<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended January 1, 2000
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Commission File No. 0-23234
FULL LINE DISTRIBUTORS, INC.
(formerly L.A. T Sportswear, Inc.)
A Georgia Corporation
(IRS Employer Identification No. 58-1724902)
1200 Airport Drive
Ball Ground, Georgia 30107
(770) 479-1877
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
Common Stock, without par value
-------------------------------
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
None
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the Common Stock of the registrant held by
nonaffiliates of the registrant (1,053,152 shares) on March 1, 2000 was
$1,514,433. For the purposes of this response, officers, directors and holders
of 5% or more of the registrant's common stock are considered the affiliates of
the registrant at that date.
The number of shares outstanding of the registrant's Common Stock, without par
value, as of March 1, 2000: 4,206,251 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in 2000 are incorporated by reference into Part III
of this Report, with the exception of information regarding executive officers
required under Item 10 of Part III, which information is included in Part I,
Item 1.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
Full Line Distributors, Inc. (the "Company"), which changed its name
from L.A. T Sportswear, Inc. on March 1, 2000, is a national distributor and
manufacturer of quality imprintable and decorable knitted sportswear. Through
its distribution operations, the Company is a national distributor of
undecorated garments for the imprinted sportswear industry, carrying a broad
product line, including basic t-shirts and sweatshirts, golf shirts, baseball
and golf caps, jackets, athletic jerseys and shorts, bags and aprons. The
Company carries the products and brands of nationally recognized manufacturers,
including Fruit of the Loom(R), Hanes(R), Jerzees(R) and Jonathan Corey(R), as
well as its own line of manufactured apparel. The Company targets the small
independent imprinter and decorator and seeks to provide that customer with a
broad product line, carried in-depth at multiple locations to ensure that the
customer's order is filled and received on a "just in time" basis. In addition,
in 1999 approximately 17% (20% in 1998 and 1997) of the Company's revenues were
sales of self-manufactured products. The Company designs and manufactures
decorable sportswear, primarily for the infant and toddler, youth, ladies and
corporate markets. The Company's manufactured products include basic t-shirts,
sweatshirts and one-piece rompers in infant and toddler wear, under the Rabbit
Skins(R) brand; cover-ups, tank tops, shorts and fashion coordinates, under the
L.A.T Sportswear(R) and L.A.T For Kids(R) brands; and golf shirts, dress
shirts and denim shirts under the Woodbridge(TM) brand.
OPERATIONS
The Company is a national distributor of decorable sportswear and
accessories. The imprinted sportswear industry is highly fragmented and
includes a wide variety of businesses such as screen printers, embroiderers,
advertising specialty companies, crafters and sporting goods and uniform
companies. The majority of the Company's distribution customers are small,
independent companies that lack the capitalization and space requirements to
warehouse their product needs, instead relying on distributors such as the
Company to supply their products. The Company believes that for these
customers, breadth of product line, immediate availability of product and
superior customer service are as important as price. For these reasons, the
Company's distribution operations are geared to breadth of product line, depth
of inventory and prompt order filling, as well as competitive pricing. The
Company carries a wide variety of specialty products from bags and aprons to
golf shirts in over 300 colors and sizes ranging from extra-small to five-extra
large.
Products
The Company's distribution philosophy is to provide its customers a
broad selection of imprintable sportswear, carried in depth in inventory, and
available to the customer within the most responsive time.
At January 1, 2000, the Company's inventory included approximately 357
styles of products from 16 garment and accessories manufacturers. This
inventory included approximately 8,175 individual items (SKUs) including all
color and size variations. The Company's primary suppliers are Fruit of the
Loom(R), Hanes(R) and Jerzees(R) (t-shirts and sweatshirts), Print-Ons(R) and
Jonathan Corey(R) (golf shirts and sports shirts), Auburn Sportswear(R)
(athletic jackets), Yupoong(R) (baseball and golf caps), Rabbit Skins(R)
(infant and toddler wear), L.A. T For Kids(R) and L.A.T Sportswear(R) (youth
and adult sportswear), and Woodbridge(TM) (corporate apparel). Product offerings
are reviewed annually in connection with the preparation of the Company's
catalog, new and expanded lines are routinely added and slow moving or
discontinued products are deleted.
<PAGE> 3
The Company generally enters into non-exclusive oral distribution
agreements with the vendors of the products it distributes which are cancelable
by either party upon notice. Management believes that the current relationship
with its vendors is satisfactory.
Distribution and Warehousing
The Company operates six distribution centers located in the
metropolitan areas of Atlanta, Cleveland, Houston, Los Angeles, Miami and St.
Louis. Each distribution center is leased and ranges from approximately 41,000
to 59,000 square feet. Each facility is supervised by a location manager and
includes a support staff of office and warehouse personnel.
A customer order entered by a customer service representative on the
centralized inventory control computer system automatically generates a picking
ticket in the warehouse. Each customer order is then hand picked, checked and
packed, and the shipment staged in the warehouse for customer pick-up or
shipment by UPS or other carrier. In the event the order-entering distribution
center is out of stock on all or any portion of a customer's order, the order
may be completed for same day shipment from any of the Company's other
distribution centers.
The Company also has an on-line real time business to business internet
site at www.FullLine.com where customers can place orders, check inventory
availability, review current and previous orders, and track UPS shipments
twenty-four hours a day, seven days a week.
Customers and Customer Service
The Company's customers are predominantly small independent
imprinters, embroiderers, advertising specialty companies, crafters and
sporting goods and uniform companies which purchase their requirements on an as
needed basis for immediate delivery. At January 1, 2000, the Company had an
active customer list of over 26,000 customers (customers who had placed an
order within the preceding year). In 1999, the largest customer accounted for
less than 2% of the Company's $94.7 million in sales and the Company's ten
largest customers accounted for less than 7% of sales. By contrast,
approximately 83% of sales were to customers who purchased less than $100,000
worth of merchandise during the year. All credit decisions are handled by the
Company's centralized credit staff at its Atlanta facility. For 1999, the
Company experienced credit losses of 0.5% of sales.
The Company has a centralized customer service department located in
Atlanta. Customer service lines are answered Monday through Friday from 8:00
a.m. to 9:00 p.m., Eastern Time. The distribution centers offer same day
shipping on all orders placed before 4:00 p.m. local time, and 24-hour shipping
on all other orders.
Customer service representatives are required to be familiar with the
entire product line and able to answer customer questions concerning the
Company's product offerings. The Company utilizes a comprehensive training
program for new customer service representatives. Each service representative
spends time training in the warehouse, pulling customer orders and learning the
product lines. Trainees are provided with a training manual which details each
style with complete line sketches of each product highlighting all features and
detailing all colors and sizes, dimensions and fabric content. The manual also
outlines telephone and order entry procedures, both computerized and manual,
and provides tests to ensure that service representatives are trained to the
Company's standards.
The Company also has an in-house and an outside sales staff to sell to
major screen printers, embroiderers, advertising-specialty and uniform
customers in the imprintable sportswear industry.
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<PAGE> 4
Marketing and Advertising
The Company primarily markets its products through its catalog, trade
shows, major trade magazines, direct mail flyers, mass facsimiles and its
in-house and outside sales force. The Company produces and distributes
approximately 320,000 catalogs annually. The advertisements and flyers are
designed to educate the customer about the Company's business by highlighting
its multiple locations, extended operating hours, excellent service and product
availability.
The Company exhibited at eight, industry trade shows in 1999. The
participation in these trade shows provides the Company with opportunities to
display its collection of imprintable apparel and solicit new customers.
Manufacturing Operations
The Company designs and manufactures its own lines of imprintable and
decorable sportswear for the infant and toddler, youth, ladies and corporate
markets for sale to mass merchants and specialty retailers and private label
garments for selected distributors, screen printers and retailers. The Company
manufactures product for market niches in the imprinted sportswear industry
where it has a competitive advantage by virtue of its ability to manufacture on
a shorter product run basis than fully integrated mills, and where innovative
product design or fabric introductions can differentiate it from its
competitors.
Under its Rabbit Skins(R) label, the Company produces a full line of
activewear for infants and toddlers, including basic t-shirts and sweatshirts,
one-piece rompers, dresses and fashion coordinates. The Company's 2000 Rabbit
Skins (R) line consists of approximately 53 styles and 745 SKUs including all
color and size variations. Rabbit Skins(R) infant and toddler wear was the first
product line developed by the Company and the Company believes it is a major
manufacturer in this category of imprintable garments.
The Company produces a line of imprintable youth garments under the
label L.A.T For Kids(R) (ages five to ten years) with product offerings such
as basic t-shirts, dresses, fashion coordinates and shorts. For 2000, the youth
line consists of approximately 12 styles and 151 SKUs including all color and
size variations.
The Company designs and manufactures a line of adult activewear under
the label L.A.T Sportswear(R). Offerings in this line consist of shorts, fashion
t-shirts and tops, and cover-ups. The adult line consists of approximately 42
styles and 367 SKUs. The L.A.T Sportswear(R) line tends to be more upscale and
fashion oriented, avoiding the commodity-type garment offerings. Although all
L.A.T Sportswear(R) garments are sold as separates, the Company makes available
many products in the line as top/bottom coordinates.
The Company also produces a line of corporate apparel under the label
Woodbridge(TM). The Woodbridge(TM) line consists of 11 styles and 251 SKUs that
includes golf shirts, dress shirts and denim shirts.
Product development and new product design are the primary
responsibility of the Company's merchandising department, with new product ideas
and proposals subject to review by the Company's marketing personnel and
executive officers at regularly scheduled meetings. The Company considers itself
an innovator in new product style development.
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<PAGE> 5
A majority of the Company's products are manufactured in three
facilities in Georgia. Management believes that the manufacturing of its
products domestically permits it to have greater control over production,
enhances the quality of the finished product and facilitates greater
responsiveness to its customers' needs. Management also believes that the
Company's ability to accommodate orders in varying quantities while controlling
production costs and maintaining consistent quality provides it with a
competitive advantage. Other products are sewn by off-shore contractors or
imported as finished garments.
Raw Materials and Supplies
The primary raw materials used in the Company's manufacturing
operations are cotton and synthetic yarns which are purchased on a contractual
basis (usually 12 months in advance) from a small number of suppliers. The
Company also contracts for the conversion of its yarn to finished fabric,
primarily through a single knitting source and two contract finishing houses.
Approximately 10% of the Company's total fabric needs is purchased from a small
number of outside sources. The Company currently utilizes limited supply
sources on the theory that the loyalty and commitment generated by the
long-standing business relationship between supplier and customer outweigh the
risk inherent in dependency on limited sources of supply. At the same time, the
Company believes that alternative sources of supply, both for raw materials and
conversion services, are readily available at competitive prices and its
reliance on limited supply sources causes no significant risk to the business.
Backlog
As of January 1, 2000 and January 2, 1999, the Company had a backlog
of orders believed to be firm of approximately $1,682,676 and $1,125,584,
respectively, for products to be delivered during the following fiscal year.
Competition
Competition in the screen print garment distribution business is
intense and is based primarily on product line quality, availability and prompt
delivery of products, price, level of customer support and the ability to offer
a wide selection of products. Some of the Company's competitors have
substantially greater financial resources and larger staffs. Principal
competitors include national distributors such as Alpha Shirts, Broder Brothers
and Staton Wholesale.
In some cases, the Company also competes with manufacturers that sell
directly to screen printers, sometimes at prices below those charged by the
Company for similar products. Most manufacturers, however, limit their direct
sales only to large resellers because of the costs associated with dealing with
a large number of small volume customers.
The imprinted sportswear segment of the apparel industry includes
several companies that have substantially greater financial resources and
manufacturing capabilities than the Company. The Company believes that the
primary competition for its manufactured products comes from ten to fifteen
companies in the infant, toddler, youth and adult fashion markets. The Company
competes in this aspect of its business primarily based on price, product
design, quality and responsiveness to customer service needs.
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<PAGE> 6
EMPLOYEES
At January 1, 2000, the Company employed approximately 438 full time
employees, of which 51 were salaried, 241 were paid on an hourly basis and 146
were paid on an incentive piece work basis. None of the Company's employees is
covered by a collective bargaining agreement and the Company believes that its
employee relations are satisfactory.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Position with Company
---- ---------------------
<S> <C>
Isador E. Mitzner Chairman of the Board and Chief Executive Officer
J. David Keller President and Secretary
John F. Hankinson Vice President, Chief Financial Officer and Treasurer
Gina Watson-McElroy Executive Vice President-Operations
</TABLE>
ISADOR E. MITZNER, age 47, founded the Company, and has served as its
Chairman and Chief Executive Officer since its inception in 1978.
J. DAVID KELLER, age 52, joined the Company in March 1981 and has
served as President of the manufacturing division since 1987. Mr. Keller has
served as a director of the Company since 1986, as President of the Company
since October 1993, and as Secretary of the Company since March 1994. For three
years prior to joining the Company, Mr. Keller worked for Hanes Activewear as a
sales representative in the Southeast United States and the Caribbean.
JOHN F. HANKINSON, age 46, joined the Company in August 1988 and has
served as Vice President, Chief Financial Officer and Treasurer since May 1997.
Mr. Hankinson served as Accounting Manager of the Manufacturing Division from
August 1988 through June 1989, Controller of the Manufacturing Division from
July 1989 through December 1995 and Company Controller from January 1996
through May 1997.
GINA WATSON-MCELROY, age 37, joined the Company in December 1991 and
has served as Executive Vice President-Operations since July 1998. Ms.
Watson-McElroy served as Merchandising Manager from December 1991 through June
1994, Vice President of Product Development from June 1994 through December
1995, and Vice President of Manufacturing Operations from December 1995 through
July 1998.
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<PAGE> 7
TRADEMARKS
The Company believes its trademarks have significant value and are
important to its marketing efforts. The Company has registered the trademarks
Rabbit Skins(R), L.A. T For Kids(R) and L.A. T Sportswear(R) with the United
States Patent and Trademark office. The Company's policy is to pursue
registration of its marks whenever possible and to oppose vigorously any
infringement of its marks.
The Company sells products under various trademarks and trade names
used in this Annual Report that are the property of owners other than the
Company. The following is a list of such trademarks and tradenames that are
used in this Annual Report: Fruit of the Loom(R); Hanes(R); Jerzees(R);
Jonathan Corey(R); Print-Ons(R); Auburn Sportswear(R); and Yupoong(R).
ITEM 2. PROPERTIES.
The following table presents information as to the real properties and
facilities of the Company as of January 1, 2000:
<TABLE>
<CAPTION>
FACILITY AND LOCATION PRIMARY UTILIZATION SQUARE FOOTAGE NATURE OF OWNERSHIP
- --------------------- ------------------- -------------- -------------------
<S> <C> <C> <C>
Ball Ground, Georgia........................ Administration,
Sewing, Purchasing,
and Centralized
distribution 68,000 Owned
Ball Ground, Georgia........................ Production planning,
Centralized cutting
and Raw materials
warehousing 46,000 Owned
Roberta, Georgia............................ Sewing 22,000 Leased through
January 2003
Atlanta, Georgia............................ Administration and 70,000 Leased through
Distribution December 2001
Cleveland, Ohio............................. Distribution 49,700 Leased through
October 2001
Fullerton, California....................... Distribution 43,200 Leased through
November 2003
Houston, Texas.............................. Distribution 59,000 Leased through
December 2002
Miami, Florida.............................. Distribution 41,000 Leased through
December 2004
St. Louis, Missouri......................... Distribution 44,200 Leased through
March 2003
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company is a
party or to which its properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter ended January 1, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock currently trades on the American Stock
Exchange under the symbol FLD. From January 25, 1994 through February 20, 1997,
the Common Stock traded on the NASDAQ National Market and from February 21,
1997 through February 7, 2000 on the OTC Bulletin Board under the symbol LATS.
The following table sets forth, by fiscal quarter, the high and low bid prices
of the Common Stock reported by The Nasdaq Stock Market on the OTC Bulletin
Board during the most recent two fiscal years. Quotations from the OTC Bulletin
Board reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year Ended January 2, 1999
- ---------------------------------
First Quarter ended April 4, 1998 $ 5/8 $ 9/16
Second Quarter ended July 4, 1998 1 5/16 9/16
Third Quarter ended October 3, 1998 1 1/8 7/8
Fourth Quarter ended January 2, 1999 1 5/16 1
Fiscal Year Ended January 1, 2000
- ---------------------------------
First Quarter ended April 3, 1999 1 27/32 1 1/16
Second Quarter ended July 3, 1999 1 21/32 1 7/16
Third Quarter ended October 2, 1999 1 17/32 1 3/16
Fourth Quarter ended January 1, 2000 1 7/16 1 3/16
</TABLE>
As of March 1, 2000, the number of shareholders of record of the
Company's Common Stock was approximately 52 and the number of beneficial
holders of the Company's Common Stock was approximately 298. The Company has
not declared or paid any cash dividends on its Common Stock. The policy of the
Board of Directors of the Company is to retain earnings, if any, for the
expansion and development of the Company's business. Future dividend policy and
the payment of dividends, if any, will be determined by the Board of Directors
in light of circumstances then existing, including the Company's earnings,
financial condition, bank and other contractual restrictions and other factors
deemed relevant by the Board.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR(1)
1999 1998 1997 1996 1995
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales $94,672 $81,874 $72,608 $94,834 $124,897
Cost of goods sold 78,813 68,570 60,732 79,136 104,941
------- ------- ------- ------- --------
Gross profit 15,859 13,304 11,876 15,698 19,956
Operating expenses 13,008 10,784 11,038 16,147 21,006
Restructuring charge(2) - - - - 1,700
------- ------- ------- ------- --------
Operating profit (loss) 2,851 2,520 838 (449) (2,750)
Other income (expense):
Interest expense (1,115) (1,125) (1,582) (2,047) (2,364)
Other (expense) income 35 (110) 19 4 (266)
------- ------- ------- ------- --------
Income (loss) before income tax 1,771 1,285 (725) (2,492) (5,380)
Benefit (provision) for income taxes(3) 372 (76) (21) (172) 1,787
------- ------- ------- -------- --------
Net income (loss) $ 2,143 $ 1,209 $ (746) $(2,664) $(3,593)
======= ======= ======= ======== =======
Basic net income (loss) per share $ 0.51 $ 0.29 $ (0.18) $ (0.63) $ (0.86)
Diluted net income (loss) per share(3) $ 0.50 $ 0.29 $ (0.18) $ (0.63) $ (0.86)
Basic weighted average shares outstanding 4,200 4,200 4,200 4,200 4,200
Diluted weighted average shares outstanding 4,286 4,214 4,200 4,200 4,200
BALANCE SHEET DATA (AT END OF YEAR):
Working capital $25,169 $18,620 $18,282 $25,802 $9,011
Property, plant and equipment, net 3,803 3,201 3,749 4,315 5,841
Total assets 36,422 34,463 28,739 36,519 57,032
Short-term borrowings 164 30 23 22 30,328
Long-term debt, net of current portion 15,108 10,162 11,732 18,929 821
Stockholders' equity 13,589 11,444 10,235 10,981 13,645
</TABLE>
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1 Prior to fiscal year 1998, the Company's year-end was the last
Saturday in December. Beginning in fiscal year 1998, the Company
modified its operating year to end on the Saturday closest to December
31st. Due to this change, fiscal 1998 contained 53 weeks; all other
years presented contained 52 weeks.
2 In December 1995, the Company decided to streamline operations by
closing certain of its facilities and discontinuing certain product
lines during 1996. The Company recorded a charge in the fourth quarter
of 1995 of approximately $1,700,000 related to this restructuring.
3 Includes a tax benefit (principally from the reversal of net deferred
tax asset's valuation allowance) of approximately $1.1 million ($0.25
per diluted share) for fiscal year 1999.
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<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor to encourage companies to provide prospective information so long as it
is identified as forward-looking and accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed. Forward-looking statements are related
to the plans and objectives of management for the future operations, economic
performance, of projections of revenues, income, earnings per share, capital
expenditures, dividends, capital structure, or other financial items. In the
following discussion and elsewhere in this report, statements containing words
such as "expect," "anticipate," "believe," "goal," "objective," or similar
words are intended to identify forward-looking statements. The Company
undertakes no obligation to update such forward-looking statements, and it
wishes to identify important factors that could cause actual results to differ
materially from those projected in the forward-looking statements contained in
the following discussion and elsewhere in this report. The risks and
uncertainties that may affect the operations, performance, development, and
results of the Company's business include but are not limited to the following:
(1) heightened competition, particularly intensified price competition; (2)
general economic and business conditions which are less favorable than
expected; (3) unanticipated changes in industry trends; and (4) other risks
detailed herein and from time to time in the Company's other reports.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the
components of the Company's statements of operations expressed as a percentage
of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 83.3 83.8 83.6
----- ----- -----
Gross profit 16.7 16.2 16.4
Operating expenses 13.7 13.1 15.2
----- ----- -----
Operating profit 3.0 3.1 1.2
Other expense:
Interest expense (1.2) (1.4) (2.2)
Other, net - (0.1) -
----- ----- -----
Income (loss) before income taxes 1.8 1.6 (1.0)
Benefit (provision) for income taxes 0.4 (0.1) -
----- ----- -----
Net income (loss) 2.2% 1.5% (1.0)%
===== ===== =====
</TABLE>
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Comparison of 1999 to 1998
The Company's net sales increased approximately $12.8 million, or
15.6%, to $94.7 million in 1999 from $81.9 million in 1998. The increase in net
sales was primarily attributable to an intensified sales effort and improved
product availability.
The Company's gross profit increased approximately $2.6 million, or
19.2%, to $15.9 million for 1999 from $13.3 million in 1998. The increase in
gross profit is attributable to the increase in net sales and to increased
gross profit margins. As a percentage of net sales, gross profit margin
increased to 16.7% in 1999 from 16.2% in 1998. The increase in gross profit
margin is due principally to increased margins on manufactured products and
improved purchasing procedures on distribution products.
Operating expenses increased approximately $2.2 million, or 20.6%, to
$13.0 million in 1999 from $10.8 million in 1998. The increase in operating
expenses was due primarily to increased selling costs associated with the
national sales program, increased distribution costs, and to costs associated
with the purchase of a new computer system which includes training, data
conversion costs and other non-capitalized costs. As a percentage of net sales,
operating expenses increased to 13.7% in 1999 from 13.1% in 1998.
As a result of the increase in net sales and gross profit, operating
profit increased approximately $331,000, or 13.1% to $2.9 million in 1999 from
$2.5 million in 1998. As a percentage of net sales, operating profit was 3.0%
and 3.1% in 1999 and 1998, respectively.
Interest expense was $1.1 million in both 1999 and 1998. The Company's
borrowing rate with its bank was reduced from prime plus 1% in 1998 to prime
plus .25% in 1999. However, the benefit of the reduced rate was offset by
increases to the prime rate during 1999 and by increased borrowings under the
Company's line of credit.
As a result, income before income taxes increased approximately
$486,000, or 37.8%, to $1.8 million in 1999 from $1.3 million in 1998. Income
before income taxes as a percentage of net sales increased to 1.8% in 1999 from
1.6% in 1998.
In 1999 the Company had an income tax benefit of $372,000 compared to
an income tax expense of $76,000 in 1998. The 1999 income tax provision of
approximately $700,000 at statutory federal and state rates was favorably
affected by a reduction in the deferred tax valuation allowance (and certain
other minor offsetting matters) aggregating approximately $1.1 million. As
profitable operations have continued through fiscal 1999, the Company (in the
fourth quarter of fiscal 1999) reduced its deferred tax valuation allowance as
management believes that it is now more likely than now more likely than not
that most of the Company's net deferred tax assets will be realized.
As a result of the factors described above, net income increased
approximately $934,000, or 77.3%, to $2.1 million in 1999 from $1.2 million in
1998. Net income as a percentage of net sales increased to 2.2% in 1999 from
1.5% in 1998.
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Comparison of 1998 to 1997
The Company's net sales increased approximately $9.3 million, or
12.8%, to $81.9 million in 1998 from $72.6 million in 1997. The increase in net
sales was primarily attributable to an intensified sales effort.
The Company's gross profit increased approximately $1.4 million, or
12%, to $13.3 million for 1998 from $11.9 million in 1997. The increase in
gross profit is attributable to the increase in net sales. As a percentage of
net sales, gross profit margin decreased to 16.2% in 1998 from 16.4% in 1997.
The decrease in gross profit margin is due principally to intensified
competition.
Operating expenses decreased approximately $254,000, or 2.3%, to $10.8
million in 1998 from $11.0 million in 1997. The decrease in operating expenses
is due primarily to operational streamlining. As a percentage of net sales,
operating expenses decreased to 13.1% in 1998 from 15.2% in 1997.
As a result of the increase in net sales and the decrease in operating
expenses, operating profit increased approximately $1.7 million, or 200.3% to
$2.5 million in 1998 from $838,000 in 1997. As a percentage of net sales,
operating profit increased to 3.1% in 1998 from 1.2% in 1997.
Interest expense decreased approximately $457,000, or 28.9%, to $1.1
million in 1998 from $1.6 million in 1997, primarily due to reduced borrowings
under the Company's line of credit, which resulted from increased inventory
turns and taking advantage of deferred datings from major vendors, and lower
interest rates.
Income before income taxes increased approximately $2.0 million to
$1.3 million in 1998 from a loss of $725,000 in 1997. Income before income
taxes as a percentage of net sales increased to 1.6% in 1998 from (1.0)% in
1997.
The provision for income taxes increased $55,000 to $76,000 in 1998
from $21,000 in 1997. The provision for both years was computed based upon
applying federal and state income tax rates to taxable income or loss and
offsetting the provision or benefit with changes in valuation allowances
associated with deferred tax assets.
As a result of the factors described above, net income increased
approximately $1.9 million to $1.2 million in 1998 from a net loss of $746,000
in 1997. Net income as a percentage of net sales increased to 1.5% in 1998 from
(1.0)% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in) provided by operating activities was $(4.1)
million, $1.9 million and $6.5 million in 1999, 1998 and 1997, respectively. In
1999 cash used in operating activities was primarily used to decrease accounts
payable by approximately $5.6 million. Cash generated by operating activities
in 1998 and 1997 was primarily used to repay borrowings under the Company's
credit facilities.
The Company maintains a credit facility with a bank. At January 1,
2000 the credit facility, as amended, (i) provides for maximum borrowings of
$17 million (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets), (ii) expires on April 30, 2002 and
(iii) bears interest at the prime rate plus .25% (subject to repricing
annually). The facility is secured by substantially all the Company's assets.
As of March 1, 2000, the Company had borrowings totaling $13.8 million
outstanding under the credit facility and availability to borrow $2.7 million.
-11-
<PAGE> 13
The Company's ability to fund its working capital and capital
expenditure requirements, make interest payments and meet its other cash
requirements depends, among other things, on internally generated funds and the
continued availability of and compliance with the terms of its credit facility.
Management believes that internally generated funds and funds available from
the Company's line of credit will be sufficient to meet the Company's capital
requirements and operating needs in fiscal 2000. However, if there is a
significant reduction of internally generated funds or the Company is unable to
meet financial covenants in the credit facility, the Company may require
additional funds from outside financing sources. In such event, there can be no
assurance that the Company will be able to obtain such funding as and when
required or on acceptable terms.
EFFECTS OF INFLATION
The Company does not believe inflation has materially impacted
earnings during the past three years. Substantial increases in costs could have
a significant impact on the Company and the industry. If operating expenses
increase, management believes it can recover increased costs by increasing
prices but there is no assurance of such.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No response is required to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report:
Independent Auditors Report
Balance Sheets as of January 1, 2000 and January 2, 1999
Statements of Operations for the years ended January 1, 2000, January
2, 1999 and December 27, 1997
Statements of Stockholders' Equity for the years ended January 1,
2000, January 2, 1999 and December 27, 1997
Statements of Cash Flows for the years ended January 1, 2000, January
2, 1999 and December 27, 1997
-12-
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Full Line Distributors, Inc.:
We have audited the accompanying balance sheets of Full Line Distributors, Inc.
(formerly L.A. T Sportswear, Inc.) (the "Company") as of January 1, 2000 and
January 2, 1999 and the related statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended January 1, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of January 1, 2000 and
January 2, 1999 and the results of its operations and its cash flows for each of
the three years in the period ended January 1, 2000 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 11, 2000 (March 1, 2000 as to Note 9)
-13-
<PAGE> 15
FULL LINE DISTRIBUTORS, INC.
(formerly L.A. T Sportswear, Inc.)
BALANCE SHEETS
(In thousands, except share information)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
ASSETS 2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash $ 233 $ 407
Accounts receivable, net of allowance
for doubtful accounts of $1,517 and $1,337 7,362 6,115
Inventories 23,202 23,665
Other current assets 1,693 919
-------- --------
Total current assets 32,490 31,106
PROPERTY, PLANT AND EQUIPMENT - Net 3,803 3,201
OTHER ASSETS 129 156
-------- --------
$ 36,422 $ 34,463
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,090 $ 11,647
Current portion of long-term debt 164 30
Accrued expenses 1,067 809
-------- --------
Total current liabilities 7,321 12,486
LONG-TERM DEBT 15,108 10,162
OTHER LONG TERM LIABILITIES 404 371
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares
Authorized; no shares issued
Common Stock, no par value; 25,000,000
Shares authorized; 4,202,501 and 4,200,001
Shares issued and outstanding 10,827 10,825
Paid in capital 3,304 3,304
Accumulated deficit (542) (2,685)
-------- --------
Total stockholders' equity 13,589 11,444
-------- --------
$ 36,422 $ 34,463
======== ========
</TABLE>
See notes to financial statements
-14-
<PAGE> 16
FULL LINE DISTRIBUTORS, INC.
(formerly L.A. T Sportswear, Inc.)
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
(52 WEEKS) (53 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
NET SALES $ 94,672 $ 81,874 $ 72,608
COST OF GOODS SOLD 78,813 68,570 60,732
-------- -------- --------
Gross Profit 15,859 13,304 11,876
OPERATING EXPENSES 13,008 10,784 11,038
-------- -------- --------
OPERATING PROFIT 2,851 2,520 838
OTHER (EXPENSES) INCOME:
Interest expense (1,115) (1,125) (1,582)
Other, net 35 (110) 19
-------- -------- --------
Total other expenses (1,080) (1,235) (1,563)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 1,771 1,285 (725)
BENEFIT (PROVISION) FOR INCOME TAXES 372 (76) (21)
-------- -------- --------
========
NET INCOME (LOSS) $ 2,143 $ 1,209 $ (746)
======== ======== ========
BASIC NET INCOME (LOSS) PER SHARE $ 0.51 $ 0.29 $ (0.18)
DILUTED NET INCOME (LOSS) PER SHARE $ 0.50 $ 0.29 $ (0.18)
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 4,200 4,200 4,200
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 4,286 4,214 4,200
</TABLE>
See notes to financial statements.
-15-
<PAGE> 17
FULL LINE DISTRIBUTORS, INC.
(formerly L.A. T Sportswear, Inc.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 28, 1996 4,200 $10,825 $3,304 $(3,148)
Net loss (746)
------ ------- ------ -------
BALANCE - December 27, 1997 4,200 10,825 3,304 (3,894)
Net income 1,209
------ ------- ------ -------
BALANCE - January 2, 1999 4,200 10,825 3,304 (2,685)
Net income 2,143
Exercise of stock options 3 2
===== ======= ====== =======
BALANCE - January 1, 2000 4,203 $10,827 $3,304 $ (542)
====== ======= ====== =======
</TABLE>
See notes to financial statements.
-16-
<PAGE> 18
FULL LINE DISTRIBUTORS, INC.
(formerly L.A. T Sportswear, Inc.)
STATEMENTS OF CASH FLOW
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
(52 WEEKS) (53 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 2,143 $ 1,209 $ (746)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation and amortization ............................ 584 646 625
Provision for doubtful accounts .......................... 443 368 391
Loss (gain) on disposal of fixed assets .................. 9 113 (18)
Changes in assets and liabilities (using)
Providing cash:
Accounts receivable .................................... (1,690) (960) 1,685
Inventories ............................................ 463 (5,336) 2,232
Accounts payable ....................................... (5,557) 6,123 387
Accrued expenses ....................................... 258 81 (33)
Other .................................................. (750) (366) 1,953
-------- -------- --------
Net cash (used in) provided by operating
Activities ......................................... (4,097) 1,878 6,476
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ................ (1,160) (108) (86)
Proceeds from sale of assets ............................. 1 23 44
-------- -------- --------
Net cash used in investing activities .............. (1,159) (85) (42)
FINANCING ACTIVITIES:
Borrowings (repayments) under line of credit,
Net .................................................... 4,745 (1,540) (7,177)
Proceeds from long term borrowings ....................... 417
Repayments of long term borrowings ....................... (82) (23) (18)
Proceeds from stock option exercise ...................... 2
-------- -------- --------
Net cash provided by (used in) financing
Activities ....................................... 5,082 (1,563) (7,195)
-------- -------- --------
NET CHANGE IN CASH ......................................... (174) 230 (761)
CASH:
Beginning of year ........................................ 407 177 938
======== ======== ========
End of year .............................................. $ 233 $ 407 $ 177
======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest ................................................. $ 1,119 $ 1,158 $ 1,613
======== ======== ========
Income taxes ............................................. $ 973 $ 91 $ 56
======== ======== ========
</TABLE>
See notes to financial statements.
-17-
<PAGE> 19
FULL LINE DISTRIBUTORS, INC.
(formerly L.A. T Sportswear, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Full Line Distributors, Inc. (The "Company") distributes and manufactures
sportswear principally for the imprinted garment industry. The Company
self-manufactures certain of its products and also purchases merchandise
from national sportswear manufacturers for distribution currently through
six distribution facilities across the United States. The Company's
customers are principally domestic retailers in the imprintable and
decorable sportswear industry. Accordingly, the Company operates in one
business segment.
Prior to 1998, the Company's year ended on the last Saturday in December.
The years ended January 1, 2000 (fiscal 1999) and December 27, 1997 (fiscal
1997) contained approximately 52 weeks. The Company modified its operating
year in 1998 to end on the Saturday closest to December 31. Due to the
change, the year ended January 2,1999 (fiscal 1998) contained 53 weeks.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventories - Inventories are stated at the lower of cost (first-in
first-out method) or market.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost and are depreciated principally using the straight-line method over
the estimated asset lives. Buildings and improvements are depreciated over
40 years, while machinery and equipment and furniture and fixtures are
depreciated over periods ranging principally from five to ten years.
The Company periodically evaluates assets for possible impairment. In the
event that facts and circumstances indicate that the carrying value of
assets may be impaired, an evaluation of recoverability is performed. Such
evaluation would compare the estimated future undiscounted cash flows
associated with the asset to the asset's carrying amount to determine if a
write down to fair market value is required.
Income Taxes - Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized. The provision for income taxes is the
tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
-18-
<PAGE> 20
Basic and Diluted Net Income (Loss) Per Share -Basic and diluted net income
(loss) per share is calculated by dividing net income (loss) by the
respective weighted average shares outstanding. In fiscal year 1999 and
1998 diluted net income per share includes the dilutive effect of 86,000
and 14,000 stock options to purchase common stock, respectively. Stock
options outstanding were not included as common stock equivalents in 1997
as they were antidilutive.
Fair Value of Financial Instruments - The carrying value of the Company's
financial instruments approximate their fair values.
Accounting for Derivative Instruments and Hedging Activities - Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), will be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
has not yet completed its evaluation of the effect of this standard on its
financial statements.
2. INVENTORIES
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
(In thousands)
<S> <C> <C>
Raw materials .............................................. $ 823 $ 952
Work-in-process ............................................ 506 476
Finished Goods ............................................. 23,351 23,745
Reserves (markdowns and obsolescence) ...................... (1,478) (1,508)
-------- --------
$ 23,202 $ 23,665
======== ========
</TABLE>
The Company is obligated to purchase certain raw materials over a
twelve-month period through September 15, 2000. The remaining purchase
obligation under this contract is approximately $1.8 million at January 1,
2000.
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
(In thousands)
<S> <C> <C>
Land ....................................................... $ 140 $ 140
Buildings and improvements ................................. 2,608 2,558
Machinery and equipment .................................... 4,128 3,780
Furniture and fixtures ..................................... 358 358
-------- --------
7,234 6,836
Less accumulated depreciation .............................. 3,431 3,635
======== ========
$ 3,803 $ 3,201
======== ========
</TABLE>
-19-
<PAGE> 21
4. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
(In thousands)
<S> <C> <C>
Line of credit ............................................. $ 14,282 $ 9,537
Notes payable .............................................. 627 655
Capital lease obligation (Note 5) .......................... 363
-------- --------
15,272 10,192
Less amounts due within one year ........................... 164 30
-------- --------
$ 15,108 $ 10,162
======== ========
</TABLE>
The Company maintains a credit facility with a bank. At January 1, 2000 the
credit facility, as amended, (i) provides for maximum borrowings of $17
million (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets), (ii) expires on April 30, 2002
and (iii) bears interest at the prime rate plus .25% (subject to repricing
annually). The facility is secured by substantially all the Company's
assets. As of January 1, 2000, the Company had borrowings totaling $14.3
million outstanding under the credit facility and availability to borrow
$736,000.
The Company has issued letters of credit totaling $324,000 to contractors
for the purchase of apparel. The letters of credit expire through February
25, 2000.
Maturities of long-term debt (excluding the capital lease obligation) at
January 1, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
<S> <C>
2000 $ 33
2001 36
2002 14,321
2003 43
2004 47
Thereafter 429
==========
$ 14,909
==========
</TABLE>
-20-
<PAGE> 22
5. LEASES AND OTHER OBLIGATIONS
Leases
The Company leases a plant facility and certain of its distribution
facilities under operating leases. The Company can, at its option, renew
most of these leases at the then fair rental value. The Company also leases
various other equipment under an agreement which is classified as a capital
lease. The net book value of assets under the capital lease at January 1,
2000 was $388,000.
The present value of net minimum lease payments under the capital lease and
future minimum lease payments under noncancellable operating leases at
January 1, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year CAPITAL LEASE OPERATING LEASES
----------- -------------------- ------------------------
<S> <C> <C>
2000 $ 131 $ 853
2001 143 769
2002 89 590
2003 387
2004 195
------ ------
$ 363 $2,794
====== ======
</TABLE>
Rent expense was $1,201,000, $1,191,000, and $1,307,000 for fiscal 1999,
1998 and 1997, respectively.
Restructuring
During 1995, the Company adopted a plan to streamline operations and
recorded a charge at that time related to this restructuring. The balance
in the restructuring reserve was $125,000 at December 28, 1996. Payments
and losses charged against this reserve aggregated $106,000 in fiscal 1997.
The remaining reserve of $19,000 was reversed to income in fiscal 1998.
6. INCOME TAXES
The (benefit) provision for income taxes includes the following (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $ 536 $ 44 $ --
State 43 32 21
-------- -------- --------
579 76 21
Deferred:
Federal (769)
State (182)
--------
(951)
-------- -------- --------
Total provision $ (372) $ 76 $ 21
======== ======== ========
</TABLE>
-21-
<PAGE> 23
The (benefit) provision for income taxes differs from amounts computed by
applying the federal statutory rate to income before income taxes as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate $ 602 $ 437 $ (246)
State taxes, net of federal benefit 86 72 33
Change in valuation allowance (1,265) (458) 130
Other 205 25 104
-------- -------- --------
$ (372) $ 76 $ 21
======== ======== ========
</TABLE>
The tax effects of temporary differences at January 1, 2000 and January 2,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
---------------------------
JANUARY 1, JANUARY 2,
2000 1999
<S> <C> <C>
Accounts receivable $ 604 $ 533
Inventory 740 818
Other 76 178
Valuation allowance (1,183)
------ ------
Current deferred tax asset $1,420 $ 346
====== ======
Depreciation $ (439) $ (420)
Deferred compensation 169 169
Net operating loss carryforwards 51 130
AMT credit carryforward 24
Other 2
Valuation allowance (169) (251)
------ ------
Long-term deferred tax liability $ (388) $ (346)
====== ======
</TABLE>
As a result of operating losses in fiscal 1995 through 1997, the Company
established valuation allowances for all of its net deferred tax assets due
to the uncertainty of their realization. The valuation allowance was
reduced by $458,000 in fiscal 1998 as the Company had returned to
profitable operations and was able to utilize significant amounts of its
net operating loss carryforwards for income tax purposes in that year. As
profitable operations have continued through fiscal 1999, the Company (in
the fourth quarter of fiscal 1999) reduced the valuation allowance by
approximately $1.2 million as management believes that it is now more
likely than not that most of the Company's net deferred tax assets will be
realized. The remaining valuation allowance at January 1, 2000 is being
maintained for certain deferred tax assets whose realization remains
uncertain.
At January 1, 2000, the Company has state net operating loss carryforwards
aggregating $881,000, which expire between fiscal 2001 and fiscal 2011.
-22-
<PAGE> 24
7. RELATED PARTY TRANSACTIONS
The Company purchases certain merchandise for its distribution business
from businesses affiliated with a former director and current stockholder
of the Company. These purchases aggregated $8,529,000, $9,414,000 and
$11,973,000 during fiscal 1999, 1998 and 1997, respectively. Included in
accounts payable at January 1, 2000 and January 2, 1999 are amounts due to
these businesses of $1,553,900 and $1,489,000, respectively. The Company
recorded $31,000 in sales to these businesses during fiscal 1999.
A business owned by one of the Company's stockholders received commissions
of approximately $19,000, $94,000 and $29,000 on the Company's purchases of
certain merchandise for its distribution business during fiscal 1999, 1998
and 1997, respectively. These commissions generally average 4% of dollar
purchases.
8. EMPLOYEE AND OUTSIDE DIRECTOR INCENTIVE PLANS
In early 1992, the Company's Chairman granted an option to an officer of
the Company to purchase 97,500 shares of the Company's common stock owned
by the Chairman for $1.21 per share. The officer resigned in early 1995.
During March 1995 and April 1996, the Chairman purchased option rights
covering 33,000 and 45,000 shares under this option agreement for
approximately $150,000 and $54,800, respectively. As a result, 19,500
shares remain outstanding under this option agreement. The remaining option
is currently exercisable and expires on March 1, 2002.
The Company has established the Full Line Distributors, Inc. (formerly L.A.
T Sportswear, Inc.) 1993 Employee Incentive Plan (the "Incentive Plan").
Awards under this plan may be represented by (i) incentive or nonqualified
stock options, (ii) stock appreciation rights, (iii) restricted stock, or
(iv) performance awards of stock, cash or a combination of stock and cash.
Stock options granted under the Incentive Plan are nontransferable, have an
exercise price of not less than 100% of the fair market value of the stock
on the date of the grant, and may have a term of no longer than ten years.
The Company has reserved 475,000 shares of common stock for issuance under
the Incentive Plan. As of January 1, 2000, 202,350 options to acquire
shares (which vest over one to four years) were outstanding under this
plan.
During 1994, the Company approved an Outside Directors Incentive Plan and
reserved 40,000 shares for plan issuances. Awards under this plan may be
represented by (i) nonqualified stock options, (ii) stock appreciation
rights, (iii) restricted stock, or (iv) performance awards of stock, cash
or a combination of stock and cash. Stock options granted under the Outside
Directors Incentive Plan are nontransferable, have an exercise price of not
less than 100% of the fair market value of the stock on the date of the
grant, and may have a term of no longer than ten years. As of January 1,
2000, 26,000 options to acquire shares (which vest over three to four
years) were outstanding under this plan.
During 1998, the Company granted its Chief Executive Officer a
non-qualified stock option (not included in the Incentive Plan) to purchase
125,000 shares of the Company's common stock. The options were granted at
the fair market value of the stock on the date of grant ($1.0625 per
share), vest over three years and expire in May 2008. As of January 1,
2000, the option to acquire 125,000 shares was outstanding.
-23-
<PAGE> 25
Activity for all stock options issued by the Company is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
Beginning of year 290,550 $1.38 94,800 $2.32 382,950 $2.62
Grants 178,500 1.95 201,000 0.99
Forfeitures (113,200) 2.30 (5,250) 3.39 (288,150) 2.72
Exercised (2,500) .75
----- -------- -----
Options outstanding,
End of year 353,350 $1.38 290,550 $1.38 94,800 $2.32
===== ======== =====
Options exercisable,
End of year 126,017 $1.89 53,050 $3.29 36,550 $4.18
===== ======== =====
</TABLE>
The Company applies Accounting Principle Board Opinion 25 and related
interpretations in accounting for stock options. Accordingly, no
compensation costs have been recognized for these grants. Had compensation
cost for the Company's grants been determined based on the fair value at
the grant dates consistent with the method of FASB Statement 123,
"Accounting for Stock-Based Compensation," the Company's net income (loss)
and net income (loss) per share for the years ended January 1, 2000,
January 2, 1999 and December 27, 1997 would have changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Net income (loss) (in thousands):
As reported $ 2,143 $ 1,209 $ (746)
======== ======== ========
Pro forma $ 2,051 $ 889 $ (638)
======== ======== ========
Basic net income (loss) per share:
As reported $ 0.51 $ 0.29 $ (0.18)
======== ======== ========
Pro forma $ 0.49 $ 0.21 $ (0.15)
======== ======== ========
Diluted net income (loss) per share
As reported $ 0.50 $ 0.29 $ (0.18)
======== ======== ========
Pro forma $ 0.48 $ 0.21 $ (0.15)
======== ======== ========
</TABLE>
-24-
<PAGE> 26
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1999 and 1998 (no grants were made in
1997): (i) a weighted average risk-free interest rate of 5.6%, (ii)
expected lives of five to ten years, (iii) expected volatility of
approximately 51% (1999) and 77% (1998) and (iv) no expected dividends. The
weighted average fair value of options granted was $.76 and $.80 for fiscal
years 1999 and 1998, respectively.
The following table summarizes information about stock options outstanding
at January 1, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------
AVERAGE
EXERCISE NUMBER OF REMAINING OPTIONS
PRICE OPTIONS LIFE(YEARS) EXERCISABLE
<S> <C> <C> <C>
$10.0000 13,850 4.1 13,850
$ 1.4375 37,500 9.6
$ 1.3750 1,000 9.7
$ 1.3750 5,000 9.9
$ 1.3400 5,000 9.1
$ 1.3125 10,000 9.7
$ 1.1250 20,000 9.0
$ 1.0625 125,000 8.3 41,667
$ 0.8750 66,000 8.6 16,500
$ 0.7500 70,000 6.7 54,000
======= =======
353,350 126,017
======= =======
</TABLE>
9. SUBSEQUENT EVENT
On March 1, 2000, the Company changed its name to Full Line Distributors,
Inc.
-25-
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this item.
PART III
Except as to information with respect to executive officers which is
contained in a separate heading under Item 1 to this Form 10-K, the information
required by Part III of Form 10-K is, pursuant to General Instruction G(3) of
Form 10-K, incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's Annual
Meeting of Stockholders to be held in 2000 (the "Proxy Statement"). The Company
will, within 120 days of the end of its fiscal year, file with the Securities
and Exchange Commission a definitive proxy statement pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning directors and executive officers of the
Registrant is set forth in the Proxy Statement under the headings "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934," which information is incorporated herein by reference. The name, age and
position of each executive officer of the Company is set forth under the heading
"Executive Officers" in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the headings "Certain Transactions"
and "Compensation Committee Interlocks and Insider Participation," which
information is incorporated herein by reference.
-26-
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1). Financial Statements and Auditors' Report.
The following financial statements and auditors' report are included in
Item 8 of this Report:
Report of Independent Auditors
Balance Sheets as of January 1, 2000 and January 2, 1999
Statements of Operations for fiscal years ended January 1, 2000,
January 2, 1999 and December 27, 1997
Statements of Cash Flows for fiscal years ended January 1, 2000,
January 2, 1999 and December 27, 1997
Statements of Stockholders' Equity for fiscal years ended
January 1, 2000, January 2, 1999 and December 27, 1997
Notes to Financial Statements
(2). Financial Statement Schedules.
All financial statement schedules of the Registrant have been omitted
as the required information is inapplicable or the information is presented in
the financial statements or related notes.
(3). Exhibits.
The exhibits listed below are filed with or incorporated by reference
into this Report. The exhibits which are denominated with an asterisk (*) were
previously filed as part of, and are hereby incorporated by reference from
either (i) the Company's Registration Statement on Form S-1, Registration Number
33-60452, declared effective by the Securities and Exchange Commission on
January 25, 1994 (the "S-1"); (ii) the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (the "1994 10-K"); (iii) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 (the "3/30/96
10-Q"); (iv) the Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 (the "1996 10-K"); (v) The Company's Annual Report on Form
10-K for the fiscal year ended December 27, 1997 (the "1997 10-K"); or (vi) the
Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999
(the "10/2/99 10-Q"). Unless otherwise indicated, the exhibit number corresponds
to the exhibit number in the referenced document.
-27-
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C> <C>
*3(i) - Form of Amended and Restated Articles of Incorporation of the Company (included in
Exhibit 2) (S-1)
3(i).1 - Articles of Amendment to The Articles of Incorporation effecting name change
*3(ii) - Form of Amended and Restated Bylaws of the Company (S-1)
*4 - Specimen Certificate of Common Stock (S-1)
*10.1 - 1993 Employee Incentive Plan (S-1)
10.2 - Lease agreement dated March 8, 2000 between the Company and Central Paper Stock
10.3 - Lease agreement dated February 7, 2000 between the Company and TCW Realty Fund VA
Holding Company, a California corporation, and TCW Realty Fund VB, a California
limited partnership, as tenants in common
*10.15.1 - Lease Agreement dated February 1, 1998 between the Company and The Development
Authority of Crawford County. (1997 10-K)
*10.16.1 - Relocation and Modification Agreement dated November 25, 1997 between the Company and
Security Capital Industrial Trust. (1997 10-K)
*10.28.1 - Lease Extension, dated June 21, 1999, between the Company and Sunbeam Properties,
Inc. (10/2/99 10-Q)
*10.30 - Outside Directors Incentive Plan (1994 10-K)
*10.32.1 - Second Amendment to Lease Agreement, dated July 15, 1999, between the Company and
1998 Augustus Partners, L.P. (formally John W. Rooker) (10/2/99 10-Q)
10.36.1 - First Amendment to Lease dated February 16, 2000 between the Company and The Joseph
Naiman Insurance Trust
*10.40 - Loan and Security Agreement, dated April 29, 1996, by and among the Company, Mellon Bank, N.A., as
Agent, and Mellon Bank, N.A., as Lender (3/30/96 10-Q)
*10.40.1 - First Amendment to Loan and Security Agreement, dated November 11, 1996, by and
between the Company and Mellon Bank, N.A. (1996 10-K)
*10.40.2 - Second Amendment to Loan and Security Agreement, dated March 21, 1997, by and between
the Company and Mellon Bank, N.A. (1996 10-K)
</TABLE>
-28-
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C> <C>
*10.40.3 - Amendment to reduce line of credit dated November 28, 1997, by and between the
Company and Mellon Bank, N.A. (1997 10-K)
*10.40.4 - Third Amendment to Loan and Security Agreement, dated March 26, 1998 by and between
the Company and Mellon Bank, N.A. (1997 10-K)
*10.40.5 - Fourth Amendment to Loan and Security Agreement, dated April 20, 1999, by and between
the Company and Mellon Bank, N.A. (10/2/99 10-Q)
*10.40.6 - Fifth Amendment to Loan and Security Agreement, dated July 28, 1999, by and between
the Company and Mellon Bank, N.A. (10/2/99 10-Q)
23.1 - Consent of Deloitte & Touche LLP
27.1 - Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter
ended January 1, 2000.
-29-
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FULL LINE DISTRIBUTORS, INC.
Dated: March 28, 2000 By: /s/ Isador E. Mitzner
---------------------------------------------
ISADOR E. MITZNER
Chairman of the Board and
Chief Executive Officer
(principal executive officer)
Dated: March 28, 2000 By: /s/ John F. Hankinson
---------------------------------------------
JOHN F. HANKINSON
Chief Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
March 28, 2000 By: /s/ Isador E. Mitzner
---------------------------------------------
ISADOR E. MITZNER, Chairman of
the Board and Chief Executive Officer
March 28, 2000 By: /s/ J. David Keller
---------------------------------------------
J. DAVID KELLER, President,
Secretary and Director
March 28, 2000 By: /s/ Kenneth L. Bernhardt
---------------------------------------------
KENNETH L. BERNHARDT, Director
March 28, 2000 By: /s/ Irwin Lowenstein
---------------------------------------------
IRWIN LOWENSTEIN, Director
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
3(i).1 - Articles of Amendment to The Articles of Incorporation effecting name change
10.2 - Lease agreement dated March 8, 2000 between the Company and Central Paper Stock
10.3 - Lease agreement dated February 7, 2000 between the Company and TCW Realty Fund VA Holding
Company, a California corporation, and TCW Realty Fund VB, a California limited partnership,
as tenants in common
10.36.1 - First Amendment to Lease dated February 16, 2000 between the Company and The Joseph Naiman
Insurance Trust
23.1 - Consent of Deloitte & Touche LLP
27.1 - Fianacial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 3(I).1
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
L.A. T SPORTSWEAR, INC.
1.
The name of the Corporation is L.A. T Sportswear, Inc.
2.
The Articles of Incorporation of the Corporation shall be amended by
deleting Article I thereof in its entirety and substituting the following in
lieu of Article I:
"I.
The name of the Corporation is Full Line Distributors, Inc."
3.
The amendment set forth in Article 2 of these Articles of Amendment
was adopted on January 31, 2000.
4.
These Articles of Amendment were adopted by action of the
Corporation's Board of Directors. Shareholder approval of these Articles of
Amendment was not required.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by a duly authorized officer of the Corporation, on
this 9th day of February, 2000.
L.A. T SPORTSWEAR, INC.
By: /s/ Isador Mitzner
----------------------------------
Name: Isador Mitzner
--------------------------------
Title: Chairman
-------------------------------
<PAGE> 1
EXHIBIT 10.2
LEASE
By this agreement, made and entered into on March 8, 2000, between
Central Paper Stock, Inc., a Missouri corporation (Lessor), and L.A.T.
Sportswear, Inc., a Georgia corporation, d/b/a Full Line Distributors (Lessee),
Lessor leases to Lessee real property situated in St. Louis County, Missouri
and described as the 44,190 square feet of space at the north end of the
building known as and numbered 6667 Jonas Place, Berkeley, Missouri (the
Demised Premises).
1. Term. The term of this lease shall be from April 1, 2000 through
March 31, 2003.
If Lessor and Lessee agree that Lessee may remain in possession of the
Demised Premises after the end of the lease term, Lessee's tenancy will be from
month to month at a monthly rent in excess of the rent provided in paragraph 2
by the percentage increase, if any, in the Consumer Price Index published by
the United States Department of Labor, All Urban Consumers, St. Louis, All
Items Index (or the similar successor index, if applicable) from April 1, 2000
to the first day of each such month, unless Lessor and Lessee shall agree in
writing on other terms. This provision does not give the Lessee any right to
hold over at the expiration of the lease term without the consent of the
Lessor, and any such holding over without the consent of the Lessor shall not
be construed to effect a renewal or extension of this lease. All other terms
and conditions of this lease shall remain in force during any month to month
tenancy or period of holding over.
Provided that Lessee is not in default in the performance of this
lease, and subject to Lessor's right of rejection as hereinafter set out,
Lessee shall have the option to renew this lease for two successive additional
terms of one year each, commencing at the expiration of the initial lease term
or the previous renewal term as the case may be. All of the terms and
conditions of this lease shall apply during the renewal term, except that the
monthly rent for each renewal term shall be increased over
1
<PAGE> 2
$14,177 by the percentage increase, if any, in the Consumer Price Index
published by the United States Department of Labor, All Urban Consumers, St.
Louis, All Items Index (or the similar successor index, if applicable) from
March 1, 2000 to the first day of the renewal term; the rent during the renewal
terms shall be no less than $14,177 per month. The option for each renewal term
shall be exercised by written notice given to Lessor not less than 180 days
prior to the expiration of the initial lease term or the previous renewal term
as the case may be; provided however, within 60 days after Lessee has given
notice of exercise, Lessor may give Lessee written notice of rejection on the
grounds that Lessor requires the Demised Premises for use in Lessor's business,
in which event Lessee's notice of exercise shall not be effective and this
option shall expire as to that and, if applicable, the subsequent renewal term.
If notice of exercise is not given in the manner provided herein within the
time specified as to either renewal term, this option shall expire as to that
and, if applicable, the subsequent renewal term.
2. Rent. Lessee agrees to pay, without demand, to Lessor as rent for
the Demised Premises the sum of $14,177 per month in advance on the first day
of each calendar month, and further agrees to pay, without demand, to Lessor as
rent for the Demised Premises 125 percent of the rent for each day that Lessee
or anyone else in Lessee's name shall continue in possession or occupancy of
the premises, or any part thereof, without Lessor's consent after the
expiration or forfeiture of this lease for any cause. Rent shall be paid to
Lessor at 6665 Jonas Place, Berkeley, Missouri 63134, or at such other place as
Lessor may designate in writing to Lessee. Lessee agrees to pay on demand a
penalty equal to five percent of any payment of rent received by Lessor after
the tenth day of any calendar month.
3. Security Deposit. Lessee has paid to Lessor the sum of $14,177,
which Lessor shall retain as security for the faithful performance of all the
terms and conditions of this lease. Lessor shall not be obligated to apply the
security deposit to rents or other charges in arrears or to damages suffered by
2
<PAGE> 3
Lessor because of any breach of the terms and conditions of this lease by
Lessee, but any such application by Lessor shall be at its option. In the event
of any such application by Lessor, whether or not greater in amount than the
amount of the security deposit, Lessee shall immediately restore the amount of
such application to Lessor so that the total security deposit is at all times
$14,177. The right to possession of the Demised Premises by Lessor for
nonpayment of rent or for any other reason shall not be affected by the
security deposit.
The security deposit shall be returned to Lessee when this lease is
terminated, if not applied to the payment of rents or other charges in arrears
or to the payment of damages suffered by Lessor because of any breach of the
terms and conditions of this lease by Lessee. In no event will the security
deposit be returned to Lessee until it has vacated the premises and delivered
possession to Lessor. At no time shall Lessee have the right to apply the
security deposit to rent. The security deposit will earn no interest. Lessor
shall not be obligated to hold the security deposit in a separate fund but may
commingle it with its other funds.
If Lessor shall repossess the Demised Premises because of any breach
of the terms and conditions of this lease by Lessee, Lessor may apply the
security deposit to all damages suffered to the date of repossession and may
retain the balance to apply to damages that may accrue or be suffered
thereafter by reason of Lessee's breach.
4. Use of Premises. The Demised Premises shall be used and occupied by
Lessee exclusively for the warehousing and distribution of apparel and related
activities of Lessee, and neither the Demised Premises nor any part thereof
shall be used by Lessee at any time during the term of this lease for any other
purpose. Lessee shall comply with Lessor's reasonable rules and all laws,
ordinances, rules, and orders of appropriate governmental authorities affecting
the Demised Premises
3
<PAGE> 4
and the conduct of Lessee's business thereon during the term of this lease.
Lessee acknowledges that access to the Demised Premises is by a common driveway
and that Lessee will use the parking lot in common with others. Lessee shall
not obstruct the use of those facilities by others and shall not impede the
flow of traffic across Lessor's truck scale in the parking lot adjacent to the
Demised Premises.
5. Condition of Premises. Lessee stipulates that it has examined the
Demised Premises, including the grounds and all improvements, and that the
Demised Premises are, at the date of this lease, in good order and repair, and
in a safe, clean, and tenantable condition. Lessee shall be responsible for
obtaining any occupancy permit which may be required by governmental authority
and for meeting all requirements for the issuance of such permit.
6. Assignment and Subletting. Without the prior written consent of
Lessor, Lessee shall not assign this lease or sublet or grant any concession or
license to use the Demised Premises or any part thereof. A consent by Lessor to
one assignment, subletting, concession, or license shall not be deemed to be a
consent to any subsequent assignment, subletting, concession, or license. An
assignment, subletting, concession, or license without the prior written
consent of Lessor, or an assignment or subletting by operation of law, shall be
void and shall at Lessor's option terminate this lease. No assignment,
subletting, concession, or license shall release the Lessee from any obligation
under this lease.
7. Alterations and Improvements. Lessee shall make no alterations to
the Demised Premises or construct any building or make other alterations or
improvements to the Demised Premises without the prior written consent of
Lessor. All alterations, changes, and improvements built, constructed or placed
on the Demised Premises by Lessee, with the exception of fixtures removable
without damage to the premises and movable personal property, shall, unless
otherwise provided by written agreement
4
<PAGE> 5
between Lessor and Lessee, be the property of Lessor and remain on the Demised
Premises at the expiration or sooner termination of this lease.
8. Signs. Lessor reserves the right to prescribe the form, size,
character, and location of any signs that Lessee may put or paint on the
Demised Premises. Lessee shall not put or paint any sign on the Demised
Premises without the prior written consent of the Lessor.
9. Damage to Premises. If the Demised Premises shall be damaged or
destroyed by casualty, Lessor shall, except as otherwise provided herein,
following receipt of insurance proceeds, repair and restore the same (exclusive
of Lessee's leasehold improvements, signs, furniture, fixtures, equipment, and
other contents) substantially to the condition thereof immediately prior to
such damage or destruction. If by reason of such occurrence: (a) the Demised
Premises are rendered wholly untenantable, or (b) the Demised Premises are
damaged in whole or part during the last year of the term hereof, or (c) the
Demised Premises is substantially damaged, then or in any of such events,
Lessor may elect either to repair the damage as aforesaid, or to cancel this
Lease by written notice of cancellation given to Lessee within 90 days after
the date of such occurrence, and thereupon this lease shall cease and terminate
with the same force and effect as through the date set forth in Lessor's SAID
notice were the date herein fixed for the expiration of the term hereof and
Lessee shall vacate and surrender the Demised Premises to Lessor. If by reason
of such casualty the Demised Premises are rendered wholly untenantable, the
rent shall be fully abated, or if only partially damaged such rent shall be
abated proportionately as to that portion of the Demised Premises rendered
untenantable, in either event (unless Lessor shall elect to terminate this
Lease, as aforesaid) until 15 days after notice by Lessor to Lessee that the
Demised Premises have been substantially repaired and restored, or until
Lessee's business operations be restored in the entire Demised Premises,
whichever shall occur sooner.
5
<PAGE> 6
If by reason of such occurrence the Demised Premises can not be repaired and
restored within 180 days after such occurrence, Lessee may elect to cancel this
Lease by written notice of cancellation given to Lessor within 30 days after
the date of such occurrence, and thereupon this lease shall cease and terminate
with the same force and effect as through the date set forth in Lessee's said
notice were the date herein fixed for the expiration of the term hereof and
Lessee shall vacate and surrender the Demised Premises to Lessor. Except for
the abatement of the rent hereinabove set forth, Lessee shall not be entitled
to, and hereby waives all claims against Lessor for, any compensation or damage
for loss of use of the whole or any part of the Demised Premises and/or for any
inconvenience or annoyance occasioned by any such damage, destruction, repair,
or restoration. Notwithstanding any other provision of this lease to the
contrary, Lessee shall be solely responsible for the repair and restoration of
any damage to the Demised Premises caused by the negligent or intentional act
or omission of Lessee or its employees, agents, invitees, or guests.
10. Utilities. Lessee shall be responsible for arranging and paying
for all utility services required on the Demised Premises, except that Lessor
shall furnish water and sewer services to the Demised Premises.
11. Taxes. Lessor shall promptly pay all real estate taxes and
assessments levied against the Demised Premises; provided however, that Lessee
will reimburse Lessor on 10 days notice for the amount of any excess of such
taxes and assessments in excess of those for 2000; and provided further, that
Lessee shall reimburse Lessor on 10 days notice for the entire amount of such
taxes and assessments resulting from an increase in valuation on account of
Lessee's alterations or improvements. Lessee shall promptly pay all personal
property taxes due in respect of its personal property kept on the Demised
Premises.
6
<PAGE> 7
12. Dangerous Materials. Lessee shall not keep or have on the Demised
Premises any article or thing of a dangerous, inflammable, or explosive
character that might unreasonably increase the danger of fire on the Demised
Premises or that would increase the premium for Lessor's casualty insurance on
the Demised Premises over the normal rate applicable to the business for which
the Demised Premises are leased. Lessee will conduct that business in such a
manner so as not to increase the premium over the normal rate.
13. Liability Insurance. Lessee shall at all times that it occupies
the Demised Premises maintain liability insurance in a sound, reputable
insurance company acceptable to Lessor, insuring against liability arising out
of or based on any or all property damage, personal injury, or death occurring
as an alleged consequence of any act or omission on the part of the Lessee or
of its employee, agent, director, officer, or guest, or as an alleged
consequence of any condition of the Demised Premises. All insurance required by
this provision shall name Lessor as an additional insured and may not be
cancelled without at least 30 days advance notice to Lessor. Lessee shall,
prior to occupying the Demised Premises, deliver to Lessor a certificate of
such policy of insurance. The minimum limit of liability of such insurance
shall be a combined single limit of $ 1,000,000.
14. Attornment. Lessee shall, in the event of a sale, transfer, or
assignment of Lessor's interest in the Demised Premises or any part thereof, or
in the event any proceedings are brought for the foreclosure of, or in the
event of exercise of the power of sale under, any mortgage made by Lessor
encumbering the Demised Premises or any part thereof, attorn to and recognize
such transferee, purchaser, or mortgagee as Lessor under this lease.
15. Subordination. In the event that any mortgagee of the Demised
Premises, or any part thereof, or a potential assignee of this lease, so
requests from time to time, Lessee shall, as long as such
7
<PAGE> 8
mortgagee or assignee provides Lessee with a nondisturbance agreement, which
may be conditioned on Lessee's full compliance with all terms, conditions,
covenants, and agreements in this lease, execute a subordination and attornment
agreement, in such form as such mortgagee or assignee shall reasonably require,
subordinating this lease to the lien of such mortgagee, if applicable, and
agreeing to attorn to such assignee, mortgagee, or any purchaser at foreclosure
of such mortgage. Lessee shall sign such subordination and attornment agreement
within 10 days after being requested to do so.
16. Estoppel Certificate. Within 10 days after request therefor by
Lessor, Lessee shall deliver to Lessor or any other person specified by Lessor
an estoppel certificate in recordable form, binding upon Lessee, in which
Lessee shall certify that: (a) this lease is in full force and effect and the
term of this lease has commenced, if such be the case, specifying the
commencement and expiration dates of the term; (b) this lease has not been
amended or modified, if such be the case, or stating the amendments or
modifications; (c) Lessee has no offsets or defenses to its performance of the
terms and conditions of this lease, including without limitation the payment of
rent, if such be the case, or if there are any such defenses or offsets,
specifying the same; and (d) any other reasonable requirements of Lessor. If
Lessee shall fail to deliver such an estoppel certificate within 30 days after
request therefor by Lessor, it shall be conclusively deemed that: (a) this
lease is in full force and effect, the term of this lease has commenced, and
the commencement and expiration dates of the term are as stated in this lease;
(b) this lease has not been amended or modified; and (c) Lessee has no offsets
or defenses to its performance of the terms and conditions of this lease,
including without limitation the payment of rent.
17. Lessor's Liability. Lessee hereby indemnifies Lessor against any
loss or expense, including without limitation attorney fees, resulting from a
claim by any third party and arising out of Lessee's occupancy of, and the
conduct of its business on, the Demised Premises.
8
<PAGE> 9
Lessor shall not be liable to Lessee or any other person for any
property damage, personal injury, or death resulting from water, rain, snow,
frost, fire, storm, or accident, or from breakage, stoppage, or leakage of
water, gas, heating, and sewer pipes or plumbing on or about the Demised
Premises.
In the event of the sale, transfer, or assignment of Lessor's
interest in the Demised Premises, Lessor shall be relieved of all liability
under this lease arising out of any act, occurrence, or omission after the
consummation of the sale, transfer, or assignment. The purchaser, transferee,
or assignee at that or any subsequent sale, transfer, or assignment of the
Demised Premises shall be deemed without further action to have assumed all of
the obligations of Lessor under this lease. Anything contained in this Lease to
the contrary notwithstanding, Lessee agrees that (except for a claim concerning
the security deposit) it shall look solely to the estate and property of Lessor
in the land comprising the Demised Premises for the collection of any judgment
(or any judicial process) requiring the payment of money by Lessor in the event
of any default or breach by Lessor of this Lease, subject however to the prior
rights of any secured party or mortgagee, and no other asset of Lessor shall be
subject to levy, execution or other judicial process for the satisfaction of
any claim of Lessee.
18. Force Majeure. Lessor shall not be responsible or liable for any
inconvenience, loss, damage, or delay caused by strike, shortage of labor or
materials, casualty, war, riot, or any other cause beyond Lessor's reasonable
control. Where a time is prescribed for Lessor to perform an act, all such
delays shall be excluded from that time.
19. Maintenance and Repair. Lessee will keep and maintain the Demised
Premises and appurtenances in good and sanitary condition and repair during the
term of this lease; provided however, that Lessor will be responsible for
operation, maintenance, and repair of the fire alarms, fire
9
<PAGE> 10
sprinkler system, exterior walls (excluding doorways), roof, parking lot, and
sidewalks and for maintenance of the grounds, including lawn mowing and removal
of snow from the parking lot and sidewalks as conditions require. In particular
and without limitation, Lessee shall be responsible for maintenance and repair
of the plumbing, water heating, electrical (including lighting), heating,
ventilation, and air conditioning systems and shall replace any glass, now on
the Demised Premises, that is hereafter broken.
20. Animals. Lessee shall keep no domestic or other animals on or
about the Demised Premises without the prior written consent of Lessor.
21. Right of Inspection and Entry. Lessor and its agents shall have
the right at all reasonable times during the term of this lease to enter the
Demised Premises: (a) with prior notice to Lessee when possible, for access to
the electrical service for the entire building, to make such repairs or
alterations as Lessor shall deem necessary, or to inspect the Demised Premises
and all buildings and improvements thereon; or (b) without prior notice to
Lessee, to respond to any emergency affecting the Demised Premises or the
entire building or grounds. Lessor shall at all times have a set of keys to the
Demised Premises and current alarm codes. Without limiting other times when
Lessor may enter the Demised Premises in Lessee's absence, Lessee acknowledges
that Lessor will enter the Demised Premises in Lessee's absence if necessary to
restore electrical power to Lessor's place of business.
22. Surrender. At the expiration of the lease term, Lessee shall quit
and surrender the Demised Premises in as good condition as they were at the
commencement of this lease, with all light bulbs functioning, ordinary wear and
tear and casualty damage not the fault of Lessee excepted. During the last 45
days of the term of this lease, the Lessor may place a "For Rent" sign on the
Demised Premises and may show the Demised Premises to parties wishing to rent
them upon twenty-four hours notice.
10
<PAGE> 11
23. Default. The following events shall constitute default of Lessee
under this lease: (a) any failure of Lessee to pay any rent when due hereunder;
(b) any failure of Lessee to perform any other term, condition, or covenant of
this lease to be observed or performed by Lessee, where such failure continues
uncured for a period of 30 days after Lessor gives written notice to Lessee
specifying the specific event of default; (c) the filing by Lessee, in any
court, of a petition in bankruptcy or insolvency, or for reorganization or the
appointment of a receiver or trustee of all or a portion of Lessee's property;
(d) the filing by any party against Lessee, in any court, of a petition in
bankruptcy or insolvency, or for reorganization or the appointment of a
receiver or trustee of all or a portion of Lessee's property, if such petition
shall not be dismissed within 30 days of filing; (e) Lessee's making of an
assignment for the benefit of creditors; (f) Lessee's abandoning the Demised
Premises; or (g) Lessee's suffering this lease to be taken under any writ of
execution.
24. Right to Re-Enter. In the event of Lessee's default, Lessor, in
addition to any other rights or remedies it may have, shall have the immediate
right of re-entry and may remove all persons and property from the Demised
Premises. Such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of, Lessee, all without service
of notice or resort to legal process and without Lessor being deemed guilty of
trespass or becoming liable for any loss or damage which may be occasioned
thereby. Lessee shall immediately on demand reimburse Lessor for any
expenditure on account of re-entry or moving or storing Lessee's property,
together with interest on each such expenditure at the highest legal rate from
the date of each such expenditure.
25. Right to Relet, Damages. In the event of Lessee's default, should
Lessor elect to re-enter, as herein provided, or should it take possession
pursuant to legal proceedings or pursuant to any notice provided for by law, it
may either terminate this lease or it may from time to time, without
terminating
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this lease, make such alterations and repairs as may be necessary to relet the
premises, and relet said premises or any part thereof for such term or terms
(which may be for a term extending beyond the term of this lease) and at such
rental or rentals and upon such other terms and conditions as Lessor in its
sole discretion may deem advisable; upon each such reletting all rentals
received by Lessor from such reletting shall be applied, first, to the payment
of any indebtedness other than rent due hereunder from Lessee to Lessor;
second, to the payment of any costs and expenses of such reletting, including
brokerage and attorneys' fees and costs of alterations and repairs; third, to
the payment of rent due and unpaid hereunder; and the residue, if any, shall be
held by Lessor and applied in payment of future rent as the same may become due
and payable hereunder. If such rentals received from such reletting during any
month shall be less than that to be paid during that month by Lessee hereunder,
Lessee shall pay any such deficiency to Lessor.
26. Termination by Lessor. Lessor may by written notice to Lessee
terminate this lease in the event of Lessee's default. Any re-entry or taking
possession of the Demised Premises by Lessor as described in paragraph 24 shall
not be construed as a termination of this lease. Notwithstanding any such
re-entry or taking possession without termination, Lessor may at any time
thereafter terminate this lease for any previous breach.
27. Damages. If Lessor at any time terminates this lease, in addition
to any other remedies it may have, Lessor may recover from Lessee all damages
it may incur by reason of Lessee's default, computed in any manner provided by
law that Lessor shall elect. No termination of this lease shall affect amounts
owed by Lessee or accrued at the time of termination.
28. Abandonment. If Lessee abandons the Demised Premises, Lessor may
consider any personal property belonging to Lessee and left on the premises
also to have been abandoned, in which
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event Lessor may dispose of all such personal property in any manner Lessor
shall deem proper, and Lessor is hereby relieved of all liability for doing so.
29. Attorney's Fees. In the event that Lessor shall file suit to
collect rent hereunder, to enforce any provision of this lease, or to redress
any breach of any term or condition of this lease, or in the event of any other
civil action or other proceeding to enforce this lease, the prevailing party
shall recover all costs and expenses thereof, including reasonable attorney's
fees.
30. Lessor's Remedies. Unless the context clearly requires otherwise,
all Lessor's remedies provided for in this lease shall be cumulative. All
Lessor's remedies provided for in this lease shall be in addition to those
provided by law.
31. Lessor's Consent. Whenever Lessor's consent or approval is
required under this lease, Lessor shall not unreasonably withhold or delay such
consent or approval.
32. Condemnation. If, due to the exercise of the right of eminent
domain or seizure or appropriation of all or substantial part of the Demised
Premises by lawful authority under the right of eminent domain, the Demised
Premises are rendered untenantable, then either party shall have the right to
terminate this lease upon 30 days written notice to the other party. In no
event shall Lessee share in any award in condemnation.
33. Covenant of Title. Lessor covenants, represents, and warrants that
he has full right and power to execute and perform this lease and that Lessee,
so long as it shall not be in default hereunder, shall peaceably and quietly
have, hold, and enjoy the Demised Premises.
34. Binding Effect. The terms and conditions herein contained shall
inure to the benefit of and bind the successors, legal representatives, and
assigns of the parties hereto.
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35. Waiver. The failure by either party to insist, in any one or more
instances, on a strict performance on any of the terms and conditions of this
lease shall not be construed as a future waiver or relinquishment of the
provision, and the same shall continue and remain in full force and effect. The
receipt by Lessor of rent, with knowledge of the breach of any term or
condition hereof, shall not be deemed a waiver of the breach. None of the terms
or conditions of this lease shall be altered, waived, modified, or abandoned in
any manner except by a written instrument executed by both parties.
36. Notice. Unless otherwise specified in writing by one party to the
other, notice to the parties shall be in writing, mailed by certified mail,
postage prepaid, or personally delivered to the following addresses, or to such
other addresses within the State of Missouri as Lessor or Lessee shall
designate by written notice to the other:
36. 1. if to Lessor, to 6665 Jonas Place, Berkeley, Missouri 63134,
marked to the attention of Lessor's President; or
36.2. if to Lessee, to 2650 Button Gwinnett Drive, Suite E, Doraville,
Georgia 30340, marked to the attention of Lessee's President.
37. Non-Recordation. Neither this lease nor any memorandum thereof
shall be recorded in the public records of any county of any state. If this
lease or any memorandum thereof is recorded by Lessee in violation of this
provision, Lessor may at its option terminate this lease.
38. Choice of Law and Forum. This lease is entered into in the State
of Missouri and shall be interpreted and construed according to the laws of the
State of Missouri. Any civil action or other proceeding to enforce this lease
shall be brought in the courts of St. Louis County, Missouri.
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39. Number and Gender. All terms of this lease shall include the
singular and plural numbers, masculine, feminine, and neuter genders, and
natural and artificial persons, as context may require. Unless the context
requires otherwise, the word "or" is used in the inclusive sense.
40. Titles. All titles are for the purpose of convenience only and
shall not limit or modify any term of this lease.
41. Counterparts. This lease may be executed in counterparts, each of
which shall have the force and effect of an original.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have executed this lease the day and
year first above written.
LESSEE LESSOR
L.A.T. SPORTSWEAR, INC. CENTRAL PAPER STOCK, INC.
by /s/ Gina Watson-McElroy by /s/ David Robnak, President
------------------------------- -------------------------------
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EXHIBIT 10.3
SOUTHERN CALIFORNIA CHAPTER OF THE
SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,(R) INc.
INDUSTRIAL REAL ESTATE LEASE
(MULTI-TENANT FACILITY)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and
are to be read in conjunction with the Basic Terms.
SECTION 1.01. DATE OF LEASE: February 7, 2000
SECTION 1.02. LANDLORD (INCLUDE LEGAL ENTITY): TCW REALTY
FUND VA HOLDING COMPANY, a California corporation, and TCW REALTY FUND VB, a
California limited partnership, as tenants in common.
Address of Landlord: 865 South Figueroa Street, Suite 3500
Los Angeles, California 90017
SECTION 1.03. TENANT (INCLUDE LEGAL ENTITY): L.A. T SPORTSWEAR,
INC., a Georgia corporation dba Full Line Distributors
Address of Tenant: 1200 Airport Drive, Ball Ground, Georgia 30107.
SECTION 1.04. PROPERTY: The Property is part of Landlord's
multi-tenant real property development known as Fullerton Air Industrial Park
and described or depicted in Exhibit "A" (the "Project"). The Project includes
the land, the buildings and all other improvements located on the land, and the
common areas described in Paragraph 4.05(a). The Property is (include street
address, approximate square footage and description) An approximately 43,200
rentable square foot portion of an 82,474 rentable foot concrete industrial
building commonly known as 2356 Moore Avenue, Fullerton, California. INSERT 1
SECTION 1.05. LEASE TERM: three (3) years seven (7) months
beginning on May 1, 2000 or such other date as is specified in this Lease, and
ending on November 30.2003.
SECTION 1.06. PERMITTED USES: (See Article Five) The warehousing,
distribution and wholesale sale of T-shirts and related products and general
office use related thereto, and for no other use or purpose.
SECTION 1.07. TENANT'S GUARANTOR: (if none, so state) None
SECTION 1.08. BROKERS: (See Article Fourteen) (if none, so state)
Landlord's Broker: CB Richard Ellis
Tenant's Broker: J.S. Hudgins Company
SECTION 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See
Article Fourteen) $ Per Separate Agreement
SECTION 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $
INSERT 2
SECTION 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: (See
Section 4.05) 25 unassigned spaces
SECTION 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(A) BASE RENT: Seventeen Thousand Four Hundred Ninety-Six and
No/100 Dollars ($17,496.00) per month for the first twenty (20) months, as
provided in Section 3.01, and shall be increased on the first day of the
twenty-first (21st) month after the Commencement Date, as provided in INSERT 3
(B) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section
4.04); (iv) Tenant's initial Pro Rata Share of Common Area Expenses 9.68% (See
Section 4.05); (v) Impounds for Insurance Premiums and Property Taxes (See
Section 4.08); (vi) Maintenance, Repairs and Alternations (See Article Six).
SECTION 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR
SUBLEASE: (See Section 9.05) Fifty percent (50%) of the Profit (the
"Landlord's Share").
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SECTION 1.14. RIDERS: The following Riders are attached to and
made a part of this Lease: (if none, so state) Tenant shall comply at all times
with all terms and provisions of the Rider to Standard Industrial Lease
attached hereto and incorporated herein by this reference.
ARTICLE TWO: LEASE TERM
SECTION 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Lease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or delayed under any
provision of this Lease.
SECTION 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable
to Tenant if Landlord does not deliver possession of the Property to Tenant on
the Commencement Date. Landlord's non-delivery of the Property to Tenant on
that date shall not affect this Lease or the obligations of Tenant under this
Lease except that the Commencement Date shall be delayed until Landlord
delivers possession of the Property to Tenant and the Lease Term shall be
extended for a period equal to the delay in delivery of possession of the
Property to Tenant, plus the number of days necessary to end the Lease Term on
the last day of a month. If Landlord does not deliver possession of the
Property to Tenant within sixty (60) days after the Commencement Date, Tenant
may elect to cancel this Lease by giving written notice to Landlord within ten
(10) days after the sixty (60) - day period ends. If Tenant give such notice,
the Lease shall be cancelled and neither Landlord nor Tenant shall have any
further obligations to the other. If Tenant does not give such notice, Tenant's
right to cancel the Lease shall expire and the Lease Term shall commence upon
the delivery of possession of the Property to Tenant. If delivery of possession
of the Property to Tenant is delayed, Landlord and Tenant shall, upon such
delivery, execute an amendment to this Lease setting forth the actual
Commencement Date and expiration date of the Lease. Failure to execute such
amendment shall not affect the actual Commencement Date and expiration date of
the Lease.
SECTION 2.03. INSERT 4
SECTION 2.04. HOLDING OVER. Tenant shall vacate the Property upon
the expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall
be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in
effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
SECTION 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this
Lease, Tenant shall pay Landlord the Base Rent in the amount stated in
Paragraph 1.12(a) above for the first month of the Lease Term. On the first day
of the second month of the Lease Term and each month thereafter, Tenant shall
pay Landlord the Base Rent, in advance , without offset, deduction or prior
demand. The Base Rent shall be payable at Landlord's address or at such other
place as Landlord may designate in writing.
SECTION 3.02. COST OF LIVING INCREASES. (THIS SECTION HAS BEEN
DELETED IN ITS ENTIRETY)
SECTION 3.03. SECURITY DEPOSIT; INCREASES.
(a) Upon the execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount set forth in Section 1.10 above.
Landlord may apply all or part of the Security Deposit to any unpaid rent or
other charges due from Tenant or to cure any other defaults of Tenant. If
Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its full amount within ten (10) days after the Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security Deposit.
(b) Each Time the Base Rent is Increase. Tenant shall deposit all
additional funds with Landlord sufficient to increase the Security Deposit to
an amount which bears the same relationship to the adjusted Base Rent as the
Initial Security Deposit bore to the initial Base Rent.
SECTION 3.04. TERMINATION; ADVANCE PAYMENTS. Not more than thirty
(30) days after the termination of this Lease under Article Seven (Damage or
Destruction), Article Eight (Condemnation) or any other termination not
resulting from Tenant's default, and after Tenant has vacated the Property in
the manner required by this Lease, Landlord shall refund or credit to Tenant
(or Tenant's successor) the unused portion of the Security Deposit, any advance
rent or other advance payments made by Tenant to Landlord, and any amounts paid
for real property taxes and other reserves which apply to any time periods
after termination of the Lease.
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ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
SECTION 4.01. ADDITIONAL RENT. All charges payable by Tenant other
than Base Rent are called "Additional Rent." Unless this Lease provides
otherwise, Tenant shall pay all Additional Rent then due with the next monthly
installment of Base Rent. The term "rent" shall mean Base Rent and Additional
Rent.
SECTION 4.02. PROPERTY TAXES.
(A) REAL PROPERTY TAXES. Tenant shall pay all real property taxes
on the Property (including any fees, taxes or assessments against, or as a
result of, any tenant improvements installed on the Property by or for the
benefit of Tenant during the Lease term. Subject to Paragraph 4.02(c) and
Section 4.08 below, such payment shall be made at least ten (10) days prior to
the delinquency date of the taxes. Within such ten (10) -day period, Tenant
shall furnish Landlord with satisfactory evidence that the real property taxes
have been paid. Landlord shall reimburse Tenant for any real property taxes
paid by Tenant covering any period of time prior to or after the Lease Term. If
Tenant fails to pay the real property taxes when due, Landlord may pay the
taxes and Tenant shall reimburse Landlord for the amount of such tax payment as
Additional Rent.
(B) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means:
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined
by applicable law, or other transfer of all or part of Landlord's interest in
the Property; and (v) any charge or fee replacing any tax previously included
within the definition of real property tax. "Real property tax" does not,
however, include Landlord's federal or state income, franchise, inheritance or
estate taxes.
(C) JOINT ASSESSMENT. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or
other reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(D) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging to
Tenant. Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with
the Property, Tenant shall pay Landlord the taxes for the personal property
within (15) days after Tenant receives a written statement from Landlord for
such personal property taxes. Tenant shall use its best efforts to have
personal property taxed separately from the Property.
SECTION 4.03. UTILITIES. Tenant shall pay, directly to the
appropriate supplier, the cost of all natural gas, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and services
supplied to the Property. However, if any services or utilities are jointly
metered with other property, Landlord shall make a reasonable determination of
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
SECTION 4.04. INSURANCE POLICIES.
(A) LIABILITY INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of
property) and personal injury arising out of the operation, use or occupancy of
the Property. Tenant shall name Landlord as an additional insured under such
policy. The initial amount of such insurance shall be Two Million Dollars
($2,000,000) per occurrence and shall be subject to periodic increase based
upon inflation, increased liability awards, recommendation of Landlord's
professional insurance advisers and other relevant factors. The liability
insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary
and non-contributing; (ii) contain cross-liability endorsements; and (iii)
insure Landlord against Tenant's performance under Section 5.05, if the matters
giving rise to the indemnity under Section 5.05 result from the negligence of
Tenant. The amount and coverage of such insurance shall not limit Tenant's
liability nor relieve Tenant of any other obligation under this Lease. Landlord
may also obtain comprehensive public liability insurance in an amount and with
coverage determined by Landlord insuring Landlord against liability arising out
of ownership, operation, use or occupancy of the Property. The policy obtained
by Landlord shall not be contributory and shall not provide primary insurance.
INSERT 5
(B) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an inflation Guard Endorsement and shall provide protection against all perils
included within the
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classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk), sprinkler leakage and any other perils
which Landlord deems reasonably necessary. Landlord shall have the right to
obtain flood and earthquake insurance. Landlord shall not obtain insurance for
Tenant's fixtures or equipment or building improvements installed by Tenant on
the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance
premiums. Tenant shall be liable for the payment of any deductible amount under
Landlord's or Tenant's insurance policies maintained pursuant to this Section
4.04, in an amount not to exceed Ten Thousand ($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(C) PAYMENT OF PREMIUMS. Subject to Section 4.08, Tenant shall
pay all premiums for the insurance policies described in Paragraphs 4.04(a) and
(b) (whether obtained by Landlord or Tenant) within fifteen (15) days after
Tenant's receipt of a copy of the premium statement or other evidence of the
amount due. For insurance policies maintained by Landlord which cover
improvements on the entire Project, Tenant shall pay Tenant's prorated share of
the premiums, in accordance with the formula in Paragraph 4.05(a) for
determining Tenant's share of Common Area costs. If insurance policies
maintained by Landlord cover improvements on real property other than the
Project, Landlord shall deliver to Tenant a statement of the premium applicable
to the Property showing in reasonable detail how Tenant's share of the premium
was computed. If the Lease Term expires before the expiration of an insurance
policy maintained by Landlord, Tenant shall be liable for Tenant's prorated
share of the insurance premiums. Before the Commencement Date, Tenant shall
deliver to Landlord a copy of any policy of insurance which Tenant is required
to maintain under this Section 4.04. At lease thirty (30) days prior to the
expiration of any such policy, Tenant shall deliver to Landlord a renewal of
such policy. As an alternative to providing a policy of insurance, Tenant shall
have the right to provide Landlord a certificate of insurance, executed by an
authorized officer of the insurance company, showing that the insurance which
Tenant is required to maintain under this Section 4.04 is in full force and
effect and containing such other information which Landlord reasonably
requires.
(D) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate
or renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which case
Tenant shall reimburse Landlord for the cost of such insurance within fifteen
(15) days after receipt of a statement that indicates the cost of such
insurance.
(iii) Tenant shall maintain all insurance required under
this Lease with companies holding a "General Policy Rating" of A-12 or better,
as set forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If at any time during
the Lease Term, Tenant is unable to maintain the insurance required under the
Lease, Tenant shall nevertheless maintain insurance coverage which is customary
and commercially reasonable in the insurance industry for Tenant's type of
business, as that coverage may change from time to time. Landlord makes no
representation as to the adequacy of such insurance to protect Landlord's or
Tenant's interests. Therefore, Tenant shall obtain any such additional property
or liability insurance which Tenant deems necessary to protect Landlord and
Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all rights
of recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by any
insurance policy in force (whether or not described in this Lease) at the time
of such loss or damage. Upon obtaining the required policies of insurance,
Landlord and Tenant shall give notice to the insurance carriers of this mutual
waiver of subrogation. INSERT 6
SECTION 4.05. COMMON AREAS; USE, MAINTENANCE AND COSTS
(A) COMMON AREAS. As used in this Lease, "Common Areas" shall
mean all areas within the Project which are available for the common use of
tenants of the Project and which are not leased or held for the exclusive use
of Tenant or other tenants, including, but not limited to , parking areas,
driveways, sidewalks, loading areas, access roads, corridors, landscaping and
planted areas. Landlord, from time to time, may change the size, location,
nature and use of any of the Common Areas, convert Common Areas into leaseable
areas, construct additional parking facilities (including parking structures)
in the Common Areas, and increase or decrease Common Area land and/or
facilities. Tenant acknowledges that such activities may result in
inconvenience to Tenant. Such activities and changes are permitted if they do
not materially affect Tenant's use of the Property.
(B) USE OF COMMON AREAS. Tenant shall have the nonexclusive right
(in common with other tenants and all others to whom Landlord has granted or
may grant such right(s) to use the Common Areas for the purposes
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intended, subject to such reasonable rules and regulations as Landlord may
establish from time to time. Tenant shall abide by such rules and regulations
and shall use its best effort to cause others who use the Common Areas with
Tenant's express or implied permission to abide by Landlord's rules and
regulations. At any time, Landlord may close any Common Areas to perform any
acts in the Common Areas as, in Landlord's judgment, are desirable to improve
the Project. Tenant shall not interfere with the rights of Landlord, other
tenants or any other person entitled to use the Common Areas.
(C) SPECIFIC PROVISION RE: VEHICLE PARKING. Tenant shall be
entitled to use the number of vehicle parking spaces in the Project allocated
to Tenant in Section 1.11 of the Lease without paying any additional rent.
Tenant's parking shall not be reserved and shall be limited to vehicles no
larger than standard size automobiles or pickup utility vehicles. Tenant shall
not cause large trucks or other large vehicles to be parked within the Project
or on the adjacent public streets. Temporary parking of large delivery vehicles
in the Project may be permitted by the rules and regulations established by
Landlord. Vehicles shall be parked only in striped parking spaces and not in
driveways, loading areas or other locations not specifically designated for
parking. Handicapped spaces shall only be used by those legally permitted to
use them. If Tenant parks more vehicles in the parking area than the number set
forth in Section 1.11 of this Lease, such conduct shall be a material breach of
this Lease. In addition to Landlord's other remedies under the Lease, Tenant
shall pay a daily charge determined by Landlord for each such additional
vehicle.
(D) MAINTENANCE OF COMMON AREAS. Landlord shall maintain the
Common Areas in good order, condition and repair and shall operate the Project,
in Landlord's sole discretion, as a first-class industrial/commercial real
property development. Tenant shall pay Tenant's pro rata share (as determined
below) of all costs incurred by Landlord for the operation and maintenance of
the Common Areas. Common Areas include, but are not limited to , costs and
expenses for the following: gardening and landscaping; utilities, water and
sewage charges; maintenance of signs (other than tenants' signs); premiums for
liability, property damage, fire and other types of casualty insurance on the
Common Areas and worker's compensation insurance; all property taxes and
assessments levied on or attributable to the Common Areas of all Common Area
improvements; all personal property taxes levied on or attributable to personal
property used in connection with the Common Areas; straight-line depreciation
on personal property owned by Landlord which is consumed in the operation or
maintenance of the Common Areas; rental or lease payments paid by Landlord for
rented or leased personal property used in the operation or maintenance of the
Common Areas; fees for required licenses and permits; repairing, resurfacing,
repaving, maintaining, painting, lighting, cleaning, refuse removal, security
and similar items; reserves for roof replacement and exterior painting and
other appropriate reserves; and a reasonable allowance to Landlord for
Landlord's supervision of the Common Areas (not to exceed five percent (5%) of
the gross rents of the Project for the calendar year). Landlord may cause any
or all of such services to be provided by third parties and the cost of such
services shall be included in Common Area cost. Common Area costs shall not
include depreciation of real property which forms part of the Common Areas.
(E) TENANT'S SHARE AND PAYMENT. Tenant shall pay Tenant's annual
pro rata share of all Common Area costs (prorated for any fractional month)
upon written notice from Landlord that such costs are due and payable, and in
any event prior to delinquency. Tenant's pro rata share shall be calculated by
dividing the square foot area of the Property, as set forth in Section 1.04 of
the Lease, by the aggregate square foot area of the Project which is leased or
held for lease by tenants, as of the date on which the computation is made.
Tenant's initial pro rata share is set out in Paragraph 1,13(b). Any changes in
the Common Area costs and/or the aggregate area of the Project leased or held
for lease during the Lease Term shall be effective on the first day of the
month after such change occurs. Landlord may, at Landlord's election, estimate
in advance and charge to Tenant as Common Area costs, all real property taxes
for which Tenant is liable under Section 4.02 of the Lease, all insurance
premiums for which Tenant is liable under Section 4.04 of the Lease, all
maintenance and repair costs for which Tenant is liable under Section 6.04 of
the Lease, and all other Common Area costs payable by Tenant hereunder. At
Landlord's election, such statements of estimated Common Area costs shall be
delivered monthly, quarterly or at any other periodic intervals to be
designated by Landlord. Landlord may adjust such estimates at any time based
upon Landlord's experience and reasonable anticipation of costs. Such
adjustments shall be effective as of the next rent payment date after notice to
Tenant. Within sixty (60) days after the end of each calendar year of the Lease
Term, Landlord shall deliver to Tenant a statement prepared in accordance with
generally accepted accounting principles setting forth, in reasonable detail,
the Common Area costs paid or incurred by Landlord during the preceding
calendar year and Tenant's pro rata share. Upon receipt of such statement,
there shall be an adjustment between Landlord and Tenant, with payment to or
credit given by Landlord (as the case may be) so that Landlord shall receive
the entire amount of Tenant's share of such costs and expenses for such period.
SECTION 4.06. LATE CHARGES. Tenant's failure to pay rent promptly
may cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include,
but are not limited to, processing and accounting charges and late charges
which may be imposed on Landlord by any ground lease, mortgage or trust deed
encumbering the Property. Therefore, if Landlord does not receive any rent
payment within ten (10) days after it becomes due, Tenant shall pay Landlord a
late charge equal to ten percent (10%) of the overdue amount. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment.
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SECTION 4.07. INTEREST ON PAST DUE OBLIGATION. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate
of fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
SECTION 4.08. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY
TAXES. If requested by any ground lessor or lender to whom Landlord has granted
a security interest in the Property, or if Tenant is more than ten (10) days
late in the payment of rent more than once in any consecutive twelve (12)
- -month period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of
the annual real property taxes and insurance premiums payable by Tenant under
this Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-interest bearing impound account. If unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under
this Lease.
ARTICLE FIVE: USE OF PROPERTY
SECTION 5.01. PERMITTED USES. Tenant may use the Property only
for the Permitted Uses set forth in Section 1.06 above.
SECTION 5.02. MANNER OF USE. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of tenants of the Project, or which constitutes a nuisance or waste.
Tenant shall obtain and pay for all permits, including a Certificate of
Occupancy, required for Tenant's occupancy of the Property and shall promptly
take all actions necessary to comply with all applicable statutes, ordinances,
rules, regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act. INSERT 7
SECTION 5.03. INSERT 8
SECTION 5.04. SIGNS AND AUCTIONS. Tenant shall not place
any signs on the Property without Landlord's prior written consent. Tenant
shall not conduct or permit any auctions or sheriff's sales at the Property.
SECTION 5.05. INDEMNITY. Tenant shall indemnify Landlord against
and hold Landlord harmless from any and all costs, claims or liability arising
from: (a) Tenant's use of the Property; (b) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Property,
including any contamination of the Property or any other property resulting
from the presence or use of Hazardous Material caused or permitted by Tenant;
(c) any breach or default in the performance of Tenant's obligations under this
Lease; (d) any misrepresentation or breach of warranty by Tenant under this
Lease; or (e) other acts or omissions of Tenant. Tenant shall defend Landlord
against any such cost, claim or liability at Tenant's expense with counsel
reasonably acceptable to Landlord or, at Landlord's election, Tenant shall
reimburse Landlord for any legal fees or costs incurred by Landlord in
connection with any such claim. As a material part of the consideration to
Landlord, Tenant assumes all risk of damage to property or injury to persons in
or about the Property arising from any cause, and Tenant hereby waives all
claims in respect thereof against Landlord, except for any claim arising out of
Landlord's gross negligence or willful misconduct. As used in this Section, the
term "Tenant" shall include Tenant's employees, agents, contractors and
invitees, if applicable.
SECTION 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter
the Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, except in the case of an emergency.
Landlord may place customary "For Sale" or "For Lease" signs on the Property.
SECTION 5.07. QUIET POSSESSION. If Tenant pays the rent and
complies with all other terms of this Lease, Tenant may occupy and enjoy the
Property for the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 6.01. EXISTING CONDITIONS. Tenant accepts the Property in
its condition as of the execution of the Lease, subject to all recorded
matters, laws, ordinances, and governmental regulations and orders. Except as
provided herein, Tenant acknowledges that neither Landlord nor any agent or
employee of Landlord has made any representations as to the condition of the
Property or the suitability of the Property for Tenant's intended use. Tenant
represents and warrants that Tenant has made its own inspection of and inquiry
regarding the condition of the Property and is not relying on any
representations of Landlord , its agents or employees or any Broker with
respect
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thereto. If Landlord or Landlord's Broker has provided a Property Information
Sheet or other Disclosure Statement regarding the Property, a copy is attached
as an exhibit to the Lease.
SECTION 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall
not be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant ,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a) fire,
steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c) conditions arising in
or about the Property or upon other portions of the Project, or from other
sources or places, or (d) any act or omission of any other tenant of the
Project. Landlord shall not be liable for any such damage or injury even though
the cause of or the means of repairing such damage or injury are not accessible
to Tenant. The provisions of this Section 6.02 shall not, however, exempt
Landlord from liability for Landlord's gross negligence or willful misconduct.
SECTION 6.03. LANDLORD'S OBLIGATIONS.
(a) INSERT 9
(b) Tenant shall pay or reimburse Landlord for all costs Landlord
incurs under Paragraph 6.03(a) above as Common Area costs as provided for in
Section 4.05 of the Lease. Tenant waives the benefit of any statute in effect
now or in the future which might give Tenant the right to make repairs at
Landlord's expense or to terminate this Lease due to Landlord's failure to keep
the Property in good order, condition and repair.
SECTION 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions
of the Property (including structural, nonstructural, interior, systems, and
equipment) in good order, condition and repair (including interior repainting
and refinishing, as needed and any and all components of electrical,
mechanical, plumbing, heating and air conditioning systems and facilities
located on the Property ). If any portion of the Property or any system or
equipment in the Property which Tenant is obligated to repair cannot be fully
repaired or restored, Tenant shall promptly replace such portion of the
Property or system or equipment in the Property, regardless of whether the
benefit of such replacement extends beyond the Lease Term; but if the benefit
or useful life of such replacement extends beyond the Lease Term (as such term
may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which
is applicable to the Lease Term (as extended): Tenant shall maintain a
preventive maintenance contract providing for the regular inspection and
maintenance of the heating and air conditioning system by a licensed heating
and air conditioning contractor, unless Landlord maintains such equipment under
Section 6.03 above. If any part of the Property or the Project is damaged by
any act or omission of Tenant, Tenant shall pay Landlord the cost of repairing
or replacing such damaged property, whether or not Landlord would otherwise be
obligated to pay the cost of maintaining or repairing such property. It is the
intention of Landlord and Tenant that at all times Tenant shall maintain the
portions of the Property which Tenant is obligated to maintain in an
attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.04, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
SECTION 6.05. ALTERNATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed Ten Thousand Dollars
($10,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and completion bonds inform
and amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.05(a) upon Landlord's written request. All alterations, additions,
and improvements shall be done in a good and workmanlike manner, in conformity
with all applicable laws and regulations, and by a contractor approved by
Landlord. Upon completion of any such work, Tenant shall provide Landlord with
"as built" plans, copies of all construction contracts, and proof of payment
for all labor and materials.
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(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
SECTION 6.06. CONDITION UPON TERMINATION. Upon the termination of
the Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same condition as received except for ordinary wear and tear which Tenant
was not otherwise obligated to remedy under any provision of this Lease.
However, Tenant shall not be obligated to repair any damage which Landlord is
required to repair under Article Seven (Damage or Destruction). In addition,
Landlord may require Tenant to remove any alterations, additions or
improvements (whether or not made with Landlord's consent) prior to the
expiration of the Lease and to restore the Property to its prior condition, all
at Tenant's expense. All alterations, additions and improvements which Landlord
has not required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or earlier termination of the
Lease, except that Tenant may remove any of Tenant's machinery or equipment
which can be removed without material damage to the Property. Tenant shall
repair, at Tenant's expense, any damage to the Property caused by the removal
of any such machinery or equipment. In no event, however, shall Tenant remove
any of the following materials or equipment (which shall be deemed Landlord's
property) without Landlord's prior written consent: any power wiring or power
panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other
window coverings; carpets or other floor coverings; heaters, air conditioners
or any other heating or air conditioning equipment; fencing or security gates;
or other similar building operating equipment and decorations. Landlord shall
notify Tenant at the time Landlord approves any alteration, addition or
improvement whether or not Tenant shall be required to remove same upon
termination and such notice shall be binding upon the parties.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
SECTION 7.01. PARTIAL DAMAGE TO PROPERTY
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or
improvements, and Tenant shall pay Landlord the "deductible" amount under the
Landlord's insurance policies.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.04(b), Landlord may elect either to (i) repair the damage as soon as
reasonably possible, in which case this Lease shall remain in full force and
effect, or (ii) terminate this Lease as of the date the damage occurred.
Landlord shall notify Tenant within thirty (30) days after receipt of notice of
the occurrence of the damage whether Landlord elects to repair the damage or
terminate the Lease. If Landlord elects to repair the damage, Tenant shall pay
Landlord the "deductible amount" (if any) under Landlord's insurance policies
and, if the damage was due to an act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, the difference between the actual
cost of repair and any insurance proceeds received by Landlord. If Landlord
elects to terminate the Lease, Tenant may elect to continue this Lease in full
force and effect, in which case Tenant shall repair any damage to the Property
and any building in which the Property is located. Tenant shall pay the cost of
such repairs, except that upon satisfactory completion of such repairs,
Landlord shall deliver to Tenant any insurance proceeds received by Landlord
for the damage repaired by Tenant. Tenant shall give Landlord written notice of
such election within ten (10) days after receiving Landlord's termination
notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30)
days to repair, either Landlord or Tenant may elect to terminate this Lease as
of the date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
SECTION 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease
shall terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord, including the
"deductible" amount (if any) under Landlord's insurance policies.
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SECTION 7.03. TEMPORARY REDUCTION OF RENT. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, any rent payable during the
period of such damage, repair and/or restoration shall be reduced according to
the degree, if any, to which Tenant's use of the Property is impaired. However,
the reduction shall not exceed the sum of one year's payment of Base Rent,
insurance premiums and real property taxes. Except for such possible reduction
in Base Rent, insurance premiums and real property taxes, Tenant shall not be
entitled to any compensation, reduction, or reimbursement from Landlord as a
result of any damage, destruction, repair, or restoration of or to the
Property.
SECTION 7.04. WAIVER. Tenant waives the protection of any statute,
code or judicial decision which grants a tenant the right to terminate a lease
in the event of the substantial or total destruction of the leased property.
Tenant agrees that the provisions of Section 7.02 above shall govern the rights
and obligation of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs
first. If more than twenty percent (20%) of the floor area of the building in
which the Property is located, or which is located on the Property, is taken,
either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession, by delivering written notice to
the other within ten (10) days after receipt of written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority takes title or possession). If neither Landlord nor Tenant terminates
this Lease, this Lease shall remain in effect as to the portion of the Property
not taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense. Landlord and Tenant waive the protection of
California Code of Civil Procedure Section 1265.13 allowing either party to
petition the Superior Court to terminate the Lease in event of a partial taking
of the Property by Condemnation.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
SECTION 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the
Property or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by sale, assignment, mortgage, sublease, transfer,
operation of law, or act of Tenant, without Landlord's prior written consent,
except as provided in Section 9.02 below. Landlord has the right to grant or
withhold its consent as provided in Section 9.05 below. Any attempted transfer
without consent shall be void and shall constitute a non-curable breach of this
Lease. If Tenant is a partnership, any cumulative transfer of more than twenty
percent (20%) of the partnership interest shall require Landlord's consent. If
Tenant is a corporation, any change in the ownership of a controlling interest
of the voting stock of the corporation shall require Landlord's consent.
SECTION 9.02. TENANT AFFILIATE. Tenant may assign this Lease to
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant
("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume in
writing all of Tenant's obligations under this Lease.
SECTION 9.03. NO RELEASE OF TENANT. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under the Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's
transferee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord may consent
to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action
shall not relieve Tenant's liability under this Lease.
SECTION 9.04. OFFER TO TERMINATE. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty (20)
days after notice of the offer, the Lease shall terminate as of the date
specified and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall continue in effect
until. Otherwise terminated and the provisions of Section 9.05 with respect to
any proposed transfer shall continue to apply.
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SECTION 9.05. LANDLORD'S CONSENT.
(a) INSERT 10
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.13) of the Profit
(defined below) on such transaction as and when received by Tenant,
unless Landlord gives written notice to Tenant and the assignee or
subtenant that Landlord's Share shall be paid by the assignee or
subtenant to Landlord directly. The "Profit" means (A) all amounts
paid to Tenant for such assignment or sublease, including "key" money,
monthly rent in excess of the monthly rent payable under the Lease,
and all fees and other consideration paid for the assignment or
sublease, including fees under any collateral agreements, less (B)
costs and expenses directly incurred by Tenant in connection with the
execution and performance of such assignment or sublease for real
estate broker's commissions and costs of renovation or construction of
tenant improvements required under such assignment or sublease. Tenant
is entitled to recover such costs and expenses before Tenant is
obligated to pay the Landlord's Share to Landlord. The Profit in the
case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of
the Property within thirty (30) days after the transaction
documentation is signed, and Landlord may inspect Tenant's books and
records to verify the accuracy of such statement. On written request,
Tenant shall promptly furnish to Landlord copies of all the
transaction documentation, all of which shall be certified by Tenant
to be complete, true and correct. Landlord's receipt of Landlord's
Share shall not be a consent to any further assignment or subletting.
The breach of Tenant's obligation under this Paragraph 9.05(b) shall
be a material default of the Lease.
SECTION 9.06. NO MERGER. No merger shall result from Tenant's
sublease of the Property under this Article Nine. Tenant's surrender of this
Lease or the termination of this Lease in any other manner. In any such event,
Landlord may terminate any or all subtenancies or succeed to the interest of
Tenant as sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
SECTION 10.01. COVENANTS AND CONDITIONS. Tenant's performance of
each of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance. Time is of the essence in the performance of
all covenants and conditions.
SECTION 10.02. DEFAULTS. Tenant shall be in material default under
this Lease:
(a) If Tenant abandons the Property or it Tenant's vacation of the
Property results in the cancellation of any insurance described in Section
4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant
commences such performance within the thirty (30) -day period and thereafter
diligently pursues its completion. However, Landlord shall not be required to
give such notice if Tenant's failure to perform constitutes a non-curable
breach of this Lease. The notice required by this Paragraph is intended to
satisfy any and all notice requirements imposed by law on Landlord and is not
in addition to any such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication
of bankruptcy or for reorganization or rearrangement is filed by or against
Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or
receiver is appointed to take possession of substantially all of Tenant's
assets located at the Property or of Tenant's interest in the Lease and
possession is not restored to Tenant within thirty (30) days; or (iv) if
substantially all of Tenant's assets located at the Property or of Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court of
competent jurisdiction determines that any of the acts described in this
subparagraph (d) is not a default under this Lease, and a trustee is appointed
to take possession (or if Tenant remains a debtor in possession) and such
trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall
receive, as Additional Rent, the excess, if any, of the rent (or any other
consideration) paid in connections with such assignment or sublease over the
rent payable by Tenant under this Lease.
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(e) If any guarantor of the Lease revokes or otherwise terminates,
or purports to revoke or otherwise terminate, any guaranty of all or any
portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
SECTION 10.03. REMEDIES. On the occurrence of any material default
by Tenant, Landlord may, at any time thereafter, with or without notice or
demand and without limited Landlord in the exercise of any right or remedy
which Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of
award exceeds the amount of such rental loss that Tenant proves Landlord could
have reasonably avoided; and (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligations under the Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to, any
costs or expenses Landlord incurs in maintaining or preserving the Property
after such default, the cost of recovering possession of the Property, expenses
of reletting, including necessary renovation or alteration of the Property,
Landlord's reasonable attorneys' fees incurred in connection therewith, and any
real estate commission paid or payable. As used in subparts (i) and (ii) above,
the "worth at the time of the award" is computed by allowing interest on unpaid
amounts at the rate of fifteen percent (15%) per annum, or such lesser amount
as may then be the maximum lawful rate. As used in subpart (iii) above, the
"worth at the time of the award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of the
award, plus one percent (1%). If Tenant has abandoned the Property, Landlord
shall have the option of (i) retaking possession of the Property and recovering
from Tenant the amount specified in this Paragraph 10.03(a), or (ii) proceeding
under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the
Property. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to recover
the rent as it becomes due;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
SECTION 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for
a postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated
Rent". Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition
required by this Lease. Tenant acknowledges that its right to receive credit
for the Abated Rent is absolutely conditioned upon Tenant's full, faithful and
punctual performance of its obligations under this Lease. If Tenant defaults
and does not cure within any applicable grace period, the Abated Rent shall
immediately become due and payable in full and this Lease shall be enforced as
if there were no such rent abatement or other rent concession. In such case
Abated Rent shall be calculated based on the full initial rent payable under
this Lease.
SECTION 10.05. AUTOMATIC TERMINATION. Notwithstanding any other
term or provision hereof to the contrary, the Lease shall terminate on the
occurrence of any act which affirms the Landlord's intention to terminate the
Lease as provided in Section 10.03 hereof, including the filing of an unlawful
detainer action against Tenant. On such termination, Landlord's damages for
default shall include all costs and fees, including reasonable attorneys' fees
that Landlord incurs in connection with the filing, commencement, pursuing
and/or defending of any action in any bankruptcy court or other court with
respect to the Lease; the obtaining of relief from any stay in bankruptcy
restraining any action to evict Tenant; or the pursuing of any action with
respect to Landlord's right to possession of the Property. All such damages
suffered (apart from Base Rent and other rent payable hereunder) shall
constitute pecuniary damages which must be reimbursed to Landlord prior to
assumption of the Lease by Tenant or any successor to Tenant in any bankruptcy
or other proceeding.
SECTION 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any
right or remedy shall not prevent it from exercising any other right or remedy.
11
<PAGE> 12
ARTICLE ELEVEN: PROTECTION OF LENDERS
SECTION 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any lender
which is acquiring a security interest in the Property or the Lease. Tenant
shall execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
SECTION 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
SECTION 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver
any instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within (10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
SECTION 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms of provisions of this Lease have been changed (or if they
have been changed, stating how they have been changed); (ii) that this Lease
has not been cancelled or terminated; (iii) the last date of payment of the
Base Rent and other charges and the time period covered by such payment; (iv)
that Landlord is not in default under this Lease (or if Landlord is claimed to
be in default, stating why); and (v) such other representations or information
with respect to Tenant or the Lease as Landlord may reasonably request or which
any prospective purchaser or encumbrancer of the Property may require. Tenant
shall deliver such statement to Landlord within ten (10) days after Landlord's
request. Landlord may give any such statement by Tenant to any prospective
purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may
rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten (10) -day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance; and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
SECTION 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days
after written request from Landlord, Tenant shall deliver to Landlord such
financial statements as Landlord reasonably requires to verify the net worth of
Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant
shall deliver to any lender designated by Landlord any financial statements
required by such lender to facilitate the financing or refinancing of the
Property. Tenant represents and warrants to Landlord that each such financial
statement is a true and accurate statement as of the date of such statement.
All financial statements shall be confidential and shall be used only for the
purposes set forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
SECTION 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach
or default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include reasonable legal fees
and costs incurred for the negotiation of a settlement, enforcement of rights
or otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such reasonable
attorneys' fees and costs. Tenant shall also indemnify Landlord against and
hold Landlord harmless from all costs, expenses, demands and liability Landlord
may incur if Landlord becomes or is made a party to any claim or action (a)
instituted by Tenant against any third party, or by any third party against
12
<PAGE> 13
Tenant, or by or against any person holding any interest under or using the
Property by license of or agreement with Tenant; (b) for foreclosure on any
lien for labor or material furnished to or for Tenant or such other person; (c)
otherwise arising out of or resulting from any act or transaction of Tenant or
such other person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the
United States Code, as amended. Tenant shall defend Landlord against any such
claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs Landlord incurs in any such claim or action.
SECTION 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
SECTION 13.01. NON-DISCRIMINATION. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of , any person or group of persons on
the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property or
any portion thereof.
SECTION 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or Project or the
leasehold estate under a ground lease of the Property or Project at the time in
question. Each Landlord is obligated to perform the obligations of Landlord
under this Lease only during the time such Landlord owns such interest or
title. Any Landlord who transfers its title of interest is relieved of all
liability with respect to the obligations of Landlord under this Lease to be
performed on or after the date of transfer. However, each Landlord shall
deliver to its transferee all funds that Tenant previously paid if such funds
have not yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure of Landlord
to perform any of its obligations under this Lease to Landlord and to any
ground lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure,
Landlord shall not be in default if such cure is commenced within such thirty
(30) -day period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property and the
Project, and neither the Landlord nor its partners, shareholders, officers or
other principals shall have any personal liability under this Lease.
SECTION 13.03. SEVERABILITY. A determination by a court of
competent jurisdiction that any provision of this Lease or any part thereof is
illegal or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.
SECTION 13.04. INTERPRETATION. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Property with
Tenant's expressed or implied permission.
SECTION 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS.
This Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendment shall be void.
SECTION 13.06. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.03 above, except that
upon Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to the
other party.
SECTION 13.07. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord
from enforcing that provision or any other provision of this Lease in the
future. No statement on a payment check
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<PAGE> 14
from Tenant or in a letter accompanying a payment check shall be binding on
Landlord. Landlord may, with or without notice to Tenant, negotiate such check
without being bound to the conditions of such statement.
SECTION 13.08. NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or Tenant
may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded. The party requiring such recording shall pay all transfer
taxes and recording fees.
SECTION 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord
or Tenant. However, Landlord shall have no obligation to Tenant's successor
unless the rights or interests of Tenant's successor are acquired in accordance
with the terms of this Lease. The laws of the state in which the Property is
located shall govern this Lease.
SECTION 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant
is a corporation, each person signing this Lease on behalf of Tenant represents
and warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord: of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
SECTION 13.11. JOINT AND SEVERAL LIABILITY. All parties
signing this Lease as Tenant shall be jointly and severally liable to all
obligations of Tenant.
SECTION 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
SECTION 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
SECTION 13.14. SURVIVAL. All representations and warranties of
Landlord and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
INSERT 11
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR
IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW
A LINE THROUGH THE SPACE BELOW.
14
<PAGE> 15
Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all
Riders which are attached to or incorporated by reference in this Lease.
<TABLE>
<S> <C>
"LANDLORD"
Signed on , 2000 TCW REALTY FUND VA HOLDING COMPANY,
----------------------------- a California corporation,
at . as tenant in common
------------------------------------------
By:
------------------------------------------------
Authorized Signatory
By:
------------------------------------------------
Authorized Signatory
TCW REALTY FUND VB,
a California limited partnership,
as tenant in common
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation,
as General Partner
By:
--------------------------------------------
Authorized Signatory
By:
--------------------------------------------
Authorized Signatory
By: WESTMARK REALTY ADVISORS L.L.C.,
a Delaware limited liability company,
as General Partner
By:
--------------------------------------------
Authorized Signatory
By:
--------------------------------------------
Authorized Signatory
"TENANT"
Signed on 2-16-00 , 2000 L.A.T. SPORTSWEAR, INC.,
----------------------------- ------------------------------------------------
at a Georgia corporation dba Full Line Distributors
------------------------------------------ ------------------------------------------------
By: /s/ Gina Watson McElroy
--------------------------------------------
Its: V.P.
--------------------------------------------
By: /s/ John Hankinson
--------------------------------------------
Its: CFO
--------------------------------------------
</TABLE>
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT
WITH A PROFESSIONAL SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER
PERSON WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING
THE POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF
THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS,(R) INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,(R) INC.,
ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL
TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
15
<PAGE> 16
RIDER TO INDUSTRIAL REAL ESTATE LEASE
(MULTI-TENANT FACILITY)
RIDER TO SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS, INC. ("SIOR"), INDUSTRIAL REAL ESTATE LEASE (MULTI-TENANT FACILITY)
DATED FEBRUARY 7, 2000, BY AND BETWEEN TCW REALTY FUND VA HOLDING COMPANY, A
CALIFORNIA CORPORATION, AND TCW REALTY FUND VB, A CALIFORNIA LIMITED
PARTNERSHIP, AS TENANTS IN COMMON, AS LANDLORD, AND L.A.T. SPORTSWEAR, INC., A
GEORGIA CORPORATION DBA FULL LINE DISTRIBUTORS, AS TENANT. TO THE EXTENT THAT
ANY PROVISIONS OF THE FORM SIOR INDUSTRIAL REAL ESTATE LEASE (MULTI-TENANT
FACILITY) ARE INCONSISTENT WITH ANY PROVISIONS OF THIS RIDER, IT IS
SPECIFICALLY AGREED AND UNDERSTOOD THAT THE PROVISIONS OF THIS RIDER SHALL
CONTROL.
INSERT 1. SECTION 1.04 (NEW). Landlord and Tenant hereby acknowledge
and agree that the foregoing statement of square footage is
not a representation or warranty of the exact number of
square feet but rather is only a reasonable approximation and
that the Base Rent payable below is not subject to revision
whether or not the actual square footage is more or less than
the approximation.
INSERT 2. SECTION 1.10 (CONTINUED). The parties acknowledge that
Landlord is currently holding Tenant's security deposit under
the Original Lease (as hereinafter defined) in the amount of
Thirteen Thousand Eight Hundred Twenty-Four and No/100
Dollars ($13,824.00) (the "Existing Deposit"). Upon execution
hereof, Tenant shall increase the Existing Deposit by Three
Thousand Six Hundred Seventy-Two and No/100 Dollars
($3,672.00) so that the Security Deposit under this Lease
shall be Seventeen Thousand Four Hundred Ninety-Six and
No/100 Dollars ($17,496.00).
INSERT 3. SECTION 1.12(A) (CONTINUED). On the first day of the
twenty-first (21st) month following the Commencement Date
(the "Index Adjustment Date"), Base Rent shall be adjusted
upward only, in the same percentage that the Consumer Price
Index published by the United States Department of Labor,
Bureau of Labor Statistics (the "Bureau") (All Times) index
for All Urban Consumers in the Los Angeles Anaheim-Riverside
metropolitan area (1982 - 1984 = 100) (the "Index") for the
calendar month which is three (3) full months immediately
preceding the Index Adjustment Date shall increase over the
Index for the calendar month which is three (3) full months
immediately preceding the Commencement Date; provided, that
on the Index Adjustment Date the Base Rent shall in any event
increase by at least three percent (3%) per annum but no
more than seven percent (7%) per annum. Landlord shall use
reasonable efforts to calculate and give Tenant written
notice of any such increase in Base Rent prior to, and Tenant
shall in all events pay the increased Base Rent effective on,
the Index Adjustment Date. Should the Bureau discontinue the
publication of the Index, or publish the same less
frequently, or alter the same in some other manner, the most
nearly comparable Index or procedure as determined by
Landlord shall be substituted therefor by Landlord.
INSERT 4. SECTION 2.03 (CONTINUED). Landlord and Tenant acknowledge
that Tenant is currently occupying the Property pursuant to
that certain SIOR Industrial Real Estate Lease (Multi-Tenant
Facility) dated January 23, 1995 (the "Original Lease"), by
and between Landlord and Tenant, which Original Lease expires
according to its terms on April 30, 2000 (the "Original Lease
Expiration Date"). The terms and provisions of the Original
Lease shall remain in effect until the Original Lease
Expiration Date. The terms and provisions of this Lease shall
be effective on the Commencement Date of this Lease.
<PAGE> 17
INSERT 5. SECTION 4.04(A) (CONTINUED). Notwithstanding any provision
of this Lease to contrary, any premiums paid by Landlord for
Commercial General liability insurance, including umbrella or
Excess Liability relating to the Common Area or the Property,
shall be included as a Common Area Cost, and Tenant shall pay
its pro rata share of any such premiums.
INSERT 6. SECTION 4.04(D)(IV) (CONTINUED). Tenant shall secure an
appropriate clause in, or an endorsement upon, each insurance
policy required by this Lease, pursuant to which the
insurance company waives subrogation or permits the insured,
prior to any loss, to agree with a third party to waive any
claim it might have against said third party without
invalidating the coverage under the insurance policy. Such
waiver of subrogation or permission for waiver of any claim
shall extend to the agents and employees of Landlord and
Tenant, respectively.
INSERT 7. SECTION 5.02 (CONTINUED). Notwithstanding anything
contained in this Lease to the contrary, Tenant shall, in
respect of its use and occupancy, at its sole cost and
expense, faithfully observe and promptly comply with all
local, state or federal laws, statutes, ordinances and
governmental rules, regulations or requirements now or
hereafter in force with respect to Tenant's use occupancy and
possession of the Property and Tenant's business conducted
thereon including, but not limited to, the Occupational
Safety and Health Act, laws or regulations relating to the
accessibility or useability of the Property by disabled
persons, and the requirements of any board of fire
underwriters or other similar bodies now or hereafter
constituted relating to or affecting the condition, use or
occupancy of the Property. Tenant acknowledges that Landlord
makes no representation or warranty in this Lease that the
Property or any portion thereof is in compliance with any
governmental statutes, ordinances, rules or regulations
relating to the accessibility or useability of the Property
or any portion thereof by disabled persons.
INSERT 8. SECTION 5.03 (SUBSTITUTION). HAZARDOUS MATERIALS.
(A) DEFINITION. As used in this Lease, the term "Hazardous
Materials" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste
or related materials, including any substances defined as or
included in the definition of "hazardous substances",
"hazardous wastes", "infectious wastes", "hazardous
materials" or "toxic substances" now or subsequently
regulated under any federal, state or local laws, regulations
or ordinances including, without limitation, oil,
petroleum-based products, pair solvents, lead, cyanide, DDT,
printing inks, acids, pesticides, ammonia compounds and other
chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are
subsequently found to have adverse effects on the environment
or the health and safety of persons.
(B) GENERAL PROHIBITION. Tenant shall not cause or permit any
Hazard Materials to be generated, produced, brought upon,
used, stored, treated, discharged, released, spilled or
disposed of on, in, under or about the Property Tenant, its
affiliates, agents, employees, contractors, sublessees,
assignees or invitees (collectively, "Tenant Parties")
without the prior written consent of Landlord, which consent
shall be granted or denied in Landlord's good faith business
judgment; provided, however, Landlord's consent shall not be
required to use or store (i) small quantities of standard
office supplies standard for offices of the size of their
office space contained in the Property or (ii) small
quantities of common household cleaning supplies standard for
the size of the Property (such supplies, together with any
other hazardous materials for which consent is given, are
hereinafter referred to as the "Permitted Materials"). In no
event, however, shall Landlord be required to consent to the
use of asbestos-containing materials, PCBs or the
installation or use of any storage tanks in, on or under the
Property. Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all actions (including,
without limitation, remedial or enforcement actions of any
kind, administrative or judicial proceedings, and orders or
judgments arising out
2
<PAGE> 18
of or resulting therefrom), costs, claims, damages
(including, without limitation, punitive damages), expenses
(including, without limitation, attorneys', consultants' and
experts' fees, court costs and amounts paid in settlement of
any claims or actions), fines, forfeitures or other civil,
administrative or criminal penalties, injunctive or other
relief (whether or not based upon personal injury, property
damage, or contamination of, or adverse effects upon, the
environment, water tables or natural resources), liabilities
or losses ("Environmental Claims") arising from (a) a breach
of this prohibition by Tenant or any of the Tenant Parties or
(b) the presence, generation, production, use, storage,
treatment, discharge, release, spill or disposal of the
Permitted Materials.
(c) In the event that Hazardous Materials are discovered
upon, in, or under the Property, or any governmental agency
or entity having jurisdiction over the Property requires the
removal of such Hazardous Materials, Tenant shall be
responsible for removing those Hazardous Materials arising
out of or related to the use or occupancy of the Property by
Tenant or any of the Tenant Parties; Tenant shall not be
responsible for removing Hazardous Materials arising out of
or related to the use or occupancy of the Property by prior
tenants or owners of the Property except to the extent that
Tenant or any of the Tenant Parties have exacerbated such
preexisting condition. Notwithstanding the foregoing, Tenant
shall not take any remedial action in or about the Property,
nor enter into any settlement agreement, consent decree or
other compromise with respect to any claims relating to any
Hazardous Materials in any way connected with the Property
without first notifying Landlord of Tenant's intention to do
so and affording Landlord the opportunity to appear,
intervene or otherwise appropriately assert and protect
Landlord's interest with respect thereto. Tenant immediately
shall notify Landlord in writing of: (i) any spill, release,
discharge or disposal of any Hazardous Material in, on or
under the Property, or any portion thereof of which Tenant
has knowledge, (ii) any enforcement, cleanup, removal or
other governmental or regulatory action instituted,
contemplated, or threatened (if Tenant has notice thereof)
pursuant to any Hazardous Materials Laws of which Tenant has
knowledge; (iii) any claim made or threatened by any person
against Tenant, any of the Tenant Parties or the Property,
relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to
result from any Hazardous Materials of which Tenant has
knowledge; and (iv) any reports made to any governmental
agency or entity arising out of or in connection with any
Hazardous Materials in, on, under or about or removed from
the Property of which Tenant has knowledge, including any
complaints, notices, warnings, reports or asserted violations
in connection therewith. Tenant also shall supply to Landlord
as promptly as possible, and in any event within five (5)
business days after Tenant first receives or sends the same,
copies of all claims, reports, complaints, notices, warnings
or asserted violations relating in any way to the Property or
the use or occupancy thereof by Tenant or any of the Tenant
Parties.
(d) The respective rights and obligations of Landlord and
Tenant under this Section 5.03 shall survive the expiration
or earlier termination of this Lease.
(e) Attached hereto as Exhibit "B" is a true and correct copy
of the Industrial Lease Hazardous Material Questionnaire
completed by Tenant and submitted to Landlord as a material
inducement relied upon by Landlord in entering into this
Lease.
INSERT 9. SECTION 6.03 (SUBSTITUTION) - LANDLORD'S OBLIGATIONS.
Subject to the provisions of Article Seven (Damage or
Destruction) and Article Eight (Condemnation), and Initials
except for damage caused by any act or omission of Tenant, or
Tenant's employees, agents, contractors or invitees, Landlord
shall keep the foundation, roof and structural portions of
the improvements on the Property in good order, condition and
repair. All costs incurred by Landlord for roof maintenance
(including, but not limited to, repair of roof leaks) shall
be deemed a Common Area cost and Tenant shall pay Tenant's
pro rata share of such costs in accordance
3
<PAGE> 19
with Section 4.05(e) of this Lease. Landlord shall be
responsible for the cost and expense of roof replacement
unless replacement is necessitated by Tenant's negligence,
willful misconduct or misuse. All costs incurred by Landlord
in connection with painting the exterior of the buildings in
the Project and slurry coating the Project's parking lots
shall be deemed Common Area costs and Tenant shall pay
Tenant's pro rata share of such costs in accordance with
Section 4.05(e) of this Lease. Landlord shall repaint the
exterior of the buildings in the Project and slurry coat the
Project's parking lots at such times as Landlord deems
necessary. Tenant shall bear the entirety of the cost of
repairing any damage to the Project's parking lots caused by
Tenant's negligence, willful misconduct or excessive use of
the parking lots, including but not limited to, damage to
Tenant's parking/truck court. Landlord shall not be obligated
to maintain or repair windows, doors, plate glass or the
surfaces of walls. Landlord shall not be obligated to make
any repairs under this Section 6.03 until a reasonable time
after receipt of a written notice from Tenant of the need for
such repairs. Tenant waives the benefit of any present or
future law which might give Tenant the right to repair the
Property at Landlord's expense or to terminate this Lease
because of the condition of the Property.
INSERT 10. SECTION 9.05(A) (SUBSTITUTION) - LANDLORD'S CONSENT. Tenant's
request for consent to any such sublease, assignment or other
transfer shall set forth in writing the details of the
proposed sublease, assignment or other transfer, including
the name, business and financial condition of the prospective
transferee (including copies of current financial statements
of the prospective transferee), financial details of the
proposed transaction (e.g., the term of and the rent,
security deposit and any other consideration payable under
such proposed assignment, sublease or transfer), and any
other information Landlord reasonably may request. Landlord
and Tenant hereby agree that, in determining whether to grant
or withhold consent to such proposed sublease, assignment or
other transfer, Landlord may consider, without limitation,
the following factors, which Landlord and Tenant acknowledge
and agree are reasonable: (i) the business of the proposed
assignee, sublessee or transferee and the proposed use of the
Property; (ii) the financial strength and the business
reputation of the proposed assignee, sublessee or transferee;
(iii) the proposed use, storage, treatment, generation or
production of any Hazardous Materials by the proposed
assignee, sublessee or transferee; and (iv) Tenant's
compliance with all of its obligations under this Lease.
Notwithstanding any provisions of this Lease, or any present
or future statute, law, rule or ordinance, to the contrary,
Landlord and Tenant hereby expressly agree that if a court of
competent jurisdiction determines that Landlord unreasonably
withheld consent to a proposed sublease, assignment or other
transfer by Tenant, then Tenant's sole and exclusive remedy
for such breach by Landlord shall be limited to termination
of this Lease as of the date of such court determination, and
Tenant hereby expressly waives the right to recover any
monetary damages of whatever kind for such breach.
INSERT 11. ARTICLE FOURTEEN (SUBSTITUTION) - BROKERS. Except with respect
to the brokers named in Section 1.08, with whom Tenant has
dealt in connection with this Lease, Tenant hereby represents
and warrants to Landlord that it has not entered into any
agreement or incurred any obligation which might result in
the obligation to pay any brokerage commission, finder's fee
or other compensation with respect to this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from and
against any losses, damages, costs or expenses (including,
without limitation, attorney's fees) incurred by Landlord by
reason of any breach or inaccuracy of such representation or
warranty.
ARTICLE FIFTEEN - OTHER PROVISIONS (NEW).
15.01 CONFIDENTIALITY. Tenant agrees that except as required
by law, it shall keep confidential, and shall not disclose to
any third party, the terms, provisions and contents of this
Lease, or any information relating to this Lease.
4
<PAGE> 20
15.02 LANDLORD'S LIABILITY. Notwithstanding anything to the
contrary contained in this Lease, Tenant agrees that its sole
and exclusive remedy shall be against Landlord's interest in
the Project and that the obligations of Landlord under this
Lease do not constitute personal obligations of the
individual partners, whether general or limited, directors,
officers, shareholders or trustees of Landlord, and Tenant
shall not seek recourse against the individual partners,
directors, officers, shareholders or trustees of Landlord or
any of their personal assets for satisfaction of any
liability with respect to this Lease. Notwithstanding
anything to the contrary contained in this Lease, in no event
shall Landlord be liable under any circumstances for any
consequential damages, including without limitation, lost
profits.
ARTICLE SIXTEEN - OPTION TO EXTEND (NEW).
SECTION 16.01. Landlord hereby grants to Tenant one (1)
option (the "Option") to extend the term of this Lease for
three (3) years (the "Extension Period"), on the same terms
and conditions as set forth in this Lease (except that there
shall be no additional option to extend the Extension Period)
but at an increased rent as set forth in Section 16.03 below.
The Option shall be exercised only by written notice
delivered to Landlord no earlier than two hundred and forty
(240) days and no later than one hundred and eighty (180)
days prior to the expiration of the Lease Term. If Tenant
fails to deliver to Landlord written notice of the exercise
of the Option on or before such date, the Option shall lapse,
and there shall be no further right to extend the term of
this Lease. The Option shall be exercisable by Tenant only on
the express condition that (i) at the time of the exercise,
and at all times prior to the commencement of the Extension
Period, Tenant shall not be in material default under any of
the provisions of this Lease, and (ii) Tenant shall not have
been ten (10) or more days late in the payment of Base Rent
more than twice during any twelve (12) consecutive month
period during the Lease Term.
SECTION 16.02. If Tenant subleases any portion of the
Property or assigns or otherwise transfers any interest under
this Lease to any person or entity other than a Tenant
Affiliate prior to the exercise of the Option, the Option
shall lapse. If Tenant subleases any portion of the Property
or assigns or otherwise transfers any interest of Tenant
under this Lease to any person or entity after the exercise
of the Option but prior to the commencement of the Extension
Period (whether with or without Landlord's consent), the
Option shall lapse and the term of this Lease shall expire as
if such Option were not exercised. Notwithstanding anything
to the contrary set forth in this Section 16.02, the Option
shall not lapse if any such sublease, assignment or other
transfer is to an entity which controls, is controlled by or
is under common control with Tenant.
SECTION 16.03. Base Rent for the Property shall be increased
on the first day of the Extension Period to an amount equal
to the "fair rental value" of the Property (which fair rental
value determination may include increases in rent during the
Extension Period and percentage rent amounts), which fair
rental value shall be determined by Landlord in its sole but
reasonable discretion, after evaluating, among other things,
the rents at similar buildings in the same general geographic
area, but in no event shall the Base Rent be less than the
then current Base Rent being paid by Tenant. Landlord shall
notify Tenant in writing of such determination of fair rental
value within thirty (30) days after Landlord's receipt of
Tenant's notice exercising the Option. If Tenant shall
dispute Landlord's determination of fair rental value for the
Property, then Landlord and Tenant shall cooperate in good
faith to arrive at a mutually agreeable Base Rent within
thirty (30) days after receipt of Landlord's notice of fair
rental value. If the parties cannot agree, Tenant shall have
the right to either (a) submit the issue of Landlord's
reasonableness (but not the fair rental value) for neutral
binding arbitration (and not by court action) to the American
Arbitration Association in accordance with the rules of such
Association then in effect, or (b) rescind Tenant's exercise
of the Option by delivering written notice to Landlord within
ten (10) days after said thirty (30) day negotiation period,
in which event this
5
<PAGE> 21
Lease shall terminate upon the expiration of the Lease Term
(unless sooner terminated in accordance herewith) and Tenant
shall have no further right or option to extend the Lease
Term. Tenant shall exercise such right of arbitration by
delivering written notice of such election within thirty (30)
days after receipt of Landlord's notice of fair rental value.
If the arbitrators shall decide that Landlord's determination
of fair rental value was reasonable, then fair rental value
shall be the amount previously determined by Landlord. If the
arbitrators shall determine that Landlord acted unreasonably,
then Landlord shall redetermine the fair rental value in its
sole but reasonable discretion, provided that Tenant shall
again have the right to challenge Landlord's reasonableness
in the manner set forth above. In no event shall the
arbitrators be permitted to determine rental value under this
Lease. The decision of the arbitrators shall be binding upon
both parties. Each party shall share equally the cost of the
arbitration process.
6
<PAGE> 22
EXHIBIT "A"
SITE PLAN
[DIAGRAM]
A-1
<PAGE> 23
EXHIBIT "B"
HAZARDOUS MATERIALS QUESTIONNAIRE
(Company Name) L.A.T. SPORTSWEAR, INC., a Georgia corporation dba Full Line
Distributors
"Premises": 2356 Moore Avenue, Fullerton, California
This Hazardous Materials Questionnaire is designed to solicit information
concerning your proposed use of Hazardous Materials at 2356 Moore Avenue,
Fullerton, California. The term "HAZARDOUS MATERIALS" means any flammable
items, explosives, radioactive materials, hazardous or toxic substances,
material or waste or related materials, including any substances defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"infectious wastes", "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state or local laws, regulations or
ordinances, including without limitation, oil, petroleum-based products,
paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds,
and including any different products and materials which are subsequently found
to have adverse effects on the environment or the health and safety of persons.
1. BACKGROUND INFORMATION
L.A.T. SPORTSWEAR, INC., a Georgia corporation dba Full Line Distributors
Name (Corporation, General/Limited Partnership, Public Agency or Individual)
1200 Airport Drive,
Street Address:
Ball Ground, GA 30107
City, State, Zip Code
Contact Person and Title: Gina McElroy, VP
Telephone Number: (770) 416-4228
2. If you have conducted the specific business or activity planned for the
"Premises" at any other site, please provide the following information: N/A
a. Address of other site:
b. Period of operation at such site:
c. Name under which operations were conducted:
d. Type of activity or manufacturing Process conducted at other site:
3. Have you ever been the subject of any investigation, inquiry, notice of
violation, order or proceeding regarding your use of Hazardous Materials?
If so, please explain. N/A
B-1
<PAGE> 24
4. With respect to the proposed operation at the "Premises", please provide
the following information:
a. Type of activity or manufacturing process proposed for "Premises" if
different from 2(d).
N/A
b. Do you intend to store or use any Hazardous Materials on the Premises? No
If yes, the information below is to be incorporated on the attached table
which will be incorporated into the lease.
c. Please list on the attached exhibit all hazardous materials to be used
in the proposed operation or manufacturing process or stored at the
site. Described the use of the material, the quantity to be used on a
weekly or monthly basis, the quantity to be stored at the site at any
one time, the method of storage, volume of wastewaters or solid and
hazardous material wastes generated and the method of disposal of such
wastes (including disposal company and disposal site).
d. Please provide a list of the permits and/or filings that have been
obtained or will be necessary to obtain in connection with the use
and/or storage of hazardous materials at the Premises.
Permit/Filing Obtained/To Be Obtained
- ----------------------- ------------------------
- ----------------------- ------------------------
- ----------------------- ------------------------
- ----------------------- ------------------------
- ----------------------- ------------------------
- ----------------------- ------------------------
e. Please include MSDS sheets for any hazardous material to be used at the
Premises and listed in the enclosed table.
B-2
<PAGE> 25
5. As an officer, a general partner, or duly authorized representative of the
company, I am familiar with all of the company and the operations to be
conducted on the Premises. I have made due inquiry in answering the
foregoing questions and hereby certify that to the best of my knowledge,
the information disclosed above is true, correct and complete.
/s/ Gina Watson-McElroy
-----------------------------
Signature
Gina Watson-McElroy
-----------------------------
Print Name
Exec. V.P. Operations
-----------------------------
Title
2-14-00
-----------------------------
Date
B-3
<PAGE> 26
HAZARDOUS MATERIAL INVENTORY
ADDRESS: 2536 Moore Avenue, Fullerton, California
<TABLE>
<CAPTION>
Quantity Quantity Wastes Disposal Method
Material (1) Use Used (2) Stored (3) Method of storage Generated (4) Of Wastes Generated (5)
- ------------ --- -------- ---------- ----------------- ------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- --------
(1) Please attached Material Safety Data Sheets (MSDS).
(2) Quantity used in 30 day period.
(3) Quantity stored in 30 day period.
(4) Estimated volume of Hazardous Material wastewaters or other Hazardous
Material liquids generated; estimated volume of Solid Hazardous Materials
waste generated.
(5) Describe the treatment, recycling, storage or disposal activities for all
Hazardous Materials Waste including name of disposal company.
B-4
<PAGE> 1
EXHIBIT 10.36.1
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE made at Cleveland, Ohio effective as
of 16 day of February, 2000, by and between THE JOSEPH NAIMAN INSURANCE
TRUST, (hereinafter called "Lessor"), and L.A.T. SPORTSWEAR, INC. DBA FULL
LINE DISTRIBUTORS, a Georgia corporation, (hereinafter called "Lessee").
WITNESSETH:
WHEREAS: Lessor and Lessee entered into a certain Lease (the "Lease")
dated April 11, 1995, whereby Lessor leased to Lessee, and Lessee leased from
Lessor certain premises (the "Premises") known as 26150 Richmond Road, Bedford
Heights OH 44148; and
WHEREAS: Lessor and Lessee desire to amend the Lease in certain
respects hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Lessor and Lessee agree to amend the Lease as follows:
1. Section 3(a) of the Lease is hereby deleted in its entirety
and the following provision is hereby inserted in substitution for and in lieu
thereof:
"(a) The initial term of this Lease (the "Initial Term")
shall be for a period of six (6) years commencing on May 1,
1995 through and including October 31, 2001."
it being the intent of the parties to extend the term of the Lease an
additional one (1) year and six (6) months commencing May 1, 2000 through and
including October 31, 2001
2. Section 3(b) of the Lease is hereby deleted in its entirety
and nothing is hereby inserted in substitution for or in lieu thereof.
3. Section 4(a) of the Lease is hereby modified by adding the
following provision to the end thereof:
"Commencing May 1, 2000 through and including October 31,
2001, the Fixed Rent shall be $178,624.80 per annum, payable
in equal monthly installments, in advance, at the rate of
$14,885.40 per month."
4. Section 4(b) of the Lease is hereby deleted in its entirety
and nothing is hereby inserted in substitution for or in lieu thereof.
<PAGE> 2
5. Except as otherwise set forth herein all of the other terms,
conditions and covenants contained in the Lease are, and shall remain, in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed the within First
Amendment to Lease the day and year first written above.
Signed in the Presence of: Lessor: THE JOSEPH NAIMAN
INSURANCE TRUST
DATED June 30,1984
/s/ Richard W. Mark By: /s/ Philip Bradley
- -------------------------- -----------------------
/s/ Daniel J. McGuire
- --------------------------
Signed in the Presence of: Lessee: L.A.T. SPORTSWEAR,
INC. dba FULL LINE
DISTRIBUTORS
/s/ John Hankinson By: /s/ Gina Watson-McElroy
- -------------------------- -----------------------
John Hankinson
- --------------------------
<PAGE> 3
STATE OF OHIO )
) ss.
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public, in and for the said County and State,
personally appeared Philip Bradley, who acknowledged that he did sign the
foregoing instrument and that the same is his free act and deed.
IN TESTIMONY WHEROF, I have hereunto set my hand and official seal
this 18 day of February, 2000.
/s/ Mary Ann Piscioneri
-----------------------------------
Notary Public
STATE OF GEORGIA )
) ss.
COUNTY OF CHEROKEE )
BEFORE ME, a Notary Public, in and for the said County and State,
personally appeared Gina McElroy, known to me as the VP of L.A. T Sportswear,
who acknowledged that she did sign the foregoing instrument and that the same
is her free act and deed as an officer of the corporation.
IN TESTIMONY WHEROF, I have hereunto set my hand and official seal
this 16th day of February, 2000.
/s/ Dawn Trahan
-----------------------------------
Notary Public
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements No
333-04647 and 333-04649 of Full Line Distributors, Inc. (formerly L.A. T
Sportswear, Inc.) on Form S-8 of our report dated February 11, 2000 (March 1,
2000 as to Note 9), appearing in this Annual Report on Form 10-K of Full Line
Distributors, Inc. for the year ended January 1, 2000.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FULL LINE DISTRIBUTION FOR THE YEAR ENDED JANUARY 1,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 233
<SECURITIES> 0
<RECEIVABLES> 8,879
<ALLOWANCES> 1,517
<INVENTORY> 23,202
<CURRENT-ASSETS> 32,490
<PP&E> 7,234
<DEPRECIATION> 3,431
<TOTAL-ASSETS> 36,422
<CURRENT-LIABILITIES> 7,321
<BONDS> 15,108
0
0
<COMMON> 10,827
<OTHER-SE> 2,762
<TOTAL-LIABILITY-AND-EQUITY> 36,422
<SALES> 94,672
<TOTAL-REVENUES> 94,672
<CGS> 78,813
<TOTAL-COSTS> 78,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 443
<INTEREST-EXPENSE> 1,115
<INCOME-PRETAX> 1,771
<INCOME-TAX> (372)
<INCOME-CONTINUING> 2,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,143
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.50
</TABLE>
