors. Robert E. Gray, Marie St. John Gray, Robert C.
Davis, Kelly A. Gray and Roger G. Ruppert each received 7,492,078
votes with 73,840 votes withheld for each. Richard A. Gadbois,
III received 7,491,978 votes with 73,940 votes withheld. David
A. Krinsky received 7,491,878 votes with 74,040 votes withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
See "Exhibit Index."
(b) Reports on Form 8-K.
On April 25, 1996, the Company filed a Form 8-K with the
Securities and Exchange Commission reporting that, on April 22,
1996, Kelly Gray was named President of the Company; she replaced
Robert C. Davis who resigned as President and Chief Operating
Officer and director effective April 19, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
June 4, 1996 ST. JOHN KNITS, INC.
/s/ Robert E. Gray
---------------------------------
Robert E. Gray, Chairman of the
Board and Chief Executive Officer
/s/ Roger G. Ruppert
---------------------------------
Roger G. Ruppert, Senior Vice
President - Finance, Chief
Financial Officer (Principal
Financial Officer)
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBIT NUMBERED PAGE
------ ---------------------- -------------
<S> <C>
10.1 Aircraft Lease dated March 7, 1996 by and between the
Company and Ocean Air Charters, Inc. as Trustee of the SJA
1&2, Ltd. Trust (Lease for Company airplane)
10.2 Agreement for Purchase and Sale of Real Property and Joint
Escrow Instruction dated as of March 12, 1996 by and between
the Company and Baxter Healthcare Corporation
(Design/Manufacturing)
10.3 Amendment No. 1 to Business Loan Agreement dated as of
April 26, 1996 by and between the Company and Bank of
America National Trust and Savings Association
</TABLE>
12
<PAGE>
EXHIBIT 10.1
AIRCRAFT LEASE
THIS LEASE is made as of March 7, 1996, between Ocean Air Charters, Inc.,
as Trustee of the SJA 1&2, Ltd. Trust (the "Lessor"), and St. John Knits, Inc.,
(the "Lessee').
1. LEASE. Lessor leases to the Lessee the following described aircraft:
One Dassault-Brequet Falcon 50 Aircraft, Serial No. 080 and Garrett
Engines Serial No. P76381, P76376 & P76212 ("Aircraft")
2. TERM. The term of this lease shall be one year, commencing on March 7,
1996 and ending on March 31, 1997.
3. RENTAL. During the first 90 days of the lease term Lessee shall pay to
Lessor the fair hourly rental value based on the number of hours the Aircraft is
used by Lessee during such 90 day period. Lessor and Lessee agree that the fair
hourly rental value of the Aircraft during such 90 day period shall be $1,300
per hour with Lessee supplying its own pilots, fuel and consumables. At the
expiration of the initial 90 day period the Aircraft rental shall be at the rate
of $70,000 per month, plus any applicable state tax, payable to the Lessor on or
before the first day of each monthly period of the lease. All rental payments
shall be paid at the place where designated by the Lessor.
4. LESSEE COVENANTS AND AGREEMENTS.
(a) Conforming Use. Lessee covenants and agrees to use the Aircraft only
--------------
for the purposes and in the manner set forth in any application for insurance
executed in connection with the leased Aircraft, to abide by and conform to, and
cause others to abide by and to, all present and future federal, state,
municipal, and other laws, ordinances, orders, rules, and regulations,
controlling or in any way affecting the operation, use, or occupancy of the
Aircraft or the use of any airport premises by the Aircraft.
(b) No Lien or Assignment. Lessee agrees to keep safely, and use
---------------------
carefully, the Aircraft, and not to sell, or attempt to sell, or assign or
dispose of the Aircraft, or of any interest therein, or of any part thereof, or
equipment necessary thereto, or suffer or permit any charge, lien, or
encumbrance of any nature upon the Aircraft, or any part thereof, or lend or
rent the same, or remove or permit the Aircraft to be removed from its
designated home airport for periods in excess of 30 days, and not to remove
permanently the Aircraft from its designated home airport without the Lessor's
prior written consent.
(c) Sublease. Upon approval of the Lessor, the Lessee may sublease the
--------
Aircraft, provided, however, the Aircraft is maintained in conformance with all
applicable rules and regulations pertaining to the use to which the Aircraft
shall be subjected.
(d) Taxes. Lessee shall pay all taxes, assessments, and charges imposed by
-----
any national, state, municipal, or other public or airport authority on the
Aircraft or on its use during the term of this lease and until redelivery of the
Aircraft to the Lessor; and to save
1
<PAGE>
the Lessor free and harmless therefrom, and reimburse the Lessor on a pro rata
basis for any such taxes or charges payable subsequent to the term of this
lease.
(e) Maintenance. Lessee shall maintain and keep the Aircraft and all its
-----------
components in good order and repair, in accordance with the requirements of the
manufacturer and the Federal Aviation Agency or any other governmental authority
having jurisdiction, and within a reasonable time replace in or on the Aircraft
any and all parts, equipment, appliances, instruments, or accessories which may
be worn out, lost, destroyed, confiscated, or otherwise rendered unsatisfactory
or unavailable for use in or on the Aircraft. Such replacement shall be (1) in
good operating condition and have a value, utility, and quality at least equal
to that which the property replaced originally had, and (2) at the time affixed
to the Aircraft and made subject to this lease, owned by the Lessee free and
clear of all liens and encumbrances, it being understood that the Lessee shall
have the same protection as the Lessor under the standard warranty clause of the
manufacturer of the Aircraft, the terms and provisions of said warranty being
incorporated herein; perform all major overhaul on the Aircraft, whenever deemed
necessary and as may be required by the manufacturer and/or the Federal Aviation
Agency or any other governmental authority during the term of this lease, and
all engine overhaul and inspection and maintenance service.
(f) Indemnification. Lessee shall be responsible and liable to the Lessor
---------------
for, and indemnity the Lessor against, any and all damage to the Aircraft which
occurs in any manner from any cause or causes during the term of this lease or
until redelivery of the Aircraft to the Lessor, and to indemnify and hold Lessor
harmless from and against all claims, cost, expenses, damages, and liabilities,
including personal injury, death, or property damage claims arising or in any
manner occasioned by the operation or use of the Aircraft, during the term of
this lease or until redelivery of the Aircraft to the Lessor.
(g) Insurance. Lessee shall, at its own expense, keep the Aircraft covered
---------
by insurance in accordance with the following:
(1) Risk of Loss or Damage: With respect to the Aircraft and its
equipment, the insurance policy obtained in connection herewith shall be in
the joint names of Lessor and Lessee and shall insure the Aircraft and its
equipment against all risk of loss or damage for not less than the full
market value thereof, and the premiums therefor shall be paid by Lessee
unless otherwise provided herein. With respect to all other equipment,
Lessee shall keep the equipment insured against all risk of loss or damage
from every cause whatever for not less than the full replacement value
thereof, except that in the case of oil or gas equipment the insurance, at
the election of Lessor, need not include fire and extended coverage on
equipment situated beneath the ground. Any such insurance shall be in form
and amount with companies approved by Lessor and shall, at the election of
Lessor, either be in the joint names of Lessor and Lessee or be for the
beneficial interest of Lessor, and Lessee shall pay the premiums therefor
and at the request of Lessor deliver said policies or duplicates thereof to
Lessor. The proceeds of any such insurance at the option of Lessor, shall
be applied (i) toward the replacement, restoration, or repair of the
Aircraft and its equipment or (ii) toward payment of the obligations of
Lessee hereunder.
2
<PAGE>
(2) With respect to the Aircraft and its equipment, public liability and
property damage insurance shall be carried in the joint names of Lessor and
Lessee against any and all damages and liabilities arising out of,
connected with, or resulting from the possession, use, and operation of
such equipment, shall be in form and amount with companies approved by
Lessor and the premiums therefor shall be paid by Lessee unless otherwise
provided herein. With respect to all equipment other than the Aircraft,
Lessee at the election of Lessor shall carry public liability and property
damage insurance against any and all damages and liabilities arising out
of, connected with, or resulting from the possession, use, and operation of
such equipment. Any such insurance shall be in form and amount with
companies approved by Lessor and shall be in the joint names of Lessor and
Lessee, and Lessee shall pay the premiums therefor and at the request of
Lessor deliver said policies or duplicates thereof to Lessor.
With respect to all policies of insurance hereinabove required to be obtained by
Lessee that are not issued in the joint names of Lessor and Lessee, such
policies, at Lessor's election, shall effectively provide that the insurer in
such policies shall give Lessor 30 days' written notice before the policy in
question shall be altered or canceled. If within ten days following notice by
Lessor to Lessee, the Lessor has not received the insurance policies herein
required to be obtained by Lessee or has not received evidence of the payment by
Lessee of the premiums due on any of the policies of insurance required herein,
the Lessor may procure such insurance or pay such premiums and any sums so
expended by Lessor shall thereafter be reimbursed by Lessee to Lessor and shall
become additional rent under this lease and shall be payable in its entirety on
the next rental payment date or within 60 days whichever event is sooner.
The Lessee hereby appoints Lessor as the Lessee's attorney-in-fact to make proof
of loss, and claim for, receive payment of, and execute or endorse all
documents, checks, or drafts for hull damage or return premium under the
insurance policies.
(h) Licensed pilotage. Lessee shall permit the Aircraft to be operated
-----------------
only by a currently certificated pilot having at least the minimum total pilot
hours required by the applicable insurance and regulations.
(i) Right of inspection. Lessee shall permit the Lessor, or its duly
-------------------
Lessor's authorized agent or representative, to inspect the Aircraft at any
reasonable time, either on the land or aloft, and to furnish any information in
respect to the Aircraft and its use that the Lessor may reasonably request.
(j) Delivery upon termination. Lessee shall return, upon demand, at the
-------------------------
expiration of the lease term, the Aircraft to the Lessor, at such place as may
be designated by the Lessor, in the same operating order, repair, condition, and
appearance as when received, excepting only for reasonable wear and tear, and
damage by any cause covered by collectible insurance.
(k) Further assurances. Lessee shall execute and deliver to the Lessor all
------------------
additional or supplemental instruments or documents as the Lessor may request in
connection with the Aircraft or this lease.
3
<PAGE>
5. ASSIGNMENT OF WARRANTY. The Lessor hereby assigns to the Lessee, for
and during the lease term, any warranty of the manufacturer, express or implied,
issued on or relating to the Aircraft, and hereby authorizes the Lessee to
obtain the customary service furnished by the manufacturer in connection with
any warranty, at Lessee's expense. The Lessee acknowledges and agrees that the
Aircraft is of a size, design, capacity, and a manufacturer selected by the
Lessee and suitable for its purposes.
6. NO IMPLIED REPRESENTATIONS OR WARRANTIES. The parties acknowledge that
the Lessor is not a manufacturer or engaged in the sale or distribution of the
Aircraft. Lessor makes no representations, promises, statements, or warranties,
expressed or implied, with respect to the merchantability, suitability, or
fitness for purpose of the Aircraft or otherwise. Lessor shall not be liable to
the Lessee for any loss, claim, demand, liability, cost, damage, or expense of
any kind, caused, or alleged to be caused, directly, or indirectly, by the
Aircraft, or by any inadequacy thereof for any purpose, or by any defect
therein; or in the use of maintenance thereof, or any repairs, servicing, or
adjustments thereto, or any delay in providing, or failure to provide the same,
or any interruption or loss of service or use thereof, or any loss of business,
or any damage whatsoever and howsoever caused.
7. RISK OF LOSS. All risks of loss or damage of the Aircraft leased, from
whatever cause, are hereby assumed by the Lessee during the entire lease term of
the Aircraft, and if the Aircraft is damaged, and is capable of being repaired,
the Lessee shall have the option of either repairing same or replacing same, at
the Lessee's cost.
8. IRREVOCABILITY. This lease is irrevocable for its full term and until
the aggregate rentals have been paid by the Lessee. Rent shall not abate during
the lease term because the Lessee's right to possession of the Aircraft has
terminated, or for any other reason whatsoever.
9. LESSOR'S ASSUMPTION OF LESSEE'S OBLIGATIONS. If Lessee shall fail to
use, preserve, and maintain the Aircraft, discharge all taxes, liens, or
charges, pay all costs and expenses, or procure and maintain insurance, in the
manner above provided, the Lessor, at its option, may do so, and all such
advances by the Lessor shall be added to the unpaid balance of the rentals due
under this lease and shall be repayable by the Lessee to Lessor on demand,
together with interest thereon at the rate of 10 percent per annum, until the
unpaid balance shall have been repaid in full. The Lessor may enter upon any
premises where the Aircraft is located, for the purpose of inspection, and may
remove the Aircraft forthwith, without notice to Lessee, if, in the opinion of
the Lessor, the Aircraft is being improperly used or maintained.
10. REPOSSESSION UPON DEFAULT. If the Lessee shall fail to pay any rental
or any other amounts payable pursuant to this lease, when the same is due and
payable, or if the Lessee shall breach any other provision of this lease, or if
the Lessee becomes insolvent, or files a voluntary, or has filed against him an
involuntary, proceeding in bankruptcy for either discharge of indebtedness or
other protection from creditors or if a receiver is appointed for the Lessee's
property or an arrangement is made with or committee is formed for the Lessee's
creditors, then the Lessor, at its option, and in addition to and without
prejudice to any other remedies, may take possession of and
4
<PAGE>
remove, the Aircraft, and all equipment, instruments, accessories, and repairs
thereon, which shall be considered a component part of the Aircraft, and in
removing the Aircraft, the Lessor may, if permitted by law, use any of the
Lessee's licenses in respect to the Aircraft, and/or the Lessor may terminate
this lease. The retaking of such possession, however, shall not constitute a
termination of this lease unless the Lessor, so notifies Lessee in writing. The
Lessor, at its option, may (a) lease the repossessed Aircraft, or any part
thereof to any third party upon such terms and conditions as Lessor may
determine, or (b) sell the Aircraft, or any part thereof, at public or private
sale. The total proceeds, less the Lessor's expenses incurred in connection
therewith, including attorneys' fees, of such sale or sales, shall be applied to
the total unpaid rental. Any deficiency thereafter shall be paid by the Lessee.
11. TIME OF ESSENCE. Time is of the essence of this lease.
12. NO PASSAGE OF TITLE. This agreement is a lease, and the Lessee does
not acquire hereby any right, title, or interest whatsoever, legal or equitable,
in the Aircraft or to the proceeds of the sale of the Aircraft except its
interests as the Lessee under this lease.
13. MISCELLANEOUS.
(a) The Lessor warrants that, if Lessee performs its obligations under this
lease, the Lessee shall peaceably and quietly hold, possess and use the Aircraft
during the entire lease term, free of any interference or hindrance.
(b) The relationship between the Lessor and Lessee is only that of Lessor
and Lessee. The Lessee shall never at any time during the term of this lease for
any purpose whatsoever be or become the agent of the Lessor, and the Lessor
shall not be responsible for the acts or omissions of the Lessee or its agents.
(c) The Lessor's rights and remedies with respect to any of the terms and
conditions of this lease shall be cumulative and not exclusive, and shall be in
addition to all other rights and remedies available to Lessor.
(d) The Lessor's failure to strictly enforce any provisions of this lease
shall not be construed as a waiver thereof or as excusing the Lessee from future
performance.
14. SEVERABILITY. The invalidity of any portion of this lease shall not
affect the remaining valid portions thereof.
15. ENTIRE AGREEMENT. This lease constitutes the entire agreement between
the parties hereto, and any change or modification to this lease must be in
writing and signed by the parties hereto.
16. NOTICES. All notices or other documents under this lease shall be in
writing and delivered personally or mailed by certified mail, postage prepaid,
addressed to the
5
<PAGE>
parties at their last known addresses.
17. NON-WAIVER. No delay or failure by either party to exercise any right
under this lease, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
provided herein.
18. HEADINGS. Headings in this lease are for convenience only and shall
not be used to interpret or construe its provisions.
19. GOVERNING LAW. This lease shall be construed in accordance with and
governed by the laws of the State of California.
20. COUNTERPARTS. This lease may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
21. BINDING EFFECT. The provisions of this lease shall be binding upon
and inure to the benefit of both parties and their respective legal
representatives, successors, and assigns.
IN WITNESS WHEREOF the Lessee and Lessor have duly executed this lease on
LESSOR: LESSEE:
The SJA 1&2, Ltd. Trust St. John Knits, Inc.
By: Ocean Air Charters, Trustee By: /s/ Robert C. Davis, President
--------------------------------
Robert C. Davis, President
By: /s/ Robert E. Gray, President
--------------------------------
Robert E. Gray, President
6
<PAGE>
[LETTERHEAD OF KC AVIATION INC.]
For Information & Service call
1-800-262-2209
<TABLE>
<CAPTION>
Hourly Range Full galley Enclosed Flight Baggage Cabin Cabin Cabin
Rate Seating (St. Mi.) Limited Galley Lavatory Attendant (Cu. Ft.) Height Length Width
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GULFSTREAM IV 5000 14-18 4900 F * * 170 6'-1" 43'-0" 7'-6"
- - ------------------------------------------------------------------------------------------------------------------------------------
FALCON 900 5000 12-14 4400 F * * 127 6'-2" 39'-0" 7'-9"
- - ------------------------------------------------------------------------------------------------------------------------------------
GULFSTREAM III 4100 12-14 3900 36'-10"
- - -------------- ---- ----- ---- F * * 157 6'-1" ------- 7'-5"
GULFSTREAM II 3800 11-13 3000 36'-10"
- - ------------------------------------------------------------------------------------------------------------------------------------
CHALLENGER 601 3500 3000
- - -------------- ---- 9 ---- F * * 135 6'-1" 28'-3" 8'-2"
CHALLENGER 600 3300 2400
- - ------------------------------------------------------------------------------------------------------------------------------------
FALCON 50 3200 9 3100 F * * 75 5'-9" 25'-4" 6'-2"
- - ------------------------------------------------------------------------------------------------------------------------------------
HAWKER 1000 2700 9 3100 F * 71 5'-8" 24'-0" 5'-9"
- - ------------------------------------------------------------------------------------------------------------------------------------
HAWKER 800 2500 2700
- - ---------- ---- 7-8 ---- L * 65 5'-8" 21'-3" 5'-9"
HAWKER 700 2300 2200
- - ------------------------------------------------------------------------------------------------------------------------------------
FALCON 20/731 2500 2200
- - ------------- ---- 8-9 ---- L * 70 5'-7" 24'-0" 6'-2"
FALCON 20 2400 1200
- - ------------------------------------------------------------------------------------------------------------------------------------
CITATION III 2100 7-8 2400 L * 65 5'-9" 18'-6" 5'-9"
- - ------------------------------------------------------------------------------------------------------------------------------------
LEAR 55 2150 6-8 2100 L * 63 5'-7" 17'-7" 5'-9"
- - ------------------------------------------------------------------------------------------------------------------------------------
WESTWIND II 2300
- - ----------- 1700 7 ---- L * 60 4'-9" 13'-0" 4'-8"
WESTWIND I 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
CITATION V 1550 7 2200 L * 67 4'-8" 17'-10" 4'-9"
- - ------------------------------------------------------------------------------------------------------------------------------------
LEAR 35 1575 2000
- - ------- ---- 6-8 ---- L 40 4'-4" 12'-9" 4'-9"
LEAR 25 1475 1200
- - ------------------------------------------------------------------------------------------------------------------------------------
CITATION S-II 1450 2000
- - ------------- ---- 6-8 ---- L * 55 4'-8" 16'-2" 4'-9"
CITATION II 1350 1700
- - ------------------------------------------------------------------------------------------------------------------------------------
KING AIR 200 1000 6-8 2000 55 16'-7"
- - ------------ ---- --- ---- L -- 4'-10" ------ 4'-5"
KING AIR 90 800 5-6 1500 45 12'-8"
- - ------------------------------------------------------------------------------------------------------------------------------------
SIKORSKY S76 2500 5-5 440 L 38 4'-6" 8'-1" 5'-4"
- - ------------------------------------------------------------------------------------------------------------------------------------
TWINSTAR 1400 3-4 300 L 25 4'-3" 4'-6" 5'-4"
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Two hour daily minimum applies to jet equipment. Rates
effective January, 1995. 1/10 hour allowance per flight leg
on fixed wing aircraft for taxi out/in. Rates subject to
change from time to time.
<PAGE>
THE AIRCRAFT COST EVALUATOR 03-19-1996
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
INDICATED DIRECT COSTS-Per Hour-$
<S> <C>
FALCON 50
Fuel (1) 595.20
Additives-1.2% of Fuel 0.00
Lubricants-3% of Fuel 0.00
- - --------------------------------------------------------------------------------
Maintenance Labor (2) 162.25
Parts Airframe/Avionics (3) 111.99
- - --------------------------------------------------------------------------------
Engine Restoration (4) 250.86
Thrust Reverser Overhaul 0.00
Propeller Overhaul 0.00
APU Overhaul 23.23
Dynamic Comp/Life Ltd Parts 0.00
- - --------------------------------------------------------------------------------
Landing/Parking 11.64
Crew Expenses 135.00
Supplies Catering 36.85
Other 0.00
- - --------------------------------------------------------------------------------
TOTAL DIRECT COST/HOUR 1327.02
- - --------------------------------------------------------------------------------
Average Block Speed-MPH (5) 439
- - --------------------------------------------------------------------------------
TOTAL DIRECT COST/St. Mile 3.02
FOOTNOTES-$ Size of Operation: 1 - 2 Aircraft Database: JUL 1995
Type of Operation: Corporate
1/ Fuel Cost 1.92
Gallons/Hour 310
2/ Maint. Labor Cost/Hour 55.00
Maint. Hours / Fl Hour 2.95
3/ Incl engine parts cost Yes
4/ O'Haul Cost Source ESTIMATE
5/ Block Speed Source OPR PLAN HB
6/ Crew Salary Source 1994 NBAA
Number of Crew 2
7/ Insured Hull Value 14750000
Hull Insurance Rate 0.28
8/ Mod % Sales Price .4% x PRICE
9/ Refurb Labor Hours/Seat 70
10/Comp Maint Pgm Source CAMP
11/Weather Service Source TYPICAL
12/Aircraft Purchase Price 14750000
Depreciation Rate 8YR TO 20%
13/Market Depr % / Yr. 5
- - --------------------------------------------------------------------------------
</TABLE>
Copyright 1995 Conklin & de Decker Associates, Inc. (508) 255-5975
<PAGE>
THE AIRCRAFT COST EVALUATOR 03-19-1996
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
INDICATED DIRECT COSTS-Per Year-$
<S> <C>
FALCON 50
Crew Salaries-Captain (6) 75,473
-Co Pilot 55,936
-Other 0
-Benefits 39,423
- - --------------------------------------------------------------------------------
Hangar-Typical 76,735
- - --------------------------------------------------------------------------------
Insurance-Hull (7) 41,300
Admitted Liab ($250k/seat) 2,750
Legal Liab ($50 Million) 13,000
- - --------------------------------------------------------------------------------
Recurrent Training 30,900
Updates+Uninsured Damage (8) 59,000
Navigation Chart Service 2,662
Reburbishing (9) 34,650
Comp. Maint. Program (10) 5,202
Weather Services (11) 2,000
Other Fixed Costs 0
- - --------------------------------------------------------------------------------
Book Depreciation (12) 1,475,000
- - --------------------------------------------------------------------------------
TOTAL FIXED COSTS 1,914,031
INDICATED ANNUAL BUDGET-$
Utilization-St. Mile 200,000
-Hours 456 0 0 0
- - --------------------------------------------------------------------------------
Direct Cost 604,565
Fixed Cost 1,914,031
TOTAL (Book Depreciation) 2,518,596
-Per Hour 5528.32
-Per St. Mile 12.59
-Per Seat St. Mile 1.40
- - --------------------------------------------------------------------------------
TOTAL (No Depreciation) 1,043,596
-Per Hour 2290.69
-Per St. Mile 5.22
-Per Seat St. Mile 0.58
- - --------------------------------------------------------------------------------
TOTAL (No Depreciation) 1,043,596
Market Depreciation (13) 737,500
TOTAL (Market Depreciation) 1,781,096
-Per Hour 3909.51
-Per St. Mile 8.91
-Per Seat St. Mile 0.99
- - --------------------------------------------------------------------------------
</TABLE>
Copyright 1995 Conklin & de Decker Associates, Inc. (508) 255-5975
<PAGE>
THE AIRCRAFT COST EVALUATOR 03-19-1996
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
GENERAL COMPARISON
<S> <C>
FALCON 50
Cabin-Height (Ft.) 5.90
-Width 6.10
-Length 23.50
Cabin Volume (Cu. Ft.) 700.00
Cabin Door Height (Ft.) 5.00
Door Width 2.60
Baggage -Int. (Cu. Ft.) 25.00
-Ext. 90.00
Typical Crew/Pass Seating 2/9
- - --------------------------------------------------------------------------------
Weight-Max Take-Off (Lbs.) 38,800
-Max Landing 35,715
-Basic Operating 22,000
-Useable Fuel 15,520
Payload-Full Fuel (lbs.) 1,280
Maximum 3,570
- - --------------------------------------------------------------------------------
Certified/IFR Certified YES/YES
- - --------------------------------------------------------------------------------
Price-New (Typical) $/1000 15,180
-Pre Owned $/1000 7350/14750
PERFORMANCE COMPARISON
Range-NBAA IFR Res N.Mi.
Seats Full 3,050
Tanks Full 3,200
- - --------------------------------------------------------------------------------
Range-30 Min. Res N. Mi.
Seats Full 0
Tanks Full 0
Balanced Field Length (Ft.) 5,000
Landing Distance-FAR 121 3,600
- - --------------------------------------------------------------------------------
Rate of Climb-(Ft/Min) 3,430
-One Eng. Out 2,200
- - --------------------------------------------------------------------------------
Cruise Speed-Max (KTAS) 480
-Normal 459
-Long Range 410
Stall Speed (IAS) 82
- - --------------------------------------------------------------------------------
Ceiling-Service (Ft) 0
-Service One Eng Out 0
-Hover IGE 0
-Hover OGE 0
</TABLE>
Copyright 1995 Conklin & de Decker Associates, Inc. (508) 255-5975
<PAGE>
EXHIBIT 10.2
AGREEMENT FOR PURCHASE AND SALE OF
REAL PROPERTY AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY AND ESCROW
INSTRUCTIONS (the "Agreement") is made and entered into as of March 12, 1996 by
and between BAXTER HEALTHCARE CORPORATION, a Delaware corporation ("Seller"),
and ST. JOHN KNITS, INC., a California corporation, ("Buyer").
R E C I T A L S
---------------
A. Seller is the owner of certain real property located in the City of
Irvine, State of California, more particularly described on Exhibit A attached
---------
hereto including all improvements, entitlements, easements, rights and
privileges appurtenant (the "Real Property"). The Real Property consists of a
single story building containing approximately 37,448 square feet located on
approximately 1.827 acres of land at 17502 Armstrong Avenue, Irvine, California.
B. Seller is the owner of certain personal property located at the Real
Property and identified on Exhibit B attached hereto (the "Personal Property").
---------
The Real Property and the Personal Property are hereinafter collectively
referred to as the "Property."
C. Seller desires to sell the Property to Buyer (or Buyer's Designee as
provided in Section 18(q) and Buyer desires to purchase the Property from
Seller, in accordance with the terms and conditions contained in this Agreement.
A G R E E M E N T
-----------------
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged by
Seller, Buyer and Seller hereby agree as follows:
1. Purchase and Sale.
-----------------
a. Agreement to Buy and Sell. Subject to the terms and conditions set
-------------------------
forth herein, Seller hereby agrees to sell and convey to Buyer, and Buyer hereby
agrees to acquire and purchase from Seller, the Property.
b. Purchase Price. The purchase price ("Purchase Price") for the
--------------
Property is ONE MILLION FIVE HUNDRED SEVEN THOUSAND AND NO 100s ($1,507,000.00)
DOLLARS.
c. Payment of Purchase Price. The Purchase Price shall be paid to
-------------------------
Seller as follows:
(i) Buyer shall deposit or cause to be deposited with Chicago
Title Insurance Company (the "Escrow Holder") upon Opening of Escrow a
cashier's
<PAGE>
check or good funds in the amount of $50,000.00 ("Deposit") as earnest
money. Upon the expiration of the Contingency Period (defined below),
the Deposit shall become non-refundable unless Buyer shall have timely
exercised its right to terminate this Agreement.
(ii) Buyer shall deposit or cause to be deposited the balance of
the Purchase Price with Escrow Holder by cashier's check or good funds
in time to permit the Close of Escrow on May 8, 1996 (the "Closing
Date").
2. Supplemental Escrow Instructions. This Agreement shall constitute
--------------------------------
joint primary escrow instructions to the Escrow Holder, provided, however, that
the parties shall, within five (5) days after the Opening of Escrow, execute and
deliver to Escrow Holder written supplemental escrow instructions prepared by
Escrow Holder in its customary form, and not inconsistent with the terms and
provisions hereof. Escrow Holder shall give written notification to each of the
parties of the Opening of Escrow and shall acknowledge and accept this Agreement
by its signature on the last page of counterparts thereof. In the event of any
conflict between the provisions of this Agreement and the supplemental
instructions, the provisions of this Agreement shall control.
3. Delivery of Instruments. Seller and Buyer shall each from time to
-----------------------
time deliver to the other through Escrow such instruments and moneys as are
necessary to timely consummate the purchase and sale of the Property in
accordance with the terms of this Agreement, including, but not limited to, the
following:
(a) Seller shall deliver, in form and substance reasonably
satisfactory to Buyer, a grant deed to the Real Property in recordable form
conveying the Real Property to the Buyer or Buyer's Designee, subject only to
non-delinquent real property taxes (which shall be subject to proration as
provided in Section 8) and the Permitted Exceptions (defined below).
(b) Seller shall deliver, in form and substance reasonably
satisfactory to Buyer, the following:
(i) an affidavit from Seller which satisfies the requirements of
Section 1445 of the Internal Revenue Code, as amended (the "Section
1445 Affidavit");
(ii) a properly executed California Form 590 or other evidence
sufficient to establish that Buyer is not required to withhold any
portion of the Purchase Price pursuant to Sections 18805 and 26131 of
the California Revenue and Taxation Code; and
(iii) bill of sale (the "Bill of Sale") transferring to Buyer or
Buyer's Designee all of Seller's right, title and interest to the
Personal Property .
(c) Buyer shall deliver:
(i) the Deposit;
-2-
<PAGE>
(ii) the balance of the Purchase Price in cash on the last
business day before the Closing Date;
(iii) cash in the amount equal to all costs to be charged to
Buyer hereunder in connection with the purchase and sale of the
Property; and
(iv) such other affidavits and documents as are customarily
required to consummate the closing.
4. Closing Conditions. Close of Escrow shall occur, and Escrow Holder
------------------
shall perform the actions referred to in Section 5 hereof on the Closing Date
provided: (i) the Buyer's contingencies as provided in Section 10 have been
satisfied or waived, (ii) all moneys (including the Buyer's loan proceeds as
provided in Section 10(b)), instruments and documents referred to in this
Agreement have been delivered to Escrow Holder; (iii) all documents and
instruments referred to in Section 3 hereof have been delivered by Seller to
Buyer in accordance herewith; and (iv) the Title Company (as defined below)
shall have committed to issue to Buyer an ALTA owner's policy of title insurance
subject only to Permitted Exceptions as provided in Section 7 hereof; but in any
event if the above conditions have not been satisfied or waived in writing by
the Closing Date, then this Agreement shall be deemed terminated and the parties
shall have no further obligation to each other, except as otherwise expressly
provided herein in the event a party is in default of its obligations under this
Agreement.
5. Escrow Holder's Actions. Pending the disbursement of the Deposit in
-----------------------
accordance with the terms of this Agreement, it shall be invested or held by
Escrow Holder in an interest bearing account in accordance with the customary
practices of Escrow Holder with the interest to be accrued for the benefit of
Buyer. Buyer shall be charged for any investment expenses or costs incurred in
connection with the investment of the Deposit and shall furnish such tax
identification number and other directions or approvals for investment as Escrow
Holder shall require. Upon satisfaction or waiver of the conditions referred to
in Section 4 hereof, Escrow Holder shall:
a. Record the Grant Deed in the Office of the County Recorder of
Orange County, California and pay from Seller's proceeds all documentary
transfer taxes which are required to be paid by reason of such recording except
that Buyer shall be charged for local transfer taxes, if any, imposed with
respect to the transaction.
b. Deliver to Seller the Purchase Price in immediately available
funds, as follows: (i) Escrow Holder shall deduct from the deposits made by
Buyer all items chargeable to the account of Seller pursuant to this Agreement,
including but not limited to Seller's share of escrow charges, transfer taxes,
Seller's title insurance charges and any amounts required to remove the liens of
any mortgages, liens, deeds of trust or judgments on the Property which are not
Permitted Exceptions and to obtain the reconveyance thereof, pursuant to
beneficiary demand statements approved by Seller, as well as any amounts
required to be withheld by law; and (ii) Escrow Holder shall disburse the
remaining portion of the Purchase Price to Seller or as Seller shall direct
Escrow Holder in writing.
-3-
<PAGE>
6. Title Matters. Seller has furnished to Buyer that certain Preliminary
-------------
Report No. 825534 dated January 12, 1996 (the "PTR") issued by Chicago Title
Insurance Company (the "Title Company"). Seller shall obtain a current ALTA
survey (a "Survey") of the Real Property prior to Close of Escrow.
a. During the Contingency Period Buyer shall review the PTR, the
Survey and any supplemental PTR obtained with respect to the Real Property and
provide Seller with written notice of disapproval of any of the exceptions or
survey matters shown therein (other than non-delinquent real property taxes and
assessments) which were not created by or consented to in writing by Buyer and
to which Buyer objects (the "Exception Items"). All matters shown on the PTR or
Survey which are not Exception Items shall be deemed the Permitted Exceptions.
If Seller elects and is able to cure, remove or correct the Exception Items,
Seller shall cause all such actions to be taken prior to the Closing Date. If
Seller fails or is unable to make satisfactory arrangements for the timely
removal of the Exception Items, then this Agreement and the escrow shall be
deemed terminated and the parties shall have no further obligation to each other
unless Buyer has waived the Exception Item(s) by written notice given prior to
the Closing Date in which event Seller shall be obligated to proceed with the
Closing. Upon such termination, the Deposit less one half of the Escrow Charges
shall be refunded to Buyer. Notwithstanding the foregoing, Buyer shall have the
right to require Seller to use the sales proceeds at the Close of Escrow to
remove any liens or encumbrances of a definite or ascertainable amount which
constitute an Exception Item.
b. Any exceptions and/or exclusions shown in the PTR or supplemental
PTR or survey: (i) which are not Exception Items as set forth above, or (ii)
which are Exception Items but are subsequently approved or waived by Buyer, or
(iii) which remain outstanding but Buyer elects to close this transaction
subject to such items, shall also be deemed "Permitted Exceptions."
7. Conveyance and Title Policy. Upon Close of Escrow, Seller shall
---------------------------
convey to Buyer title to the Real Property by Grant Deed, subject only to the
Permitted Exceptions. Upon Close of Escrow Seller shall deliver possession of
the Property to Buyer. Seller shall provide affidavits and certifications
customarily required by the Title Company for, and shall cause to be issued by
the Title Company, an ALTA owner's policy of title insurance insuring Buyer's
title to the Real Property with liability in the amount of the Purchase Price,
subject only to the Permitted Exceptions, provided that the additional expense
of any special indorsements shall be paid by Buyer as provided in Section 8
hereof.
-4-
<PAGE>
8. Prorations and Costs.
--------------------
a. All general and special real estate, personal property and other
ad valorem taxes and assessments (including, but not limited to, any Mello Roos
assessments) and other governmental taxes, fees, charges and assessments
affecting the Property or any part thereof; prepaid premiums on any policy of
insurance assigned to Buyer pursuant hereto; and all other items of accrued
expenses customarily prorated on the transfer of commercial or industrial
properties in Orange County, California, shall be prorated as of the Closing and
shall be charged to or credited to the parties as of the Closing in the
customary manner.
b. Seller shall pay the cost of a ALTA owner's policy of title
insurance, and Buyer shall pay the additional costs for any special indorsements
as provided in Section 7 hereof as well as the cost of any lender's title
insurance policy.
c. Seller shall pay:
(i) the documentary transfer taxes payable by Seller in
connection with this transaction;
(ii) the cost of recording the Grant Deed; and
(iii) fifty percent (50%) of Escrow Holder's fees.
In the event of Seller's breach or default which terminates this Agreement,
Seller shall agree with Escrow Holder to pay one hundred percent (100%) of
Escrow Holder's fees.
d. Buyer shall pay fifty percent (50%) of Escrow Holder's fees and
all costs of recording any deed of trust or mortgage and related financing
documents in connection with the transaction. In the event of a breach or
default of Buyer which terminates this Agreement, Buyer shall agree with Escrow
Holder to pay one hundred percent (100%) of Escrow Holder's fees.
e. All costs related to the transaction described in this Agreement,
except as otherwise provided herein, shall be paid by Seller or Buyer or both in
the manner consistent with common practice in Orange County, California.
9. Representations and Warranties.
------------------------------
a. Seller hereby makes the following representations and warranties
to Buyer, each of which shall be true and correct as of the date of this
Agreement and as of the Closing Date.
(i) Formation. Seller is a duly formed and validly existing
---------
corporation under the laws of the State of Delaware and is qualified
to do business in the State of California.
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(ii) Authority to Execute. Seller has duly authorized the
--------------------
execution, delivery and performance of this Agreement and the
documents to be signed and delivered by Seller as provided herein, and
the persons executing this Agreement and such documents have the
authority to execute same and their signatures are sufficient to bind
Seller in every respect.
(iii) Binding Obligations. This Agreement and the documents to be
-------------------
signed and delivered by Seller as provided herein constitute the
legal, valid and binding obligations of Seller and are enforceable
against Seller in accordance with their respective terms.
(iv) Compliance with Law. To the actual knowledge of Seller and
-------------------
except as otherwise disclosed to Buyer, Seller has not received
written notice of any violation of any building codes or regulations
affecting the Real Property which remain uncorrected.
(v) Environmental Disclosure. To the actual knowledge of Seller,
------------------------
Seller (a) cooperated fully with its environmental consultants in
preparing the Environmental Assessment Reports as defined in Section
12; (b) is making available to Buyer and its consultants for
inspection and copying all current files and records of Seller
containing material information of Seller with respect to the
environmental condition of the Real Property (including groundwater).
(vi) Litigation and Contracts. To the actual knowledge of Seller
------------------------
there is no pending litigation materially affecting the Real Property
and there are no service contracts or agreements which materially
affect the Real Property except agreements subject to cancellation
upon not more than thirty (30) days notice.
Seller acknowledges that the foregoing representations and warranties are
a material inducement to Buyer to make and enter into this Agreement and that
Buyer is making and entering into this Agreement in reliance thereon. Buyer
acknowledges that other than environmental claims which shall be subject to the
limitations and time periods as provided in Section 12, each of the
representations and warranties shall survive the Close of Escrow for a period of
one (1) year only and that any claims based upon the breach of representations
and warranties shall be deemed waived and released unless brought within said
one (1) year period. As used herein, the term "actual knowledge" means the
actual knowledge of Dennis Shoji, Director of Facilities and Environmental
Affairs for the C.V.G. Division. Seller represents that there are no other
persons known to Seller who may have knowledge of the environmental or physical
condition of the Real Property which is superior to, or more extensive, reliable
or detailed than the knowledge of Dennis Shoji.
b. Buyer hereby makes the following representations and warranties
to Seller, each of which shall be true and correct as of the date of this
Agreement and as of the Closing Date.
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(i) Formation. Buyer is a duly formed and validly existing
---------
corporation under the laws of the State of California.
(ii) Authority to Execute. Buyer has duly authorized the
--------------------
execution, delivery and performance of this Agreement and the
documents to be signed and delivered by Buyer as provided herein, and
the persons executing this Agreement and such documents have the
authority to execute same and their signatures are sufficient to bind
Seller in every respect.
(iii) Binding Obligations. This Agreement and the documents to be
-------------------
signed and delivered by Buyer constitute the legal, valid and binding
obligations of Buyer.
(iv) Due Diligence. Buyer is an experienced owner and operator of
-------------
real property and will retain Buyer's own qualified consultants to
assist Buyer in the timely completion of due diligence and the
evaluation of the Property.
Buyer acknowledges that the foregoing representations and warranties
are a material inducement to Seller to make and enter into this Agreement and
that Seller is making and entering into this Agreement in reliance thereon.
10. Buyer's Contingency Period and Contingencies.
--------------------------------------------
a. Inspections. Buyer shall have until April 25, 1996 (the
-----------
"Contingency Period") within which to inspect all aspects of the Real Property
including, without limitation:
(i) An evaluation of the suitability of the Real Property for
Buyer's use, including an examination of governmental land
regulations, zoning ordinances, environmental regulations and all
easements, covenants, conditions and restrictions affecting the Real
Property (also including the effect of each of the Permitted
Exceptions);
(ii) An evaluation of the physical condition of the Real
Property, including, without limitation, paving and soil conditions,
topographical condition, structural condition and the location and
adequacy of all utility services for the Real Property;
(iii) Inspection of Seller's files, records, drawings, contracts
and specifications relating to the Property;
(iv) Evaluation of the Environmental Assessment Reports referred
to in Section 12 hereof, such other environmental reports bearing on
the Real Property as are in Seller's possession and evaluation of
environmental conditions at and around the Real Property (including
groundwater);
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(v) Evaluation of whether the Real Property may be "Border Zone"
property, or within a "special studies" or seismic risk area, or be
subject to fire hazard, or be in a flood plain or subject to
flooding, or be within any present or proposed special assessment or
"Mello Roos" facilities district or otherwise be subject to legal or
economic limitations which could adversely affect its use or value.
b. Notice of Approval or Disapproval. Buyer shall deliver notice of
---------------------------------
its approval or disapproval of the foregoing contingency matters on or before
the last day of the Contingency Period. Failure timely to deliver notice of
approval shall be deemed disapproval of the contingencies. If Buyer disapproves
any of the foregoing contingencies, then this Agreement shall be deemed
terminated (unless within three (3) days thereafter Seller and Buyer have
entered into a mutually satisfactory written agreement resolving the disapproved
matter); all monies theretofore deposited by Buyer including any accrued
interest shall be returned to Buyer less one half of the Escrow costs; and
neither party shall have any obligation to the other hereunder, except that
Buyer shall continue to be obligated to Seller for any indemnification
obligations of Buyer set forth in this Agreement.
c. Buyer's Investigations and Indemnifications. Buyer shall use due
-------------------------------------------
care in conducting investigations at or near the Real Property (including
groundwater) and shall indemnify and hold Seller, its shareholders, officers,
directors, employees, agents, attorneys, successors and assigns free and
harmless from and against any and all claims, liability, damage, loss, cost and
expense, or any of them, of whatever kind or nature (including attorneys' fees
and costs, whether or not suit is filed) caused by or arising from any entry at
or near the Real Property by Buyer, its agents, consultants or contractors
whether before or after the date of this Agreement in connection with any
inspection, test, survey, study, or investigation undertaken by Buyer pursuant
to this Agreement. Buyer shall notify Seller prior to undertaking any
environmental investigation or tests and shall allow Seller or Seller's
consultants to review the testing protocol and be present during the testing
(including taking parallel samples). In the event that Buyer or Buyer's
consultants determine that the result of Buyer's environmental investigations
are to be reported to governmental authorities, then Buyer will first notify
Seller of its intentions to make such notification and, excepting an emergency
circumstance where immediate notification is required, allow Seller a reasonable
opportunity to determine if it concurs that notification is necessary. This
provision shall survive without limitation as to time, and shall survive
termination or expiration of this Agreement or the Close of Escrow.
11. "As Is" Sale. Buyer hereby acknowledges and agrees that in addition
------------
to the limited representations and warranties of Seller which are expressly set
forth herein:
a. Buyer is conducting and relying upon its own investigations of
the Property, including, without limitation, the physical, structural, soils and
environmental condition of the Real Property (including groundwater), the
condition of any improvements thereon, and compliance with all applicable zoning
and other governmental regulations affecting the Property, and all aspects of
the Real Property's present or future use, and will have had sufficient time and
opportunity to make such independent investigations, inquiries and
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<PAGE>
evaluations as it deems necessary and appropriate to determine the degree and
scope of risk that may exist in connection with acquisition of the Property;
b. Seller has made no representations or warranties, express or
implied, of any kind to Buyer with respect to the Property except as otherwise
expressly set forth in this Agreement; and
c. Subject to the limited representations and warranties of Seller
which are expressly set forth herein, Buyer is acquiring the Property on an "AS
IS," "WHERE-IS" and "WITH ALL FAULTS" basis.
12. Environmental Matters Affecting Real Property.
---------------------------------------------
The provisions of this Section 12 shall survive the Closing.
a. Environmental Assessment Reports and Disclosure. Seller has
-----------------------------------------------
provided to Buyer a copy of McLaren/Hart Environment Engineering Corporation
Phase I Environmental Assessment at 17502 Armstrong Avenue, Irvine, California
dated January 11, 1995 and the Soil Excavation and Additional Soil and Ground
Water Investigation Results for Baxter Healthcare Bentley Division, 17502
Armstrong Avenue, Irvine, California dated June 2, 1995 which by reference
identifies certain prior environmental reports and assessments (which reports
including those identified prior reports and the supplemental McLaren/Hart
letters dated September 15, 1995 and January 26, 1996, and the supplemental
McLaren/Hart reports concerning the abatement of certain asbestos containing
construction materials ("ACCMs") are collectively referred to herein as the
"Environmental Assessment Reports"). Within fifteen (15) days of the Close of
Escrow Seller shall provide to Buyer all additional letters or reports prepared
by McLaren/Hart Environmental Engineering Corporation in January of 1996
concerning the Real Property, which additional letters or reports also shall
constitute the Environmental Assessment Reports. The Environmental Assessment
Reports constitute the principal documents known to Seller which have been
prepared by independent consultants and which report on investigations into the
environmental condition of the Real Property. Seller also has made available
such reports on investigations into environmental conditions at the Real
Property (including groundwater) as are in Seller's possession. Seller makes no
representations nor any warranties with respect to:
(i) the accuracy or completeness of the Environmental Assessment
Reports or any other reports or investigations on environmental
conditions at the Real Property (including groundwater) prepared by
outside consultants and made available to Buyer for review pursuant
to this Agreement;
(ii) environmental conditions at and near the Real Property
(including groundwater);
(iii) any restrictions relating to the development or use of the
Real Property;
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<PAGE>
(iv) the suitability of the Real Property for any purpose
whatsoever and any such warranties whether express or implied are
hereby waived and released.
THE ENVIRONMENTAL ASSESSMENT REPORTS, TOGETHER WITH SELLER'S OTHER REPORTS OR
INVESTIGATIONS ON ENVIRONMENTAL CONDITIONS AT THE REAL PROPERTY MADE AVAILABLE
TO BUYER, IDENTIFY VARIOUS RELEASES OF HAZARDOUS SUBSTANCES ON OR BENEATH THE
REAL PROPERTY (INCLUDING GROUNDWATER). THIS SECTION SHALL CONSTITUTE WRITTEN
NOTICE TO BUYER OF SUCH RELEASES PURSUANT TO CALIFORNIA HEALTH & SAFETY CODE (S)
25359.7, AS WELL AS NOTICE OF WHAT APPEARS TO BE THE PRESENCE OF ASBESTOS
CONTAINING CONSTRUCTION MATERIALS ("ACCMS"), PARTICULARLY INVOLVING EXTERIOR
STUCCO, AND JOINT COMPOUND AND POSSIBLY ALSO INVOLVING ROOFING MATERIALS, WHICH
NOTICE OF THE PRESENCE OF ACCMS IS GIVEN PURSUANT TO CALIFORNIA HEALTH AND
SAFETY CODE (S)(S) 25915-25919.7. Buyer acknowledges receipt from Seller of
information concerning such ACCMs in satisfaction of Health & Safety Code (S)
25915.5. At Buyer's request, Seller shall provide Buyer (including Buyer's
consultants) with access to all of its files (and shall instruct its consultants
to provide access to all of their files) relating to the environmental condition
of the Real Property (including groundwater) and permit Buyer or Buyer's
consultants to make copies of any additional reports, summaries, data and
information concerning or relating to the environmental condition of the Real
Property. Prior to the Close of Escrow any such documents, if they have not
already been provided to a governmental agency and without claim of trade secret
or other privilege, may not be provided to any other person or entity other than
Buyer's lender (except as required by law) without Seller's prior written
consent, which consent may be conditioned upon the recipient entering into a
satisfactory confidentiality agreement.
b. Environmental Allocation and Indemnification.
--------------------------------------------
(i) Subject to the limitations contained in this Section 12(b),
Seller, its successors and assigns, will indemnify, defend and hold
harmless Buyer, its successors and assigns, from and against any and
all demands, claims, lawsuits, judgments, administrative proceedings,
liability, fines, civil penalties, damage, loss, cost and expense, or
any of them, of whatever kind or nature, known or unknown, contingent
or matured, including reasonable attorneys' fees and costs, whether
or not suit is filed and reasonable and necessary costs associated
with the investigation and remediation of environmental
contamination, including, without limitation, consultants' fees and
costs (hereinafter, "Claims") to the extent caused by or arising
from:
the Release (as hereinafter defined) of Contaminants (as
hereinafter defined) at, or from, or which have migrated or in
the future migrate to the Real Property (including groundwater),
where such Release occurs as a result of or in connection with
the operations of Seller, or its corporate predecessor, Bentley
Laboratories, Inc., at the Real Property, or from the actions or
inactions of Seller or Bentley Laboratories, Inc., or their
officers, directors, employees, tenants, subtenants, contractors
or subcontractors (hereinafter the "Seller Parties"), whether
such actions or inactions occurred on or off the Real Property,
if such Release occurred
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<PAGE>
or occurs on or after the date that Seller or Bentley
Laboratories, Inc. owned or occupied the Real Property.
Collectively, all Claims allowed by this Section 12(b)(i) shall be the
"Covered Claims". Covered Claims do not include the costs of the
Groundwater Remedial Action (as hereinafter defined) for which Seller
is responsible as provided in Section 12.2(b)(vi) hereof or the cost
of disposing of the Roof ACCMs (as hereinafter defined). Other Claims
which may result from the groundwater contamination or the remediation
thereof and which otherwise meet the definition of a Covered Claim
under this Agreement are Covered Claims.
(ii) Seller's indemnification obligation for Covered Claims
under subparagraph (i) above shall be limited as follows:
(a) Seller shall be obligated to indemnify Buyer, and its
successors and assigns, only for (1) Covered Claims made by
Buyer, or its successors or assigns, on their own behalf,
and (2) for Covered Claims made against Buyer by third
parties, including a governmental agency or a person not a
party to this Agreement. Seller shall not be obligated
under this Agreement to indemnify Buyer, or its successors
or assigns, under this Agreement for any other Claims
including, without limitation, any Claims Buyer could make
on its own behalf against Seller but for this Agreement.
Buyer may assign its rights to indemnity from Seller to a
successor owner of the Real Property so long as the
assignee agrees to be bound by the terms of this Section 12
as if the assignee were Buyer.
(b) Seller's indemnification obligation for Covered Claims
under subparagraph (i) above shall, in no event, extend to:
(1) any consequential damages, loss of property
value, so-called "stigma" damages or loss of business
except any such damages of third parties (such as
adjoining property owners) which are not located on
the Real Property;
(2) claims for indemnification which are not made
within seven (7) years after the Close of Escrow;
(3) claims arising out of or related to the claims of
any officers, directors or employees of Buyer for
personal injury, to the extent such claims are of a
type covered under workers compensation coverage or
directors and officers liability coverage and Buyer
covenants to maintain such coverage;
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<PAGE>
(4) any claim where the expected liability and cost of
such Covered Claim (including all Covered Claims
previously asserted) will be less than $5,000;
(5) amounts in excess of the "Liability Limit" (as
hereinafter defined) when Seller has expended such
amounts in the aggregate, as damages or remedial
costs, responding to any Covered Claims; the Liability
Limit shall be the dollar limit in effect, as
determined in accordance with the schedule below, on
the date Buyer informs Seller, in accordance with this
Agreement, of a Covered Claim:
If Buyer informs Seller within four (4) years of the
Close of Escrow--up to 100% of the Purchase Price;
If Buyer informs Seller within five (5) years of the
Close of Escrow--up to 75% of the Purchase Price;
If Buyer informs Seller within six (6) years of the
Close of Escrow--up to 50% of the Purchase Price;
If Buyer informs Seller within seven (7) years of the
Close of Escrow--up to 25% of the Purchase Price;
(6) following the Close of Escrow the cost of
performing any general investigation of the
environmental condition of the Real Property,
including, without limitation, any so-called Phase I
or Phase II investigation, except with respect to that
portion of the investigation which identifies Covered
Claims.
(c) The indemnity herein for Covered Claims shall expire on
the EARLIER of seven (7) years after the Close of Escrow or
the date on which Seller's payments to Buyer reach the
Liability Limit applicable to the Covered Claim being paid.
(d) Buyer shall be indemnified only for such Covered Claims
as to which Buyer provides written notice to Seller within
forty-five (45) days as hereinafter provided and allows
Seller to retain consultants of its choice, conduct
negotiations with governmental agencies and approve and
undertake any required work or actions for which
indemnification is sought under this Agreement, all subject
to the review and reasonable approval of Buyer.
(1) With respect to any matter concerning which Seller
is obligated to indemnify Buyer, Buyer must notify
Seller in
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<PAGE>
writing of the Claim upon which indemnification is
sought within forty five (45) days after Buyer has
actual knowledge of the specific conditions or
circumstances which give rise to the Claim.
(2) Buyer shall provide Seller with all reports,
correspondence or other documentation in Buyer's
possession which Buyer believes supports its claim for
indemnification.
(3) The failure of Buyer to make such timely
notification within the forty-five (45) day period or
to make available to Seller all relevant documentation
as is in Buyer's possession, or to permit Seller to
conduct the remediation, shall excuse the
indemnification obligation contained in Section 12(b)
hereof.
Seller shall have forty-five (45) calendar days within
which to notify Buyer that it will accept the Claim and
regard it as an indemnifiable Covered Claim, or to accept
the Claim subject to a reservation of rights by Seller to
later contest whether the Claim is an indemnifiable Covered
Claim and to recover its response costs from Buyer in the
event it is determined that Buyer is not entitled to
indemnity under this Agreement. If Buyer can demonstrate to
Seller at any time within seven (7) years after the Close
of Escrow that Seller has wrongly denied a Covered Claim,
then Seller shall be liable for such Covered Claim to the
extent that Seller would have been liable for such Covered
Claim on the date Buyer first made Seller aware of the
facts establishing Buyer's entitlement to indemnification
under this Agreement, as well as Buyer's legal and
consulting fees and other costs associated with identifying
such Claim, remedying any necessary conditions, and
pursuing recovery from Seller.
(iii) The indemnity and remedies in this Section 12(b) and
Seller's responsibility for the Groundwater Remedial Action (as
hereinafter defined) as set forth in Section 12.2(b)(vi) hereof shall
be Buyer's exclusive remedies with respect to all Claims arising out
of or relating to environmental conditions at, under or about the
Real Property (including groundwater) including, without limitation,
remedies Buyer has or may have at law or in equity (including,
without limitation, any right of reimbursement or contribution
pursuant to any Environmental Law, as amended, expressly including
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. (S)(S) 9601 et seq. and the Resource
-- ----
Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq.).
-- ----
Anything herein to the contrary notwithstanding, however, Buyer
retains all rights and remedies at law or equity (and the liability
limitations set
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<PAGE>
forth in Section 12(b)(ii)(b)(5) shall not apply) with respect to
releases or occurrences which: (i) occur after the Close of Escrow at
properties other than the Real Property and (ii) which are not a
Release giving rise to a Covered Claim indemnifiable under this
Agreement or which would have been indemnifiable under this Agreement
but for the limitations contained in Section 12(b)(ii).
(iv) Buyer hereby releases Seller, its successors and assigns,
and its officers, directors, employees, agents, tenants, subtenants,
contractors or subcontractors for, from and against any Claims,
excepting only such Covered Claims or other relief or demand Buyer is
entitled to make under this Agreement. BUYER IS AWARE OF CALIFORNIA
CIVIL CODE (S) 1542, SET FORTH BELOW, AND AGREES TO WAIVE THE TERMS
THEREOF:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."
(v) Subject to the terms and conditions of Section 12(c), Buyer
shall provide Seller and its consultants with access to the Real
Property for the purpose of satisfying its obligations under this
Section 12(b). The investigation and remediation undertaken by Seller
shall be conducted until the appropriate overseeing governmental
agency issues its customary notification that no further remedial,
investigatory or monitoring action is required or, in the absence of
agency oversight or upon termination of agency oversight, to a
condition which, according to the then current applicable standards,
would not preclude the development of the Real Property for
industrial, warehousing, office and other commercial uses exclusive of
schools, hospitals, nursing homes, day care centers, apartments,
residences and other similar uses. Seller may in good faith contest
the degree to which any governmental agency requires such activities
without being in breach of its indemnification obligations in Section
12(b). Upon reasonable notice to Buyer, and provided Seller does not
unreasonably and materially interfere with Buyer's beneficial use and
occupancy of the Real Property including Buyer's construction of a
building on the vacant Real Property, Seller shall be entitled to
access to the Real Property (including groundwater) to operate
monitoring wells, remove or treat soils or groundwater and conduct
such further activities, if any, as may hereafter be required pursuant
to this Agreement or by any governmental agency. Buyer shall not be
entitled to any rent or other compensation by reason of Seller's
exercise of its rights under this Section. Should Seller assume
responsibility for investigatory and remediation activities, Seller
shall be authorized and entitled to select contractors and
subcontractors, determine the nature and extent of any remedy or
remedies or scope of investigatory activities and coordinate and make
all communications with appropriate governmental agencies; provided,
however, that Buyer shall have the right to require that activities
involving the use of personal protective equipment, or activities
which will likely involve significant noise, site disruption,
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<PAGE>
and activities which are inconsistent with Buyer's planned onsite
activities or which involve activities which would otherwise
constitute a nuisance to Buyer's use of the Real Property, be
performed during non-working hours or in a manner minimizing
disruption and consistent with Buyer's scheduled uses.
(vi) Seller presently is investigating and remediating
groundwater underlying the Real Property, which may have been
contaminated from a release into surrounding soils from an abandoned
injection molding overflow sump as referenced in the Environmental
Assessment Reports (the "Sump Release"), as well as groundwater on
adjoining properties which may have migrated from the Real Property
(the soil remediation associated with the Sump Release and the
groundwater investigation and remediation are collectively referred to
herein as the "Groundwater Remedial Action"). Seller shall in due
course complete the Groundwater Remedial Action (the Buyer
understanding that the Groundwater Remedial Action may take several
years to complete). Seller shall be deemed to have completed the
Groundwater Remedial Action when the overseeing governmental agency
issues its customary notification that it requires no further remedial
or investigatory action or, in the absence of agency oversight or upon
termination of agency oversight, when conditions, given the then
current applicable standards, would not preclude the development of
the Real Property for industrial, warehousing, office and other
commercial uses, exclusive of schools, hospitals, nursing homes, day
care centers, apartments, residences and other similar uses. Seller
may in good faith contest the degree to which any governmental agency
requires activities without being in breach of its obligations in this
Section 12(b)(vi). Seller shall keep Buyer reasonably informed
regarding Seller's progress in completing the Groundwater Remedial
Action and shall provide Buyer with copies of all reports and other
correspondence supplied to or received from regulatory agencies
concerning the Groundwater Remedial Action. Buyer shall have no right
to review or instruct Seller in the conduct of the Groundwater
Remedial Action, except that the access and license provisions of this
Agreement shall apply.
Seller has removed certain ACCMs identified in the Environmental
Reports, but not including the ACCMs contained in the roofing
materials (the "Roof ACCMs"). Seller has forwarded to Buyer Seller's
plans and closure reports and other documents relating to the removal
of ACCMs. Seller has further agreed to be responsible for disposal of
the Roof ACCMs without cost or expense to Buyer in the event Buyer
elects to replace the roofing within six (6) months following the
Close of Escrow and requests Seller to dispose of such materials.
c. Access. Subject to the terms and conditions of this Section 12(c) and
------
subsection 12(b)(v) above, after the Close of Escrow, Buyer hereby grants a
license to Seller and Seller hereby reserves the right to enter upon the Real
Property (including groundwater) for the purpose of permitting Seller to perform
its obligations pursuant to this Section 12 including any investigation,
monitoring or remediation of environmental contamination (the "Activities".)
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<PAGE>
(i) All of Seller's Activities upon the Real Property, including the
selection of Seller's consultants and contractors, shall be subject to the
review and approval of Buyer, which approval shall not be unreasonably
withheld or delayed, except that Buyer shall have no such right of review
and approval with respect to Seller's ongoing implementation of the
Groundwater Remedial Action in accordance with existing workplans. Prior
to entering upon the Real Property, Seller shall give Buyer reasonable
notice (except in an emergency). All of Seller's obligations under this
Section 12 and Seller's Activities upon the Real Property shall be
performed and conducted at Seller's sole cost, expense and liability
subject to the Liability Limit (except that the cost of the Groundwater
Remedial Action and Roof ACCMs disposal shall not be applied toward the
Liability Limit), the right of Seller to contest its liability for claims
under the indemnity contained in Section 12(b) and the right to seek
recovery from Buyer for expenses incurred addressing any claims which are
determined not to be Covered Claims or are otherwise not indemnifiable
under this Agreement.
(ii) Except as otherwise provided herein, Seller shall conduct its
Activities at the Real Property during normal business hours and in a
manner which minimizes material interference with the use and enjoyment of
the Real Property by Buyer and its lessees.
(iii) Seller shall maintain and keep the part of the Real Property in
which it is conducting Activities in a safe, clean and neat condition and
shall take all reasonable measures, including noise attenuation and dust
control, to ensure that lessees of or neighbors near the Real Property are
not unreasonably disturbed by Seller's Activities. Seller shall promptly
remove all equipment, debris, and trash used or caused by Seller. Seller
shall be responsible for locating all underground utility lines and
structures. Upon completion of its Activities Seller shall, in accordance
with good engineering practices, promptly restore the Real Property,
including buildings and structures, substantially to their prior usable
condition, ordinary wear and tear and loss by fire or other casualty
excepted. Seller shall remove or properly close any semi-permanent
improvements, such as monitoring wells, as soon as possible after it
receives any necessary authorization to do so. Seller shall not suffer or
permit to be levied or enforced against the Real Property, or any part
thereof, any mechanics', materialmens', contractors' or subcontractors'
liens associated with or resulting from the Activities, except to the
extent Buyer is responsible for paying the cost of such work as provided
above. Seller shall have the right to contest any mechanic's lien claims
filed against the Real Property.
(iv) Seller shall properly contain, label, treat, store, transport
and/or dispose of any and all substances, whether gas, particulate, liquid
or solid, and regardless of whether such substances are a hazardous
material or substance, which is brought upon, used in, produced or
generated by or which result from the Activities. To the extent allowed by
law, Buyer shall not be identified as the generator of any solid or
hazardous waste generated as a result of Seller's
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<PAGE>
Activities. If under law Buyer must be identified as the generator of
solid or hazardous waste generated as a result of Seller's Activities,
then Seller shall reimburse Buyer for all costs associated with such solid
or hazardous waste (including applicable State Board of Equalization fees)
and such costs shall not be applied toward the applicable Liability Limit.
(v) Seller shall comply with all federal, state and local laws,
ordinances, rules, regulations and/or requirements (including consent
decrees and administrative orders, if applicable) in connection with the
performance of the Activities.
(vi) To the extent available on commercially reasonable terms, Seller
shall at all times maintain or cause its contractors to maintain (A)
worker's compensation insurance covering all of its employees to the
statutory limit; and (B) commercial general liability or comprehensive
general liability insurance including premises/operations, blanket
contractual, personal injury, broad form property damage, explosion,
collapse and underground damage (the X, C, U perils) owned and non-owned
automobile liability, with limits of not less than $5,000,000 combined
single limit for bodily injury and property damage. Buyer and any
additional persons designated by Buyer shall be named as additional
insureds on such liability coverage, although they shall have no
obligations of named insureds on such policies. All liability coverage
maintained by Seller hereunder shall be primary as respects Buyer (and any
additional insured designated by Buyer) and not contributory to or in
excess of any coverage maintained by Buyer, and the policies or a rider
thereto shall specifically so state. Upon the request of Buyer, Seller
shall cause any general contractor to name Buyer as an additional insured
and provide a certificate of insurance evidencing such coverage under any
applicable liability insurance policy which policy shall cover
contractor's activities related to the handling of Contaminants.
(vii) Seller shall not be required to pay rent or other compensation
to Buyer in connection with the use of the Real Property for the conduct
of Activities.
(viii) Upon the request of Seller, Buyer shall execute and record in
the official real estate records of Orange County an instrument
acknowledging the reservation by Seller of the foregoing rights and the
grant by Buyer of the licenses and rights pursuant to this Section 12(c)
with respect to the Real Property.
d. Definitions. As used herein, "Environmental Laws" means all federal,
-----------
state and local laws, statutes, codes, ordinances, rules, regulations or orders
relating to or addressing the environment, including but not limited to any law,
statute, code, ordinance, rule, regulation, or order relating to the use,
handling, or disposal of any Contaminant and any law, statute, code, ordinance,
rule, regulation, or order relating to remedial or corrective actions (but
excluding any law, statute, code, ordinance, rule, regulation or order relating
to workplace or
-17-
<PAGE>
worker safety and health or accessibility), as and to the extent such
requirements exist as of the Close of Escrow or are promulgated in the future by
the specifically authorized federal, state or local governmental authority
responsible for administering such requirements.
(i) As used herein, "Release" means the release, spill, emission,
leaking, pumping, injection, deposit, disposal or discharge into the
indoor or outdoor environment as a result of the activities, or failure to
act, of any Seller Party. Any leaching, migration and/or movement of
Contaminants from such a Release shall be deemed to be part of the
original Release except to the extent such leaching, migration and/or
movement was due to, or exacerbated by, the actions or negligence of Buyer
(or its tenants, subtenants, successors or assigns) or by the actions or
negligence of a successive occupant or owner of the Real Property or any
person not a party to this Agreement.
(ii) As used herein, "Contaminant" means any pollutant, hazardous
substance, radioactive substance or waste, toxic substance, hazardous
waste, extremely hazardous waste, special waste, petroleum or petroleum-
derived substance or waste, asbestos, polychlorinated biphenyls, any
hazardous or toxic constituent thereof defined in Environmental Laws and
which is required by any governmental authority to be regulated,
investigated, cleaned up, removed, treated or otherwise abated. However,
in no event shall pesticides (including breakdown substances) or asbestos
located on or in structural components, including, without limitation,
walls, floors, piping, ceilings, insulation, structural members or roofs,
of any building, structure or equipment on the Real Property be considered
to be a "Contaminant" to be remediated by or at the expense of Seller
pursuant to this Agreement.
13. Disclosures to Buyer. Buyer and Seller acknowledge and agree that:
--------------------
a. Seller previously used the Real Property for manufacturing,
office and related purposes, that parts of the Real Property may have largely
remained idle for a significant period, and that in connection with Seller's
vacation of the Real Property Seller may remove or have removed trade fixtures,
furnishings, equipment, machinery, non-structural walls and partitions, and
related items from the Real Property including but not limited to the telephone
switch and control systems and certain security systems (provided that Seller
shall not remove the plumbing, electrical, heating, ventilating and air
conditioning systems serving the building which building systems shall be
delivered in their present "AS IS" condition ordinary wear and tear and loss by
fire or other casualty excepted).
b. The Real Property currently or at the Closing may not comply with
the Uniform Building Code as adopted by the City of Irvine or with other
building and/or occupancy laws, rules or regulations, or fire, health and safety
(including seismic safety) or disabled access codes, rules or regulations and it
shall be the responsibility of Buyer to investigate such compliance and if Buyer
shall not terminate this Agreement during the Contingency Period by reason of
such condition, then Buyer shall be solely responsible for all costs and
expenses
-18-
<PAGE>
incurred to bring the Building into compliance with applicable governmental
requirements if Buyer is required or elects to bring the Building into such
compliance.
c. Subject to Sections 9(a)(iv) and 12 herein, Seller shall have no
responsibility to Buyer with respect to such compliance or non-compliance of the
Real Property including but not limited to compliance with applicable federal,
state and local codes, ordinances, laws, rules and regulations, the federal
"Americans with Disabilities Act", applicable health, safety, fire, disabled
access, earthquake safety and Environmental Laws.
d. Buyer acknowledges that the Real Property may be located within an
area that is subject to a Community Facilities District which is in the process
of formation. Upon formation of the District, the Real Property may be subject
to Community Facilities District assessments which will be a special tax that is
in addition to the regular property taxes. Buyer will be required to give any
subsequent purchaser of the property (or lessee with a lease for more than five
years) a Notice of Special Tax as required by Section 53341.5 of the California
Government Code. Buyer hereby waives any rights it may have to notice regarding
Community Facilities District assessments under California Government Code (S)
53341.5 and acknowledges and agrees that it is relying entirely on its own
investigation to determine the status of the proposed Community Facilities
District and the effect that any such special taxes or assessments imposed by
such district will have on the Real Property.
e. Buyer acknowledges that the Orange County Bankruptcy may result in
the imposition of additional taxes on residents and businesses in Orange County
and/or the curtailment of government services. Buyer further acknowledges that
the Orange County financial crises may adversely affect real estate values.
f. Seller hereby advises Buyer that the characteristics of the
building located upon the Real Property (namely a precast concrete building with
wood frame floors or roof built before January 1, 1975) require delivery of THE
COMMERCIAL PROPERTY OWNER'S GUIDE TO EARTHQUAKE SAFETY (the "Guide") as provided
in California Government Code (S)(S) 8893.2 and 8875.6. By execution hereof,
Buyer acknowledges receipt of the Guide.
14. Tax Withholding. Buyer and Seller shall comply with Section 1445 of
---------------
the Foreign Investment in Real Property Tax Act of 1980, and Seller shall
provide to Buyer, prior to closing, a non-foreign affidavit as provided under
such Act.
15. Casualty or Condemnation.
------------------------
If prior to the Close of Escrow, Seller becomes aware that any
portion of the Property is damaged by fire or other casualty or taken by any
entity by condemnation or with the power of eminent domain, or if the access
thereto is reduced or restricted thereby (or is the subject of a pending taking
which has not yet been consummated), Seller shall immediately notify Buyer of
such fact. In such event, Buyer shall have the right, in Buyer's sole
discretion, to terminate this Agreement and the Escrow upon written notice to
Seller and Escrow Holder not later than fifteen (15) days after receipt of
Seller's notice thereof. If this Agreement and the Escrow are so terminated, all
documents and funds shall be returned by Escrow Holder to each
-19-
<PAGE>
party who so deposited the same and neither party shall have any further rights
or obligations hereunder, except for payment of escrow cancellation fees which
shall be borne equally by Buyer and Seller. Alternatively, Buyer may proceed to
consummate the transaction provided for herein at Buyer's sole election, in
which event Seller shall assign and turn over, and Buyer shall be entitled to
receive and keep, any and all insurance proceeds paid or to be paid with respect
to the Property and awards made or to be made in connection with such
condemnation or eminent domain, and the parties shall proceed to the Close of
Escrow pursuant to the terms hereof, without any reduction in the Purchase
Price.
16. Liquidated Damages.
------------------
BUYER AND SELLER EACH AGREE THAT IN THE EVENT OF A DEFAULT OR BREACH
HEREUNDER BY BUYER WHICH RESULTS IN A TERMINATION OF THIS AGREEMENT, THE DAMAGES
TO SELLER WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN, AND THAT
THEREFORE, IN THE EVENT OF A DEFAULT OR BREACH BY BUYER WHICH RESULTS IN
TERMINATION OF THIS AGREEMENT BY SELLER, A SUM OF $50,000.00 SHALL BE PAID BY
BUYER TO SELLER AS DAMAGES FOR SUCH BREACH OR DEFAULT BY BUYER, AS A REASONABLE
ESTIMATE OF THE DAMAGES TO SELLER, INCLUDING COSTS OF NEGOTIATING AND DRAFTING
THIS AGREEMENT, COSTS OF COOPERATING IN SATISFYING CONDITIONS TO CLOSING, COSTS
OF SEEKING ANOTHER BUYER, OPPORTUNITY COSTS IN KEEPING THE PROPERTY OUT OF THE
MARKETPLACE, COSTS OF RELOCATING EMPLOYEES AND OTHER COSTS INCURRED IN
CONNECTION HEREWITH. THE LIQUIDATED DAMAGES SUM PROVIDED HEREIN SHALL BE
SELLER'S SOLE AND EXCLUSIVE REMEDY AGAINST BUYER IN THE EVENT OF A MATERIAL
DEFAULT OR BREACH BY BUYER, AND SELLER HEREBY WAIVES ANY AND ALL RIGHT TO
SPECIFIC PERFORMANCE.
SELLER'S INITIALS:________ BUYER'S INITIALS:________
17. Brokers.
-------
Upon the Close of Escrow Seller shall pay the brokers referenced in
this Section 17 commissions or other compensation in accordance with terms of
separate agreements between them. Seller represents and warrants to Buyer that
except for CB COMMERCIAL REAL ESTATE GROUP, INC. AND TRAMMELL CROW COMPANY it
has not dealt with or been represented by any brokers or finders in connection
with the purchase and sale of the Property. Buyer represents and warrants to
Seller that except for CB COMMERCIAL REAL ESTATE GROUP, INC. it has not dealt
with or been represented by any broker or finders in connection with the
purchase of the Real Property. Buyer and Seller each agree to indemnify and
hold harmless the other against any loss, liability, damage, cost, claim or
expense (including reasonable attorneys' fees) incurred by reason of its breach
of the foregoing representation and warranty, including the amount of any
brokerage fee, commission or finder's fee which is payable or alleged to be
payable to any other broker or finder by the indemnifying party. The
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<PAGE>
representations, warranties, indemnities and agreements contained in this
Section 17 shall survive the Close of Escrow or earlier termination of this
Agreement.
18. General Provisions.
------------------
a. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which, taken together,
shall constitute one and the same instrument.
b. Further Assurances. Each of the parties agrees to execute and
------------------
deliver such other instruments and perform such acts, in addition to the matters
herein specified, as may be appropriate or necessary to effectuate the
agreements of the parties, whether the same occurs before or after the Close of
Escrow.
c. Entire Agreement. This Agreement, together with all Exhibits
----------------
hereto and documents referred to herein, if any, constitute the entire agreement
among the parties hereto with respect to the subject matter hereof, and
supersede all prior understandings or agreements. This Agreement may be modified
only by a writing signed by both parties. All exhibits to which reference is
made in this Agreement are deemed incorporated into this Agreement whether or
not actually attached.
d. Headings. Headings used in this Agreement are for convenience of
--------
reference only and are not intended to govern, limit, or aid in the construction
of any term or provision hereof.
e. Choice of Law. This Agreement and each and every related document
-------------
are to be governed by, and construed in accordance with, the laws of the State
of California.
f. Severability. If any term, covenant, condition or provision of
------------
this Agreement, or the application thereof to any person or circumstance, shall
to any extent be held by a court of competent jurisdiction or rendered by the
adoption of a statute by the State of California or the United States invalid,
void or unenforceable, the remainder of the terms, covenants, conditions or
provisions of this Agreement, or the application thereof to any person or
circumstance, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby.
g. Waiver of Covenants, Conditions or Remedies. The waiver by one
-------------------------------------------
party of the performance of any covenant, condition or promise, or of the time
for performing any act, under this Agreement shall not invalidate this Agreement
nor shall it be considered a waiver by such party of any other covenant,
condition or promise, or of the time for performing any other act required,
under this Agreement. The exercise of any remedy provided in this Agreement
shall not be a waiver of any consistent remedy provided by law, and the
provisions of this Agreement for any remedy shall not exclude any other
consistent remedies unless they are expressly excluded.
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<PAGE>
h. Legal Advice. Each party has received independent legal advice
------------
from its attorneys with respect to the advisability of executing this Agreement
and the meaning of the provisions hereof. The provisions of this Agreement shall
be construed as to the fair meaning and not for or against any party based upon
any attribution of such party as the sole source of the language in question.
i. Time of the Essence. Time shall be of the essence as to all dates
-------------------
and times of performance, whether they are contained herein or contained in any
escrow instructions to be executed pursuant to this Agreement, and all escrow
instructions shall contain a provision to this effect.
j. Relationship of Parties. The parties agree that their
-----------------------
relationship is that of Seller and Buyer, and that nothing contained herein
shall constitute either party, the agent or legal representative of the other
for any purpose whatsoever, nor shall this Agreement be deemed to create any
form of business organization between the parties hereto, nor is either party
granted the right or authority to assume or create any obligation or
responsibility on behalf of the other party, nor shall either party be in any
way liable for any debt of the other.
k. Attorneys' Fees. In the event that any party hereto institutes an
---------------
action or proceeding for a declaration of the rights of the parties under this
Agreement, for injunctive relief, for an alleged breach or default of, or any
other action arising out of, this Agreement, or the transactions contemplated
hereby, or in the event any party is in default of its obligations pursuant
thereto, whether or not suit is filed or prosecuted to final judgment, the non-
defaulting party or prevailing party shall be entitled to its reasonable
attorneys' fees and to any court costs incurred, in addition to any other
damages or relief awarded.
l. Assignment. Except for an assignment by Buyer to Buyer's
----------
Designee, the parties hereto may not assign their respective rights or delegate
their respective obligations hereunder without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed and no such
assignment shall release the assignor from its obligations hereunder. In any
event, this Agreement shall be binding upon and shall inure to the benefit of
the successors and permitted assigns of the parties to this Agreement.
m. Notices. All notices and demands which either party is required
-------
or desires to give to the other shall be given in writing by certified mail,
return receipt requested with appropriate postage paid, by personal delivery, by
facsimile or by private overnight courier service to the address or facsimile
number set forth below for the respective party, provided that if any party
gives notice of a change of name or address or number, notices to that party
shall thereafter be given as demanded in that notice. All notices and demands so
given shall be effective upon receipt by the party to whom notice or demand is
being given, except that any notice given by certified mail shall be deemed
delivered three (3) days after deposit in the United States mail.
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<PAGE>
If to Seller:
Baxter Healthcare Corporation
17221 Red Hill Avenue
Irvine, California 92714-5688
Attn: Dennis Shoji, P.E.
Facsimile No.: (714) 250-2286
With a copy to:
Trammell Crow Company
at Baxter Healthcare Corporation
One Baxter Parkway - 4-3W
Deerfield, Illinois 60015
Attn: Sally Wirth
Facsimile No.: (708) 948-3195
and:
Sidley & Austin
555 West Fifth Street, Suite 4000
Los Angeles, California 90013-1010
Attn: D. William Wagner
Facsimile No.: (213) 896-6600
If to Buyer:
St. John Knits, Inc.
2722 Michelson Drive
Irvine, CA 92715
Attention: President
Facsimile No.: (714) 223-3391
-23-
<PAGE>
With a copy to:
Obegi & Brewer
4041 MacArthur Boulevard
Suite 350
Newport Beach, California 92660-2511
Attention: Burleigh Brewer, Esq.
Facsimile No.: (714) 833-3133
If to Escrow Holder:
Chicago Title Insurance Company
Broadway Plaza
700 South Flower Street
Suite 900
Los Angeles, CA 90017
Attention: Sharon Kling Escrow #_____
Fax: (213) 488-4388
n. No Presumption Against Drafting Party. This Agreement and the
-------------------------------------
provisions contained herein shall not be construed or interpreted for or against
any party hereto because said party drafted or caused the party's legal
representative to draft any of its provisions. This Agreement shall be
construed without reference to the identity of the party or parties preparing
the same, it being expressly understood and agreed that the parties hereto
participated equally or had equal opportunity to participate in the drafting
thereof.
o. Parties In Interest. Nothing in this Agreement, whether express or
-------------------
implied, is intended to confer any benefits, rights or remedies under or arising
by reason of this Agreement on any persons other than the parties to it
including, without limitation, insurers.
p. Insurers. Buyer and Seller agree to cooperate in matters
--------
concerning their respective insurers including, but not limited to, any claims
concerning a Release of Contaminants at or from the Real Property. Such
cooperation shall not require disclosure of confidential or privileged material,
except with the consent of the party asserting the privilege, and subject to any
reasonable conditions imposed by the disclosing party.
q. Buyer's Designee. Buyer hereby reserves the right to direct that
----------------
the title to the Property shall be conveyed to an entity owned by or under
common ownership with Buyer ("Buyer's Designee"). Seller hereby consents to the
assignment of this Agreement by Buyer to Buyer's Designee provided Buyer's
Designee assumes all of the liability of Buyer under this Agreement and further
provided that the Buyer shall not by reason of such assignment be released from
the obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SELLER:
BAXTER HEALTHCARE CORPORATION,
a Delaware corporation
By: ___________________________________
Its:_______________________________
BUYER:
ST. JOHN KNITS, INC.,
a California corporation
By: ___________________________________
Its:_______________________________
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<PAGE>
ACCEPTANCE BY ESCROW HOLDER
(Escrow No. ______)
CHICAGO TITLE INSURANCE COMPANY hereby acknowledges that it has received a fully
executed counterpart of the foregoing Real Property Purchase and Sale Agreement
and Escrow Instructions and agrees to act as Escrow Holder thereunder and to be
bound by and perform the terms thereof as such terms apply to Escrow Holder.
CHICAGO TITLE INSURANCE COMPANY
Dated:______________ By: ______________________________________
Its: ________________________________
-26-
<PAGE>
EXHIBIT A
-i-
<PAGE>
EXHIBIT B
Personal Property
The Personal Property consists of the following items to the extent owned by
Seller and located within the Real Property:
(a) window coverings
(b) carpeting
(c) wall coverings
(d) lighting fixtures
(e) fire extinguishers
(f) smoke detectors
(g) building signs (not including Baxter or
its corporate names or logos)
(h) air conditioning equipment
(i) plumbing fixtures.
-ii-
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of ______________, 1996, is
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and
ST. JOHN KNITS, INC. (the "Borrower").
Recitals
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of December 15, 1995 (the "Agreement").
B. The Bank and the Borrower desire to amend certain terms and provisions
of the Agreement as more specifically set forth below.
Agreement
---------
1. Definitions. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
----------
2.1 A new Paragraph 2A is added to the Agreement to read as follows:
2A. FACILITY NO. 3: LINE OF CREDIT AMOUNT AND TERMS
2A.1 Line of Credit Amount.
---------------------
(a) In addition to the other credit available under this
Agreement, during the availability period described below, the Bank
will provide a line of credit to the Borrower. The amount of the line
of credit (the "Facility No. 3 Commitment") is Eight Million Dollars
($8,000,000).
(b) This is a revolving line of credit with a term repayment
option. During the availability period, the Borrower may repay
principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit to exceed the Facility No. 3 Commitment.
2A.2 Availability Period. The line of credit is available between
-------------------
March 1, 1996, and September 1, 1997 (the "Facility No. 3 Expiration Date")
unless the Borrower is in default.
-1-
<PAGE>
2A.3 Interest Rate. Unless the Borrower elects an optional interest rate
-------------
as described below, the interest rate is the Bank's Reference Rate plus the
percentage points indicated for each period specified below:
<TABLE>
<CAPTION>
Period Percentage Points
------ -----------------
<S> <C>
From March 1, 1996,
through September 1,
1997 0.00%
From September 2, 1997
through September 1, 2007 0.25%
</TABLE>
2A.4 Optional Interest Rate. Instead of the interest rate based on
----------------------
the Bank's Reference Rate, the Borrower may elect to have all or portions
of the line of credit (during the availability period) and the term loan
(during the term repayment period) bear interest at the rate described
below during an interest period agreed to by the Bank and the Borrower.
Each interest rate is a rate per year. Interest will be paid on the last
day of each interest period, and, if the interest period is longer than one
month, then on the first day of each month during the interest period. At
the end of any interest period, the interest rate will revert to the rate
based on the Reference Rate, unless the Borrower has designated another
optional interest rate for the portion. Upon the occurrence of an event of
default under this Agreement, the Bank may terminate the availability of
optional interest rates for interest periods commencing after the default
occurs.
2A.5 Offshore Rate. The Borrower may elect to have all or portions
-------------
of the principal balance of the line of credit and the term loan bear
interest at the Offshore Rate plus the number of percentage points
indicated for each period specified below:
<TABLE>
<CAPTION>
Period Percentage Points
------ -----------------
<S> <C>
From March 1, 1996,
through September 1,
1997 1.500%
From September 2, 1997
through September 1, 2007 1.625%
</TABLE>
Designation of an Offshore Rate portion is subject to the following
requirements:
-2-
<PAGE>
(a) During the availability period, the interest period during
which the Offshore Rate will be in effect will be no shorter than
thirty (30) days and no longer than (1) one year. During the term
repayment period, the interest period during which the Offshore Rate
will be in effect will be three (3) months. The last day of the
interest period will be determined by the Bank using the practices of
the offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less
than Five Hundred Thousand Dollars ($500,000); provided, however, that
during the term repayment period, there shall be only one Offshore
Rate portion in an amount equal to the entire outstanding principal
balance of the term loan.
(c) The "Offshore Rate" means the interest rate determined by
the following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by the
Bank as of the first day of the interest period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded
upward to the nearest 1/16th of one percent) at which the Bank's
Grand Cayman Branch, Grand Cayman, British West Indies, would
offer U.S. dollar deposits for the applicable interest period to
other major banks in the offshore dollar inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be maintained
by member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to
any portion of the principal balance of the term loan which is
scheduled to be repaid before the last day of the applicable interest
period.
-3-
<PAGE>
(e) Any portion of the principal balance of the line of credit or
term loan already bearing interest at the Offshore Rate will not be
converted to a different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which
(i) the additional interest which would have been payable on
the amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the offshore
dollar market for a period starting on the date on which it was
prepaid and ending on the last day of the interest period for
such portion.
(g) The Bank will have no obligation to accept an election for
an Offshore Rate portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore Rate portion
are not available in the offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the cost
of an Offshore Rate portion.
2A.6 Repayment Terms.
---------------
(a) The Borrower will pay interest on April 1, 1996, and then
monthly thereafter until payment in full of any principal outstanding
under the line of credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under the line of credit no
later than the Facility No. 3 Expiration Date unless the Borrower
elects to convert the principal balance to a term loan. The option to
convert the principal of the line of credit to a term loan shall be
available only if the outstanding principal balance of the term loan
on the date of such conversion will be at least Two Million Dollars
-4-
<PAGE>
($2,000,000).
(c) The Borrower will repay principal of the term loan in
quarterly installments, each in an amount equal to one-fortieth
(1/40th) of the principal balance outstanding on the Facility No. 3
Expiration Date. The installments will be due on December 1, 1997,
and quarterly thereafter. On September 1, 2007, the Borrower will
repay the remaining principal balance of the term loan plus any
interest then due.
(d) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote installment
of principal due under this Agreement.
2A.7 Mandatory Prepayment; Early Termination. Anything herein to the
---------------------------------------
contrary notwithstanding, if Facility No. 1, as now in effect or as
hereafter renewed, amended or restated, terminates for any reason,
including, without limitation, termination at the request of the Borrower,
termination resulting from failure by the Bank to renew Facility No. 1
beyond any availability period applicable thereto, or termination as
otherwise provided or permitted under this Agreement, the entire principal
balance of Facility No. 3, together with all accrued interest thereon,
shall be due and payable on the effective date of such termination.
2.2 Paragraph 7.1 of the Agreement is amended by the addition of the
following sentence thereto:
The Borrower will use the proceeds of Facility No. 3 to acquire and
develop (i) certain properties located at 17502, 17542 and 17572
Armstrong, Irvine, California, and (ii) a retail location located at
51 East Oak St., Chicago, Illinois.
2.3 Subparagraph 7.7(f) of the Agreement is deleted in its entirety.
2.4 Paragraph 7.9 is amended to read as follows in its entirety:
7.9 Capital Expenditures. Not to spend more than Twenty-One Million
--------------------
Dollars ($21,000,000) in any single fiscal year to acquire fixed or
capital assets.
2.5 A new Paragraph 7.21 is added to the Agreement to read as follows
in its entirety:
-5-
<PAGE>
7.21 Debt Service Coverage Ratio. To maintain a debt service
---------------------------
coverage ratio of at least 1.25:1.00. "Debt service coverage ratio"
means the sum of net income plus interest expense, non-cash
depreciation and amortization, shareholder equity and subordinated
debt injections, and advances to affiliates less shareholder
withdrawals, loans and dividends divided by the sum of the current
portion of long term debt and capitalized leases, interest expense,
and non-financed capital expenditures. This ratio will be calculated
at the end of each fiscal quarter, using the results of that quarter
and each of the 3 immediately preceding quarters. The current portion
of long term debt will be measured as of the last day of the preceding
fiscal year. Compliance with this ratio shall commence as of the end
of the fiscal quarter in which the initial utilization of the Facility
No. 3 Commitment occurs. The Borrower shall thereafter be required to
comply with this ratio until the availability period for the Facility
No. 3 Commitment has expired and all outstandings under the Facility
No. 3 Commitment have been repaid in full.
3. Representations and Warranties. When the Borrower signs this
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Amendment, the Borrower represents and warrants to the Bank that:
3.1 There is no event which is, or with notice or lapse of time or
both would be, an event of default under the Agreement;
3.2 The representations and warranties in the Agreement are true and
correct as of the date of this Amendment as if made on the date of this
Amendment;
3.3 This Amendment is within the Borrower's powers, has been duly
authorized, and does not conflict with any of the Borrower's organizational
papers; and
3.4 This Amendment does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
4. Effectiveness of Amendment. This Amendment shall be effective upon the
--------------------------
Bank's receipt of the following, each of which must be in form and substance
satisfactory to the Bank:
4.1 Evidence that the execution, delivery, and performance by the
Borrower of this Amendment and any instrument or agreement required under this
Amendment have been duly authorized;
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<PAGE>
4.2 Payment by the Borrower of all costs, expense and attorneys' fees
(including allocated costs for in-house legal services) incurred by the Bank in
connection with this Amendment.
5. Effect of Amendment. Except as provided in this Amendment, all of
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the terms and conditions of the Agreement shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in counterparts,
------------
each of which when so executed shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
In Witness Whereof, the parties hereto have executed this Amendment as
of the day and year first above written.
BANK OF AMERICA NATIONAL TRUST ST. JOHN KNITS, INC.
AND SAVINGS ASSOCIATION
By____________________________ By____________________________
Typed Name____________________ Typed Name____________________
Title_________________________ Title_________________________
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