<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 ACT OF
1934
For the quarter ended March 29, 1997
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 0-22515
WEST MARINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 77-035-5502
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization Identification No.)
500 Westridge Drive, Watsonville,CA 95076-4100
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (408) 728-2700
---------------
N/A
- ------------------------------------------------------------------------------
Former Name, Former Address and Former Year, if Changed Since Last Report
Indicate by a 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
-------------- --------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by a check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act subsequent to the distribution of securities under a plan confirmed
by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
At April 26, 1997, the number of shares outstanding of the registrant's common
stock was 16,610,057
<PAGE>
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
March 29, December 28,
ASSETS 1997 1996
------ ------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,767 $ 894
Accounts receivable, net 5,185 3,742
Merchandise inventories 148,311 122,731
Prepaid expenses and other current assets 11,766 10,803
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Total current assets 167,029 138,170
Property and equipment, net 33,495 30,654
Intangibles and other assets, net 42,541 42,690
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Total assets $243,065 $211,514
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 46,133 $ 33,627
Accrued expenses 8,133 10,901
Current portion of long-term debt 769 694
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Total current liabilities 55,035 45,222
Long-term debt 59,487 37,997
Deferred items and other non-current obligations 1,689 1,764
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares
authorized; no shares outstanding
Common stock, $.001 par value: 50,000,000 shares
authorized; issued and outstanding 16,568,532
and 16,494,205 at March 29, 1997 and
December 28, 1996, respectively 16 16
Additional paid-in capital 100,113 98,632
Retained earnings 26,725 27,883
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Total stockholders' equity 126,854 126,531
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Total liabilities and stockholders' equity $243,065 $211,514
============= ============
</TABLE>
See notes to condensed consolidated financial statements
Page 1
<PAGE>
Condensed Consolidated Statements of Income
(unaudited, in thousands, except per share amounts and store data)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
March 29, March 30,
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 75,025 $ 49,947
Cost of goods sold including
buying and occupancy (55,290) (36,268)
--------- ---------
Gross profit 19,735 13,679
Selling, general and administrative
expenses (20,762) (12,833)
--------- ---------
Income (loss) from operations (1,027) 846
Interest expense (867) (292)
--------- ---------
Income (loss) before income taxes (1,894) 554
Benefit (provision) for income taxes 736 (222)
--------- ---------
Net income (loss) $ (1,158) $ 332
========= =========
Net income (loss) per common and common
equivalent share:
Primary $ (0.07) $ 0.02
========= =========
Fully diluted $ (0.07) $ 0.02
========= =========
Weighted average common and common
equivalent shares outstanding:
Primary 16,521 15,912
========= =========
Fully diluted 16,521 16,010
========= =========
Stores open at end of year 156 77
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
Page 2
<PAGE>
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
March 29, March 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,158) $ 332
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,949 1,001
Provision for deferred income taxes
Provision for doubtful accounts 65
Change in assets and liabilities:
Accounts receivable (1,508) (1,581)
Merchandise inventories (25,580) (10,267)
Prepaid expenses and other (1,314) (585)
Accounts payable 12,506 3,796
Accrued expenses (2,049) 83
Deferred items 98 35
---------- ----------
Net cash used in operating activities (16,991) (7,186)
Cash flows from investing activities:
Purchases of property and equipment (4,463) (3,228)
---------- ----------
Net cash used in investing activities (4,463) (3,228)
Cash flows from financing activities:
Net proceeds from line of credit 21,700 5
Proceeds from (repayments of) long-term debt (135) 10,536
Exercise of stock options 762 117
---------- ----------
Net cash provided by financing activities 22,327 10,658
---------- ----------
Net increase in cash 873 244
Cash:
Beginning of period 894 399
---------- ----------
End of period $ 1,767 $ 643
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
<PAGE>
WEST MARINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen Weeks Ended March 29, 1997 and March 30, 1996 (unaudited)
NOTE 1- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit, and in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at March 29, 1997
and March 30, 1996; and the interim results of operations and cash flows for
the 13 weeks then ended. The consolidated balance sheet at December 28, 1996,
presented herein, has been derived from the audited consolidated financial
statements of the Company for the fiscal year then ended.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended December 28,
1996. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the condensed
consolidated interim financial statements. The condensed consolidated interim
financial statements should be read in conjunction with the audited consolidated
financial statements, including the notes thereto, for the year ended December
28, 1996.
Earnings per share are calculated in accordance with Accounting Principles Board
Opinion No. 15, Earnings Per Share. Under such opinion, stock options or common
equivalent shares have been excluded from the calculation of earnings per share
during the first quarter of 1997 as they are anti-dilutive.
In February 1997, Statement of Financial Accounting Standards No. 128 "Earnings
per Share", (SFAS No. 128), was issued. SFAS No. 128 requires dual presentation
of basic EPS and diluted EPS on the face of all income statements issued after
December 15, 1997 for all entities with complex capital structures. Basic EPS
is computed as net income divided by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur from common stock issuable through stock options, warrants and
other convertible securities. The pro forma effect assuming adoption of SFAS
No. 128 at the beginning of each period is presented below.
13 Weeks Ending 13 Weeks Ending
March 29, 1997 March 30, 1996
---------------- ---------------
Pro forma EPS:
Basic ($.07) $.02
Diluted ($.07) $.02
The results of operations for the 13 week period presented herein are not
necessarily indicative of the results to be expected for the full year.
<PAGE>
Item 2 - Managements Discussion and Analysis of Financial Conditions and Results
of Operations
General
- -------
West Marine distributes its merchandise through three divisions, stores (retail
and wholesale) and catalog (retail) under the names of West Marine and E&B
Discount Marine as well as Port Supply (wholesale). West Marine operated 156
stores in 26 states as of March 29, 1997, compared to 77 stores in 19 states as
of March 30, 1996.
On June 17, 1996, West Marine acquired E&B Marine, Inc. The acquisition was
accounted for under the purchase method of accounting. Accordingly, E&B Marine's
results of operations for the period subsequent to the acquisition date are
included in West Marine's results of operations.
Results of Operations
- ---------------------
Net sales increased $25.1 million, or 50.2%, from $49.9 million during the first
quarter of fiscal 1996 to $75.0 million during the first quarter of fiscal
1997. This increase was attributable to increases in net sales from each of the
Company's three divisions. Store net sales increased $22.7 million or 63.2%, to
$58.7 million primarily due to the addition of 79 new or acquired stores in the
twelve months ended March 29, 1997. Net sales from comparable West Marine
stores increased 8.1% and contributed $2.8 million of the increase in net sales.
Catalog net sales increased $1.7 million, or 25.3%, to $8.4 million. Port
Supply net sales increased $646,000, or 8.9%, to $7.9 million. In the first
quarter of 1997, store, catalog and Port Supply net sales represented 78.2%,
11.2% and 10.6%, respectively. In the first quarter of 1996, store, catalog and
Port Supply net sales represented 72%, 13.4% and 14.6%, respectively.
Gross profit increased $6.1 million, or 44.3%, in the first quarter of 1997
compared to the first quarter of 1996, primarily because of the increase in net
sales. Gross profit as a percentage of net sales decreased to 26.3% in the first
quarter of 1997 from 27.4% in the first quarter of 1996, primarily because of
increased occupancy costs from the acquisition of the E&B Marine locations
offset by improved merchandising and logistics leverage resulting from the 50.2%
increase in net sales from the first quarter of 1996 to the first quarter of
1997. During fiscal 1997, the Company plans to consolidate its North Carolina
distribution center and its Edison distribution center, with a new facility in
Rock Hill, South Carolina, which could adversely affect gross profits until the
replacement distribution center has matured.
Selling, general and administrative expenses increased $7.9 million, or 61.8%,
in the first quarter of 1997 compared to the first quarter of 1996, primarily
due to increases in direct expenses related to the growth in stores. Store
direct expenses represented approximately 74.0% or $5.9 million of the increase.
As a percentage of net sales, selling, general and administrative expenses
increased to 27.7% in the first quarter of 1997 compared to 25.7% in the first
quarter of 1996 primarily due to increased selling costs due to the addition of
E&B Marine. (See "Seasonality" for a more complete discussion.)
<PAGE>
Interest expense increased to $867,000 in the first quarter of 1997 compared to
$292,000 in the first quarter of 1996, primarily as a result of higher average
borrowings under the Company's line of credit in the first quarter of 1997
compared to the first quarter of 1996.
Liquidity and Capital Resources
- -------------------------------
During the first quarter of 1997, the Company's primary source of working
capital has been from borrowings under its line of credit. Net cash used in
operations during the first three months of 1997 was $17.0 million, which
resulted from a net loss of $1.2 million for the quarter , offset by non-cash
charges of $2.0 million, a $15.1 million increase in inventory net of payables
and other accrued expenses, a $1.5 million increase in accounts receivable, and
a $1.3 million increase in prepaid expenses and other. The inventory increase
was primarily attributable to continued build-up of inventory at West Marine and
E&B Marine locations as the Company nears its prime selling season. Net cash
used in investing activities was $4.5 million primarily for the purchase of
property and equipment. Net cash provided by financing activities during the
first three months of 1997 was $22.3 million, consisting primarily of borrowings
under the Company's line of credit and cash from the exercise of stock options.
Cash increased by $873,000 during the first three months of 1997 from $894,000
at the end of fiscal 1996 to $1.8 million as of March 29, 1997. West Marine's
primary cash requirements are related to capital expenditures for stores,
including leasehold improvement costs, fixtures, and merchandise inventory. The
Company anticipates capital expenditures approximating $15 million in the last
three quarters of 1997. In February 1997, the Company amended its bank
agreements extending its available line of credit to $70 million which will be
reduced to $60 million on June 28, 1997. Historically, the Company's borrowings
peak near the end of the first quarter and consequently management believes that
cash flow from operations together with bank debt financing will be sufficient
to fund the Company's operations through the next year.
Seasonality
- -----------
Historically, the Company's business has been highly seasonal. As a result of
the acquisition of E&B Marine, the Company is even more susceptible to
seasonality as a larger percentage of E&B Marine stores' sales occur in the
second and third quarters of the year. During 1996, 63.1% of the Company's net
sales and an even higher percentage of its net income occurred during the second
and third quarters, principally during the period from April through July which
represents the peak boating months in most of the Company's markets. In
addition, the Company will become even more susceptible to seasonality and
weather as it continues to expand its operations in the Northeast and Midwest.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
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1995:
- -----
The statements in this filing or in documents incorporated by reference herein
that relate to future plans, events, expectations, objectives or performance (or
assumptions underlying such matters) are forward-looking statements that involve
a number of risks and uncertainties. Set forth below are certain important
factors that could cause the Company's actual results to differ materially from
those expressed in any forward-looking statements.
<PAGE>
The Company's growth has been fueled principally by the E&B Marine acquisition
and the Company's store operations. If the Company were to incur unanticipated
costs and difficulties related to the integration of the E&B Marine acquisition
this could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, acquisitions involve a number
of special risks, including the diversion of management's attention to the
assimilation of the operations and personnel of the acquired business, potential
adverse short-term effects on the Company's operating results and amortization
of acquired intangible assets. The Company's continued growth depends to a
significant degree on its ability to continue to expand its operations through
the opening of new stores and to operate these stores profitably, as well as
increasing sales at its existing stores. The Company's planned expansion is
subject to a number of factors, including the adequacy of the Company's capital
resources and the Company's ability to locate suitable store sites and negotiate
acceptable lease terms, to hire, train and integrate employees and to adapt its
distribution and other operations systems.
The market for recreational boating supplies is highly competitive. Competitive
pressures resulting from competitors' pricing policies have adversely affected
the Company's gross profit and such pressures are expected to continue.
Furthermore, the expected consolidation of the Company's East Coast distribution
facilities could disrupt the Company's business and adversely affect gross
profits. In addition, the Company's operations could be adversely affected if
unseasonably cold weather, prolonged winter conditions or extraordinary amounts
of rainfall were to occur during the peak boating season in the second and third
quarters.
Additional factors which may affect the Company's financial results include
consumer spending on recreational boating supplies, environmental regulations,
demand for and acceptance of the Company's products and other risk factors
disclosed from time to time in the Company's SEC filings.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1.2 Second amendment to credit agreement dated March 28, 1997 among WMP,
Bank of America National Trust and Savings Association, and other
financial institutions party thereto
10.14 Lease dated March 11, 1997 between W/H No. 31 L.L.C. and West Marine
Inc. for Rock Hill, South Carolina Distribution Facility and other
agreements thereto
11.1 Statement re: computation of earnings per share
27 Financial Data Schedule
(b) Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: May 5, 1997 WEST MARINE, INC.
By. /s/ Crawford L. Cole
-------------------------------------
Crawford L. Cole
President and Chief Executive Officer
By. /s/ John Zott
-------------------------------------
John Zott,
Senior Vice President, Chief Financial Officer
<PAGE>
Exhibit 10.1.2
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
---------
March 28, 1997, is entered into by and among WEST MARINE, INC. (the "Company"),
-------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and
the Banks (the "Agent"), and the several financial institutions party to the
-----
Credit Agreement (collectively, the "Banks").
-----
RECITALS
--------
A. The Company, Banks, and Agent are parties to a Credit Agreement dated
as of June 14, 1996, and an amendment thereto dated as of February 20, 1997
(collectively, the "Credit Agreement") pursuant to which the Agent and the Banks
----------------
have extended certain credit facilities to the Company.
B. The Company has requested that the Banks agree to certain amendments of
the Credit Agreement.
C. The Banks are willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendments to Credit Agreement.
------------------------------
a. The first clause of Section 7.13(a) is hereby amended to read as
follows:
(a) not permit the ratio of total liabilities to Tangible
Net Worth to exceed the following during the period indicated:
1
<PAGE>
<TABLE>
<CAPTION>
Maximum
Fiscal Quarters Ratio
--------------- -------
<S> <C>
2nd Qtr 1996 1.35 to 1
3rd Qtr 1996 - 4th
Qtr 1996 1.25 to 1
1st Qtr 1997 1.40 to 1
2nd Qtr 1997 1.25 to 1
Thereafter 1.00 to 1
</TABLE>
3. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Agent and the Banks as follows:
a. No Default or Event of Default has occurred and is continuing.
b. The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
c. All representations and warranties of the Company contained in the
Credit Agreement are true and correct.
d. The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of March 28,
--------------
1997 (the "Effective Date"), provided that each of the following condition
-------------- --------
precedent is satisfied:
a. The Agent has received from the Company and each of the Banks a
duly executed original (or, if elected by the Agent, an executed facsimile copy)
of this Amendment, together with a duly executed Guarantor Acknowledgment and
Consent in the form attached hereto (the "Consent").
-------
5. Reservation of Rights. The Company acknowledges and agrees that the
---------------------
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of
2
<PAGE>
dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Miscellaneous.
-------------
a. Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
b. This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
c. This Amendment shall be governed by and construed in accordance
with the law of the State of California.
d. This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a Bank or
the Company shall bind such Bank or the Company, respectively, with the same
force and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
e. This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in
3
<PAGE>
accordance with the provisions of Section 11.01 of the Credit Agreement.
f. If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
g. The Company covenants to pay to or reimburse the Agent and the
Banks, upon demand, for all costs and expenses (including allocated costs of in-
house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment, including without
limitation appraisal, audit, search and filing fees incurred in connection
therewith.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
WEST MARINE, INC.
By_______________________________
Typed Name_______________________
Title____________________________
4
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By /s/ Gary Flieger
------------------------------
Gary Flieger
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank and an Issuing Bank
By /s/ Kenneth E. Jones
------------------------------
Kenneth E. Jones
Vice President
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION, as a Bank and an
Issuing Bank
By /s/ Tom F. Scharfenberg
------------------------------
Tom F. Scharfenberg
Vice President
5
<PAGE>
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
------------------------
The undersigned, each a guarantor or third party pledgor with respect
to the Company's obligations to the Agent and the Banks under the Credit
Agreement, hereby (i) acknowledge and consent to the execution, delivery and
performance by Company of the foregoing Second Amendment to Credit Agreement
(the "Amendment"), and (ii) reaffirm and agree that the respective guaranty,
---------
third party pledge or security agreement to which the undersigned is party and
all other documents and agreements executed and delivered by the undersigned to
the Agent and the Banks in connection with the Credit Agreement are in full
force and effect, without defense, offset or counterclaim. (Capitalized terms
used herein have the meanings specified in the Amendment.)
WEST MARINE PRODUCTS, INC., a
California corporation
By____________________________
Typed Name____________________
Title_________________________
E&B MARINE INC., a Delaware
corporation
By____________________________
Typed Name____________________
Title_________________________
E&B MARINE SUPPLY, INC., a
Maryland corporation
By____________________________
Typed Name____________________
Title_________________________
E&B MARINE SUPPLY, INC., a New
Jersey corporation
By____________________________
Typed Name____________________
Title_________________________
6
<PAGE>
E&B MARINE SUPPLY (Florida),
Inc., a Delaware corporation
By____________________________
Typed Name____________________
Title_________________________
GOLDBERGS' MARINE
DISTRIBUTORS, INC., a Delaware
corporation
By____________________________
Typed Name____________________
Title_________________________
JAMES BLISS & CO., INC., a
Massachusetts corporation
By____________________________
Typed Name____________________
Title_________________________
SEA RANGER MARINE INC., a
Delaware corporation
By____________________________
Typed Name____________________
Title_________________________
KRISTA CORPORATION, a Delaware
corporation
By____________________________
Typed Name____________________
Title_________________________
CENTRAL MARINE SUPPLY INC., a
New Jersey corporation
By____________________________
Typed Name____________________
Title_________________________
7
<PAGE>
EXHIBIT 10.14
NET LEASE AGREEMENT
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO CHAPTER 48 OF TITLE 15 OF
------------------------------------------------------------------------------
THE SOUTH CAROLINA CODE OF LAWS
-------------------------------
THIS NET LEASE AGREEMENT is made as of May 2, 1997, between W/H NO. 31,
L.L.C., a South Carolina limited liability company ("Landlord"), WEST MARINE,
INC. ("Tenant") and (with respect to the construction of only the initial
Landlord's Work under the Work Letter and the Environmental Covenants under
Section 27) WALSH, HIGGINS & COMPANY (the "Contractor").
BASIC LEASE TERMS
The following capitalized terms shall have the meanings set forth below:
PREMISES: That certain building containing approximately 471,744
rentable square feet, as shown on Exhibit "A-1" (the
"Original Building") and appurtenant parking area,
landscaping, easements and related improvements (which
Original Building and appurtenant parking area, landscaping,
easements and related improvements shall be collectively
referred to as the "Original Premises") to be built by
Landlord. The Original Premises, as expanded (if at all) in
accordance with the Lease, shall be referred to as the
"Premises." The square footage of the Original Building and
any expansions in the Building (the Original Building, as
expanded, shall be referred to as the "Building") will be
measured from the outside of any exterior walls containing
the Building, will exclude any exterior storage areas,
patios, loading docks, truck staging areas, sidewalks, or
other areas not intended for use as office or warehouse
space, and (for the purpose of computing the amount of Base
Rent, additional rent or other amounts payable by Tenant to
Landlord under this Lease) will exclude any mezzanines or
other increases in the square footage of the Building
constructed by or for Tenant at Tenant's sole cost and
expense. On or before the Rent Commencement Date, Landlord
and Tenant shall determine the Commencement Date of the
Term, the Rent Commencement Date, the expiration date of the
Term, the original Base Rent, the exercise date(s) for any
options to extend or renew, and such other information as
the parties elect to include. Such dates, amounts, figures
and information shall be set forth in a written memorandum
signed by both Landlord and Tenant. The parties agree that
the square footage of the Original Building will be and is
the 471,744 figure set forth above (subject to any
modifications in the Original Building that may hereafter be
agreed upon) and that the square footage of any expansions
in the Building will be measured in the manner set forth
above.
EXPANSION OPTIONS: Tenant shall have separate options to expand the Original
Premises, which expansion options shall be subject to the
provisions of Section 1(c) of the Lease.
TERM: Subject to any extension in the Term resulting from the
exercise of one or more Expansion Options under Section
1(c), the options to extend or renew the Term contained in
Section 2, and the terms and conditions of the Work Letter
attached to this Lease as Exhibit "B", the term of this
Lease (the "Term") shall be ten (10) years beginning on the
Rent Commencement Date.
EXTENSION OPTIONS: Subject to the provisions of Sections 1(c) and 2, Tenant
shall have the right, option and privilege of extending and
renewing the Term of this Lease for three (3) separate and
sequential terms of five (5) years each at the Base Rent
prescribed by Section 2.
COMMENCEMENT DATE: The date Landlord substantially completes Landlord's Work
(as defined in the Work Letter) in accordance with the Final
Plans and Specifications (except for those items described
in Exhibit "6" of the Work Letter) and obtains and delivers
to Tenant a temporary certificate of occupancy and/or any
other written governmental permit or authorization required
for Tenant to lawfully use and occupy the Original Premises
for the purpose of receiving goods and inventory (a
"Temporary Certificate of Occupancy"); provided, however
that if the date Landlord substantially completes Landlord's
Work (except those items described in Exhibit "6" of the
Work Letter and obtains a Temporary Certificate of Occupancy
is delayed by reason of Tenant's failure to approve plans
and specifications within the time periods set forth in the
Work Letter or by reason of Tenant's early entry into the
Original Premises (which delay is not discontinued within
three (3) days after Landlord serves written notice on
Tenant advising Tenant of such delay), the Commencement Date
shall be accelerated by one (1) day for each such day of
delay proximately caused by Tenant's actions. If Landlord
and Tenant are unable to agree on the amount of any delay
proximately caused by Tenant, such dispute shall be settled
by an architect in the manner prescribed by Section 28 of
the Lease.
RENT COMMENCEMENT
DATE: The date (1) Landlord substantially completes Landlord's
Work (as defined in the Work Letter) in accordance with the
Final Plans and Specifications and obtains and delivers to
Tenant a certificate of occupancy and/or any other written
governmental permit or
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authorization required for Tenant to lawfully use and occupy
the Original Premises for the purpose of receiving goods and
inventory, shipping goods and inventory and otherwise using
the Original Premises for the uses permitted by this Lease
(a "Certificate of Occupancy") and (2) either (i) the Access
Road (as defined in the Work Letter) is substantially
completed along the easterly side of the Original Land at
the location shown on Exhibit "4" attached to the Work
Letter or (ii) Landlord has constructed temporary access at
the location shown on Exhibit "5" attached to the Work
Letter, which temporary access shall be of such a quality to
endure regular and routine use by truck and trailers
carrying commercial loads of inventory to the rear of the
Original Premises; provided, however, that in no event shall
the Rent Commencement Date be or occur before January 1,
1998. Upon the substantial completion of Landlord's Work,
and regardless of whether Landlord has delivered a
Certificate of Occupancy, Tenant shall be able to use and
enjoy the Original Premises (so long as it can do so in
accordance with applicable law) but Tenant's obligation to
pay rent shall not commence until the Rent Commencement
Date; provided, however, that if the date Landlord
substantially completes Landlord's Work and obtains a
Certificate of Occupancy is delayed by reason of Tenant's
failure to approve plans and specifications within the time
periods set forth in the Work Letter or by reason of
Tenant's early entry into the Original Premises (which delay
is not discontinued within three (3) days after Landlord
serves written notice on Tenant advising Tenant of such
delay), the Rent Commencement Date shall be accelerated by
one (1) day for each such day of delay proximately caused by
Tenant's actions. If Landlord and Tenant are unable to agree
on the amount of any delay proximately caused by Tenant,
such dispute shall be settled by an architect in the manner
prescribed by Section 28 of the Lease.
INITIAL ANNUAL
BASE RENT: YEARS ANNUAL BASE RENT WITH RESPECT TO THE
ORIGINAL PREMISES
1-5 (inclusive) One Million Three Hundred Sixty-Nine
Thousand Two Hundred Thirty-Seven Dollars
($1,369,237.00) per year, subject to
increase to reflect that portion of the
Change Order Fund (if any) that Tenant
elects to incorporate into the Base Rent.
6-10 (inclusive) One Million Five Hundred Eleven Thousand
Seven Hundred Fifty-One Dollars
($1,511,751.00) per year, subject to
increase to reflect that portion of the
Change Order Fund (if any) that Tenant
elects to incorporate into the Base Rent.
BROKER: Trammell Crow, S.E., Inc.
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1. GRANTING CLAUSE.
(a) HIRING AND LEASING. In consideration of the mutual obligations of
Landlord and Tenant as herein provided and in consideration of the other terms,
covenants, and conditions hereof, Landlord leases to Tenant and Tenant takes
from Landlord the Premises, to have and to hold for the Term, subject to the
terms, covenants and conditions of this Lease. The boundaries of the land (the
"Original Land") and the footprint of the Original Building to be constructed by
Landlord thereon (which Original Land, Original Building and related site
improvements comprise the Original Premises) are shown on the attached Exhibit
"A-1." The Original Land contains approximately 27.2 acres and is located on or
near Fire Tower Road in York County, SC.
Landlord and Tenant acknowledge and agree that (a) Landlord is
negotiating certain purchase and sale agreements ("Real Estate Agreements"),
pursuant to which Landlord will acquire title to the Original Land from
Carolina Foods, Incorporated ("Carolina Foods") in accordance with that certain
Purchase Agreement dated February 21, 1997, and pursuant to which Landlord will
obtain options to purchase the Expansion Land from Carolina Foods and the Anne
Anderson Trust (or an affiliate thereof); and (b) as of the date of this Lease,
the Real Estate Agreements have not been executed and delivered, the closing of
the purchase and sale of the Original Land thereunder has not been closed, and
Landlord does not own fee title to the Original Land. Accordingly, anything in
this Lease to the contrary notwithstanding, in the event that (i) Landlord does
not sign Real Estate Agreements in a form and content acceptable to Tenant for
the Expansion Land by April 1, 1997 and/or (ii) Landlord does not acquire fee
title to the Original Land by May 1, 1997 (which failure is the result of any
breach or default by the seller(s) under such Real Estate Agreements), then
Landlord shall not be in breach under this Lease, either party can terminate
this Lease on written notice to the other, and Landlord shall not be liable for
any damages or other remedies as a result of any failure or delay in its
obligations to Tenant under this Lease. If the aforesaid conditions have been
satisfied prior to either party's election to terminate hereunder (even if such
satisfaction is after the date specified therefor), then the parties' respective
rights to terminate as a result thereof shall automatically expire and be of no
further force or effect.
Tenant shall contribute all amounts (collectively the "State
Contributions") received from the South Carolina Coordinating Council, the South
Carolina Community Development Block Grant, the York Electric Cooperative, Inc.,
and York County (the "State Agencies") received by Tenant prior to the Rent
Commencement Date for construction of certain roadway, water, sewer, and other
off-site improvements (the "Access Road and Site Improvements"), which amounts
shall be paid in accordance with the payment procedures prescribed by each such
State Agency; provided, however, that if the total amount of the State
Contributions paid before the Rent Commencement Date is less than Nine Hundred
Thirty Five Thousand Dollars ($935,000.00), Tenant shall contribute in cash the
difference between (a) the State Contributions actually received prior to the
Rent Commencement Date and (b) the lesser of (i) Nine Hundred Thirty-Five
Thousand Dollars ($935,000.00) or (ii) the actual costs of the Access Road and
Site Improvements, which payment by Tenant shall be made to Landlord within
thirty (30) days after the Rent Commencement Date. If any State Contributions
are received after the date Tenant has paid the difference between the State
Contributions received prior to the Rent Commencement Date and the Nine Hundred
Thirty Five Thousand Dollar ($935,000.00) amount required hereunder, such amount
shall be payable solely to Tenant or (if received by Landlord) Landlord shall
forthwith pay over such amount to Tenant following Landlord's receipt of same.
(b) INITIAL TERM. Subject to any extension in the Term resulting
from the exercise of one or more Expansion Options under Section 1(c), the
options to extend or renew contained in Section 2, and the terms and conditions
of the Work Letter, the Term of this Lease shall be ten (10) years beginning on
the Rent Commencement Date. Notwithstanding the foregoing, Tenant shall have
the right (but not the obligation) to take possession of the Original Premises
prior to the Commencement Date in accordance with the provisions of Section 3 of
this Lease and the provisions of the Work Letter.
(c) EXPANSION OPTIONS.
(1) Grant of Expansion Options. Subject to the provisions of this
--------------------------
Section 1(c) and all Legal Requirements and Private Restrictions, Landlord
grants to Tenant the right, option and privilege to expand the Original Premises
on not more than three (3) separate occasions by adding up to an additional
total of Five Hundred Thirty-Two Thousand Two Hundred Twenty-Four (532,224)
square feet as provided by this Section 1(c); provided, however, that no single
expansion shall increase the square footage of the Building by less than One
Hundred Fifty Thousand Square Feet (150,000) (the "Expansion Option(s)").
Landlord's duty to build any Expansion Premises (as hereinafter defined) shall
be subject to the satisfaction of the following conditions precedent: (1) either
(I) Tenant either (i) assigns to Landlord an option, pursuant to one or more of
the Real Estate Agreements or such other agreement as may be reasonably
acceptable to the Landlord, to acquire sufficient land (for example, sufficient
land to satisfy all Legal Requirements and Private Restrictions) shown on the
attached Exhibit "A-2" (the "Expansion Land") (the Original Land and any
Expansion Land shall be referred to as the "Land") to construct any Expansion
Premises and Landlord successfully acquires the Expansion Land required to
construct such Expansion Premises pursuant to such option within 90 days after
the assignment thereof, or (ii) assigns to Landlord a contract, pursuant to one
or more of the Real Estate Agreements or such other agreement as may be
reasonably acceptable to the Landlord, to purchase sufficient Expansion Land to
construct any Expansion Premises (which option or purchase contract shall be
referred to as the "Expansion Contract(s)") and Landlord successfully acquires
the Expansion Land required to construct such Expansion Premises pursuant to the
Expansion Contracts or (II) Tenant conveys, on terms and conditions reasonably
acceptable to Landlord, sufficient Expansion Land to Landlord to enable Landlord
to construct any Expansion Premises (which transfer shall be at a price equal to
the price paid by Tenant for such Expansion Land [together with all option
maintenance payments, closing costs, brokerage commissions and other amounts
paid by Tenant
3
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in connection with such acquisition]) and (2) Landlord is able to acquire all
permits and other authorizations required to construct the Expansion Premises in
accordance with all Legal Requirements and Private Restrictions.
(2) Exercise of Expansion Options and Landlord's Construction Duties.
----------------------------------------------------------------
Tenant shall exercise any Expansion Option (if at all) by serving written notice
of its exercise of such Expansion Option on Landlord not later than the ninth
(9th) anniversary of the Rent Commencement Date; provided, however, that if
Tenant has timely exercised its first option to extend and renew the Term, then
Tenant shall have the right to exercise any Expansion Option not later than the
tenth (10th) anniversary of the Rent Commencement Date. Tenant shall have the
right to exercise up to two (2) Expansion Options before the fourth (4th)
anniversary of the Rent Commencement Date and not more than three (3) Expansion
Options in total.
If and only if Tenant timely exercises not more than two (2) Expansion
Options before the fourth anniversary of the Rent Commencement Date, Landlord
shall be required to purchase that portion of the Expansion Land designated by
Tenant (either from Tenant at the price set forth above or from the sellers
thereof in accordance with the Expansion Contract(s)) or (if a larger portion is
required by any Private Restrictions or Legal Requirements to construct such
Expansion Premises) such larger portion, shall construct an expansion to the
Building (the "Expansion Space") and additional related site improvements on the
Expansion Land (which Expansion Space, Expansion Land, and additional related
site improvements shall be collectively referred to as the "Expansion
Premises"), and shall lease such Expansion Premises to Tenant in accordance with
the provisions of this Section 1(c). Notwithstanding the foregoing, if Tenant
exercises an Expansion Option, the duty to construct any Expansion Premises
shall extend solely to Landlord (and Landlord's successors) and Contractor shall
not have any duty to construct such Expansion Premises. Accordingly, anything
in this Lease to the contrary notwithstanding, in the event that Landlord does
not acquire fee title to the Expansion Land (which failure is the result of any
breach or default by the seller(s) under such Expansion Contracts) within 90
days after Tenant's assignment of any Expansion Contract(s) to Landlord, then
Landlord shall not be in breach under this Lease, either party can terminate
this Lease on written notice to the other, and Landlord shall not be liable for
any damages or other remedies as a result of any failure or delay in its
obligations to Tenant under this Lease. If the aforesaid condition has not been
satisfied prior to the other party's election to terminate hereunder (even if
such satisfaction is after the date specified therefore), then the parties'
respective rights to terminate as a result thereof shall automatically expire
and be of no further force or effect.
If Tenant exercises an Expansion Option on or after the fourth
anniversary of the Rent Commencement Date, Landlord shall be obligated to exert
its best efforts to purchase the Expansion Land (either from Tenant at the price
set forth above or from the sellers thereof in accordance with the Expansion
Contract(s)), construct such Expansion Premises, and lease such Expansion
Premises to Tenant.
If Tenant timely exercises not more than two (2) Expansion Options
before the fourth anniversary of the Rent Commencement Date and Landlord then
fails to purchase the Expansion Land (either from Tenant at the price set forth
above or from the sellers thereof in accordance with the Expansion Contract(s)),
fails to construct one or both of the Expansion Premises, and/or fails to lease
such Expansion Premises to Tenant in accordance with the provisions of this
Section 1(c), Tenant shall have the right (as its non-exclusive remedy) to
purchase the Original Premises and all Expansion Premises at a price equal to
the greater of (a) the fair market value of the Original Premises and such
Expansion Premises (which fair market value of the Original Premises and any
Expansion Premises shall be determined in the manner specified in Section 2(e),
with appropriate modification to reflect that the fair market purchase price
[and not the fair market rental] is to be determined) or (b) either (i) the Lump
Sum Total Project Cost (as defined below) plus the Total Direct Cost of any
Expansion Premises (as defined below) (if the Landlord is the original Landlord)
escalated at the rate of two percent (2%) per annum compounded from the Rent
Commencement Date with respect to the Original Premises and compounded from the
commencement date of this Lease with respect to each such Expansion Premises or
(ii) the purchase price paid by the then-current Landlord escalated at the rate
of two percent (2%) per annum compounded from the date such then-current
Landlord acquired fee title to the Premises plus the Total Direct Cost of any
Expansion Premises constructed by such then-current Landlord escalated at the
rate of two percent (2%) per annum compounded from the commencement date of this
Lease with respect to each such Expansion Premises constructed by such then-
present owner of the Premises.
(3) Definitions. For the purpose of this Lease, the following
-----------
terms shall have the following meanings:
(i) The term "Lump Sum Total Project Costs" shall mean the sum of
Thirteen Million Nine Hundred Fifty-Five Thousand Dollars ($13,955,000.00),
plus the amount of any positive Net Change Order incorporated by Tenant into
the Base Rent in accordance with the provisions of the Work Letter.
(ii) Subject to the limitations contained in this Section, the term
"Direct Costs of the Expansion Premises" shall mean all costs incurred by
Landlord in constructing the Expansion Premises and shall include (without
limitation) all finance costs (including, without limitation, construction and
permanent loan commitment fees, construction period interest, title insurance
premiums, and escrow fees), architectural costs, engineering fees, site
improvement and investigations costs, brokerage fees and commissions, legal
fees, accounting fees, land acquisition fees (including, without limitation,
any fees or amounts paid by Tenant pursuant to the Expansion Contract(s) or in
connection with obtaining any rights thereunder), municipal permit and
inspection fees and exactments, amounts paid in connection with any Approved
Contract (as defined below), or other third party costs of constructing the
Expansion Premises, less any credits or other contributions respecting same
that are received from third parties. Notwithstanding the foregoing, however,
the Direct Costs of the Expansion Premises shall exclude any
4
<PAGE>
brokerage fees paid in connection with this Lease or in connection with
Landlord's indemnity under Section 31, and/or any general contractor's fee for
profit (but permitting general conditions costs incurred in connection with
such Approved Contract). The Direct Costs of the Expansion Premises shall
include a Change Order Fund for incorporation into the Base Rent for such
Expansion Premises to pay for any Net Change Order (as defined in the Work
Letter) in an amount equal to five percent (5%) of the Direct Costs of the
Expansion Premises Budget (as defined below).
(iii) The term "Total Direct Cost of any Expansion Premises" shall be
equal to One Hundred and Ten Percent (110%) of Direct Costs of the
Expansion Premises.
(4) Construction of Expansion Premises. To the extent Landlord is
----------------------------------
required to or otherwise elects to construct any Expansion Premises, Landlord
shall construct and improve the Expansion Premises to a condition substantially
similar in form, content, configuration and finish to the Building and the site
improvements provided by Landlord as part of the initial Landlord's Work under
the Work Letter, which Expansion Premises shall be constructed in a "project
northerly" (true northwesterly) direction and shall be approximately as shown in
the attached Exhibit "D" (provided, however, that the size, shape and
configuration of the Building and related site improvements shown in Exhibit "D"
shall be adjusted to reflect the size of any particular expansion elected by
Tenant). Following Tenant's exercise of any Expansion Option, Landlord and
Tenant shall agree on a mutually acceptable schedule for the construction of the
Expansion Premises (which schedule shall, at a minimum, provide for the
substantial completion of the Expansion Premises not later than twelve (12)
months after the date Tenant exercises such Expansion Option). Following the
parties approval of a mutually acceptable work schedule with respect to the
Expansion Premises, Landlord shall construct the Expansion Premises in
accordance with the covenants, terms and conditions of the Work Letter (except
that Section 1 of the Work Letter shall reflect the time-table set forth in the
mutually approved work schedule described above, the deadlines prescribed by
this Section 1(c) and the amount of the Change Order Fund shall be revised to
reflect the figure set forth in Section 1(c)(3)(ii) of this Lease). Landlord
shall construct the Expansion Premises in a time and manner required to minimize
interruption with Tenant's conduct of business and use of the then-existing
Premises.
(5) Selection of General Contractor. Following the preparation of the
-------------------------------
Improvement Plans and Specifications (as defined in the Work Letter), Landlord
shall submit a list of proposed general contractors to Tenant for the
construction of the Expansion Premises, which list shall contain at least three
(3) names for the proposed general contractor. All general contractors shall be
approved by Tenant and shall be fully licensed. Following Tenant's approval of
the three general contractors, Landlord shall solicit competitive bids for the
work from each such general contractor and (unless approved by Tenant in
writing) Landlord shall award the general contract to the lowest bidder (the
"Approved Contract"). All Direct Costs of any Expansion Premises shall be
approved by Tenant prior to such cost being incurred. Tenant shall provide such
approval or objection to any such cost within thirty (30) days after Landlord
delivers a detailed construction budget to Tenant itemizing the prevailing
general contractor (including a breakdown of the components of the work to be
provided by the major trades, as made available by the prevailing general
contractor), the amount of any such contract or subcontract price (the "Direct
Costs of the Expansion Premises Budget"), and such other information as Tenant
may reasonably request.
(6) Term Commencement Respecting Expansion Premises. Subject to the
-----------------------------------------------
provisions of the Work Letter, any Change Orders resulting in Time Changes, and
any Force Majeure Conditions, the Term of this Lease shall commence with respect
to each separate Expansion Premises on the date Landlord substantially completes
Landlord's Work and obtains and delivers to Tenant a Certificate of Occupancy
required for Tenant to lawfully use and occupy such Expansion Premises for the
uses permitted by this Lease (the "Expansion Premises Commencement Date");
provided, however that if the date Landlord substantially completes Landlord's
Work and obtains a Certificate of Occupancy is delayed by reason of Tenant's
failure to approve plans and specifications within the time periods set forth in
the Work Letter or by reason of Tenant's early entry into the Expansion Premises
(which delay is not discontinued within three (3) days after Landlord serves
written notice on Tenant advising Tenant of such delay), the Expansion Premises
Commencement Date shall be accelerated by one (1) day for each such day of delay
proximately caused by Tenant's actions. If Landlord and Tenant are unable to
agree on the amount of any delay proximately caused by Tenant, such dispute
shall be settled by an architect in the manner prescribed by Section 28 of the
Lease. On the Expansion Premises Commencement Date with respect to any
particular Expansion Premises, Landlord shall reimburse Tenant for any out-of-
pocket third party costs incurred by Tenant in procuring and/or servicing the
Expansion Contract(s) (unless previously paid to Tenant as part of Landlord's
purchase of the Expansion Land from Tenant).
(7) Base Rent for Expansion Premises. The annual Base Rent for the
--------------------------------
first five years of the Term with respect to the Expansion Premises shall be
equal to the product of (a) the Total Direct Costs of the Expansion Premises and
(b) the sum of (i) the rate of interest being paid on ten (10) year United
States Treasury Notes (expressed as a decimal) in effect on the date Tenant
exercises the Expansion Option and (ii) 3.50% (expressed as a decimal) (the sum
of (i) and (ii) shall be referred to as the "Cap Rate"), subject to increase to
reflect that portion of the Change Order Fund (if any) that Tenant elects to
incorporate into the Base Rent with respect to such Expansion Premises;
provided, however, that in no event shall the Cap Rate be less than nine and
eighty-two one-hundredths percent (9.82%).
Beginning in year six of the Term with respect to the Expansion
Premises and continuing until the tenth year of the Term with respect to any
Expansion Premises, the annual Base Rent for such Expansion Premises shall be
the annual Base Rent payable for such Expansion Premises during the first five
years multiplied by 1.104.
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(8) Extension and Renewal of Existing Term. If Tenant exercises any
--------------------------------------
Expansion Option and Landlord is either obligated to or otherwise elects to
construct an Expansion Premises pursuant to such Expansion Option, then the
following shall occur:
(i) the term of the Lease (for both the Original Premises and all
prior Expansion Premises) shall automatically extend for a period of
ten (10) years from the Expansion Premises Commencement Date with
respect to such exercised Expansion Option,
(ii) the annual Base Rent for the Original Premises shall continue in
accordance with the schedule set forth in the Basic Lease Terms until
the tenth anniversary of the original Rent Commencement Date,
(iii) the annual Base Rent for the Original Premises with respect to
that portion of the newly extended Term extending beyond the original
Term expiration date shall be at the rate that would have resulted had
Tenant exercised that option to extend or (if the extension of the
Term is more than five years) both options to extend that would have
been required to extend the Term until such newly extended expiration
date,
(iv) the annual Base Rent for any prior Expansion Premises shall
continue in accordance with the schedule established for such
Expansion Premises,
(v) the annual Base Rent for any prior Expansion Premises with respect
to that portion of the newly extended Term extending beyond the Term
expiration date of the Lease respecting such prior Expansion Premises
shall be at the rate that would have resulted had Tenant exercised
that option to extend or (if the extension of the Term is more than
five years) both options to extend that would have been required to
extend the Term until such newly extended expiration date,
(vi) Tenant's options to extend shall be modified so that they are
exercisable relative to the newly extended expiration date, and
(vii) the length of the Term that would result from the exercise of
such option will be correspondingly shortened to reflect the extension
of the primary Term resulting from the exercise of the Expansion
Option.
(9) Example. An example of the impact of the Expansion Options on the
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Term expiration date and any options to extend is set forth in the attached
Exhibit "F."
2. EXTENSION OPTIONS. Subject to adjustment to reflect the exercise of
the Expansion Options under Section 1(c) above, Tenant shall have the right,
option and privilege of extending and renewing the Term of this Lease for three
(3) additional periods of five (5) years each. Tenant shall exercise each
option to extend and renew (if at all) by serving written notice on Landlord not
later than twelve (12) months before the then-expiration date of the Term. The
extended and renewed Term shall be subject to all of the covenants, terms and
conditions contained in this Lease, except that the annual Base Rent during any
extended Term shall be as set forth below:
(a) FIRST FIVE (5) YEAR EXTENSION RESPECTING THE ORIGINAL PREMISES.
Subject to adjustment to reflect the exercise of any Expansion Option under
Section 1(c), annual Base Rent with respect to the Original Premises during the
first five (5) year extended Term shall be in an amount equal to the product of
(a) the annual Base Rent payable by Tenant during the first five (5) years of
the Term with respect to the Original Premises and (b) a fraction, the numerator
of which shall be the value of the Index (as defined below) for the month most
nearly preceding the tenth (10th) anniversary of the Rent Commencement Date and
the denominator of which shall be the value of the Index for the month most
nearly proceeding the Rent Commencement Date; provided, however, that in no
event shall the annual Base Rent payable during the first five (5) year extended
Term with respect to the Original Premises be less than the product of (a) the
Base Rent payable in the first five (5) years of the Term with respect to the
Original Premises and (b) 1.22 nor more than the product of (i) the Base Rent
payable in the first five (5) years of the Term with respect to the Original
Premises and (ii) 1.48. For the purpose of this Lease, the "Index" shall be the
Consumer Price Index for Urban Wage Earners and Clerical Workers for the "South-
B" area (1982-84 = 100).
(b) FIRST FIVE (5) YEAR EXTENSION RESPECTING ANY EXPANSION PREMISES.
Subject to adjustment to reflect the exercise of any Expansion Option under
Section 1(c), annual Base Rent with respect to any Expansion Premises during the
first extended Term shall be in an amount equal to the product of (a) the annual
Base Rent payable by Tenant during the first five (5) years of the Term with
respect to such Expansion Premises and (b) a fraction, the numerator of which
shall be the value of the Index for the month three (3) months prior to the
tenth (10th) anniversary of the commencement of the Term with respect to each
such Expansion Premises and the denominator of which shall be the value of the
Index for the month three (3) months prior to the commencement of the Term with
respect to each such Expansion Premises; provided, however, that in no event
shall the annual Base Rent payable during the first extended Term with respect
to any Expansion Premises be less than the product of (a) the Base Rent payable
in the first five (5) years of the Term with respect to the Expansion Premises
and (b) 1.22 nor more than the product of (i) the Base Rent payable in the first
five (5) years of the Term with respect to the Expansion Premises and (ii) 1.48.
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(c) SECOND FIVE (5) YEAR EXTENSION RESPECTING THE ORIGINAL PREMISES.
Subject to adjustment to reflect the exercise of any Expansion Option under
Section 1(c), annual Base Rent with respect to the Original Premises during the
second five (5) year extended Term shall be in an amount equal to the product of
(a) the annual Base Rent payable by Tenant during the first five (5) years of
the Term with respect to the Original Premises and (b) a fraction, the numerator
of which shall be the value of the Index for the month most nearly preceding the
fifteenth (15th) anniversary of the Rent Commencement Date and the denominator
of which shall be the value of the Index for the month most nearly proceeding
the Rent Commencement Date; provided, however, that in no event shall the annual
Base Rent payable during the second five (5) year extended Term with respect to
the Original Premises be less than the product of (a) the Base Rent payable in
the first five (5) years of the Term with respect to the Original Premises and
(b) 1.35 nor more than the product of (i) the Base Rent payable in the first
five (5) years of the Term with respect to the Original Premises and (ii) 1.80.
(d) SECOND FIVE (5) YEAR EXTENSION RESPECTING ANY EXPANSION PREMISES.
Subject to adjustment to reflect the exercise of any Expansion Option under
Section 1(c), annual Base Rent with respect to any Expansion Premises during the
second five (5) year extended Term shall be in an amount equal to the product of
(a) the annual Base Rent payable by Tenant during the first five (5) years of
the Term with respect to such Expansion Premises and (b) a fraction, the
numerator of which shall be the value of the Index for the month three (3)
months prior to the fifteenth (15th) anniversary of the commencement of the Term
with respect to each such Expansion Premises and the denominator of which shall
be the value of the Index for the month three (3) months prior to the
commencement of the Term with respect to each such Expansion Premises; provided,
however, that in no event shall the annual Base Rent payable during the second
five (5) year extended Term with respect to any Expansion Premises be less than
the product of (a) the Base Rent payable in the first five (5) years of the Term
with respect to such Expansion Premises and (b) 1.35 nor more than the product
of (i) the Base Rent payable in the first five (5) years of the Term with
respect to the Original Premises and (ii) 1.80.
(e) THIRD FIVE (5) YEAR EXTENSION WITH RESPECT TO EXPANDED AND
ENLARGED PREMISES. The annual Base Rent for the Premises during the third five
(5) year extended Term shall be in the amount of the Fair Market Base Rent,
which Fair Market Base Rent shall be determined in the manner prescribed below.
Following Tenant's service of written notice that Tenant is exercising
its option to extend the Term for the third five (5) year extended Term,
Landlord shall be obligated to lease to Tenant and Tenant shall be obligated to
hire from Landlord the Premises for an additional five (5) years on all of the
terms and conditions set forth in this Lease, except annual Base Rent which
annual Base Rent shall be in the amount of the Fair Market Base Rent and shall
be determined in the manner prescribed by this Section 2(e). Following Tenant's
service of written notice that Tenant is exercising its option to extend the
Term for the third five (5) year extended Term, Landlord and Tenant shall
endeavor to agree upon the Fair Market Base Rent for the Premises for the
upcoming five (5) year period. If Landlord and Tenant are unable to agree upon
the Fair Market Base Rent by a date which is not later than six (6) months
before the commencement of the extended Term, either party may give notice of
its election to have such value determined by appraisal.
If either party chooses to have the Base Rent determined by appraisal,
such appraisal shall be determined as hereinafter provided based upon such
criteria as the appraiser(s) (described below) deem appropriate, but including:
(i) the current use of the Premises; (ii) the location, quality and age of the
Building; (iii) the size and condition of the Premises; (iv) the extent of the
improvements within the Premises constructed by Landlord at Landlord's sole cost
and expense; (v) the duration of the applicable extended Term; (vi) the
distinction between a "gross" and a "net" lease and the allocation of repair,
maintenance, insurance and other duties between Landlord and Tenant in
accordance with the provisions of the Lease; (vii) the financial responsibility
and credit-worthiness of Tenant; and (viii) rental rates then being charged for
comparable premises in the geographic area in which the Premises are located.
If either party elects to have the Fair Market Base Rent determined by
appraisal, such party's notice to the other thereof shall also designate such
party's independent appraiser. Within fifteen (15) days after either party's
designation, the other party shall designate its independent appraiser and shall
notify the party electing to have the Fair Market Base Rent by appraisal thereof
in writing. If a party fails to designate its own appraiser within such fifteen
(15) day period, the one appraiser designated by the other party shall determine
the Fair Market Base Rent. If both parties timely designate their own
appraisers as required by this section, then both appraisers shall mutually
agree on the designation of a third appraiser within fifteen (15) days after the
last party's designation. Landlord shall pay all costs associated with the
appraiser designated by Landlord; Tenant shall pay all costs associated with the
appraiser designated by Tenant; and Landlord and Tenant shall share equally in
all costs associated with the appraiser designated by the other two appraisers.
All three appraisers shall be reputable, independent real estate appraisers,
each of whom shall be knowledgeable and experienced in the appraisals of rents
for comparable buildings in the geographic area in which the Premises are
located.
After their appointment, the appraiser(s) shall be directed to
determine independently the initial Fair Market Base Rent, which shall include a
determination of appropriate periodic increases to the Fair Market Base Rent as
so determined during the period for which the determination is being made. If
both parties timely designate their own appraisers as required by this section,
then all three appraisals of the Fair Market Base Rent shall be submitted, in
writing, to Landlord and Tenant within thirty (30) days after the designation of
the third appraiser. If only one appraiser is timely designated to determine
the Fair Market Base Rent, then such one appraiser shall submit his/her
appraisal of the Fair Market Base Rent, in writing, to both Landlord and Tenant
within thirty (30) days after the expiration of the fifteen (15) day period
provided for the second party to designate its own appraiser and such appraisal
shall set forth and constitute the Base Rental for the extended Term. If both
parties timely designate their own appraisers as required by this section, and
if two or all three
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of the appraisals shall be identical in amount, the Base Rent for the applicable
extended Term shall be such identical amount. If both parties timely designate
their own appraisers as required by this section, and in the event no two of the
appraisals are identical, the highest and the lowest appraisal shall be
disregarded and the Base Rent for the applicable extended Term shall be the
amount determined by the middle appraisal. In no instance however, shall the
Base Rent during the applicable extended Term be less than the Base Rent paid by
Tenant during the last month of the Term immediately preceding the commencement
of such extended Term.
If such Base Rent is not determined until after the commencement of
the applicable extended Term, Tenant shall continue to pay Base Rent equal to
the Base Rent paid during the last month of the Term immediately preceding the
commencement of such extended Term. When the Fair Market Base Rent is
determined as provided above, and if such determination is greater than the Base
Rent paid during the last month of the Term immediately preceding the
commencement of such extended Term, within thirty (30) days following such
determination, Tenant shall pay to Landlord the deficiency of the Base Rent
theretofore paid, prorated from the commencement of the applicable extended Term
to the date of the determination of the Fair Market Base Rent.
3. USE. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (both wholesale and retail sales) products,
materials and merchandise made and/or distributed by Tenant; for light
manufacturing, repair and service; for a catalog telephone sales center; and for
any other lawful purposes. Tenant shall not conduct or give notice of any
auction, liquidation, or going out of business sale on the Premises. Subject to
the provisions of this Lease (including, without limitation, this Section 3
regarding compliance with laws), Tenant will use the Premises in a careful, safe
and proper manner, in compliance with all Private Restrictions (as defined
below), in compliance with all Legal Requirements (as defined below), and will
not commit waste, overload the floor or structure of the Premises or subject the
Premises to use that would damage the Premises. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to
emanate from the Premises, or take any other action that would constitute a
nuisance.
Except as set forth in the attached Exhibit "G", the Original Premises are
not subject to any rights-of-way, easements, covenants, conditions,
restrictions, reciprocal parking agreements or other private agreements which
affect the use or enjoyment of the Original Premises, authorize the use of the
Original Premises for parking or vehicular/pedestrian ingress or egress, or
which subject the Premises to any open space, setback or other use limitations
(collectively the "Private Restrictions"). Landlord shall not voluntarily
subject the Premises to any Private Restrictions without Tenant's prior written
consent. If Landlord fails to obtain Tenant's written consent prior to
subjecting the Premises to any Private Restrictions after the date of this
Lease, then Tenant shall not be responsible for any costs involved in complying
with the requirements of any such Private Restrictions and (if such Private
Restriction materially and adversely affects Tenant's use and enjoyment of the
Premises) such action shall (at Tenant's option) constitute an event of default
under this Lease. As of the Rent Commencement Date with respect to the Original
Premises, and subject to Tenant's obligations under this Section to construct
and install any alterations or modifications required by any applicable Legal
Requirements or Private Restrictions related to Tenant's particular use of the
Premises, the Original Premises shall comply with all Private Restrictions and
all Legal Requirements (as hereinafter defined). As of the commencement of the
Term with respect to any Expansion Premises (if applicable), and subject to
Tenant's obligations under this Section to construct and install any alterations
or modifications required by any applicable Legal Requirements or Private
Restrictions related to Tenant's particular use of the Premises, such Expansion
Premises shall comply with all Private Restrictions and all Legal Requirements.
Following the substantial completion of Landlord's Work with respect to the
Original Premises and/or any Expansion Premises (as the case may be), the
delivery of a Certificate of Occupancy, and subject to Landlord's correction of
any Punch List Items and performance and discharge of any warranty obligations
under the Work Letter, Tenant, at its sole expense, shall use and occupy the
Premises in compliance with all laws, including, without limitation, the
Americans With Disabilities Act, orders, judgments, ordinances, regulations,
codes, directives, permits, licenses, covenants and restrictions now or
hereafter applicable to the Premises (collectively, "Legal Requirements");
provided, however, that Tenant shall not be required to construct or install any
capital or structural improvements, alterations, modifications or additions to
the Premises unless the need for such capital or structural improvements,
alterations, modifications or additions are the result of Tenant's particular
use of the Premises and are not the result of governmental requirements imposed
on buildings generally available for human occupancy. The Premises shall not be
used as a place of public accommodation under the Americans With Disabilities
Act or similar state statutes or local ordinances or any regulations promulgated
thereunder, all as may be amended from time to time. Tenant shall, at its
expense, make any alterations or modifications, within or without the Premises,
that are required by Legal Requirements related to Tenant's particular use of
the Premises. Tenant will not use or permit the Premises to be used for any
purpose or in any manner that would void Tenant's or Landlord's insurance or
increase the insurance risk. If any increase in the cost of any insurance on
the Premises is caused by Tenant's use or occupation of the Premises, or because
Tenant vacates the Premises, then Tenant shall pay the amount of such increase
to Landlord. Notwithstanding the foregoing, Landlord acknowledges and agrees
that Tenant's use of the Premises for the uses permitted herein shall not result
in an increase in Landlord's insurance costs or risks.
Tenant shall have the right to enter the Original Premises prior to the
Commencement Date and/or any Expansion Premises prior to the commencement of the
Term with respect to such Expansion Premises for purposes of inspecting the
construction of Landlord's Work. Tenant shall have the right to enter, use and
occupy the Original Premises prior to the Rent Commencement Date for purposes of
improving and altering same, inspecting the construction of Landlord's Work, and
installing furniture, equipment, and trade fixtures therein. Any early entry by
Tenant under this Section 3 shall be conducted in a manner so as not to
interfere with Landlord's construction of Landlord's Work. If Landlord believes
that Tenant's early entry into the Premises is interfering with the construction
of Landlord's Work, Landlord shall notify Tenant in writing and Tenant shall
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cease such interference within three (3) days after the service of such notice.
If Tenant believes that its early occupancy of the Premises is not interfering
in Landlord's construction of Landlord's Work, such dispute shall be settled by
an architect in the manner prescribed by Section 28 of the Lease. Any occupation
of the Original Premises by Tenant after the Commencement Date but prior to the
Rent Commencement Date shall be subject to all obligations of Tenant under this
Lease, except for the provisions of this Lease relating to the payment of annual
Base Rent or additional rent.
Tenant shall be entitled to the exclusive use of all parking at the
Premises. Tenant shall have the right to mark all parking spaces on the
Premises as being for the exclusive use of Tenant and its agents, employees and
invitees and to remove any unauthorized vehicles parking therein. Landlord
agrees not to construct any alterations, additions, or buildings on the Premises
that reduce the number of parking stalls at the Premises or that interfere with
vehicular or pedestrian access to the Premises.
4. BASE RENT. Commencing on the Rent Commencement Date, and subject to
any offsets and abatements authorized by Section 4 or Section 5 of this Lease,
Tenant promises to pay to Landlord in advance, without demand, deduction or set-
off, monthly installments of Base Rent on or before the first day of each
calendar month succeeding the Rent Commencement Date. Payments of Base Rent for
any fractional calendar month shall be prorated. All payments required to be
made by Tenant to Landlord hereunder shall be payable at such address as
Landlord may specify from time to time by written notice delivered in accordance
herewith. Tenant shall have no right at any time to abate, reduce, or set-off
any rent due hereunder, except following Tenant's receipt of a money judgment by
Tenant against Landlord and except as provided by Section 5. If Tenant fails to
pay any monthly installment of Base Rent, additional rent or other sums payable
by Tenant to Landlord hereunder within five (5) working days after Landlord's
service of written notice on Tenant that same is past due, Tenant shall pay to
Landlord on demand a late charge equal to 5 percent of such delinquent sum;
provided, however, that Landlord shall not be obligated to deliver more than two
(2) written notices of late payment in any twelve (12) consecutive month period
as a condition precedent to the imposition of a late charge. After the delivery
of the two (2) notices in any twelve (12) consecutive month period, any
installment of rent shall be late if not received by the date same is due
without further notice or demand. The provision for such late charge shall be
in addition to all of Landlord's other rights and remedies hereunder or at law
and shall not be construed as a penalty.
All amounts payable by Tenant to Landlord hereunder which are not paid
within sixty (60) days after the date due shall accrue interest at the rate of
interest from time to time announced by Bank of America (San Francisco
Headquarters branch) as its "prime" or "reference" plus four percent (4%) per
annum (not to exceed the maximum amount permitted by law), which interest shall
commence to accrue sixty (60) days after the date same was due.
5. UTILITIES. Beginning on the Commencement Date and continuing through
the day before the Rent Commencement Date, Landlord and Tenant shall both
contribute to the payment of the utility charges at the Original Premises, if
such charges are higher than would customarily be the case for contractors
performing Landlord's Work in the absence of such Tenant activities. The
parties shall cooperate to arrive at an equitable allocation of any such
charges. Such allocation shall be generally designed to result in Landlord's
paying that portion of the utility charges attributable to Landlord's and
Contractor's construction activities and in Tenant's paying that portion of such
utility charges attributable to Tenant's activities at the Original Premises.
Commencing on the Rent Commencement Date, Tenant shall pay for all water,
gas, electricity, heat, light, power, telephone, sewer, sprinkler services,
refuse and trash collection, and other utilities and services used on the
Premises, all maintenance charges for utilities, and any storm sewer charges or
other similar charges for utilities imposed by any governmental entity or
utility provider, together with any taxes, penalties, surcharges or the like
pertaining to Tenant's use of the Premises. No interruption or failure of
utilities shall result in the abatement of rent unless (a) such occurred because
of the negligent or willful acts or omissions of Landlord or Landlord's agents,
employees or contractors and (b) continues for five (5) days time. No
interruption or failure of utilities shall result in the termination of this
Lease unless (a) such occurred because of the negligent or willful acts or
omissions of Landlord or Landlord's agents, employees or contractors and (b)
continues for thirty (30) days time; provided, however, that if the repair and
restoration of any utility service requires the performance of any work by the
utility provider, Tenant shall not be entitled to terminate this Lease if
Landlord makes all requests, pays all funds, and performs all other acts
required of Landlord by such utility provider as conditions precedent to such
utility provider restoring such utilities within thirty (30) days after the date
of such interruption.
6. TAXES. Commencing on the Rent Commencement Date, Tenant shall pay all
taxes, assessments and governmental charges (collectively referred to as
"Taxes") that accrue against the Premises during the Term; provided, however,
that Tenant shall not pay any installment of Taxes until either (i) Tenant
confirms with Landlord that Landlord has not filed any proceeding contesting the
amount, validity, or application of any Taxes or liens or that the payment of
such Taxes will not result in the forfeiture of such claim or contest or (ii) by
such date as is required to prevent the imposition of any delinquent penalties
on such Taxes. Payments thereof for any fractional calendar month shall be
prorated. Landlord may contest by appropriate legal proceedings the amount,
validity, or application of any Taxes or liens thereof. If Landlord fails to
advise Tenant in writing within thirty (30) days after written inquiry that
Landlord is prosecuting any legal proceedings contesting the amount, validity or
application of any Taxes, Tenant may file and prosecute same. Landlord and
Tenant agree to promptly forward to the other photocopies of all assessments,
notices and tax bills received by the parties in connection with any Taxes.
Subject to the limitations contained in this Lease, all capital levies or other
taxes assessed or imposed on Landlord upon the rents payable to Landlord under
this Lease and any franchise tax, any excise, transaction, sales or privilege
tax, assessment, levy or charge measured by or based, in whole or in part, upon
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such rents from the Premises or any portion thereof shall be included in the
definition of "Taxes" and shall be paid by Tenant; provided, however, in no
event shall Tenant be liable for any net income taxes imposed on Landlord unless
such net income taxes are in substitution for any Taxes payable hereunder.
Notwithstanding anything to the contrary contained in this Lease, the term
"Taxes" shall expressly exclude any federal, state or local documentary transfer
or similar taxes imposed and assessed in connection with the execution, delivery
and/or recordation of any deed or conveyance of title to the Premises. If any
such tax or excise is levied or assessed directly against Tenant, then Tenant
shall be responsible for and shall pay the same at such times and in such manner
as the taxing authority shall require. Tenant shall be liable for all taxes
levied or assessed against any personal property or fixtures placed in the
Premises, whether levied or assessed against Landlord or Tenant.
Landlord shall not voluntarily include the Premises in any general or
special assessment district or voluntarily subject the Premises to any general
or special assessments without Tenant's prior written consent. If Landlord
fails to obtain Tenant's written consent prior to including the Premises in any
general or special assessment district or prior to subjecting the Premises to
any general or special assessments, then any such general or special assessments
resulting therefrom shall not be included in Taxes under this Lease.
7. INSURANCE. Landlord shall maintain (i) all risk property insurance on
the Building (with the premium(s) thereon fully paid in advance) in the amount
of the lesser of (a) the full insurable value thereof or (b) ninety percent
(90%) of the replacement cost (or such lesser amount as shall be required to
eliminate the operation of co-insurance provisions) and (ii) commercial
liability insurance (with a minimum limit of $1,000,000 per occurrence and a
minimum umbrella limit of $1,000,000, for a total minimum combined general
liability and umbrella limit of $2,000,000 and containing a contractual
liability endorsement) and rent loss insurance. Commencing on the Rent
Commencement Date, Tenant shall reimburse Landlord for the annual amount of the
premium paid by Landlord for such insurance actually procured by Landlord, which
amount shall be payable within thirty (30) days after Landlord delivers an
invoice for same to Tenant together with a copy of the notice, bill, or invoice
evidencing such premium cost. Payments thereof for any fractional calendar
month shall be prorated. The Building may be included in a blanket policy (in
which case the cost of such insurance allocable to the Building will be
determined by Landlord based upon the insurer's cost calculations). If Tenant
procures a price quotation from a Qualified Insurer (as hereinafter defined) for
insurance providing coverage that is in the same form and content as required by
the Lease, and if the price quotation from Tenant's Qualified Insurer is more
than five percent (5%) less than the premium being charged by Landlord's
insurer, then Tenant shall only be obligated to pay and reimburse Landlord for
the insurance cost set forth in Tenant's quotation; provided, however, that if
Landlord's insurer thereafter reduces its premium cost resulting in a premium
cost that is less than the quotation from Tenant's Qualified Insurer or if
Landlord changes insurer resulting in a premium cost that is less than the
quotation from Tenant's Qualified Insurer, then Tenant shall pay and reimburse
Landlord for the lesser premium cost being charged by Landlord's insurer. For
the purpose of this Lease, an insurer shall be a "Qualified Insurer" if such
insurer is qualified to do business in the state in which the Premises are
located and holds both a general policy holder's rating of "A-" or better and a
financial size rating of Class "IX" or larger, as set forth in the most current
issue of "Best's Insurance Guide" also known as "Best's Key Rating Guide."
Tenant, at its expense, shall maintain during the Term: all risk property
insurance in such amounts and with such coverages as Tenant may elect; worker's
compensation insurance with no less than the minimum limits required by law;
employer's liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 for property damage,
personal injuries, or deaths of persons occurring in or about the Premises.
Tenant's commercial liability insurance policies shall name Landlord as an
additional insured; be issued by insurance companies which are reasonably
acceptable to Landlord, are qualified to do business in the state in which the
Premises are located, and hold both a general policy holder's rating of "A-" or
better and a financial size rating of Class "IX" or larger (as set forth in the
most current issue of "Best's Insurance Guide" also known as "Best's Key Rating
Guide"); not be cancelable unless 30 days' prior written notice shall have been
given to Landlord; contain a hostile fire endorsement and a contractual
liability endorsement and provide primary coverage to Landlord (any policy
issued to Landlord providing duplicate or similar coverage shall be deemed
excess over Tenant's policies). Certificates evidencing such policies shall be
delivered to Landlord by Tenant upon commencement of the Term and upon each
renewal of said insurance.
The all risk property insurance obtained by Landlord and Tenant shall
include a waiver of subrogation by the insurers and all rights based upon an
assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its
officers, directors, employees, managers, agents, invitees or contractors shall
be liable to the other for loss or damage caused by any risk coverable by all
risk property insurance, and each party waives any claims against the other
party, and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver.
Upon request by Tenant, Landlord shall provide Tenant with full, true and
complete photocopies of all bills, invoices, statements or other evidence in
Landlord possession or control relating to the amount of any insurance imposed
on Tenant for the period covered by any statement issued by the Landlord and
Landlord's delivery of same shall (at Tenant's option) constitute a condition
precedent to Tenant's obligation to pay any amount represented by such bill,
invoice, statement or other evidence. Tenant may, at any time during the Term
or during the limitations period provided by law to Landlord for collection of
past due rent thereafter, inspect, examine and audit Landlord's records relating
to the determination of the amount of such insurance. If such inspection,
examination or audit discloses an overpayment by Tenant for insurance, Landlord
shall promptly pay
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to Tenant the amount of such excess payment and (if such amount exceeds three
percent of Tenant's actual liability for such charge) Landlord shall also pay
Tenant for the cost of such inspection, examination, or audit.
8. LANDLORD'S CAPITAL RESPONSIBILITIES. Landlord shall, at its sole
expense, without reimbursement from Tenant, (a) repair and/or replace (as
required to keep in good, safe and sound condition) the foundation, the
subflooring (including, without limitation, any structural repairs or
replacements of the floor slab or sub-grade caused by differential settlement of
the soil), the exterior walls of the Building, the structural components of the
Building relating to the structural integrity of the Premises, and any design
defects or latent construction defects in the Premises, (b) construct and
install all capital repairs and replacements to the roof, and (c) resurface and
replace (as necessary) the parking lot; provided, however, that the foregoing
shall not extend to and include the routine repair and maintenance of the
Premises to be performed by Tenant under Section 9. The foregoing shall not
extend to any uninsured losses and damages caused by Tenant, its agents and
contractors excluded.
If Landlord fails to perform any item of repair, replacement, or
resurfacing required to be performed by Landlord under this Lease, fails to
correct any defect or deficiency that is subject to any warranty under this
Lease, or fails to restore any utilities serving the Premises that are
interrupted as a result of the wilful acts or negligence of Landlord or its
agents, employees or contractors within a reasonable time (not to exceed thirty
[30] days) after written notice from Tenant specifying the need for same, and if
the need for such repair and replacement materially and detrimentally affects
Tenant's use and enjoyment of the Premises, Tenant may (as its nonexclusive
remedy) perform such item of repair and replacement and bill Landlord for the
cost of such repair. Landlord shall have thirty (30) days after the receipt of
Tenant's bill for any repair or replacement that is performed by Tenant and that
Tenant asserts was the responsibility of Landlord to either (1) pay the amount
of such bill or (2) assert any defenses to the payment of same. If Landlord
fails to either pay the amount of such bill or object to same within said thirty
(30) day period, Tenant shall have the right to exercise any remedies available
to Tenant under this Lease without further notice or demand.
If Landlord asserts any defense to the obligation to pay for such repair or
replacement within the thirty (30) day period, then the parties shall attempt to
select a mutually acceptable arbitrator to resolve the dispute. If the parties
are unable to agree upon a single mutually acceptable arbitrator within ten (10)
days after Tenant's receipt of Landlord's written objection, each party shall
designate its own arbitrator (which designation shall be in writing and shall be
served on the other not later than thirty (30) days Tenant's receipt of
Landlord's written objection). If a party fails to timely designate its own
arbitrator within the period prescribed by the immediately preceding sentence,
then the single arbitrator designated by the other party shall determine the
liability for such item of repair or replacement. If two (2) arbitrators are
designated, they shall promptly meet and shall jointly designate a third
arbitrator possessing the qualifications described in this Section. Each
arbitrator shall not have previously worked for either party and shall be a
licensed attorney in the State in which the Premises are located or a retired
judge. The arbitration shall be conducted in accordance with the commercial
arbitration rules (but not the jurisdiction) of the American Arbitration
Association. The arbitrator(s) shall apply the law of the State in which the
Premises are located (including, without limitation, the applicable state court
rules of evidence and any limitations on parol or hearsay evidence prescribed by
the such evidentiary rules or the judicial decisions interpreting same) and
shall prepare written factual findings and conclusions of law on which the
decision of the arbitrator(s) is based. The award or decision of the
arbitrator(s) may include equitable relief and shall be final. Judgment on the
arbitrator(s) award may be entered in accordance with applicable law in any
court having jurisdiction over the matter. If any party desires to seek any
prejudgment or other provisional remedy (either after the service of the of the
parties election to have the matter resolved by arbitration and/or during the
pendency of the arbitration), such party may seek such a provisional remedy from
the court by (among other things) filing an action to compel and enforce
arbitration and, either concurrently with such filing or thereafter, seeking
such orders from the court as are required to obtain such provisional remedy.
If only one arbitrator is selected, the parties shall equally share the
cost of such arbitrator. If three arbitrators are selected, each party shall
pay the fees of the arbitrator designated by such party and the parties shall
equally share the cost of the third arbitrator.
Following the arbitration, the arbitrator(s) shall issue a written opinion
allocating the liability for the repair, resurface or replacement at issue. If
the arbitration allocates liability to Landlord for the repair or replacement at
issue, and if Landlord fails to pay the amount of such liability to Tenant
within thirty (30) days after service of notice of such determination of
liability, Tenant shall have the right to exercise any remedies available to
Tenant under this Lease without further notice or demand.
If Landlord and Tenant are unable to resolve whether a given item requires
repair or maintenance (and is thus an obligation of Tenant under Section 9) or
structural repair or replacement (and is thus an obligation of Landlord under
this Section 8), such issue shall be resolved by arbitration in the manner set
forth in this Section 8.
9. TENANT'S REPAIRS. Subject to Landlord's obligation in Section 8 and
subject to Sections 12 and 13, Tenant, at its expense, shall repair and maintain
in good condition all portions of the Premises and all areas, improvements and
systems exclusively serving the Premises including, without limitation, dock and
loading areas, truck doors, plumbing, water and sewer lines up to points of
common connection, fire sprinklers and fire protection systems, entries, doors,
interior ceilings, windows, interior walls, and the interior side of demising
walls, any heating, ventilation and air conditioning systems, and periodic re-
sealing and re-striping of the parking lot. Heating, ventilation and air
conditioning systems and other mechanical and building systems serving the
Premises shall be maintained at Tenant's expense pursuant to maintenance service
contracts entered into by Tenant. The scope of services and contractors under
such maintenance contracts shall be reasonably approved
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by Landlord. If Tenant fails to perform any repair or replacement for which it
is responsible, Landlord may perform such work and be reimbursed by Tenant
within 30 days after demand therefor. Subject to Sections 12 and 13, Tenant
shall bear the full cost of any repair or replacement to any part of the
Building that results from damage caused by Tenant, its agents, contractors, or
employees and any repair that benefits only the Premises.
10. TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any structural
alterations, additions, or improvements, any alterations, additions or
improvements involving the penetration of the roof, or any alterations,
additions, or improvements requiring the issuance of a permit that are made by
or on behalf of Tenant to the Premises ("Tenant-Made Alterations") shall be
subject to Landlord's prior written consent, which consent can be withheld in
Landlord's sole discretion; provided, however, that if the proposed Tenant-Made
Alteration involves the construction of any interior mezzanine space that does
not involve the relocation of any exterior walls of the Building, Landlord's
consent will not be unreasonably withheld or delayed. Tenant shall cause, at its
expense, all Tenant-Made Alterations and all other alterations, additions and or
improvements constructed by Tenant and not requiring Landlord's consent (the
"Exempt Alterations") to comply with insurance requirements and with Legal
Requirements and shall construct at its expense any alteration or modification
required by Legal Requirements and Private Restrictions as a result of any
Tenant-Made Alterations or Exempt Alterations. All Tenant-Made Alterations and
all Exempt Alterations shall be constructed in a good and workmanlike manner by
contractors reasonably acceptable to Landlord and only good grades of materials
shall be used. All plans and specifications for any Tenant-Made Alterations
shall be submitted to Landlord for its approval. Landlord may monitor
construction of the Tenant-Made Alterations. Landlord's right to review plans
and specifications and to monitor construction shall be solely for its own
benefit, and Landlord shall have no duty to see that such plans and
specifications or construction comply with applicable laws, codes, rules and
regulations. Tenant shall provide Landlord with the identities and mailing
addresses of all persons performing work or supplying materials, prior to
beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Upon completion of any
Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements
setting forth the names of all contractors and subcontractors who did work on
the Tenant-Made Alterations, a complete set of "as-built" plans showing the
Tenant-Made Alterations, and final lien waivers from all such contractors and
subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations,
Exempt Alterations, and any leasehold improvements constructed by Landlord or
Tenant shall remain on the Premises as Landlord's property
11. SIGNS. Tenant will not construct or install any sign on the exterior
of the Building or outside of the Building without Landlord's prior written
consent, which consent to any sign will not be unreasonably withheld or delayed.
If Landlord fails to approve or refuse Tenant's request to install any sign
within thirty (30) days after Tenant serves its request on Landlord together
with all such information as Landlord may request from Tenant in writing, such
failure shall be deemed a consent to Tenant's request. Without Tenant's prior
written consent, Landlord shall not (i) remove, alter, or modify any sign
installed in compliance with this Lease or (ii) construct or install any
building-mounted exterior sign on or around the Building or on any exterior wall
of the Building. Landlord, on Tenant's behalf, shall obtain all applicable
governmental permits and approvals for sign and exterior treatments installed by
Landlord as part of Landlord's Work. Except for any signs installed by Landlord
as part of Landlord's Work, Tenant will obtain any permits required to construct
and install such signs and such signs will comply with all Legal Requirements
and Private Restrictions.
12. RESTORATION. If at any time during the Term the Premises are damaged
by a fire or other casualty, and if Landlord determines in its good faith
business judgment that the amount of time required to restore the Premises will
exceed 12 months from the date of such fire or other casualty, Landlord may
elect to terminate this Lease upon notice to Tenant given no later than thirty
(30) days after the date of such fire or other casualty. If Landlord fails to
timely serve written notice of its election to terminate this Lease of
Landlord's determination that the amount of time required to restore the
Premises will exceed 12 months from the date of such fire or other casualty,
Landlord's right to elect to terminate shall automatically terminate and
Landlord shall rebuild and restore such damage as required by this Section 12.
If Tenant disputes Landlord's determination that the amount of time required to
restore the Premises will exceed 12 months from the date of such fire or other
casualty, Tenant shall advise Landlord in writing within sixty (60) days after
the date of such fire or other casualty and the amount of time estimated to
restore such damage shall be determined by an architect in the manner prescribed
by Section 28. If Tenant does not dispute Landlord's determination that the
amount of time required to restore the Premises will exceed 12 months from the
date of such fire or other casualty, or if the architect under Section 28
determines that the amount of time required to restore the Premises will exceed
12 months from the date of such fire or other casualty, and if Landlord has
timely served notice of Landlord's election to terminate this Lease, this Lease
shall terminate effective on the earlier of (a) one year after the date of
service of Landlord's notice of termination or (b) the date Tenant surrenders
possession of the Premises. If Landlord does not elect to terminate this Lease,
or if the architect determines that the restoration will take 12 months or less,
or if the parties agree that the restoration will take 12 months or less from
the date of such fire or other casualty, then Landlord shall promptly restore
the Premises, excluding the improvements installed by Tenant. Following the
determination that Landlord will or Landlord must undertake the repair and
restoration of the Premises, Landlord and Tenant shall set a mutually agreeable
work schedule for completion of the restoration work; provided, however, that in
no event shall the schedule provide for substantial completion later than the
date (if any) determined by the architect for the completion of the restoration.
If Landlord fails to substantially complete Landlord's restoration work by the
scheduled completion date set forth in the schedule, Landlord shall pay
liquidated damages to Tenant in the amount of Two Thousand Five Hundred Dollars
($2,500.00) per day for each of the first thirty (30) days of delay from the
scheduled date for such substantial completion until the earlier of (i) the date
the Premises are substantially restored or (ii) thirty (30) days after the
scheduled completion date for Landlord's restoration work, Five Thousand Dollars
($5,000.00) per day for each of the next thirty (30) days of delay until the
earlier of (a) the date such Premises are substantially restored or
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(b) sixty (60) days after the scheduled completion date of Landlord's
restoration work, and Ten Thousand Dollars ($10,000.00) per day for each day of
delay thereafter until the date such Premises are substantially restored.
Notwithstanding the foregoing, in no event shall the total delay damages with
respect to the construction of any particular Expansion Premises exceed Four
Hundred Fifty Thousand Dollars ($450,000). All delay damages due from Landlord
to Tenant hereunder shall be due and payable within thirty (30) days after
Tenant's service (from time to time) of an invoice on Landlord setting forth the
amount delay damages for the period described in such invoice. Landlord agrees
to use commercially reasonable and diligent efforts to complete any restoration
work in an expedient manner and in a manner to minimize interference with
Tenant's use and enjoyment of the remaining portions of the Premises not
affected by the damage or destruction. If the Landlord (i) fails to commence the
physical on-site performance of any repair and restoration work required under
this Section 12 within six (6) months after the date of such damage or
destruction or (ii) fails to substantially complete such repairs and restorative
work within the earlier of (I) four (4) months after the scheduled completion
date of Landlord's restoration work or (II) sixteen (16) months after the date
of such damage or destruction, Tenant shall have the right (as its non-exclusive
remedy) to terminate this Lease on written notice to Landlord, which termination
shall be effective on the earlier of (a) one year after the date of Tenant's
notice of termination or (b) the date Tenant surrenders possession of the
Premises. If Tenant fails so to terminate prior to the satisfaction of the
foregoing conditions (even if such satisfaction is after the date specified
therefor), then Tenant's right to terminate as a result thereof shall
automatically expire and be of no further force or effect.
Following the substantial completion of Landlord's restoration work or (at
Tenant's election) concurrently therewith, Tenant at Tenant's expense shall
promptly perform all repairs or restoration not required to be done by Landlord
and shall promptly re-enter the Premises and commence doing business in
accordance with this Lease.
Notwithstanding the foregoing, either party may terminate this Lease if the
Premises are damaged during the last year of the Term and it will take more than
two (2) months to repair such damage.
Tenant shall pay to Landlord with respect to any damage to the Premises the
amount of the commercially reasonable deductible previously approved by Tenant
in writing with respect to Landlord's insurance policy within thirty (30) days
after presentment of Landlord's invoice. Base Rent shall be abated for the
period of repair and restoration in the proportion which the area of the
Premises, if any, which is not usable by Tenant bears to the total area of the
Premises; provided, however, that if, in Tenant's reasonable opinion, such fire
or other casualty materially affects the conduct of Tenant's business to the
point that it is impractical from the standpoint of prudent management, then
Tenant shall have the right to discontinue operations in the Premises and shall
thereafter Base Rent shall entirely abate until Landlord's restoration work and
Tenant's restoration work are substantially completed. Such abatement shall be
the sole remedy of Tenant, and except as provided herein, Tenant waives any
right to terminate the Lease by reason of damage or casualty loss.
13. CONDEMNATION. If any part of the Premises that materially and
adversely affects the continued use, occupancy and enjoyment of the Premises
should be taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof (a "Taking" or "Taken"), then upon written notice by Tenant to
Landlord this Lease shall terminate and Base Rent shall be apportioned as of
said date. If part of the Premises shall be Taken, and this Lease is not
terminated as provided above, the Base Rent payable hereunder during the
unexpired Term shall be reduced to such extent as may be fair and reasonable
under the circumstances. Any compensation attributable to and as consideration
for any Taking shall be paid first to Landlord (or Landlord's secured lender
holding a deed of trust, mortgage, or other security interest in the Premises)
in an amount equal to (i) the Lump Sum Total Project Cost plus the amount of any
Total Direct Costs of Expansion Premises paid by Landlord escalated at the rate
of two percent (2%) per annum from the Rent Commencement Date with respect to
the Original Premises and from the commencement date of this Lease with respect
to each such Expansion Premises or (ii) the purchase price paid by the then-
current Landlord escalated at the rate of two percent (2%) per annum from the
date such then-current Landlord acquired fee title to the Premises plus the
Total Direct Cost of any Expansion Premises constructed by such then-current
Landlord escalated at the rate of two percent (2%) per annum from the
commencement date of this Lease with respect to each such Expansion Premises
constructed by such then-present owner of the Premises, next to Tenant to the
extent the value of Tenant's leasehold interest (determined by reference to
standard appraisal practices, the existence of any unexercised extension
options, and the unamortized portion of the cost of any alterations,
modifications, or additions constructed or installed in the Premises by Tenant
or by Landlord at Tenant's cost), and any remainder shall be paid to Landlord.
The foregoing shall not, however, affect or prejudice Tenant's right to make a
separate claim against the condemning authority for such compensation as may be
separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant's Trade Fixtures, if a separate award for such items is made to Tenant.
14. ASSIGNMENT AND SUBLETTING. Except as hereinafter provided, Tenant
shall not assign this Lease or sublease the Premises or any part thereof or
mortgage, pledge, or hypothecate its leasehold interest without Landlord's prior
written consent (which consent will not be unreasonably withheld) and any
attempt to do any of the foregoing shall be void and of no effect.
Notwithstanding the above, and without the prior written consent of Landlord,
Tenant may assign or sublet the Premises, or any part thereof, to (i) any entity
controlling Tenant, controlled by Tenant or under common control with Tenant (a
"Tenant Affiliate") or (ii) any corporation or other legal entity resulting from
any merger or other reorganization of Tenant; provided, however, that in
connection with any assignment of this Lease to any corporation or other legal
entity resulting from any merger or other reorganization of Tenant, Landlord's
consent will be required if the surviving entity does not have a net worth that
is at least ninety percent (90%) of the net worth of Tenant immediately before
the merger or reorganization and the surviving entity is not organized under
laws of the United States (or any political subdivision thereof).
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In connection with a request for Landlord's consent regarding a proposed
assignment of this Lease or sublease of all or part of the Premises (other than
an exempt assignment or sublease under this Section), Landlord shall have
fifteen (15) working days after the date of service of Tenant's request for
Landlord's consent together with all financial information reasonably available
concerning the proposed assignee or sublessee to either (a) consent to such
assignment or sublease or (b) refuse consent to the proposed assignment. If
Landlord fails to elect one of the two options afforded by this Section within
said fifteen (15) working day period, such failure shall be deemed a consent to
such assignment or sublease. If Landlord refuses his consent, Landlord's refusal
shall be in writing and shall identify the principal basis(es) upon which such
consent is refused.
Notwithstanding any assignment or subletting, Tenant shall at all times
remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings).
If this Lease be assigned or if the Premises be subleased (whether in whole
or in part) or in the event of the mortgage, pledge, or hypothecation of
Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder Landlord may collect rent from
the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent set forth in the preceding paragraph, apply the amount
collected to the next rent payable hereunder; and all such rentals collected by
Tenant shall be held in trust for Landlord and immediately forwarded to
Landlord. No such transaction or collection of rent or application thereof by
Landlord, however, shall be deemed a waiver of these provisions or a release of
Tenant from the further performance by Tenant of its covenants, duties, or
obligations hereunder.
Landlord will cooperate with Tenant in executing any documents reasonably
required to effect any financing by Tenant of this Lease or Tenant's operations
in the Premises, so long as such documents will not subject Landlord's interest
in the Premises to any forfeiture, encumbrance or lien. Landlord's obligations
under this Section shall include (without limitation) the duty to make non-
material changes in this Lease (excluding among other things any obligation to
pay rent or additional rent and excluding any change in the length of the Term),
to give notices of default to Tenant's lender upon the occurrence of a default
by Tenant under this Lease, to accept performance by Tenant's lender as the same
as performance by Tenant, and to allow Tenant's lender to succeed to Tenant's
interest in this Lease and in the Premises following any foreclosure of Tenant's
interest in this Lease and the Premises by Tenant's lender.
15. INDEMNIFICATION. Tenant shall indemnify, defend, and save Landlord
harmless from and against any and all claims, actions, damages, liabilities and
expenses (including reasonable attorneys' fees through all trial and appellate
proceedings and costs) in connection with loss of life, personal injury and/or
damage to property arising from or relating to the following: (i) any act or
omission of Tenant, its agents, contractors, employees, servants, sublessees or
concessionaires, (ii) any breach of this Lease by Tenant, or (iii) any failure
by Tenant to perform any duties or obligations imposed on Tenant by this Lease.
Landlord shall indemnify, defend, and save Tenant harmless from and against
any and all claims, actions, damages, liabilities and expenses (including
reasonable attorneys' fees through all trial and appellate proceedings and
costs) in connection with loss of life, personal injury and/or damage to
property arising from or relating to the following: (1) any act or omission of
Landlord, its agents, contractors, employees, servants, (2) any breach of this
Lease by Landlord, or (3) any failure by Landlord to perform any duties or
obligations imposed on Landlord by this Lease.
The furnishing of insurance required hereunder shall not be deemed to limit
the parties' obligations under of this Section 15.
16. INSPECTION AND ACCESS. Landlord and its agents, representatives, and
contractors may enter the Premises at any reasonable time and upon reasonable
advance notice (except in the case of emergency, when notice shall not be
required) to inspect the Premises and to make such repairs as may be required or
permitted pursuant to this Lease and for any other business purpose. Landlord
and Landlord's representatives may enter the Premises during business hours and
following reasonable advance notice for the purpose of showing the Premises to
prospective purchasers and, during the final twelve (12) months of the Term, to
prospective tenants. In exercising its right of entry hereunder, Landlord shall
minimize any inconvenience or interruption of Tenant's business. Landlord may
erect a suitable sign on the Premises stating the Premises are available for
sale and (during the final twelve (12) months of the Term) are available to let.
17. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, subject to
the terms of this Lease, at all times during the Term, have peaceful and quiet
enjoyment of the Premises against any person claiming by, through or under
Landlord, except for persons claiming by or through Landlord in compliance with
the provisions of Section 24.
18. SURRENDER. Upon termination of the Term or earlier termination of
Tenant's right of possession, Tenant shall surrender the Premises to Landlord in
broom clean condition, ordinary wear and tear and casualty loss and condemnation
covered by Sections 12 and 13 excepted. Any trade fixtures not so removed by
Tenant as permitted or required herein shall be deemed abandoned and may be
stored, removed, and disposed of by Landlord at Tenant's expense and in the
manner prescribed by law. All obligations of the parties hereunder not fully
performed as of the termination of the Term shall survive the termination of the
Term, including (without
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limitation) indemnity obligations, payment obligations with respect to Base Rent
and obligations concerning the condition and repair of the Premises.
19. HOLDING OVER. If Tenant retains possession of the Premises after the
termination of the Term, unless otherwise agreed in writing, such possession
shall be deemed to constitute a month-to-month tenancy and all of the other
terms and provisions of this Lease (excluding any expansion or renewal option or
other similar right or option) shall be applicable during such holdover period,
except that Tenant shall pay Landlord from time to time, upon demand, as Base
Rent for the holdover period, an amount equal to one hundred twenty-five percent
(125%) of the Base Rent in effect on the termination date, computed on a monthly
basis for each month or part thereof during such holding over. All other
payments shall continue under the terms of this Lease. In addition, if Landlord
advises Tenant in writing not later than three (3) months prior to the
expiration of the Lease that it will require Tenant to promptly vacate
possession of the Premises at the Term expiration date, Tenant shall be liable
for all damages incurred by Landlord as a result of such holding over. No
holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease except as otherwise expressly provided, and this
Section 19 shall not be construed as consent for Tenant to retain possession of
the Premises.
20. EVENTS OF DEFAULT. Each of the following events shall be an event of
default ("Event of Default") by Tenant under this Lease:
(i) Tenant shall fail to pay any installment of Base Rent or any
other payment required herein when due, and such failure shall continue for
a period of five (5) business days after Tenant's receipt of written notice
from Landlord that same is past due.
(ii) Tenant shall (A) make a general assignment for the benefit of
creditors; (B) commence any case, proceeding or other action seeking to
have an order for relief entered on its behalf as a debtor or to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts or
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or of any substantial part of its property
(collectively a "proceeding for relief"); (C) involuntarily become the
subject of any proceeding for relief which is not dismissed within 60 days
of its filing or entry; (D) die or suffer a legal disability (if Tenant is
an individual) or be dissolved or otherwise fail to maintain its legal
existence (if Tenant is a corporation, partnership or other entity); or (E)
become or be adjudged to be insolvent or otherwise be unable to pay its
debts generally as they become due.
(iii) Tenant shall attempt or there shall occur any assignment,
subleasing or other transfer of Tenant's interest in or with respect to
this Lease except as otherwise permitted in this Lease.
(iv) Tenant shall fail to discharge (by payment or posting of a
satisfactory bond in the form and content required by applicable law) any
lien placed upon the Premises in violation of this Lease within 30 days
after the later of (1) the date any such lien or encumbrance is filed
against the Premises or (2) the date Tenant receives actual written notice
that such a lien was filed.
(v) Tenant shall fail to comply with any provision of this Lease
other than those specifically referred to in this Section 20, and except as
otherwise expressly provided herein, such default shall continue for more
than 30 days after Landlord shall have given Tenant written notice of such
default; provided, however, that if the nature of the default is such that
it cannot be reasonably cured within such thirty (30) day period, Tenant
shall not be in default if Tenant begins any performance required to cure
such default within such thirty (30) day period and thereafter diligently
and uninterruptedly prosecutes such cure to completion.
21. LANDLORD'S REMEDIES. Upon each occurrence of an Event of Default and
so long as such Event of Default shall be continuing, Landlord may at any time
thereafter at its election: terminate this Lease or Tenant's right of
possession, (but Tenant shall remain liable as hereinafter provided) and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord to re-enter the Premises by summary dispossession proceedings or any
other action or proceeding authorized by law and to remove Tenant and all
persons and property therefrom.
If Landlord terminates this Lease, Landlord may recover from Tenant the sum
of: all Base Rent and all other amounts accrued hereunder to the date of such
termination; the cost of reletting the whole or any part of the Premises,
including without limitation brokerage fees and/or leasing commissions incurred
by Landlord, and costs of removing and storing Tenant's or any other occupant's
property, repairing, altering, remodeling, or otherwise putting the Premises
into condition acceptable to a new tenant or tenants, and all reasonable
expenses incurred by Landlord in pursuing its remedies, including reasonable
attorneys' fees and court costs (provided, however, that Landlord shall only be
entitled to recover that portion of any renovation and alterations costs of the
Premises and any real estate commissions for any replacement lease as are
actually paid by Landlord [collectively be referred to as the "Replacement
Costs"] that bears the same proportion to the total amount of the Replacement
Costs as the remaining Term of this Lease at the time of the commencement of
such replacement lease bears to the total term of such replacement lease); and
the excess of the then present value of the Base Rent and other amounts payable
by Tenant under this Lease as would otherwise have been required to be paid by
Tenant to Landlord during the period following the termination of this Lease
measured from the date of such termination to the expiration date stated in this
Lease, over the present value of any net amounts which Tenant establishes
Landlord can reasonably expect to recover by reletting the Premises for such
period, taking into consideration the availability of acceptable tenants and
other market conditions affecting leasing. Such present
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values shall be calculated at a discount rate equal to the 90-day U.S. Treasury
bill rate at the date of such termination.
If Landlord terminates Tenant's right of possession (but not this Lease),
Landlord may, but shall be under no obligation to, relet the Premises for the
account of Tenant for such rent and upon such terms as shall be satisfactory to
Landlord without thereby releasing Tenant from any liability hereunder and
without demand or notice of any kind to Tenant. For the purpose of such
reletting Landlord is authorized to make any repairs, changes, alterations, or
additions in or to the Premises as Landlord deems reasonably necessary or
desirable. If the Premises are not relet, then Tenant shall pay to Landlord as
damages a sum equal to the amount of the rental reserved in this Lease for such
period or periods, plus the cost of recovering possession of the Premises
(including attorneys' fees and costs of suite), the unpaid Base Rent and other
amounts accrued hereunder at the time of repossession, and the costs incurred in
any attempt by Landlord to relet the Premises. If the Premises are relet and a
sufficient sum shall not be realized from such reletting [after first deducting
therefrom, for retention by Landlord, the unpaid Base Rent and other amounts
accrued hereunder at the time of reletting, the cost of recovering possession
(including attorneys' fees and costs of suit), all of the costs and expense of
repairs, changes, alterations, and additions [subject to the limitations set
forth above], the expense of such reletting (including without limitation
brokerage fees and leasing commissions [subject to the limitations set forth
above]) and the cost of collection of the rent accruing therefrom] to satisfy
the rent provided for in this Lease to be paid, then Tenant shall immediately
satisfy and pay any such deficiency. Any such payments due Landlord shall be
made upon demand therefor from time to time and Tenant agrees that Landlord may
file suit to recover any sums falling due from time to time. Notwithstanding any
such reletting without termination, Landlord may at any time thereafter elect in
writing to terminate this Lease for such previous breach.
Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, whether by agreement or
by operation of law, it being understood that such surrender and/or termination
can be effected only by the written agreement of Landlord and Tenant. A receipt
by Landlord of rent or other payment with knowledge of the breach of any
covenant hereof shall not be deemed a waiver of such breach, and no waiver by
Landlord of any provision of this Lease shall be deemed to have been made unless
expressed in writing and signed by Landlord.
22. LANDLORD'S DEFAULTS AND TENANT'S REMEDIES. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within thirty (30) days after written notice from Tenant specifying
such failure; provided, however, that if the nature of the default is such that
it cannot be reasonably cured within such thirty (30) day period, Landlord shall
not be in default if Landlord begins any performance required to cure such
default within the thirty (30) day period and thereafter diligently and
uninterruptedly prosecutes such cure to completion. On the occurrence of any
default by Landlord, Tenant shall have all rights and remedies provided at law,
in equity, or under this Lease. Subject to Tenant's proof of the existence and
amount of same, Landlord acknowledges that Tenant's damages resulting from any
breach or default by Landlord may include (without limitation) damages for
increased rent at any new or replacement facility leased by Tenant and moving
and relocation costs associated with Tenant's inventory and equipment, and the
loss of value of any Tenant-Made Alterations and/or Exempt Alterations
constructed and installed by Tenant. Notwithstanding the foregoing, if Tenant
obtains the entry of a judgment in favor of Tenant (including, without
limitation, the entry of any judgment under Section 8), and if Landlord fails to
cure the default within thirty (30) days after the date of such judgment
(including, without limitation, payment of the amount of any damages awarded to
Tenant and any attorney's fees and court costs recoverable by Tenant as a result
of such proceeding), Tenant's rights shall include (without limitation) the
right of termination. Tenant's rights and remedies under this Lease shall be
cumulative and nonexclusive and may be exercised concurrently, sequentially or
in any order Tenant may select.
If Landlord fails to pay any sum payable by Landlord to Tenant hereunder
within five (5) working days after Tenant's service of written notice on
Landlord that same is past due, Landlord shall pay to Tenant interest on such
past-due amount at the rate of interest from time to time announce by Bank of
America (San Francisco Headquarters branch) as its "prime" or "reference" plus
four percent (4%) per annum (not to exceed the maximum amount permitted by law),
which interest shall commence to accrue on the date same was due.
23. WAIVER OF JURY TRIAL. Tenant and Landlord waive any right to trial by
jury or to have a jury participate in resolving any dispute, whether sounding in
contract, tort, or otherwise, between Landlord and Tenant arising out of this
Lease or any other instrument, document, or agreement executed or delivered in
connection herewith or the transactions related hereto.
24. SUBORDINATION. This Lease and Tenant's interest and rights hereunder
are and shall be subject and subordinate at all times to the lien of any first
mortgage now existing on or against the Premises and all amendments,
restatements, renewals, modifications, consolidations, assignments and
extensions thereof, without the necessity of any further instrument or act on
the part of Tenant. Tenant agrees upon demand to execute, acknowledge and
deliver such instruments, confirming such subordination and such instruments of
attornment as shall be requested by any such holder, which instruments shall be
in the form and content of the Subordination Agreement described in this
Section. If requested by Tenant, Landlord shall obtain a Subordination
Agreement from the holder of any mortgage now existing and presently affecting
the Premises, which Subordination Agreement shall be in substantially the same
form and content as the attached Exhibit "C", together with such modifications
as may be reasonably acceptable to Landlord and Tenant. The term "mortgage"
whenever used in this Lease shall be deemed to include deeds of trust, security
assignments and any other encumbrances, and any reference to the "holder" of a
mortgage shall be deemed to include the beneficiary under a deed of trust.
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Tenant agrees to make this Lease and Tenant's rights hereunder junior and
inferior to any mortgage hereinafter placed upon the interest of Landlord in the
Premises if, and only if, the Mortgagee under such holder enters into a
Subordination Agreement in the form and content described above.
25. MECHANIC'S LIENS. Tenant has no express or implied authority to
create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost or
expense based on or arising of asserted claims or liens against the leasehold
estate or against the interest of Landlord in the Premises or under this Lease.
Tenant shall give Landlord immediate written notice of the placing of any lien
or encumbrance against the Premises and cause such lien or encumbrance to be
discharged (by payment or posting of a satisfactory bond in the form and content
required by applicable law) within 30 days after the later of (1) the date any
such lien or encumbrance is filed against the Premises or (2) the date Tenant
receives actual written notice that such a lien was filed; provided, however,
Tenant may contest such liens or encumbrances as long as such contest prevents
foreclosure of the lien or encumbrance and Tenant causes such lien or
encumbrance to be bonded or insured over in a manner satisfactory to Landlord
within such 30 day period.
26. ESTOPPEL CERTIFICATES. The parties agree, from time to time, within
twenty (20) days after request from the other party, to execute and deliver to
the requesting party, or the requesting party's designed, any estoppel
certificate stating (if true) that this Lease is full force and effect, the date
to which rent has been paid, that the requesting party is not in default
hereunder (or specifying in detail the nature of such default), the termination
date of this Lease and such other matters pertaining to this Lease as may be
requested by the requesting party. The parties' obligations to furnish each
estoppel certificate in a timely fashion is a material inducement for the
parties' execution of this Lease. For the purpose of any estoppel or other
certification required to be executed and delivered by Tenant under this Lease,
"Tenant's knowledge" shall mean and be limited to the actual knowledge of the
individual signing the estoppel certificate on behalf of Tenant (without
imputation of any knowledge from any of Tenant's other employees, agents,
contractors, or attorneys and without any investigation or inquiry).
27. ENVIRONMENTAL REQUIREMENTS.
(a) Landlord, Contractor and Tenant Mutual Covenants. In addition to the
------------------------------------------------
compliance requirements set forth herein, and not by way of limitation thereof,
Landlord, Contractor and Tenant mutually covenant and agree as set forth in this
Section 27.
(b) Definitions. As used in this Section 27, the following terms shall
-----------
have the following meanings:
(i) "Environmental Condition(s)" means the presence on, in or under the
Premises of any Hazardous Material(s) except, as are in compliance
with Environmental Laws, whether such presence is in ambient air,
surface water, groundwater, land surface or subsurface strata.
(ii) "Environmental Laws" means all federal, state or local environmental
laws, and any and all policies, rules and regulations thereunder,
which are, at any time and from time to time, applicable to the
Premises, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq. ("CERCLA"); the Solid Waste Disposal Act
("SWDA") and Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. Section 6901, et seq.; the Clean Water Act, 33 U.S.C. Section
1251, et seq.; the Clean Air Act, 42 U.S.C. Section 7401, et seq.; the
Toxic Materials Control Act, 15 U.S.C. Section 2601, et seq.; and the
Safe Drinking Water Act, 42 U.S.C. Section 300f through 300j; and any
applicable state or local statutes, laws, ordinances or regulations.
(iii)"Environmental Liability(ies)" means any Environmental Conditions
with respect to which there are effective and applicable Environmental
Laws pursuant to which any regulatory authorities having jurisdiction
over the Premises would have authority to require remediation
activities. Designation of a condition as an Environmental Liability
by any regulatory authorities or other third parties, shall not be
construed as an admission thereof by either Landlord, Contractor or
Tenant.
(iv) "Hazardous Materials" means (A) any material or substance (1) which is
defined as a "hazardous substance," "hazardous waste," "chemical
mixture or substance," or "air pollutant" under any Environmental
Laws, (2) containing petroleum, crude oil or any fraction thereof, (3)
containing polychlorinated biphenyls ("PCB's"), (4) containing
asbestos, or (5) which is radioactive; (B) any other material or
substance displaying toxic, reactive, ignitable or corrosive
characteristics, as all such terms are used in their respective
broadest senses, or are defined or become defined under any
Environmental Laws; or (C) any materials which cause a nuisance upon
or waste to the Premises or any portion thereof.
(c) Landlord Representation, Landlord Indemnity. To Landlord's actual
-------------------------------------------
knowledge, and except as may be set forth in that certain environmental site
assessment report prepared by Subsurface Investigations, Inc., entitled Report
of Phase 1 Environmental Assessment Planned Industrial Site Catawba Road-Fire
Tower Road,
17
<PAGE>
Rock Hill, South Carolina" Project Number 6636A dated January 13, 1996 (sic) and
that certain letter addendum dated February 21, 1997 addressed to Mr. Jay Marr
at Walsh, Higgins & Company, no Environmental Conditions exist on the Land. To
the extent, if any, and only to the extent, that (i) Landlord is in breach of
the first sentence of this Section 27(c), or (ii) Landlord, or its partners,
directors, officers, shareholders, contractors subcontractors, sub-
subcontractors, Mortgagees, agents or employees proximately cause any
Environmental Conditions on the Premises, or any portion thereof, then Landlord
shall (1) promptly commence, and thereafter prosecute to completion, the removal
and remediation of any such Hazardous Materials and return the Premises to
compliance with all Environmental Laws and (2) indemnify and save Tenant, and
its partners, directors, officers, shareholders, contractors, subcontractors,
sub-subcontractors, agents and employees, harmless from and against the direct
out-of-pocket costs and expenses (and not any indirect or consequential loss,
cost or damage) incurred by any one or more of them in order to clean-up or
remediate the Premises to the extent required by applicable Environmental Laws,
and from and against any and all other direct liability, loss, cost or damage,
including, without limitation, reasonable attorneys' fees and court costs,
incurred or sustained by any one or more of them as a result of such breach or
of such Environmental Conditions.
(d) Contractor Indemnity. To the extent, if any, and only to the extent,
--------------------
that Contractor, or its partners, directors, officers, shareholders,
contractors, subcontractors, sub-subcontractors, agents or employees proximately
cause any Environmental Conditions on the Premises, or any portion thereof, then
Contractor shall (1) promptly commence, and thereafter prosecute to completion,
the removal and remediation of any such Hazardous Materials and return the
Premises to compliance with all Environmental Laws and (2) indemnify and save
Tenant, and its partners, directors, officers, shareholders, contractors,
subcontractors, sub-subcontractors, agents and employees, harmless from and
against the direct out-of-pocket costs and expenses (and not any indirect or
consequential loss, cost or damage) incurred by any one or more of them in order
to clean-up or remediate the Premises to the extent required by applicable
Environmental Laws, and from and against any and all other direct liability,
loss, cost or damage, including, without limitation, reasonable attorneys' fees
and court costs, incurred or sustained by any one or more of them as a result of
such of such Environmental Conditions.
(e) Tenant Covenant; Tenant Indemnity. To the extent, if any, and only to
---------------------------------
the extent, that Tenant, or its partners, directors, officers, shareholders,
contractors, subcontractors, sub-subcontractors, agents or employees, (i) are in
breach of any of its covenants, agreements or obligations under this Article 27,
or (ii) proximately cause any Environmental Conditions on the Premises, or any
portion thereof, then Tenant shall (1) promptly commence, and thereafter
prosecute to completion, the removal and remediation of any such Hazardous
Materials and return the Premises to compliance with all Environmental Laws and
(2) indemnify and save Landlord, Contractor and each of their respective
partners, directors, officers, shareholders, contractors, subcontractors, sub-
subcontractors, Mortgagees, agents and employees harmless from and against the
direct out-of-pocket costs and expenses (and not any indirect or consequential
loss, cost or damage) incurred by any one or more of them in order to clean-up
or remediate the Premises to the extent required by applicable Environmental
Laws, and from and against any and all other direct liability, loss, cost or
damage, including, without limitation, reasonable attorneys' fees and court
costs, incur-red or sustained by any one or more of them as a result of such of
such breach or of such Environmental Conditions. Upon the expiration or earlier
termination of this Lease, Tenant shall cause all Hazardous Materials (to the
extent such Hazardous Materials are generated, stored, released or disposed of
during the Term by Tenant) to be removed from the Premises and transported for
use, storage or disposal in accordance and in compliance with all applicable
Environmental Laws.
(f) Third Party-Caused Environmental Condition. Landlord, Contractor and
------------------------------------------
Tenant covenant and agree to promptly notify the others in writing after such
party discovers the presence, release, discharge of any Environmental
Conditions. In the event (i) any Environmental Condition is discovered upon the
Premises and (ii) pursuant to the provisions of Sections 27(c), 27(d) and 27(e)
hereof, neither Landlord, Contractor nor Tenant, respectively, is obligated to
clean-up, remediate or indemnify another party hereunder with respect to such
Environmental Condition, then Landlord may, if it chooses to do so, in its sole
discretion, and, in such event, at Landlord's sole cost and expense, clean-up or
remediate the Premises to the extent required by applicable Environmental Laws.
If Landlord so elects, it shall notify Tenant, in writing, of such election
within sixty (60) days after Landlord discovers or receives notice of the
existence or claimed existence of the Environmental Condition, and shall
thereafter diligently pursue and complete such clean-up or remediation. If
Landlord fails to notify Tenant, in writing, of Landlord's election within the
aforesaid sixty (60)-day period, Landlord shall be conclusively deemed to have
elected not so to clean-up and remediate. In that event, Tenant may, if it
chooses to do so, in its sole discretion, and, in such event, at Tenant's sole
cost and expense, clean-up or remediate the Premises to the extent required by
applicable Environmental Laws. If Tenant so elects, it shall notify Landlord,
in writing, thereof, within sixty (60) days after any written notice from
Landlord that Landlord has elected not to clean-up or remediate, or within sixty
(60) days after the end of the aforesaid sixty (60)-day period afforded to
Landlord, if Landlord has not notified Tenant of Landlord's election, whichever
is sooner, and shall thereafter diligently pursue and complete such clean-up or
remediation. In the event that neither Landlord nor Tenant elects to clean-up
or remediate the Environmental Condition, and such clean-up or remediation is
required under applicable Environmental Laws, then, Tenant may elect to
terminate this Lease, upon ninety (90) days' written notice to Landlord, which
written notice must be given, if at all, within one hundred twenty (120) days
after any written notice from Landlord that Landlord has elected not to clean-up
or remediate, or within one hundred twenty (120) days after the end of the
aforesaid sixty (60)-day period afforded to Landlord, if Landlord has not
notified Tenant of Landlord's election, whichever is sooner. If any such notice
of termination is not given within such time period, then Tenant's right to
terminate this Lease under this Section 27(f) as a result of such discovered
Environmental Condition, shall automatically become null and void and of no
further force or effect.
(g) Notice. If a claim by a third person (including, without limitation,
------
any governmental entity) is made against any person or entity indemnified
hereunder, and such person or entity intends to seek
18
<PAGE>
indemnification with respect to such claim under this Section 27, such person or
entity seeking such indemnification shall promptly give notice of such claim to
the indemnifying party. In addition, if a person or entity indemnified under
this Section 27 comes into possession of facts which could reasonably lead to a
claim for indemnification under this Section 27, such party shall promptly give
notice of such facts to the indemnified party. If Landlord, Contractor or Tenant
is notified or cited for any violation (or possible violation) of any
Environmental Laws by any governmental body having jurisdiction of the Premises,
with regard to any Environmental Condition, such party shall promptly notify the
other parties thereof, and shall include with such notification copies of such
governmental notification or citation and such other documents as may be
reasonably necessary to describe the alleged violation (or possible violation).
(h) Exclusive Remedy and Survival. Notwithstanding any other indemnities
-----------------------------
set forth herein, the parties agree that the foregoing indemnifications shall
exclusively define their rights and obligations with respect to Environmental
Liabilities arising from or related to the Premises. The provisions of this
Section 27 shall survive the termination of the Lease and be effective for so
long as Landlord, Contractor or Tenant may have any liability whatsoever with
respect to the Premises.
(i) Compliance with Other Laws. Subject to the foregoing provisions of
--------------------------
this Section 27, Tenant, at its sole cost and expense, shall fully comply with,
and provide to Landlord all information needed from time to time in regard to,
all provisions of all Environmental Laws, either currently in effect or
hereafter enacted, which relate to Tenant's installation, handling, generation,
storage, treatment, use, disposal of, discharge, release, manufacture,
refinement, emission, abatement, removal, or transportation of Hazardous
Materials at the Premises.
(j) Storage of Hazardous Materials. Tenant shall not install, handle,
------------------------------
generate, store, treat, use, dispose of, discharge, release, manufacture,
refine, emit, abate, remove, transport or conduct any other activity with
respect to, on, in or around the Premises (collectively, "handle"), any
Hazardous Materials except in accordance with any and all applicable
Environmental Laws.
(k) Environmental Audits. Upon Landlord's request prior to the exercise of
--------------------
any option to renew for a extended Term and prior to Tenant's vacation of the
Premises, Tenant shall undertake and submit to Landlord an environmental audit
from an environmental company reasonably acceptable to Landlord, which audit
shall be conducted in accordance with standards reasonably imposed by Landlord,
and shall otherwise evidence Tenant's compliance with this Article 27. If such
audit reveals that Tenant is handling Hazardous Materials in violation of any
Environmental Laws, such environmental audits shall be at Tenant's sole cost and
expense. In all other instances, Landlord shall pay the cost and expense of
such requested environmental audits.
28. FORCE MAJEURE.
(a) Landlord's Force Majeure. If the construction and installation of
------------------------
Landlord's Work or the construction of any Expansion Premises or the performance
of any repair or restoration work or other obligations (other than payment of
money), is delayed due to inclement weather, national strikes, material
shortages resulting from fire or other casualty incurred by Landlord's material
suppliers where reasonable substitutes are not available, casualties, delays
from governmental regulations, inspections or controls beyond those customary or
foreseeable as of the date of this Lease, delays proximately caused by Tenant's
failure to approve plans and specifications within the time periods set forth in
the Work Letter, or other causes beyond Landlord's reasonable control
(collectively and alternatively a "Force Majeure Condition"), and if Landlord
notifies Tenant in writing within five (5) working days after Landlord knows (or
reasonably should have known) of the occurrence of a Force Majeure Condition
which will delay Landlord's performance of Landlord's Work, then the deadlines
specified in this Lease for the construction of Landlord's Work shall be
extended for a period of time reasonably attributable to the occurrence of such
Force Majeure Condition. If Landlord and Tenant are unable to agree upon the
period of time that the Force Majeure Condition shall extend any deadlines
related to the performance of Landlord's Work, such dispute shall be settled by
a single architect selected by Tenant from the attached Exhibit "H." To the
extent local law requires the adoption of any rules as a condition to
enforcement of the arbitration resulting from architect's determination of any
matter subject to the provisions of this Section, the architect shall conduct
any arbitration in accordance with the commercial arbitration rules (but not the
jurisdiction) of the American Arbitration Association. The architect's decision
shall be final and judgment on the architect's decision may be entered in
accordance with applicable law in any court having jurisdiction over the matter.
The parties agree to equally share the cost of the architect's fees in resolving
the dispute that is the subject matter of this Section 28(a).
(b) Tenant's Force Majeure. If the performance of any obligation required
----------------------
to be performed by Tenant under this Lease (other than the payment of money) is
delayed as a result of the occurrence of inclement weather, strikes, material
shortages, casualties, or other causes beyond Tenant's reasonable control
(collectively and alternatively a "Tenant Force Majeure Condition"), then the
deadline for the performance of such non-monetary obligations shall be extended
for a period of time reasonably attributable to the occurrence of such Tenant
Force Majeure Condition. If Landlord has served Tenant with any written notice
that Tenant is in default in its obligations under this Lease (other than the
payment of money), Tenant shall be able to claim the benefit of any Tenant Force
Majeure Condition with respect to the determination of the timeliness of
Tenant's cure of such default if and only if Tenant notifies Landlord in writing
within five (5) working days after Tenant knows (or reasonably should have
known) of the occurrence of a Tenant Force Majeure Condition which will delay
Tenant's cure of such default. If Landlord and Tenant are unable to agree upon
the period of time that the Tenant Force Majeure Condition shall extend any
deadlines related to the performance of non-monetary obligations under this
Lease or the curing of any defaults hereunder, such dispute shall be settled by
a single architect selected by Tenant under Section 28.(a) above.
19
<PAGE>
29. ENTIRE AGREEMENT, MODIFICATION AND WAIVER. This Lease constitutes the
complete agreement of Landlord and Tenant with respect to the subject matter
hereof and expressly supersedes those certain indemnity agreements from Tenant
to Landlord dated February 13, 1997 and February 26, 1997 (the "Indemnity
Letters"), which Indemnity Letters shall be of no further force or effect. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both Landlord and
Tenant. No waiver of any of the provisions hereof shall deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver. Tenant and Landlord further
agree that forbearance or waiver by Landlord or Tenant to enforce its rights
pursuant to this Lease or at law or in equity, shall not be a waiver of such
party's right to enforce one or more of its rights in connection with any
subsequent default. Any law, usage, or custom to the contrary notwithstanding,
Landlord and Tenant shall have the right at all times to enforce the provisions
of this Lease in strict accordance with the terms hereof and the failure by
either Landlord or Tenant at any time to enforce its rights under this Lease
strictly in accordance with same shall not be construed as having created a
custom in any way or manner contrary to the specific terms, provisions, and
covenants of this Lease or as having modified the same.
30. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.
31. BROKERS. Landlord has been advised that Cushman & Wakefield and/or
Carolina Commercial (collectively and alternatively "Cushman") may claim that
they have been engaged to represent Tenant in connection with the provision of
real estate brokerage and/or related services in connection with the Premises
and/or the execution of this Lease. Landlord understands that Tenant denies
that Cushman represents Tenant or has any contractual or other rights to payment
in connection with this Lease or Tenant's leasehold interest in the Premises.
Landlord represents and warrants that it has dealt with no broker, agent or
other person in connection with this transaction other than as set forth in the
Basic Lease Terms and that no broker, agent or other person brought about this
transaction, other than the broker, if any, set forth in the Basic Lease Terms.
Landlord hereby assumes all responsibility for any commissions or other
liabilities payable to any broker, agent, finder or other person and agree to
indemnify, defend (with attorneys reasonably acceptable to Tenant) and hold
Tenant harmless from and against any claims, demands, liabilities (including,
without limitation, attorneys' fees and costs), judgments, actions, causes of
action, damages, or demands by any broker, agent, finder or other person in
connection with the execution of this Lease.
32. SALE OF PREMISES. The original Landlord shall not sell, convey, or
otherwise transfer the Premises to any affiliated or unaffiliated entity without
Tenant's prior written consent and approval; provided, however that Tenant's
prior written consent shall not be required for any sale, conveyance or transfer
of the Premises to any entity set forth in the attached Exhibit "E", to any
entity controlled by or affiliated with such entity, or any other entity whose
principal has substantially the same net worth as the entities listed in Exhibit
"E" (a "Pre-Approved Transfer") and this sentence shall not be binding on any
successor Landlord. If Tenant's consent for any sale, conveyance or transfer is
required hereunder, Tenant's consent shall not be unreasonably withheld.
Regardless of whether the transfer is a Pre-Approved Transfer or a transfer
requiring Tenant's prior written consent, no such transfer shall be effective
unless Landlord obtains and delivers to Tenant an original, fully-executed
counterpart of a written instrument wherein such transferee expressly agrees for
the benefit of Tenant to assume all of Landlord's obligations under this Lease.
If and only if Landlord obtains and delivers to Tenant an original, fully-
executed counterpart of a written instrument wherein such transferee expressly
agrees for the benefit of Tenant to assume all of Landlord's obligations under
this Lease, Landlord shall be relieved of all obligations thereafter accruing
under this Lease.
33. LIMITATION ON LIABILITY. Landlord's liability under this Lease shall
be limited to its interest in the Premises, the rents, issues, profits
therefrom, any deposit, checking or other accounts in which the rents, issues
and profits may be deposited, any insurance and/or condemnation proceeds, and
any other proceeds of the foregoing; provided, however that if Landlord sells,
conveys or otherwise transfers the fee title to the Premises, and if the
transferee fails to assume all of Landlord's obligations in writing for the
express benefit of Tenant, then Landlord's liability to Tenant shall not be
limited by the provisions of this Section.
34. MISCELLANEOUS.
(a) Any payments or charges due from Tenant to Landlord hereunder shall be
considered rent for all purposes of this Lease.
(b) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.
(c) All notices required or permitted to be given under this Lease shall
be in writing and shall be sent by registered or certified mail, return receipt
requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below.
Either party may by notice
20
<PAGE>
given aforesaid change its address for all subsequent notices. Except where
otherwise expressly provided to the contrary, notice shall be deemed given upon
receipt.
(d) Except as otherwise expressly provided in this Lease or as otherwise
required by law, if a party's consent or approval to any act or request by the
other party is required by this Lease, such party's consent will not be
unreasonably withheld or delayed.
(e) At Landlord's request (no more than once per year) Tenant shall
furnish Landlord with true and complete copies of its most recent published
public annual and quarterly financial statements, and of its public annual
financial statements for each of its two (2) preceding fiscal years prepared by
Tenant or Tenant's accountants; provided, however, that if Tenant is not a
publicly held company, Tenant shall deliver a balance sheet, income statement
and profit and loss statement to Landlord for Tenant's current fiscal year-end
each of its two (2) preceding fiscal years which reports and statements shall be
audited (if Tenant has audited financial statements) or shall be certified by
Tenant's chief financial officer to have been prepared in accordance with
generally accepted accounting principles.
(f) Prior to the Commencement Date, Landlord will prepare and file a
memorandum of lease in a form and content approved by Tenant.
(g) The normal rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Lease or any exhibits or amendments hereto.
(h) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.
(i) Construction and interpretation of this Lease shall be governed by the
laws of the state in which the Premises are located, excluding any principles of
conflicts of laws.
(j) Time is of the essence as to the performance of the parties'
obligations under this Lease. In the event the scheduled date for the
performance of any duty or obligation required to be performed by either
Landlord or Tenant under this Lease or in the event the scheduled date for the
exercise of any right or option contained therein shall fall on a Saturday,
Sunday, or legal holiday, such performance or exercise by Tenant shall be timely
if given or exercised on the next following business day.
(k) All exhibits and addenda attached hereto are hereby incorporated into
this Lease and made a part hereof. In the event of any conflict between such
exhibits or addenda and the terms of this Lease, such exhibits or addenda shall
control.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
<TABLE>
<CAPTION>
TENANT: LANDLORD:
<S> <C>
WEST MARINE, INC. W/H NO. 31, L.L.C., a South Carolina limited
liability company
By: _________________
Its:_________________ By: ____________________
Title:__________________
Address:
By:__________________
Its:_________________ c/o Walsh, Higgins & Company
101 E. Erie, Suite 800
Address: Chicago, IL 60611
Attn: Gerald A. Pientka and Donald J. Johnson
West Marine, Inc.
500 Westridge Drive CONTRACTOR:
Watsonville, CA 95076
Attn: Real Estate WALSH, HIGGINS & COMPANY
By:_____________________
Its:____________________
Address:
101 E. Erie, Suite 800
Chicago, IL 60611
Attn: Gerald A. Pientka and Donald J. Johnson
</TABLE>
21
<PAGE>
EXHIBIT "B"
WORK LETTER
-----------
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO CHAPTER 48 OF TITLE 15 OF
------------------------------------------------------------------------------
THE SOUTH CAROLINA CODE OF LAWS
-------------------------------
In connection with the building, site improvements and other alterations
and additions to be constructed by Landlord as part of Landlord's Work, the
parties hereby agree as follows:
1. Scope of Work. For the purpose of this Lease, "Landlord's Work" shall mean
-------------
the construction (at Landlord's sole cost and expense) of (i) a building shell,
interior improvements and finishes, and site improvements for a warehouse
facility and two story office area satisfying the requirements of the attached
Exhibit "1" as subsequently incorporated into the Final Plans and Specifications
(as hereinafter defined) and (ii) the Access Road and Site Improvements (as
defined in the Lease) connecting Fire Tower Road and State Highway 21, which
Access Road and Site Improvements shall be constructed in accordance with
applicable governmental standards and shall be located as approximately shown on
the Site Plan attached hereto as Exhibit "4."
Landlord shall have the right (but not the obligation) to commence all or
any portion of Landlord's Work before Tenant reviews and approves the
Improvement Plans and Specifications; provided, however, that such commencement
by Landlord shall not restrict or prejudice any of Tenant 's rights under this
Work Letter with respect to any non-compliance with such work relative to the
specifications contained in Exhibit "1." Subject to the provisions of this Work
Letter, any Change Orders resulting in Time Changes, and any Force Majeure
Conditions, Landlord shall construct Landlord's Work in accordance with the
schedule attached hereto as Exhibit "2." Subject to any Change Orders resulting
in Time Changes and any Force Majeure Conditions, Landlord and Contractor agree
to use commercially reasonable best efforts to substantially complete the
construction of the roof, floor, fire sprinkler, and interior lighting over each
quartile of the Original Premises to the standards and on the time table set
forth in the attached Exhibit "3".
Following the substantial completion of the construction of the roof,
floor, fire sprinkler, and interior lighting in each quartile of the Original
Premises, Tenant shall have the right to enter into such quartile and commence
the installation of its racking, equipment, conveyors, and trade fixtures, which
early entry shall be subject to the provisions of Section 3 of the Lease.
Subject to the provisions of this Work Letter, any Change Orders resulting
in Time Changes, and any Force Majeure Conditions, Landlord and Contractor shall
substantially complete the construction of Landlord's Work in accordance with
the Final Plans and Specifications (except for those items set forth in the
attached Exhibit "6") and shall obtain a temporary certificate of occupancy or
such other written governmental certification or approval as may be required to
allow Tenant to lawfully commence storing merchandise and inventory in the
Original Premises (a "Temporary Certificate of Occupancy") and install all locks
and other security devices required to fully secure and lock by December 6,
1997. Following the substantial completion of the construction of Landlord's
Work in accordance with the Final Plans and Specifications (except for those
items set forth in the attached Exhibit "6") and the acquisition of a written
Temporary Certificate of Occupancy, Tenant shall be entitled to commence storing
inventory and merchandise in the Original Premises and using same for any use
permitted in connection with a Temporary Certificate of Occupancy.
Subject to the provisions of this Work Letter, any Change Orders resulting
in Time Changes, and any Force Majeure Conditions, Landlord and Contractor shall
substantially complete the construction of Landlord's Work in accordance with
the Final Plans and Specifications, shall obtain a written Certificate of
Occupancy (as defined in the Basic Lease Terms of the Lease) with respect to the
Original Building and the Original Premises, and (if that portion of the Access
Road and Site Improvements required to provide truck access to the "project
east" side of the Original Premises from Fire Tower Road is not substantially
completed) shall substantially complete a temporary access to the "project east"
side of the Original Premises in compliance with the specifications attached
hereto as Exhibit "5", which temporary access road shall be sufficient in design
and construction to endure regular and routine use by trucks and trailers
carrying commercial loads of inventory to the rear of the Original Premises by
December 31, 1997. If Landlord constructs temporary access to the "project
east" side of the Original Premises, then Landlord shall remove all improvements
constructed by Landlord to provide such temporary access and shall construct and
install the parking, sidewalk and related on-site improvements shown on the
Final Plans and Specifications for the affected area upon completion of the
Access Road and Site Improvements.
Subject to the provisions of this Work Letter, any Change Orders resulting
in Time Changes, and any Force Majeure Conditions, if Landlord and Contractor
fail to substantially complete the construction of Landlord's Work in accordance
with the Final Plans and Specifications (except for those items set forth in the
attached Exhibit "6") and obtain a written Temporary Certificate of Occupancy
for the Original Premises by December 6, 1997, Landlord and/or Contractor shall
pay Tenant Two Thousand Five Hundred dollars ($2,500.00) per day for each day of
delay from and after such date until such work is completed and delivered.
Subject to the provisions of this Work Letter, any Change Orders resulting
in Time Changes, and any Force Majeure Conditions, if Landlord and Contractor
fail to substantially complete the construction of Landlord's Work in accordance
with the Final Plans and Specifications, obtain a written Certificate of
Occupancy, and (if that portion of the Access Road and Site Improvements
required to provide truck access to the "project east" side
1
<PAGE>
of the Original Premises from Fire Tower Road is not substantially completed)
substantially complete temporary access to the "project east" side of the
Original Premises as prescribed above by December 31, 1997, Landlord and/or
Contractor shall pay Tenant Five Thousand dollars ($5,000.00) per day for each
day of delay from and after such date until such work is completed and
delivered.
Subject to the provisions of this Work Letter, any Change Orders resulting
in Time Changes, and any Force Majeure Conditions, if Landlord and Contractor
fail to substantially complete the construction of Landlord's Work in accordance
with the Final Plans and Specifications, obtain a written Certificate of
Occupancy, and (if that portion of the Access Road and Site Improvements
required to provide truck access to the "project east" side of the Original
Premises from Fire Tower Road is not substantially completed) substantially
complete temporary access to the "project east" side of the Original Premises as
prescribed above by January 30, 1998, Landlord and/or Contractor shall pay
Tenant Ten Thousand dollars ($10,000.00) per day for each day of delay from and
after such date until such work is completed and delivered.
Notwithstanding the foregoing, in no event shall the total delay damages
under this Work Letter exceed Four Hundred Fifty Thousand Dollars ($450,000).
All delay damages due from Landlord and/or Contractor to Tenant hereunder shall
be due and payable within thirty (30) days after Tenant's service (from time to
time) of an invoice on Landlord setting forth the amount delay damages for the
period described in such invoice.
If the construction and installation of Landlord's Work is delayed due to
the occurrence of any Force Majeure Conditions (as defined in the Lease), the
schedule for Landlord's Work shall be delayed in accordance with the provisions
of Section 28 of the Lease and any disputes regarding such Force Majeure delays
shall be resolved in the manner prescribed by Section 28 of the Lease.
2. Improvement Plans and Specifications. Within the time period
------------------------------------
specified in the Schedule attached as Exhibit "2", Landlord and/or Contractor
shall prepare working architectural and engineering plans and specifications for
Landlord's Work (the "Improvement Plans and Specifications") satisfying the
requirements of Exhibit "1", as modified to reflect any Change Orders mutually
approved by Contractor/Landlord and Tenant.
Upon completion, Landlord and/or Contractor shall deliver a set of the
Improvement Plans and Specifications to Tenant and Tenant shall have ten (10)
working days after the receipt of the Improvement Plans and Specifications to
review and approve such drawings or to deliver to Landlord and/or Contractor a
detailed statement of objections thereto. If Tenant reasonably disapproves the
Improvement Plans and Specifications, Landlord and/or Contractor shall revise
such plans to remedy such reasonable objections within ten (10) working days
after receipt by Landlord and/or contractor of such disapproval and shall again
submit the Improvement Plans and Specifications to Tenant for approval. This
procedure shall be repeated until the Improvement Plans and Specifications are
approved by both Landlord and/or Contractor and Tenant. If a dispute arises
whether Landlord or Tenant are acting unreasonably with respect to any review
and approval of the Improvement Plans and Specifications, such dispute shall be
settled by an architect in the manner prescribed by Section 28 of the Lease.
Landlord and/or Contractor and Tenant shall indicate their approval of the
Improvement Plans and Specifications by initialing them. Neither Tenant's
review and approval of the Improvement Plans and Specifications nor Tenant's
inspection of Landlord's Work shall (i) create any express or implied duty to
insure that the Improvement Plans and Specifications or construction of
Landlord's Work comply with the Construction Standards or (ii) waive or release
Landlord and/or Contractor from any warranties or representations contained in
this Lease or any of the covenants, terms or obligations set forth in this Work
Letter.
The Improvement Plans and Specifications, as approved by both Landlord
and/or Contractor and Tenant, shall be collectively referred to as the "Approved
Plans and Specifications."
3. Acquisition of Permits. Landlord and/or Contractor shall obtain a
----------------------
building permit and such other governmental authorizations as may be necessary
or required for the construction and installation of Landlord's Work. The
Approved Plans and Specifications, as amended and modified to obtain
governmental authorization, shall be referred to as the "Final Plans and
Specifications."
4. Change Requests. No revisions to the approved Final Plans and
---------------
Specifications shall be made by either Landlord and/or Contractor or Tenant
unless approved in writing by both parties. The parties agree to make all
nonmaterial changes required by any public agency to conform with governmental
regulations. Tenant shall have the right (subject to Landlord's approval, which
shall not be unreasonably withheld or delayed) to request changes in Landlord's
Work beyond the scope of work generally described in the attached Exhibit "1"
("Change Orders"). All such Change Order requests shall comply with applicable
laws. Upon receipt of a Change Order, Landlord and/or Contractor and Tenant
shall meet to agree upon the cost of any additions to Landlord's Work ("Additive
Change Orders") or deductions from Landlord's Work ("Deductive Change Orders")
and the adjustment if any in the delivery time tables set forth in this Work
Letter or the Lease ("Time Changes"). Landlord and Contractor agree to use
their best efforts to obtain the lowest possible price on any Additive Change
Order and to obtain the greatest value on any Deductive Change Orders. If
Landlord/Contractor and Tenant are unable to agree on the amount of any Time
Changes, such dispute shall be settled by an architect in the manner prescribed
by Section 28 of the Lease.
The difference between the sum of all Additive Change Orders and all
Deductive Change Orders shall be refereed to the "Net Change Order." For all
Change Orders approved by Tenant before December 1, 1997, Landlord grants Tenant
the right to make up to Seven Hundred Thousand Dollars ($700,000) (the "Change
Order Fund") of Net Change Orders and to incorporate (at Tenant's option) all or
a portion of such Change Order Fund into an increase in the Base Rent in
accordance with this Section. If the amount of the Net Change Order
2
<PAGE>
exceeds Seven Hundred Thousand Dollars ($700,000), Tenant shall pay the excess
to Landlord in cash. If the Net Change Order incurred and spent by Tenant by
December 1, 1997 is less than or equal to Seven Hundred Thousand Dollars
($700,000), then Tenant shall have the right to incorporate all or a portion of
such amount by increasing the initial Annual Base Rent over the initial ten (10)
years of the Term in an amount equal to ten percent (10%) of such Net Change
Order or paying all or a portion of such amount in cash. Any amounts payable by
Tenant to Landlord shall be due thirty days after the Rent Commencement Date. If
the Net Change Order is less than zero, Landlord shall pay such amount to Tenant
in cash. Tenant shall elect in writing what portion of the Net Change Order
Tenant elects to convert into an increase in Base Rent by December 1, 1997.
From and after December 31, 1997, the Net Change Orders approved by Tenant
not incorporated as a change in the Base Rent will be either be paid in cash by
Tenant to Landlord or paid in cash by Landlord to Tenant (as the case may be)
within thirty (30) days after the Rent Commencement Date.
5. Construction of Landlord's Work. Landlord and/or Contractor shall
-------------------------------
construct Landlord's Work in conformance with the Final Plans and
Specifications, in a good and workmanlike manner, and in compliance with all
applicable and required permits and authorizations (collectively referred to as
the "Construction Standards").
Tenant shall be entitled, at all times during the construction and
installation of Landlord's Work, to enter the Original Premises and inspect the
construction and installation of Landlord's Work to insure that Landlord's Work
is being constructed in accordance with the Construction Standards. Any entry
by Tenant shall not unreasonably interfere with the conduct of Landlord's Work
and Tenant shall indemnify and hold Landlord harmless from all damage resulting
from such entry. If, at anytime during the construction and installation of
Landlord's Work, Tenant gives Landlord and/or Contractor written notice that
such construction and installation is not in conformance with the Construction
Standards, then Landlord and/or Contractor shall immediately cure such non-
compliance; provided, however, that if a compliance dispute exists between
Landlord and/or Contractor and Tenant, such dispute shall be resolved in the
manner prescribed by Section 28 of the Lease.
6. Payment of Improvement Cost. Landlord grants Tenant an allowance of
---------------------------
Seventy-Five Thousand dollars ($75,000.00) for installing landscaping at the
Original Premises and an allowance of Fifteen Thousand Dollars ($15,000.00) for
installing signs at the Original Premises. If the cost of any landscaping
installed on the Original Premises as part of the initial Landlord's Work exceed
Seventy-Five Thousand Dollars ($75,000) or if the cost of all signage installed
on the Original Premises as part of the initial Landlord's Work exceeds Fifteen
Thousand Dollars ($15,000), such excess shall be a change order. Subject to
Tenant's duty to reimburse Landlord for the positive amount of any Net Change
Order (either in cash or in the form of increased Base Rent), Landlord shall pay
all costs (including, without limitation, permit, inspection and
impact/mitigation fees, general contractor's fees and material costs) associated
with the design or construction of Landlord's Work.
7. Acceptance. Following the substantial completion of the construction
----------
of Landlord's Work in accordance with the Final Plans and Specifications and the
issuance of a Certificate of Occupancy, Tenant shall have thirty (30) days to
inspect Landlord's Work and identify any deficiencies in the finishes readily
observable by reasonable visual inspection (the "Punchlist Items"). Any
deficiencies so identified by Tenant as Punchlist Items will be promptly
repaired and corrected by Landlord and/or Contractor. Upon the correction of
all deficiencies identified as Punchlist Items, and subject to the provisions of
section 8, Tenant shall be responsible for repairing and maintaining the
Premises in accordance with the Lease. In the event of any dispute between
Landlord and Tenant regarding any Punchlist Items, such dispute shall be
resolved in the manner prescribed by Section 28 of the Lease.
8. Warranties. Landlord and Contractor warrant Landlord's Work for one
----------
year after the Rent Commencement Date against all design and construction
defects (including both labor and materials). In addition to the foregoing,
Landlord and Contractor agree to enforce for Tenant's benefit any warranties
obtained by Landlord and/or Contractor in connection with the construction of
any Landlord's Work for the one (1) year period following the Rent Commencement
Date. Tenant's acceptance of the Premises and the Landlord's Work, however,
shall not constitute an acceptance of any latent or other defects in same that
are not readily observable by reasonable visual inspection nor constitute a
release or waiver by Tenant of its rights under the warranty contained in this
section 8.
3
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter as
of the day and year recited in the Lease attached hereto.
LANDLORD TENANT
- -------- ------
W/H NO. 31, L.L.C., a South Carolina limited WEST MARINE, INC.
- --------------------------------------------
liability company
- ----------------- By: ____________________
Its:____________________
By:_____________________
Its:____________________
By:_____________________
Its:____________________
CONTRACTOR
- ----------
WALSH, HIGGINS & COMPANY
By:_____________________
Its:____________________
4
<PAGE>
EXHIBIT "C"
RECORDING REQUESTED BY AND WHEN
RECORDED RETURN TO:
- ----------------------------------
SUBORDINATION, RECOGNITION, ATTORNMENT
AND NON-DISTURBANCE AGREEMENT
This Subordination, Recognition, Attornment and Non-Disturbance Agreement
(the "Agreement") is made and entered into between and among ~1 (the "Lender"),
~2 (the "Borrower"), and WEST MARINE, INC. (the "Tenant").
RECITALS
This Agreement is made with reference to the following:
A. Borrower and Tenant entered into a lease ("Lease") dated _____, 19__ (as
amended) wherein Borrower is named as landlord and Tenant is named as tenant.
In accordance with the Lease, Borrower leased to Tenant certain premises (the
"Premises") contained in the real property (the "Property"), which Property is
commonly known as ________ and is more fully described in the attached Exhibit
A.
B. Borrower is or will be indebted to Lender in connection with a loan (the
"Loan"). The Loan is evidenced by (among other things) a deed of trust,
mortgage, or other encumbrance (the " Mortgage") encumbering (among other
things) the Property. The Mortgage was recorded on _______________, 19____ as
instrument number ____________ in Book/reel number ________, page/image
number__________ of the official records of
_________________________________________________________. The Mortgage and
the other documents evidencing the Loan shall be collectively and alternately
referred to as the "Loan Documents."
C. Tenant is willing to subordinate the Lease and Tenant's rights thereunder
to the lien of the Mortgage and Lender's rights thereunder if Lender enters
into this Agreement with Tenant.
AGREEMENT
NOW, THEREFORE, in consideration of the terms and conditions contained
within this Agreement and for other good and valuable consideration (the receipt
and sufficiency of which is hereby acknowledged), Lender, Borrower, and Tenant
hereby agree and declare as follows:
1. Priority of Mortgage. Subject to the covenants, terms and conditions of
---------------------
this Agreement, the Lease shall be subordinate and subject to the Mortgage
insofar as it affects the Property, and to all renewals, modifications,
consolidations, replacements and extensions thereof in favor of Lender and
Lender's assignees; provided, however, that the subordination shall be subject
to the condition that so long as the Tenant is not in default (i.e., with all
applicable cure periods having expired for the correction of said default) in
the performance of any of the terms of the Lease, Tenant's possession and quiet
enjoyment of the Premises and the Property, together with all of Tenant's other
rights, privileges and powers under the Lease, shall not be diminished or
interfered with in any way by Lender or anyone claiming an interest in the
Property.
2. Recognition of Lease. Notwithstanding the senior and superior status of
--------------------
Mortgage, Lender agrees to recognize the Lease and Tenant's possessory interest
in the Premises thereunder in the event of any foreclosure of the Mortgage, to
not seek any money judgment from Tenant in any foreclosure action or similar
proceeding relating to the Mortgage (unless Tenant is in breach of this
Agreement), and to not disturb tenant's possessory rights in the Premises so
long as Tenant pays the rent and performs the obligations specified in the
Lease.
1
<PAGE>
3. Assumption of Lease. If Lender forecloses on the Mortgage by judicial
-------------------
foreclosure, private trustee's sale pursuant to any power of sale contained in
the Mortgage, or by any deed in lieu of foreclosure (a "Foreclosure"), Lender
agrees to perform and undertake all obligations of Borrower (as landlord) under
the Lease during the period that Lender is the owner of fee title to the
Property, and to obtain a written assumption of Borrower's duties (as landlord)
under the Lease by any successor of Lender (a "Successor") following such
Foreclosure; provided, however, the Lender shall not be:
(a) liable for any act or omission of any prior landlord (including
Borrower), except for an act or omission for which Lender shall have been given
notice and opportunity to cure under Section 7 of this Agreement. In addition,
the parties specifically agree that Lender shall not be obligated after
succeeding to Borrower's interest under the Lease to perform any duty or
obligation or assume any liability relating to the construction and completion
or expansion of the Premises under the Lease; or
(b) subject to any setoffs or defenses which the Tenant might have
against any prior landlord (including Borrower), except for setoffs or defenses
which arose out of a default by a prior landlord (including Borrower) under the
terms and provisions of the Lease and for which default Lender shall have been
given notice and opportunity to cure under Section 7 of this Agreement; or
(c) bound by any base rent which the Tenant might have paid for more
than the current month to the Borrower or any additional rent which Tenant might
have paid in advance beyond the amounts authorized or required by the Lease; or
(d) bound by any amendment or modification of the Lease made without
its consent, it being specifically agreed that Lender hereby affirms its consent
to the Lease and all of the terms and provisions contained therein.
Tenant acknowledges and agrees that Lender has not assumed and does not
have any obligation or liability under or pursuant to the Lease by reason of the
Mortgage and that Lender will at no time have assumed or otherwise have any such
obligation or liability until such time as Lender acquires title to the
Premises. If Lender obtains a written assumption of all of Borrower's duties
and obligations (as landlord) under the Lease by a Successor, Lender shall
automatically be relieved of all liabilities arising under the Lease from and
after the date of such assumption.
4. Consent To Mortgage and Attornment By Tenant. Tenant hereby consents to
--------------------------------------------
the subordination of the Lease to the Mortgage in accordance with the terms of
this Agreement. Tenant agrees that upon any Foreclosure Tenant shall attorn to
and recognize the Successor and their respective successors and assigns as
Borrower under the Lease.
5. Representations and Warranties by Tenant. On the date of this Agreement,
----------------------------------------
Tenant hereby represents and warrants to Lender as follows:
5.1 Tenant is the owner of all right, title, and interest in and to the
tenant's interest under the Lease and has not assigned, conveyed or otherwise
transferred such right, title or interest prior to the date of the full
execution of this Agreement.
5.2 To Tenant's knowledge, no events of default exist and are outstanding
by Borrower (as landlord) under the Lease, and no events have occurred and are
continuing that, with the passage of time, the giving of notice, or both, would
constitute events to default under the Lease.
5.3 To Tenant's knowledge, no events of default exist and are outstanding
by Tenant under the Lease, and no events have occurred and are continuing that,
with the passage of time, the giving of notice, or both, would constitute events
to default under the Lease.
For the purpose of this Agreement, "Tenant's knowledge", "knowledge of the
undersigned" or words of similar meaning or import shall mean and be limited to
the actual knowledge of the individual(s) signing this Agreement on behalf of
Tenant (without imputation of any knowledge from any of Tenant's other
employees, agents, contractors, or attorneys and without any investigation or
inquiry). At least one of the individuals signing this Agreement on
2
<PAGE>
behalf of Tenant is and shall be the individual in charge of the administration
of Tenant's real estate operations and is the person that Tenant's employees are
required (in the ordinary course of Tenant's business) to advise of information
that is material and pertinent to the representations contained in this
Agreement.
6. Prohibition on Pre-Payment. During the term of the Lease, Tenant agrees
--------------------------
not to pay any installment of monthly base rent more than one (1) month in
advance and to not pay any installment of real estate taxes, insurance, common
area maintenance charges, or other operating expenses specified under the Lease
more frequently than as specified or authorized by the Lease.
7. Notice To and Performance by Lender. If Borrower fails to cure a default
-----------------------------------
under the Lease within the applicable cure period thereunder, Tenant shall give
written notice to Lender specifying the default, specifying that Borrower has
failed to cure the default within the applicable cure period, and specifying the
steps necessary to cure such default and Lender shall have the right (but not
the obligation to cure such default). Lender shall have thirty (30) days after
receipt of such notice to cure such default or to cause it to be cured, if
Lender elects to do so, and Tenant will not terminate the Lease or exercise any
other remedy thereunder with respect to such default if Lender cures such
default within such thirty (30) day period; provided, however, that if the
nature of such default is such that it will reasonably require more than thirty
(30) days to cure, Tenant will not terminate the Lease or exercise any other
remedy thereunder with respect to such default if Lender commences the physical
on-site performance of any acts required to cure such default within such thirty
(30) day period and thereafter diligently and continuously prosecutes such cure
to completion.
8. Payments to Lender. If Tenant is directed to pay rentals directly to such
------------------
Lender, its designated agent, or any court appointed receiver, Borrower agrees
that Tenant may make such payments as directed by Lender and may rely upon the
written notice received from Lender without further investigation into the
propriety of the Lender's notice or the existence of any defaults by Borrower in
its obligations to the Lender under the Mortgage. Borrower agrees that any
payments by Tenant in accordance with the direction contained in any notice
received from the Lender shall not constitute an event of default under the
Lease.
9. Lender hereby agrees that if Tenant is not in default beyond any applicable
cure period, any insurance proceeds, payable under those policies of insurance
maintained pursuant to the Lease and arising by reason of destruction or damage
of the Premises and the Property, and any condemnation awards secured by Lender
as a result of the condemnation of all or any part of the Premises and/or the
Property shall be used for restoration and repair pursuant to the Lease.
10. Notices. Notices shall be served on Lender, Borrower and Tenant in the
-------
same manner as specified in the Lease and such notice shall be deemed effective
on the date determined by reference to the procedure specified in the Lease. If
no method of service is specified by the Lease and/or no effective date for such
service is specified by the Lease, then all notices, requests, demands and other
communications required hereby shall be in writing and shall be deemed to have
been duly given (i) on the date of the service, if served personally on the
party to whom notice is to be given, or (ii) on the date of receipt or the date
indicated on the return receipt as the first day upon which delivery was
attempted, if served by mail. Any service by mail shall be effected by mailing
such notice by first class mail, registered or certified, and return receipt
requested, postage pre-paid and properly addressed to the party at its address
set forth below, or any other address that any party may designate by written
notice to the other party in accordance herewith.
Lender Borrower Tenant
~1 ~2 WEST MARINE, INC.
500 Westridge Drive
Watsonville, CA 95076
Attn: Real Estate
In the event that the scheduled date for the performance of any act
required hereunder shall fall on a Saturday, Sunday, or legal holiday, such
performance shall be timely if performed on the next business day.
3
<PAGE>
11. Lender and Tenant agree to execute and deliver to the other party within
fifteen (15) working days after receipt of request therefor from the other party
or a Successor (i) a written agreement confirming Tenant's obligation to attorn
to Lender or to such Successor in accordance with the terms hereof pursuant to
which Tenant will attorn to Lender or a Successor, or (ii) subject to the
limitations contained in this Agreement, a written agreement confirming Lender's
assumption of Borrower's obligations under the Lease in accordance with the
terms hereof, or (iii) a written confirmation to Lender or any Successor as to
such information as Lender or such Successor may reasonably require regarding
the status of the Lease and the parties thereto, or (iv) a written confirmation
to Tenant (or its proposed assignee, sublessee or other successor) as to such
information as such party may reasonably require regarding the status of the
Lease and the parties thereto.
12. Tenant hereby acknowledges and agrees that the obligations of Lender or any
Successor under the Lease will not be personal obligations of Lender or of the
Successor, and recourse on those obligations may be had only against the right,
title and interest of Lender or that Successor, as the case may be, in and to
the Premises, the rents, issues, profits therefrom, any deposit, checking or
other accounts in which the rents, issue and profits may be deposited, any
insurance and/or condemnation proceeds, and any other proceeds of the foregoing.
13. BORROWER, TENANT AND LENDER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT, THE MORTGAGE OR THE LEASE, OR WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES. ACCORDINGLY, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER, TENANT AND LENDER HEREBY KNOWINGLY AND VOLUNTARILY
MUTUALLY (A) WAIVE THE RIGHT TO TRIAL BY JURY IN ANY CIVIL ACTION, CLAIM,
COUNTERCLAIM, CROSS CLAIM, THIRD-PARTY CLAIM, DISPUTE, DEMAND, SUIT OR
PROCEEDING ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE
MORTGAGE, THE LEASE, OR ANY RENEWAL, EXTENSION OR MODIFICATION THEREOF, OR ANY
CONDUCT OF ANY PARTY RELATING THERETO, AND (B) AGREE THAT ANY SUCH ACTION,
CLAIM, SUIT OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY.
14. General Provisions. Time is of the essence to the performance of the
------------------
parties and obligations under this Agreement. The parties hereby agree to
execute and deliver all such instruments and to take all such further other
actions as may be reasonably necessary or desirable in order to implement the
provisions of this Agreement or to otherwise effect the intended purposes
hereof. No supplement, modification, or amendment of this Agreement shall be
binding unless executed by all parties in writing. No waiver of any of the
provisions of this Agreement shall be binding unless signed by the party making
such waiver nor shall any waiver constitute a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver. If
any legal action, arbitration, or other proceeding is brought for the
enforcement of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding in addition to any other relief available. The
provisions of this Agreement shall run with the land and shall be binding on and
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns. The terms and provisions of this
Agreement shall be governed by the laws of the State in which the Premises are
located.
15. Authority and Execution. This Agreement may be executed in counterparts,
-----------------------
each of which (when so executed) shall be deemed an original, and all such
counterparts shall together constitute one and the same instrument. Each person
executing this Agreement on behalf of a party represents, and warrants that such
person is duly and validly authorized to do so on behalf of the entity that it
purports to so bind and that such entity has the full right and authority to
enter in this Agreement and perform all of its obligations hereunder.
4
<PAGE>
IN WITNESS WHEREOF, Lender, Borrower and Tenant agree to the foregoing as
of the date set forth above.
<TABLE>
<CAPTION>
Lender Borrower Tenant
<S> <C> <C>
~1 ~2 WEST MARINE, INC.
By:_____________________________ By:____________________________ By:_____________________________
Its:____________________________ Its:___________________________ Its:____________________________
By:_____________________________
Bonnie Tragni
Director of Real Estate
</TABLE>
5
<PAGE>
ASSIGNMENT
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO CHAPTER 48 OF TITLE 15 OF
------------------------------------------------------------------------------
THE SOUTH CAROLINA CODE OF LAWS
-------------------------------
THIS AGREEMENT (the "Agreement") is dated as of May 2, 1997 and is entered
into between WALSH, HIGGINS & COMPANY, an Illinois corporation ("Walsh, Higgins
& Company"), and WEST MARINE, INC., a Delaware corporation ("WM").
RECITALS:
---------
A. W/H NO. 31, L.L.C.,a South Carolina limited liability company ("W/H
No. 31") and WM have entered into that certain Lease of even date herewith (the
"Lease") relating to that certain building (the "Building") (as from time to
time expanded and modified) and appurtenant parking area, landscaping, easements
and related improvements (which Building and appurtenant parking area,
landscaping, easements and related improvements shall be collectively referred
to as the "Premises") to be built by Walsh, Higgins & Company and W/H No. 31.
The Building shall originally contain approximately 471,744 rentable square
feet, shall be constructed on land that contains approximately 27.2 acres, and
shall be located on or near Fire Tower Road in York County, SC;
B. Walsh, Higgins & Company is the holder of certain rights to purchase
in accordance with that certain Purchase Agreement dated February 21, 1997
between Carolina Foods, Incorporated and Walsh, Higgins & Company and that
certain ____________________ dated ________________________ between
_____________________________ and Walsh, Higgins & Company (collectively, the
"Purchase Contracts").
C. The Purchase Contracts contain (among other things) certain options to
purchase in favor of Walsh, Higgins & Company.
D. In consideration of WM's execution of the Lease, and for other
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Walsh, Higgins & Company desires and intends to assign to WM the
options to purchase contained in the Purchase Contracts.
E. Any capitalized terms not expressly defined herein shall have the
meanings assigned to them in the Lease.
AGREEMENT:
----------
NOW, THEREFORE, Walsh, Higgins & Company and WM hereby agree as follows:
1. Assignment of Option Rights.
---------------------------
a. General. Walsh, Higgins & Company hereby sells, assigns, and
-------
conveys to WM all of Walsh, Higgins & Company's right, title and interest in and
to the options to purchase contained in the Purchase Contracts. WM hereby
assumes and agrees for the benefit of Walsh, Higgins & Company to perform all
covenants, terms and obligations imposed on Walsh, Higgins & Company under the
Purchase Contracts with respect to the purchase options and (to the extent WM
elects to maintain such purchase options in full force and effect) to pay all
consideration from time to time payable to maintain such options in full force
and effect. Notwithstanding the foregoing, WM shall not have any duty or
obligation to maintain the purchase options in full force and effect and shall
have the right (in its sole and absolute discretion and without liability to
Walsh, Higgins & Company) to let such options lapse through the expiration of
time, the failure to pay money or the failure to perform any covenant or
obligation required to maintain such purchase options in full force and effect.
From and after the date of this Agreement, Walsh, Higgins & Company shall not
have any obligations with respect to the options to purchase under the Purchase
Contracts. Walsh, Higgins & Company and WM agree to indemnify, defend (with
attorneys reasonably selected by the indemnified party) and hold each other
harmless from and against all costs, damages, liabilities and expenses
(including, without limitation, attorneys' fees and costs) arising from the acts
or omissions of the parties (or their agents, contractors and/or employees) in
connection with the Purchase
1
<PAGE>
Contracts or the real properties that are the subject thereof or from any breach
or failure by such party under the Purchase Contracts.
b. Recordation. Walsh, Higgins & Company agrees to execute and use
-----------
its best efforts to cause the sellers under the Purchase Contracts to execute a
document, instrument or written memorandum (in recordable form) in a form and
content required to give constructive notice of the purchase rights created by
the options to purchase contained in the Purchase Contracts and the assignment
of same to WM in pursuant to this Agreement.
2. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating hereto, or the breach hereof, shall be settled by arbitration in
accordance with the rules and the jurisdiction of the American Arbitration
Association. Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY SOUTH CAROLINA LAW AND YOU ARE
GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT
OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE 'ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER
APPLICABLE LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE
HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT
OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO NEUTRAL
ARBITRATION.
- ------------------- ---------------------
3. Attorneys' Fees. Should either party institute any court or
---------------
arbitration action or proceedings to enforce any provision hereof or for a
declaration of such party's rights or obligations hereunder, the prevailing
party shall be entitled to receive from the losing party such amounts as the
court or the arbitrator may adjudge to be reasonable attorneys' fees for
services rendered to the party prevailing in any such action or proceedings, and
such fees shall be deemed to have accrued on the commencement of such action or
proceedings and shall be enforceable whether or not such action or proceedings
is prosecuted to judgment.
4. General. This Agreement has been executed in the State of South
-------
Carolina, and the validity, interpretation, construction and enforcement hereof
shall be governed by the laws of the State of South Carolina. Walsh, Higgins &
Company and WM agree to execute and deliver (or cause to be executed and
delivered) all such other and further documents as may be necessary or required
to implement to terms of this Agreement. This Agreement may be executed in
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts together shall constitute one in the same
instrument.
IN WITNESS WHEREOF, Walsh, Higgins & Company and WM have executed and
delivered this Agreement on the date first above written.
"Walsh, Higgins & Company" "WM"
WALSH, HIGGINS & COMPANY, an WEST MARINE, INC.,
Illinois corporation limited liability a Delaware corporation
company
By:______________________
By:_____________________ Its:_____________________
Its:____________________
By:______________________
Its:_____________________
2
<PAGE>
PROFIT PARTICIPATION AGREEMENT
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO CHAPTER 48 OF TITLE 15 OF
------------------------------------------------------------------------------
THE SOUTH CAROLINA CODE OF LAWS
-------------------------------
THIS AGREEMENT (the "Agreement") is dated as of May 2, 1997 and is entered
into between W/H NO. 31, L.L.C., South Carolina limited liability company ("W/H
No. 31"), and WEST MARINE, INC., a Delaware corporation ("WM").
RECITALS:
---------
A. W/H No. 31 and WM have entered into that certain Lease of even date
herewith (the "Lease") relating to that certain building (the "Building") (as
from time to time expanded and modified) and appurtenant parking area,
landscaping, easements and related improvements (which Building and appurtenant
parking area, landscaping, easements and related improvements shall be
collectively referred to as the "Premises") to be built by W/H No. 31. The
Building shall originally contain approximately 471,744 rentable square feet,
shall be constructed on land that contains approximately 27.2 acres, and shall
be located on or near Fire Tower Road in York County, SC;
B. In consideration of WM's execution of the Lease, W/H No. 31 and WM
agree to share the proceeds of the first sale of the Premises in accordance with
this Agreement.
C. Any capitalized terms not expressly defined herein shall have the
meanings assigned to them in the Lease.
AGREEMENT:
----------
NOW, THEREFORE, W/H No. 31 and WM hereby agree as follows:
1. PROFIT PARTICIPATION. If the Premises are sold, transferred,
exchanged or otherwise conveyed by W/H No. 31 during the term of the Lease (as
extended and renewed) to any unaffiliated partnership, limited liability
company, corporation, or other entity or successor in a bona fide, arm's length
transaction, fifty percent (50%) of the Net Sales Proceeds (as hereinafter
defined) shall be paid to WM (the "Profit Participation"). This Agreement
(including, without limitation, the preceding sentence) shall not be binding on
any arm's length, bona fide successor of W/H No. 31. Any amounts payable to WM
shall (to the extent the transfer occurs as part of an escrow conducted by some
third party) be paid directly to WM in accordance with such wiring and other
instructions as the WM may provide escrow holder. W/H No. 31 hereby irrevocably
instructs any third party escrow holder from time to time engaged to facilitate
the sale, conveyance, transfer, exchange or disposal of the Premises to pay the
Profit Participation directly to WM in the same time and manner profits (but not
legitimate punch list, remedial repair or other funds not constituting profit)
are distributed to W/H No. 31. Prior to closing any escrow, escrow holder is
irrevocably directed to forward a preliminary closing statement to WM at its
address set forth in the Lease for the service of notices (telephone number
[408] 761-4236 and facsimile number [408] 728-5926). Escrow holder is
instructed to not close escrow until the WM has received and approved by
facsimile a preliminary closing statement for any such escrow; provided,
however, that such approval shall be limited to the determination of the amount
of the Profit Participation (and any unpaid Installment Payments [as defined
below]) and the accuracy of the determination of same. WM shall not incur any
costs associated with the sale, conveyance, transfer, exchange or disposal of
the Premises, the close of escrow, or the recordation of any documents (although
such costs shall be included in the determination of the amount of the Profit
Participation, subject to the limitations contained herein).
2. DEFINITIONS. For the purpose of this Agreement, the following
definitions shall apply:
(i) Net Sales Proceeds. The term "Net Sales Proceeds" shall be equal
------------------
to the gross sales price payable in connection with such sale, conveyance or
transfer (either in all cash or cash equivalents) less (a) the Lump Sum Total
Project Costs, (b) the Total Direct Cost of any Expansion Premises (if any), (c)
the Preferred Return, (d) Landlord's Access Road Shortfall
1
<PAGE>
[subject to the limitations set forth in definition 2(vi)], (e) to the extent
actually paid by WM to W/H No. 31, and only if the amount of the Landlord's
Access Road Shortfall is less than One Hundred Thousand Dollars ($100,000.00),
the difference between (i) the Off-Site and Roadway Commitments actually paid
and received by W/H No. 31 and (ii) Nine Hundred Thirty-Five Thousand Dollars
($935,000.00) (provided, however, that such difference shall not exceed the
difference between the Landlord Access Road Shortfall and One Hundred Thousand
Dollars [$100,000.00]) (f) a disposition fee to W/H No. 31 in an amount equal to
one percent (1%) of the gross sales proceeds (the "Disposition Fee"), and (g)
all closing costs, title insurance proceeds and other amounts customarily paid
by W/H No. 31 to unaffiliated third parties (including, without limitation,
reasonable legal fees related solely to the sale transaction and actually paid
by W/H No. 31). Except for the Disposition Fee, Net Sales Proceeds shall not be
reduced by any fees or commissions paid to any brokers or finders in connection
with the sale of the Premises or the execution of the Lease.
(ii) Lump Sum Total Project Costs. The term "Lump Sum Total Project
----------------------------
Costs" shall mean the sum of Thirteen Million Nine Hundred Fifty-Five Thousand
Dollars ($13,955,000.00), plus the positive amount of any Net Change Order (as
defined in the Lease) incorporated by WM into the Base Rent in accordance with
the provisions of the Work Letter.
(iii) Direct Costs of the Expansion Premises. The term "Direct Costs
--------------------------------------
of the Expansion Premises" shall include all finance costs (including, without
limitation, construction and permanent loan commitment fees, construction period
interest, title insurance premiums, and escrow fees), architectural costs,
engineering fees, site improvement and investigations costs, brokerage fees and
commissions (except for any brokerage fees paid in connection with the Lease or
in connection with W/H No. 31's indemnity under Section 31 of the Lease), legal
fees, accounting fees, land acquisition fees (including, without limitation, any
fees or amounts paid by WM pursuant to the Expansion Contract(s) or in
connection with obtaining any rights thereunder), municipal permit and
inspection fees and exactments, amounts paid in connection with any Approved
Contracts (but excluding any general contractor's fee for profit but permitting
general conditions costs), or other third party costs of constructing the
Expansion Premises, less any credits or other contributions respecting same that
are received from third parties (including, without limitation, amounts
contributed by WM or paid by WM in cash for change orders).
(iv) Total Direct Cost of any Expansion Premises. The term "Total
-------------------------------------------
Direct Cost of any Expansion Premises" shall be equal to One Hundred and Ten
Percent (110%) of Direct Cost of the Expansion Premises.
(v) Preferred Return. The term "Preferred Return" shall mean an
----------------
amount equal to eleven percent (11%) per annum (simple) computed on all
verifiable out-of-pocket capital contributed by W/H No. 31 to the construction
of the Premises (the "Contributed Capital") from the time such amount is
actually expended by W/H No. 31 for the construction of the Premises until
repaid; provided, however, that the amount of the Contributed Capital shall not
exceed fifteen percent (15%) of the Lump Sum Total Project Costs or (if
applicable) the Direct Cost of any Expansion Premises.
(vi) Landlord's Access Road Shortfall. The term "Landlord's Access
--------------------------------
Road Shortfall" shall mean the difference between any (a) costs paid by W/H No.
31 for construction of certain roadway, water, sewer, and other off-site
improvements in connection with the construction of the Premises and (b) Nine
Hundred Thirty-Five Thousand Dollars ($935,000.00); provided that such
difference shall not exceed One Hundred Thousand Dollars ($100,000.00). If W/H
No. 31 asserts that Landlord's Access Road Shortfall is a positive number, then
WM shall have the right to inspect all records relating to the determination of
the costs paid by W/H No. 31 for construction of certain roadway, water, sewer,
and other off-site improvements in connection with the construction of the
Premises and W/H No. 31 will provide all such records and /or make same
available for inspection by WM during normal business hours.
(vii) Off-Site and Roadway Commitments. The term "Off-Site and
--------------------------------
Roadway Commitments" means all commitments, bonds, block grants or other
contract rights from the State of South Carolina Coordinating Council, the South
Carolina Community Development agency, the York Electric Cooperative, Inc., and
York County for construction of certain roadway, water, sewer, and other off-
site improvements.
2
<PAGE>
3. INTERIM PAYMENTS TO WM. If the Premises are not sold within one (1)
year after the Rent Commencement Date (as defined by the Lease), W/H No. 31
shall pay to WM on each anniversary of the Rent Commencement an amount (each an
"Installment Payment") equal to the Applicable Percentage (as set forth in the
table below) of the difference between (a) the total Base Rent paid by WM under
the Lease during the immediately preceding year and (b) the total amount
required to service any first mortgage or deed of trust encumbering the Premises
(which difference shall not be less than zero):
Anniversary Date Amount Payable by W/H No. 31 to WM
- ---------------- ----------------------------------
First Ten percent (10%)
Second Twenty percent (20%)
Third Thirty percent (30%)
Fourth Forty percent (40%)
Fifth and each anniversary date thereafter Fifty percent (50%)
until the expiration of the term
Without limiting WM's right to exercise any rights available to WM
resulting from W/H No. 31's failure to timely pay any of the foregoing
Installment Payments, any outstanding and unpaid Installment Payments shall be
payable in full not later than the closing date for any sale of the Premises and
WM may require that any unpaid Installment Payments be paid from any escrow for
the sale of the Premises as a condition to approving any closing statement
associated with same.
4. RECORDATION. W/H No. 31 agrees to execute a document, instrument or
written memorandum (in recordable form) in a form and content required to give
constructive notice of the rights created by this Agreement.
5. ARBITRATION OF DISPUTES. Any controversy or claim arising out of or
relating hereto, or the breach hereof, shall be settled by arbitration in
accordance with the rules and jurisdiction of the American Arbitration
Association. Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY SOUTH CAROLINA LAW AND YOU ARE
GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT
OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE 'ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER
APPLICABLE LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE
HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT
OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO NEUTRAL
ARBITRATION.
- ------------------ ----------------------
6. ATTORNEYS' FEES. Should either party institute any court or
arbitration action or proceedings to enforce any provision hereof or for a
declaration of such party's rights or obligations hereunder, the prevailing
party shall be entitled to receive from the losing party such amounts as the
court or the arbitrator may adjudge to be reasonable attorneys' fees for
services rendered to the party prevailing in any such action or proceedings, and
such fees shall be deemed to have accrued on the commencement of such action or
proceedings and shall be enforceable whether or not such action or proceedings
is prosecuted to judgment.
3
<PAGE>
7. ASSIGNMENT. Either party may assign this Agreement to (i) any entity
controlling, controlled by, or under common control with either W/H No. 31 or WM
(as the case may be) or (ii) any corporation or other legal entity resulting
from any merger or other reorganization of W/H No. 31 or WM (as the case may
be). Except for the foregoing, neither party shall assign or transfer any
rights or duties under this Agreement without the prior written consent of the
other.
8. GENERAL. This Agreement has been executed in the State of South
Carolina, and the validity, interpretation, construction and enforcement hereof
shall be governed by the laws of the State of South Carolina. W/H No. 31 and WM
agree to execute and deliver (or cause to be executed and delivered) all such
other and further documents as may be necessary or required to implement to
terms of this Agreement. This Agreement may be executed in counterparts, each
of which, when so executed, shall be deemed to be an original, and all such
counterparts together shall constitute one in the same instrument.
IN WITNESS WHEREOF, W/H No. 31 and WM have executed and delivered this
Agreement on the date first above written.
"W/H No. 31" "WM"
W/H NO. 31, L.L.C., South Carolina WEST MARINE, INC.,
limited liability company a Delaware corporation
By:__________________ By:____________________
Its:_________________
Its:___________________
By:____________________
Its:___________________
4
<PAGE>
EXHIBIT 11.1
WEST MARINE, INC.
STATEMENT RE: COMPUTATION OF
NET (LOSS) INCOME PER SHARE
(in thousands, except (loss) income per share amounts)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
March 29, March 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Primary
- -------------------------
Net (loss) income $(1,158) $ 332
============== ==============
Weighted average common shares outstanding 16,521 14,950
Common equivalent shares:
Stock options (1) 962
--------------- ---------------
Weighted average common and
common equivalent shares 16,521 15,912
============== ==============
Net (loss) income per common and common equivalent share ($0.07) $0.02
============== ==============
Fully diluted
- -------------------------
Net (loss) income $(1,158) $ 332
============== ==============
Weighted average shares outstanding 16,521 14,950
Common equivalent shares:
Stock options (1) 1,060
--------------- ---------------
Weighted average common and
common equivalent shares 16,521 16,010
============== ==============
Net (loss) income per common and common equivalent share ($0.07) $0.02
============== ==============
</TABLE>
(1) Earnings per share are calculated in accordance with Accounting Principles
Board Opinion No. 15, "Earnings Per Share". Under such opinion, stock
options or common equivalent shares, have been excluded from the
calculation during the first quarter of 1997 as they are anti-
dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENT DATED MARCH 29, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 1,767
<SECURITIES> 0
<RECEIVABLES> 5,185<F1>
<ALLOWANCES> 520
<INVENTORY> 148,311
<CURRENT-ASSETS> 167,029
<PP&E> 33,495<F2>
<DEPRECIATION> 18,258
<TOTAL-ASSETS> 243,065
<CURRENT-LIABILITIES> 55,035
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 126,854
<SALES> 75,025
<TOTAL-REVENUES> 75,025
<CGS> (55,290)
<TOTAL-COSTS> (55,290)
<OTHER-EXPENSES> (20,762)<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (867)
<INCOME-PRETAX> (1,894)
<INCOME-TAX> 736
<INCOME-CONTINUING> (1,158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,158)
<EPS-PRIMARY> $(.07)
<EPS-DILUTED> $(.07)
<FN>
<F1>AMOUNT REPRESENTS RECEIVABLES NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>AMOUNT REPRESENTS PP&E NET OF ACCUMULATED DEPRECIATION.
<F3>AMOUNT REPRESENTS SELLING, GENERAL AND ADMINISTRATIVE COSTS.
</FN>
</TABLE>
