<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 28, 1995,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
COMMISSION FILE NUMBER 0-25272
NEOSTAR RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2559376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10741 KING WILLIAM DRIVE, DALLAS, TEXAS 75220-2414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 401-9000
Former name, former address and former fiscal year,
if changed since last report: 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 .
--- ---
Title of each class of common stock:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Number of shares of Common Stock outstanding as of the close of
business on December 6, 1995:
14,938,397
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets at October 28, 1995
and January 28, 1995 (unaudited)................................................................. 3
Consolidated Statements of Operations for the three and nine months
ended October 28, 1995 and October 29, 1994 (unaudited).......................................... 4
Consolidated Statements of Cash Flows for the nine months
ended October 28, 1995 and October 29, 1994 (unaudited).......................................... 5
Notes to Consolidated Financial Statements........................................................... 6
</TABLE>
- 2 -
<PAGE> 3
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
October 28, January 28,
1995 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,419 $ 19,580
Accounts receivable 1,576 1,574
Merchandise inventory 178,141 116,357
Prepaids and other 10,366 10,053
----------- ------------
Total current assets 191,502 147,564
Property and equipment, at cost, net of
accumulated depreciation and amortization 62,823 65,928
Other assets 4,540 4,467
----------- ------------
$ 258,865 $ 217,959
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 50,300 $ -
Accounts payable 106,816 86,300
Due to related parties 503 1,021
Current maturities of long-term debt 4,000 4,000
Accrued liabilities 9,605 24,847
----------- ------------
Total current liabilities 171,224 116,168
Long-term debt 13,000 16,000
Deferred credits 4,326 4,124
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; none issued - -
Common stock, $.01 par value;
50,000,000 shares authorized;
shares issued and outstanding:
October 28, 1995 - 14,933,139
January 28, 1995 - 14,718,257 149 147
Additional paid-in capital 69,839 68,367
Retained earnings 327 13,153
----------- ------------
Total stockholders' equity 70,315 81,667
----------- ------------
$ 258,865 $ 217,959
=========== ============
</TABLE>
See accompanying notes.
- 3 -
<PAGE> 4
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------ ------------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 115,298 $ 102,019 $ 305,372 $ 303,126
Cost of sales 86,278 73,653 223,696 219,224
---------- ----------- ---------- -----------
Gross profit 29,020 28,366 81,676 83,902
Store operating expenses 29,493 26,129 86,995 79,361
General and administrative
expenses 4,290 4,538 13,222 13,636
Store closing expense 139 22 727 229
---------- ----------- ---------- -----------
Operating loss (4,902) (2,323) (19,268) (9,324)
Net interest expense (1,000) (504) (1,943) (1,238)
---------- ----------- ---------- -----------
Loss before income taxes (5,902) (2,827) (21,211) (10,562)
Income tax benefit (2,338) (1,097) (8,385) (4,089)
---------- ----------- ---------- -----------
Net loss $ (3,564) $ (1,730) $ (12,826) $ (6,473)
========== =========== ========== ===========
Net loss per share $ (.24) $ (.12) $ (.87) $ (.43)
========== =========== ========== ===========
Weighted average shares
outstanding 14,892 14,708 14,768 14,707
========== =========== ========== ===========
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
------------------------------------
October 28, October 29,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (12,826) $ (6,473)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 9,262 7,833
Loss on disposition of property and equipment 391 140
Changes in operating assets and liabilities:
Accounts receivable (2) (1,671)
Merchandise inventory (61,784) (25,222)
Prepaids and other (313) (384)
Other assets (73) (152)
Accounts payable 20,516 17,928
Due to related parties (518) (172)
Accrued liabilities (14,633) (8,957)
Deferred credits 202 503
------------ ------------
Total adjustments (46,952) (10,154)
------------ ------------
Net cash used in operating activities (59,778) (16,627)
Cash flows from investing activities:
Acquisitions of property and equipment (7,166) (12,290)
Proceeds from sales of property and equipment 9 64
------------ ------------
Net cash used in investing activities (7,157) (12,226)
Cash flows from financing activities:
Borrowings under credit facilities with banks 125,600 17,800
Repayments of borrowings
under credit facilities with banks (75,300) (3,800)
Repayments of principal of long-term debt (3,000) -
Proceeds from issuance of common stock
upon exercise of stock options 1,474 8
Repayment of principal of long-term debt
to related party - (500)
------------ ------------
Net cash provided by financing activities 48,774 13,508
------------ ------------
Net decrease in cash and cash equivalents (18,161) (15,345)
Cash and cash equivalents at beginning of period 19,580 18,971
------------ ------------
Cash and cash equivalents at end of period $ 1,419 $ 3,626
============ ============
Supplemental cash flow information:
Income taxes paid $ 3,473 $ 3,775
============ ============
Interest paid $ 1,587 $ 1,653
============ ============
</TABLE>
See accompanying notes.
- 5 -
<PAGE> 6
NEOSTAR RETAIL GROUP, INC.
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation, Organization and Business
NeoStar Retail Group, Inc. (the "Company") was incorporated to serve as the
holding company for the business combination of Babbage's, Inc. ("Babbage's")
and Software Etc. Stores, Inc. ("Software"). The business combination was
completed on December 16, 1994, and was accounted for as a pooling of
interests. Accordingly, the merger of the equity interests has been given
retroactive effect, and the Company's consolidated financial statements for
periods prior to the business combination represent the combined financial
statements of the previously separate entities adjusted to conform to the
accounting policies adopted by the Company. Babbage's and Software became
wholly-owned subsidiaries of the Company as a result of the business
combination. The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Babbage's and Software operate consumer software specialty retail stores.
The Company operated 771 and 701 retail locations at October 28, 1995 and
October 29, 1994, respectively.
2. Unaudited Interim Consolidated Financial Statements
The accompanying consolidated financial statements are unaudited and
reflect all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position as of October 28, 1995 and the results of its
operations and cash flows for the periods presented. These statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995.
The results of operations for the nine months ended October 28, 1995 are
not necessarily indicative of results to be expected for the full year due to
the seasonality of the Company's business.
3. Financing Arrangements
The Company has a credit agreement with a bank (the "Credit Agreement") to
meet short-term working capital needs. The Credit Agreement includes a
$20,000,000 term commitment (the "Commitment"), and included a $30,000,000
annual revolving line of credit. Amounts borrowed under this annual revolving
line of credit bore interest at the bank's prime interest rate or at the
appropriate LIBOR interest rate plus 1.75 percent, at the Company's option. On
August 28, 1995 the Company amended the Credit Agreement to remove the
$30,000,000 annual revolving line of credit, and also entered into a new credit
agreement with a group of banks (the "New Credit Agreement"). All amounts
outstanding under the annual revolving line of credit under the Credit
Agreement and the related accrued interest were repaid.
- 6 -
<PAGE> 7
NEOSTAR RETAIL GROUP, INC.
Notes to Consolidated Financial Statements
(unaudited)
(continued)
3. Financing Arrangements (continued)
The New Credit Agreement provides for a $70,000,000 revolving line of
credit and is secured by all of the Company's merchandise inventory and
receivables from the sale of inventory. Advances under the New Credit
Agreement are generally limited to 45 percent of eligible inventory less
amounts outstanding under the Commitment, and less outstanding obligations
under issued letters of credit. The maturity date of any advances is August
25, 1996. Amounts borrowed bear interest at the banks' prime interest rate
plus .5 percent or at the appropriate LIBOR interest rate plus two percent, at
the Company's option.
The Commitment has a maturity date of December 14, 1997, and as amended, is
secured by all of the Company's merchandise inventory and receivables from the
sale of inventory. The terms of the Commitment require quarterly payments
which commenced March 31, 1995, consisting of $1,000,000 in principal plus
accrued and unpaid interest. The remaining principal balance and all accrued
and unpaid interest will be due upon maturity. Amounts borrowed pursuant to
the Commitment bear interest at the bank's prime interest rate plus .25 percent
or at the appropriate LIBOR interest rate plus two percent, at the Company's
option.
- 7 -
<PAGE> 8
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
NeoStar Retail Group, Inc. (the "Company") was incorporated to serve
as the holding company for the business combination of Babbage's, Inc.
("Babbage's") and Software Etc. Stores, Inc. ("Software"). The business
combination was completed on December 16, 1994 and was accounted for as a
pooling of interests. Accordingly, the merger of equity interests has been
given retroactive effect, and the Company's consolidated financial statements
for periods prior to the business combination represent the combined financial
statements of the previously separate entities adjusted to conform to the
accounting policies adopted by the Company. All references herein to fiscal
1996, 1995 and 1994 relate to the fiscal years ending February 3, 1996, January
28, 1995 and January 29, 1994, respectively. The following table sets forth,
for the periods indicated, certain items from the Company's statements of
operations as a percentage of net sales:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------- ------------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 74.8 72.2 73.3 72.3
---------- ---------- ---------- ----------
Gross profit 25.2 27.8 26.7 27.7
Store operating expenses 25.6 25.6 28.5 26.2
General and administrative
expenses 3.7 4.5 4.3 4.5
Store closing expense 0.1 0.0 0.2 0.1
---------- ---------- ---------- ----------
Operating loss (4.2)% (2.3)% (6.3)% (3.1)%
========== ========== ========== ==========
</TABLE>
Three Months Ended October 28, 1995 Compared to Three Months Ended October 29,
1994
Net sales increased by $13,279,000, or 13 percent, in the third
quarter of fiscal 1996 compared to the third quarter of fiscal 1995. This
increase resulted from an increase in comparable store sales of five percent,
and the net addition of 70 new stores. The increase in comparable store sales
was primarily due to sales related to the September introduction of the 32-bit
Sony PlayStation video game system, partially offset by the continuing decline
in sales of other video game systems and software for these systems. However,
it is uncertain whether sales of the next generation of video game systems,
including the Sony PlayStation and Sega Saturn, will offset the expected
continuing declines in comparable store sales of other video game systems and
software. In addition, an increase in sales of productivity software for
personal computers following the introduction of Microsoft Windows 95 also
contributed to the increase in comparable store sales.
- 8 -
<PAGE> 9
Cost of sales as a percentage of sales increased to 74.8 percent in
the third quarter of fiscal 1996 from 72.2 percent in the third quarter of
fiscal 1995 primarily because a higher percentage of sales came from lower
margin video game systems and productivity software for personal computers. In
addition, video game systems had lower gross margins in the third quarter of
fiscal 1996 than in the same period last year.
Store operating expenses are generally fixed, and only a small portion
varies with sales. When average sales per store increase, store operating
expenses do not increase significantly and, as a result, store operating
expenses decrease as a percentage of sales. Conversely, a decrease in average
sales per store results in an increase in store operating expenses as a
percentage of sales. Average quarterly sales per store increased four percent
compared to the third quarter of fiscal 1995, resulting in a very slight
decrease in store operating expenses as a percentage of sales.
General and administrative expenses, many of which are fixed on a per
store basis, decreased as a percentage of sales due to the increase in average
quarterly sales per store, and due to certain economies of scale resulting from
the addition of new stores and productivity gains in the Company's management
and administration realized from the consolidation of certain functions
following the business combination.
Operating loss for the third quarter of fiscal 1996 was $4,902,000
compared to $2,323,000 for the third quarter of fiscal 1995. The increase of
$2,579,000 was primarily due to the increase in cost of sales as a percentage
of sales.
Nine Months Ended October 28, 1995 Compared to Nine Months Ended October 29,
1994
Net sales increased by $2,246,000, or one percent, in the first nine
months of fiscal 1996 compared to the first nine months of fiscal 1995. This
increase resulted from the addition of new stores, partially offset by a
decrease in comparable store sales of eight percent.
Cost of sales as a percentage of sales increased to 73.3 percent in
the first nine months of fiscal 1996 from 72.3 percent in the first nine months
of fiscal 1995 primarily due to a higher percentage of sales from video game
systems and productivity software for personal computers, which have lower
gross margins than video game and other personal computer software and
accessories.
Average sales per store decreased nine percent for the first nine
months of fiscal 1996 compared to the same period last year, resulting in an
increase in store operating expenses as a percentage of sales.
General and administrative expenses decreased as a percentage of sales
for the first nine months of fiscal 1996 compared to the same period last year,
even though average sales per store declined. This was due to certain
economies of scale resulting from the addition of new stores and productivity
gains in the Company's management and administration realized from the
consolidation of certain functions following the business combination.
Operating loss for the first nine months of fiscal 1996 was
$19,268,000 compared to $9,324,000 for the first nine months of fiscal 1995.
The increase of $9,944,000 was primarily due to the increases in cost of sales
and store operating expenses as a percentage of sales.
- 9 -
<PAGE> 10
Seasonality and Quarterly Fluctuations
The Company's business, like that of many retailers, is highly
seasonal, with its stores generating a significant portion of their annual
sales during the fourth quarter due to the importance of the Christmas selling
season. In addition, sales in any fiscal quarter may fluctuate due to periods
of high demand following the release of popular software or video game
products. Average sales per store from period to period are also affected by
the number of stores opened during each period, since sales at newly opened
stores, while still in the early stages of building customer awareness, are
typically lower than sales of more mature stores. The following table sets
forth, for the last eleven fiscal quarters, the number of stores open the
entire quarter and the average net sales in each quarter for those stores:
<TABLE>
<CAPTION>
Number of Stores
Open Entire Quarter Average Quarterly Sales per Store
---------------------------- ------------------------------------------
Fiscal Quarter 1996 1995 1994 1996 1995 1994
- ----------------- ---- ---- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First 708 626 510 $137,731 $176,826 $189,490
Second 713 644 537 127,482 136,241 147,315
Third 735 669 566 155,266 149,397 170,767
Fourth 690 602 283,715 324,392
</TABLE>
The Company closed eleven stores in the first nine months of fiscal
1996 and five stores in the first nine months of fiscal 1995.
Largely due to the seasonal concentration of sales in the fourth
quarter, the Company believes annual profitability will be heavily dependent on
fourth quarter results. The following table sets forth certain information
with respect to the Company's net sales and operating income (loss) for the
last eleven fiscal quarters (in thousands):
<TABLE>
<CAPTION>
Fiscal Quarter
----------------------------------------------------------------
Fiscal Year First Second Third Fourth
- -------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996 Net sales $ 98,117 $ 91,957 $115,298 $ -
Operating income (loss) (5,513) (8,853) (4,902) -
1995 Net sales 111,635 89,472 102,019 200,530
Operating income (loss) (187) (6,814) (2,323) 3,058
1994 Net sales 98,126 81,031 98,881 202,369
Operating income (loss) 2,373 (3,508) 457 19,009
</TABLE>
Operating income for the fourth quarter of fiscal 1995 was reduced by
$14,961,000 due to costs incurred in connection with the business combination
of Babbage's and Software.
- 10 -
<PAGE> 11
Liquidity and Capital Resources
The Company has a credit agreement with a bank (the "Credit
Agreement") to meet short-term working capital needs. The Credit Agreement
includes a $20,000,000 term commitment (the "Commitment"), and included a
$30,000,000 annual revolving line of credit. Amounts borrowed under this
annual revolving line of credit bore interest at the bank's prime interest rate
or at the appropriate LIBOR interest rate plus 1.75 percent, at the Company's
option. On August 28, 1995 the Company amended the Credit Agreement to remove
the $30,000,000 annual revolving line of credit, and also entered into a new
credit agreement with a group of banks (the "New Credit Agreement"). All
amounts outstanding under the annual revolving line of credit under the Credit
Agreement and the related accrued interest were repaid.
The New Credit Agreement provides for a $70,000,000 revolving line of
credit and is secured by all of the Company's merchandise inventory and
receivables from the sale of inventory. Advances under the New Credit
Agreement are generally limited to 45 percent of eligible inventory less
amounts outstanding under the Commitment, and less outstanding obligations
under issued letters of credit. The maturity date of any advances is August
25, 1996. Amounts borrowed bear interest at the banks' prime interest rate
plus .5 percent or at the appropriate LIBOR interest rate plus two percent, at
the Company's option. At December 6, 1995, $58,250,000 was outstanding under
the New Credit Agreement.
The Commitment has a maturity date of December 14, 1997, and as
amended, is secured by all of the Company's merchandise inventory and
receivables from the sale of inventory. The terms of the Commitment require
quarterly payments which commenced March 31, 1995, consisting of $1,000,000 in
principal plus accrued and unpaid interest. The remaining principal balance
and all accrued and unpaid interest will be due upon maturity. Amounts
borrowed pursuant to the Commitment bear interest at the bank's prime interest
rate plus .25 percent or at the appropriate LIBOR interest rate plus two
percent, at the Company's option. At December 6, 1995, $17,000,000 was
outstanding under the Commitment.
Net cash used in operating activities was $59,778,000 and $16,627,000
for the first nine months of fiscal 1996 and fiscal 1995, respectively. The
increase was primarily due to a significantly greater increase in merchandise
inventory in fiscal 1996 than in fiscal 1995, and to the increase in the net
loss.
Capital expenditures in the first nine months of fiscal 1996, which
totaled $7,166,000, related primarily to leasehold improvements and fixtures
for 72 new stores opened during the period, and stores under construction at
October 28, 1995. The Company plans to spend approximately $1,600,000 on
capital expenditures during the remainder of the fiscal year, primarily for
leasehold improvements and fixtures for new stores. As of December 6, 1995,
the Company had 819 stores open and 2 under construction.
The Company believes that internally generated funds and the
availability of funds under the New Credit Agreement will permit it to finance
planned store openings, working capital increases and other miscellaneous
capital expenditures, and to make scheduled principal and interest payments on
its outstanding debt, through at least the end of fiscal 1996.
- 11 -
<PAGE> 12
Effects of the Business Combination
The business combination has had a positive effect on the Company's
results of operations in the second and third quarters of fiscal 1996. General
and administrative expenses as a percentage of sales have decreased in part as
a result of consolidating certain functions. The Company believes that the
combined resources and experience of Babbage's and Software will enable it to
continue to identify operating efficiencies and implement cost saving
strategies, resulting in additional positive effects on its results of
operations and financial position. Purchasing should continue to improve as a
result of the continuing integration of the best practices of both Babbage's
and Software, and the combined company should be in a better position to
negotiate more favorable terms and conditions with suppliers. Alternative
merchandising formats will be explored to identify better ways to distribute
products and provide services. As of October 28, 1995, approximately
$11,666,000 of the total costs of $14,961,000 related to the business
combination had been expended. The balance of such costs, consisting primarily
of severance costs and costs related to the elimination of duplicate facilities
and related equipment, will require cash outlays during the remainder of fiscal
1996.
- 12 -
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed as part of this report:
Number Document
10.5 Commercial Lease Agreement dated as of October 19, 1995 between
MEPC Quorum Properties II Inc., as Landlord, and NeoStar Retail
Group, Inc. as Tenant
10.6 Summary of Fiscal 1996 Management Bonus Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this Report is filed.
- 13 -
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 6, 1995 NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL P. FERRARO
------------------------
Opal P. Ferraro,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
- 14 -
<PAGE> 15
INDEX TO EXHIBITS
Number Document
------ --------
10.5 Commercial Lease Agreement dated as of October 19, 1995
between MEPC Quorum Properties II Inc., as Landlord, and NeoStar
Retail Group, Inc. as Tenant
10.6 Summary of Fiscal 1996 Management Bonus Plan
27.1 Financial Data Schedule
- 15 -
<PAGE> 1
EXHIBIT 10.5
COMMERCIAL LEASE AGREEMENT
MEPC QUORUM PROPERTIES II INC.,
as LANDLORD,
and
NEOSTAR RETAIL GROUP, INC.
as TENANT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Heading Page No.
------- --------
<S> <C> <C>
1. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. HAZARDOUS SUBSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. ALTERATIONS AND IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
13. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
14. RISK ALLOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
15. CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
17. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
18. DEFAULT BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. LANDLORD'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
20. DEFAULT BY LANDLORD AND TENANT'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
21. BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. WAIVER OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
24. SURRENDER UPON TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
25. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
26. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
27. INSPECTION BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
28. MECHANICS LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
29. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
30. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
31. ESTOPPELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
32. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
33. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
34. TENANT'S CONDITIONAL RIGHT TO PURCHASE THE LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
35. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 3
COMMERCIAL LEASE AGREEMENT
THIS COMMERCIAL LEASE AGREEMENT (this LEASE) is made and entered into
by and between MEPC QUORUM PROPERTIES II INC., a Delaware corporation
(LANDLORD), and NEOSTAR RETAIL GROUP, INC., A DELAWARE CORPORATION (TENANT).
1. PREMISES. In consideration of the mutual obligations of
Landlord and Tenant set forth herein, Landlord hereby leases to Tenant, and
Tenant hereby takes from Landlord, the land (the LAND) consisting of
approximately 14.4 acres located at the junction of William D. Tate Avenue and
Southwest Grapevine Parkway in Grapevine, Tarrant County, Texas, as such Land
is more particularly described on Exhibit "A" attached hereto and incorporated
herein by reference, together with (i) the Improvements (hereinafter defined)
to be built by Landlord on the Land (as hereinafter set forth), and (ii) all
rights, privileges, easements, appurtenances, and amenities belonging to or in
any way pertaining to the Land (all of the foregoing is collectively referred
to herein as the PREMISES).
2. IMPROVEMENTS.
A. Base Improvements. Subject to governmental approval
of the plans and specifications (hereinafter the BASE PLANS) described or
attached hereto as Exhibit "B" and made a part hereof, Landlord agrees to
construct on the Land the improvements described therein (collectively, the
BASE IMPROVEMENTS). The Base Improvements will include an approximate 241,950
square foot office/warehouse building structure comprised of approximately
199,050 square feet of warehouse space and 42,900 square feet of office space
(the BUILDING). The Building and the other Base Improvements will be situated
as shown on the site plan (herein the SITE PLAN) attached hereto as Exhibit "C"
and incorporated herein by reference. Tenant acknowledges and agrees that it
has reviewed and approved of the Base Plans and the Site Plan in all respects.
Landlord may not make any material changes to the Site Plan or the Base Plans
without Tenant's prior written consent, such not to be unreasonably withheld,
conditioned or delayed.
B. Tenant Finish Work. Subject to the terms and
conditions of this Lease, Landlord agrees to perform certain tenant finish in
the Building. Though Architect will prepare the plans and specifications for
all for all finish work to be performed in the Building (the TENANT FINISH
WORK), Tenant acknowledges and agrees that it will be Tenant's responsibility
to have prepared by the Architect and submitted to Landlord no later than
December 15, 1995, the final plans and specifications for the Tenant Finish
Work. Such plans and specifications must include plans for a build-out of at
least 40,000 square feet of office space and will not be considered final
unless they are in a form reasonably appropriate for submission for permitting
and bidding. The finalized plans and specifications will become a part of this
Lease as Exhibit "D" and are referred to herein as the FINISH PLANS. Tenant
shall involve Project Manager (hereinafter defined) on an ongoing basis in
connection with preparing the Finish Plans, both parties acknowledging that
Project Manager's ongoing involvement is necessary to ensure that the December
15th deadline is met, and Landlord will have the right to reasonably approve or
disapprove of the Finish Plans. Landlord and Tenant agree to work together in
good faith to finalize the Finish Plans. The Base Improvements and the Tenant
Finish Work are hereinafter collectively referred to as the IMPROVEMENTS.
Tenant agrees that any Tenant Finish Work that is not related to the office
portion of the Building or that is in conflict with the Base Improvements will
become a Change Order pursuant to Paragraph 2D(c) below.
C. Development Schedule.
(a) Commencement of Construction. Landlord shall
commence construction of the Base Improvements by November 1, 1995. Subject to
Force Majeure (hereinafter defined) and Tenant Delay(s) (hereinafter defined),
failure by Landlord to commence construction by November 1, 1995 will subject
the Land to purchase by Tenant from Landlord in accordance with Paragraph 34
below. For purposes of this Lease, construction shall be deemed to have
commenced upon Landlord or Landlord's contractors beginning lawful and actual
earth moving and grading work on the Land.
(b) Commencement Date. The date that the
construction of the Base Improvements has progressed to the extent described on
Exhibit "G" attached hereto and incorporated herein by reference is the
COMMENCEMENT DATE as that term is used in this Lease. Subject to Force Majeure
and Tenant Delay(s), Landlord agrees to cause the Commencement Date to occur by
March 25, 1996 so that Tenant, through its own contractors and subcontractors,
but subject to Paragraph 2E below, can commence the installation of its
property in the Building, inclusive of its material handling equipment. The
decision of the Architect as to actual Commencement Date will be final as
between the parties (it being understood that the date Architect actually makes
such decision may not necessarily be the Commencement Date, such date having
occurred prior to the date of the decision). Any decision of the Architect
will be in writing and certified to both Landlord and Tenant. Subject to Force
Majeure and Tenant Delay(s), if the Commencement Date has not occurred prior to
March 25, 1996, then the Rent Commencement Date (hereinafter defined) will be
extended one (1) day for each day beyond March 25, 1996 until the Commencement
Date occurs. Subject to Force Majeure and Tenant Delay(s), if the Commencement
Date has not occurred by March 30, 1996, then Landlord shall pay to Tenant a
penalty of $300,000.00 and an additional penalty of $4,500.00 per day for each
day beyond March 30, 1996 until the Commencement Date occurs.
COMMERCIAL LEASE AGREEMENT PAGE 1
<PAGE> 4
(c) Final Completion. Landlord agrees to cause
the Date of Substantial Completion (hereinafter defined) to occur by May 1,
1996. Subject to Force Majeure and Tenant Delay(s), if the Date of Substantial
Completion does not occur by May 1, 1996, the Rent Commencement Date will be
extended two (2) days for each day beyond May 1, 1996 until the Date of
Substantial Completion occurs. Subject to Force Majeure and Tenant Delay(s),
if the Date of Substantial Completion does not occur by May 15, 1996, the Rent
Commencement Date will be extended three (3) days for each day beyond May 15,
1996 until the Date of Substantial Completion occurs. Subject to Force Majeure
and Tenant Delay(s), if the Date of Substantial Completion does not occur by
June 15, 1996, then Tenant may elect to terminate this Lease by written notice
to Landlord, which notice must be received by Landlord prior to the Date of
Substantial Completion having occurred to be effective, in which event, and at
Tenant's option, (i) Landlord shall reimburse Tenant for the costs of all
improvements made to the Premises by Tenant (title thereto being immediately
and automatically vested in Landlord) together with the reasonable costs of
Tenant obtaining substitute premises through March 1, 1997, inclusive of rental
and moving costs and attorneys fees, or (ii) Landlord shall reimburse Tenant
for the cost of Tenant removing, relocating and reinstalling such improvements
at a new location together with the reasonable costs of Tenant obtaining
substitute premises through March 1, 1997, inclusive of rental and moving costs
and attorneys fees.
(d) Extensions of Rent Commencement Date Not
Cumulative. The extensions of the Rent Commencement Date described above are
not cumulative; that is, any extension provided for Landlord failing to meet a
specific deadline will not be added to the extensions provided for a subsequent
deadline. By way of example only, the two (2) for one (1) day penalty from May
1, 1996 to May 15, 1996 may not be added to the post May 15th three (3) for one
(1) day penalty to get a five (5) day penalty if the Improvements are not
substantially complete by May 15, 1996.
(e) Substantial Completion. The date that
Architect determines that the Improvements were substantially complete
(hereinafter defined) shall be the DATE OF SUBSTANTIAL COMPLETION as that date
is used herein, it being agreed that the Date of Substantial Completion may be
earlier to the date that Architect makes its determination. The term
SUBSTANTIALLY COMPLETED or SUBSTANTIALLY COMPLETE means that, in the opinion of
Architect, such to be evidenced by a written certificate of substantial
completion to Landlord and Tenant, the Improvements have been completed in
substantial accordance with the Base Plans and the Finish Plans, as applicable,
and that the Premises is in good and satisfactory condition, subject only to
completion of the Punch List (hereinafter defined). Not less than twenty (20)
days prior to the date Landlord estimates that the Improvements will be
substantially complete Landlord will notify Tenant of the estimated date the
Improvements will be substantially completed. Upon receipt of Landlord's
notification, Tenant shall verbally notify Landlord of the date Tenant intends
to make its walk-through inspection of the Premises, such date to be on the
date specified in Landlord's notice for the Improvements to be substantially
complete or within three (3) business days prior to that date. Landlord and
Architect shall accompany Tenant on the walk-through inspection so as to
mutually determine the punch list of items (the PUNCH LIST) to be completed or
repaired by Landlord within thirty days after the Date of Substantial
Completion, subject to Force Majeure and Tenant Delay(s). At the conclusion of
the walk-through inspection, Tenant will be deemed to have acknowledged that
(i) it has inspected and accepts the Premises, (ii) to the best of Tenant's
knowledge and subject to Paragraph 2F below, the Premises is suitable for the
purpose for which they are leased, (iii) to the best of Tenant's knowledge, and
subject to Paragraph 2F below, the Premises is in good and satisfactory
condition (subject only to the Punch List), (iv) no representations as to the
repair of the Premises, nor promises to alter, remodel or improve the Premises
which have been made by Landlord remain unsatisfied (subject to the Punch List
and those contained in Paragraph 2F below). At the conclusion of the walk-
through inspection Tenant further agrees to execute an Acceptance of Premises
Memorandum in the form attached hereto and made a part hereof as Exhibit "E",
whereupon possession of the Premises will be delivered to Tenant and Tenant
will be deemed to have accepted the Premises, and Tenant may thereafter occupy
the Premises. Tenant's failure to conduct a walk-through inspection or execute
the Acceptance of Premises Memorandum will not delay the occurrence of the Rent
Commencement Date.
(f) Force Majeure. As used in this Paragraph 2
and throughout this Lease, FORCE MAJEURE shall mean a delay caused by reason of
fire, acts of God, unreasonable delays in transportation, embargo, weather
(i.e., rain and rain related conditions, humidity, temperature, wind, etc.),
strike, other labor disputes, governmental preemption of priorities or other
controls in connection with a national or other public emergency, governmental
delays in permitting, delays caused by any governmental disapproval of, or
required revisions to, the Base Plans or the Finish Plans, or shortages of
fuel, supplies or labor or any similar cause not within Landlord's reasonable
control. Landlord shall not be held responsible for delays in the performance
of its obligations hereunder caused by Force Majeure, and such delays shall be
excluded from the computation of the time allowed for the performance of such
obligations, including compliance with the Development Schedule set forth
above. Within ten (10) days after the end of each calendar month until the
Date of Substantial Completion, Landlord shall deliver to Tenant written notice
of the events of Force Majeure occurring in the month just ended and the number
of delay days resulting from such event. It is expressly agreed that the
number of delay days may include not only the day upon which the event of Force
Majeure occurred but the number of days thereafter that Contractor (hereinafter
defined)(or its subcontractors, as applicable) could not work due to the
occurrence of such event of Force Majeure. By way of example only, rain on a
Sunday, which is not scheduled as a normal work day, may prevent work
COMMERCIAL LEASE AGREEMENT PAGE 2
<PAGE> 5
for several days thereafter due to mud conditions. Landlord agrees to use
reasonable efforts to make up any delay days caused by Force Majeure, though
such efforts will not necessarily include scheduling make-up work over weekends
or holidays.
(g) Terms Regarding Architect. Alliance
Architects (the ARCHITECT) will be the architect for purposes of preparing the
Base Plans, the Finish Plans. Subject to Paragraph 2D(c) and (d) below,
Landlord will be solely responsible for all costs and expenses owed to
Architect in connection with this Lease. Additionally, Landlord agrees to
reimburse Tenant for any amounts paid by Tenant to Architect prior to the date
of this Lease within thirty (30) days after the date of this Lease. Landlord
may replace Architect only with the consent of Tenant, such not to be
unreasonably withheld, in which event the parties shall mutually select a new
architect.
(h) Terms Regarding Contractor. McFadden &
Miller, Inc. shall act as Landlord's general contractor (the CONTRACTOR) for
purposes of constructing all of the Improvements. Landlord and Tenant agree
that Contractor should construct the Tenant Finish Work as well as the Base
Improvements because of the efficiencies that can be achieved by utilizing one
contractor for both aspects of the Improvements. However, because Tenant will
be responsible for all costs of completing the Tenant Finish Work in excess of
the Finish Allowance (see Paragraph 2D(b) below) and because Tenant is
necessarily interested in maximizing the benefits it will receive through the
Finish Allowance, Contractor's performance of the Tenant Finish Work will be
subject to the following:
(i) Subcontractors for the Tenant Finish
Work will be chosen through a competitive bid process involving
pre-qualified subcontractors selected by Contractor and Landlord;
(ii) Selected subcontractors for the
mechanical, electrical, plumbing and fire protection work will be
required to design the systems and produce engineered drawings for
their work as part of their bid;
(iii) At least three (3) subcontractors
will be solicited per trade area in which the contemplated Tenant
Finish Work exceeds $3,000.00. Contractor will receive and tally the
bids and "open the book" for Tenant and Landlord's review.
Contractor, however, may select whichever of the three (3) bids it
desires; provided that if the chosen bid is in excess of five percent
(5%) more than the lowest of the three (3) bids for that trade,
Contractor will be solely responsible for the costs of such
subcontractors's work in excess of the low bid plus five percent (5%);
(iv) Contractor will receive a fee fixed
at $37,500.00 for the following services:
- Site supervision
- Project management
- Trucking and clean-up
- Job office
- Temporary utility costs for construction use
- Barricades/Floor opening protection
- Construction sweeping
- Dumpster fees
- Portable toilet facilities
(v) Contractor will receive a fee for
profit and overhead in the amount of six percent (6%) of the total
actual cost of the Tenant Finish Work;
(vi) Contractor will receive a management
fee equal to six percent (6%) of the net increase in the cost of
completing the Tenant Finish Work necessitated by any Change Order
(hereinafter defined) and a management fee equal to three percent (3%)
of any net decrease in completing the Tenant Finish Work necessitated
by any Change Order.
(i) Ownership of Improvements. All improvements
constructed by or on behalf of Landlord, inclusive of the Base Improvements and
the improvements made as part of the Tenant Finish Work, shall at all times be
the sole property of Landlord.
D. Cost of the Improvements.
(a) Base Improvements. Subject to Paragraphs
2D(c) and (d) below, Landlord agrees to construct the Base Improvements at its
sole cost and expense.
(b) Tenant Finish Work. Subject to Paragraphs
2D(c) and (d) below, Landlord will pay the cost of all Tenant Finish Work up
to, but not in excess of $1,278,595.99 (the FINISH ALLOWANCE), which amount is
net of the cost of preparing the Finish Plans. Tenant will be solely
responsible for the cost of all Tenant Finish Work in excess of the Finish
Allowance and all Tenant Finish Work that is not considered standard or
customary tenant finish work for similar light industrial projects in the
Dallas-Fort Worth area given that Tenant intends to use the Premises as its
corporate headquarters. Unless otherwise agreed in writing by Landlord, the
Finish Allowance may be utilized only for the Tenant Finish Work and not other
aspects of the Improvements. If prior to commencement of the Tenant Finish
Work Landlord reasonably and in good
COMMERCIAL LEASE AGREEMENT PAGE 3
<PAGE> 6
faith determines, based on construction bids received and accepted by
Contractor pursuant to Paragraph 2C(h) above or due to Change Orders
(hereinafter defined), that (i) the actual cost of the Tenant Finish Work will
exceed the Finish Allowance, or (ii) if during construction the actual cost of
the Tenant Finish Work exceeds the Finish Allowance, or if Landlord reasonably
and in good faith determines that any portion of the Tenant Finish Work is not
standard or customary tenant finish work as described above, then in any of
such events Landlord will not be obligated to commence the Tenant Finish Work,
or continue its construction, as applicable, until it receives from Tenant ten
percent (10%) of the estimated cost of such amount as is in excess of or not
properly allocable to, in Landlord's good faith estimation, the Finish
Allowance, with the actual amount of such excess over the Finish Allowance or
the actual amount not allocable to the Finish Allowance, less the initial
payment by Tenant, being due within thirty (30) days after the Date of
Substantial Completion. If upon substantial completion of the Improvements and
completion of the Punch List it is determined that the Finish Allowance has not
been fully utilized, any remaining balance shall be credited to Base Monthly
Rent as it comes due on a dollar for dollar basis.
(c) Change Orders. Tenant, through its applicable
Tenant's Representative (hereinafter defined), may from time to time request
changes or modification to the Base Plans or Finish Plans. If upon analysis of
the requested modification or change Project Manager (hereinafter defined)
determines that to effect same will result in an increase or decrease in the
bidded cost of, or a delay in, completing the Improvements, Project Manager
will notify Tenant's Representative of same including the estimated increase or
decreased in costs and any expected delays associated with same. Tenant's
Representative will have one (1) day from receipt of Project Manager's notice
to accept same in writing. If Project Manger does not receive Tenant's
Representative's written acceptance within such time period, Tenant's
Representative will be deemed to have rejected same. As used herein, a CHANGE
ORDER will be any modification or change to the Base Plans or the Finish Plans
approved by Tenant's Representative, from time to time, as described in this
paragraph, and any modification or change to the Base Plans or the Finish Plans
required by any applicable governmental authority because of non-compliance
with Applicable Laws (hereinafter defined).
(i) Change Orders that are made after the
date of this Lease that will result in a cost increase in completing
the Base Improvements will be subject to a construction management fee
to Landlord in the amount of three percent (3%) of the cost increase
resulting from such Change Order, inclusive of costs incurred in
revising the Base Plans. Tenant shall pay Landlord ten percent (10%)
of the estimated increase in cost of completing the Base Improvements
due to the Change Order (inclusive of the management fee), with the
balance of the actual cost of the increase in costs being due within
thirty (30) days after the Date of Substantial Completion.
(ii) Change Orders that are made after
December 15, 1995 that will result in a cost increase in completing
the Tenant Finish Work will be subject to a construction management
fee to Landlord in the amount of three percent (3%) of the cost
increase resulting from such Change Order, inclusive of costs incurred
in revising the Finish Plans.
(iii) If any Change Order results in a net
decrease in the cost of completing the Base Improvements, then
Landlord and Tenant agree to negotiate in good faith with respect to
the pass-through of any such savings to Tenant.
As used in this Lease, TENANT'S REPRESENTATIVE is, with respect to the
warehouse portion of the Building, initially Brad Felske at (214) 401-9123, and
with respect to the Tenant Finish Work, initially Brad Felske at (214) 401-
9123. As used in this Lease, PROJECT MANAGER is initially Robert Ahmuty at
(214) 851-7092. Landlord and Tenant may from time to time change their
applicable designations of the aforementioned persons; however, such
substitution(s) will not be effective until written notice thereof is received
by the other party.
(d) Other Costs Allocated to Tenant.
Notwithstanding any provision of this Lease to the contrary, Tenant will be
solely responsible for any increase in costs of completing the Improvements
arising due to Tenant Delays. TENANT DELAY(S) shall include any delay in the
completion of the Improvements caused by Tenant, its agents, employees,
officers, partners or contractors (collectively, the TENANT PARTIES and
individually a TENANT PARTY) whether due to the failure to timely complete and
submit the Finish Plans to Landlord, the installation of Tenant's property and
fixtures, any Change Order, or interference with Landlord or Landlord's
architects, engineers, consultants, contractors or otherwise. Landlord agrees
that any decision regarding the existence of a Tenant Delay will be made in
good faith and to further give prompt verbal notice (with written confirmation
thereof within three (3) days) to the applicable Tenant's Representative upon
Landlord becoming aware that a Tenant Delay exists or potentially may exist.
E. Work by Tenant. Upon request by Tenant and subject
to the terms and conditions of this Lease, Landlord shall permit Tenant and its
contractors to enter the Building after the Commencement Date so that Tenant
may perform through its own contractor(s) (who must be approved by Landlord,
such approval not to be unreasonably withheld or delayed) other work and
decorations Tenant wants in the Building. This license to enter the Building
is subject to the following conditions:
COMMERCIAL LEASE AGREEMENT PAGE 4
<PAGE> 7
- Tenant's contractor(s) must work in harmony with and not
unreasonably interfere with Landlord's contractors and
subcontractors;
- Tenant will be responsible for all costs associated with its
contractors and subcontractors tying into and drawing from
Landlord's temporary power supply and for the distribution of
such power as required by such contractors or subcontractors
(though Landlord will pay the costs of the actual electricity
used subject to Paragraph 11 below);
- Tenant must deliver evidence to Landlord that Tenant has
obtained the insurance required to be maintained by Tenant
pursuant to Paragraph 12B below and evidence that Tenant's
contractors are carrying insurance in a form and in amounts
described on Exhibit "F" attached hereto and incorporated
herein by reference;
- Landlord may revoke this license if the entry causes
unreasonable interference with the construction of the
Improvements and Tenant does not immediately cease such
interference (or cause its contractors to immediately cease
such interference, as the case may be) after receipt of notice
from Landlord, which notice may be verbal, to Tenant's
Representative;
- Landlord will not be liable in any way for any injury, loss,
or damage that occurs to any of Tenant's materials handling
equipment, decorations or other installations made prior to
the date the Improvements are substantially complete except to
the extent due to Landlord's or its agents, officers,
partners, servants, contractors and employees (collectively
LANDLORD PARTIES) negligence;
- Tenant shall indemnify, defend, and hold Landlord harmless
from any claims, demands, actions, losses, and damages arising
from activities of Tenant or any Tenant Party except to the
extent due to Landlord's or any Landlord's Parties' negligence
or willful misconduct;
- Tenant will be solely responsible for the safety and security
of all equipment and property installed or placed in, on or
about the Premises by Tenant or any Tenant Party.
Landlord agrees to reasonably cooperate, and to cause Contractor to
reasonably cooperate, with Tenant and Tenant's contractors in connection with
construction scheduling so that Tenant and its contractors can have reasonably
free access to the Building to install its materials handling equipment,
decorations and other improvements; however, Landlord's good faith decision
with respect to any such scheduling and work to be performed by Tenant or its
contractors will be final.
Prior to, and as a condition to, the first of any of Tenant's
contractors or subcontractors entering the Premises to perform work, Landlord,
Tenant and Architect shall conduct a walk-through inspection of the Premises,
as it then exists, to collectively determine the condition of the Premises and
to mutually agree upon a preliminary punch-list so that there is no confusion
later regarding whether or not any damage to the Premises was caused prior to
or subsequent to Tenant's contractors and subcontractors entering the Premises.
Upon the completion of such walk-through inspection, Tenant will sign a
temporary acceptance of premises memorandum acknowledging that it has conducted
its walk- through inspection and that, except for the items listed on such
preliminary punch-list, the Premises is in a satisfactory condition. Landlord
will not be required to complete the preliminary punch list except in
connection with the completion of the Punch List created pursuant to Paragraph
2C(e) above; that is, the preliminary punch list will necessarily be
incorporated into the Punch List. Landlord and Tenant also agree that it will
be difficult to determine whose contractor or subcontractor is responsible for
damage to Premises after Tenant's contractors and subcontractors commence their
work. Landlord and Tenant agree to work in good faith to resolve any disputes
that may arise over who is responsible for any damage to the Premises after
Tenant's contractors and subcontractors commence their work. Tenant's
walk-through inspection of the Premises and its execution of the temporary
acceptance of premises memorandum, while a condition to Tenant's contractors
and subcontractors entering into the Premises, will not be a condition to the
Architect's determination of the Commencement Date. The Commencement Date may
occur whether or not such walk-though inspection ever occurs.
F. Manner of Construction. Landlord shall cause
Contractor to construct the Improvements in a good and workmanlike manner, in
accordance with the Base Plans and the Finish Plans (as such plans are finally
approved by applicable governmental authority), as applicable, and in
accordance with all Applicable Laws. Upon Tenant's acceptance of the Premises,
and to the extent assignable, Landlord will assign to Tenant the right to
enforce all warranties Landlord receives in connection with the construction of
the Improvements on a non-exclusive basis (i.e., Landlord will also have the
right to enforce such warranties). Landlord agrees to repair any patent
defects that it receives written notice of within ninety (90) days after the
Date of Substantial Completion and to repair all latent defects that it
receives written notice of within one (1) year after the Date of Substantial
Completion.
G. Construction Meetings. Landlord, through its Project
Manager, shall maintain direct contact with Contractor and conduct regularly
scheduled job and progress meetings at the Site, or such other place as agreed
to, with Landlord and
COMMERCIAL LEASE AGREEMENT PAGE 5
<PAGE> 8
Tenant's Representatives twice each month, as well as extraordinary meetings
where deemed necessary by Project Manager or Contractor, to discuss such
matters such as, but not limited to, procedures, progress, safety and
scheduling.
3. LEASE TERM.
A. Initial Term. The INITIAL TERM of this Lease shall
begin on the Commencement Date and end at 11:59 p.m. on the last day of the one
hundred twentieth (120th) complete calendar month after the Rent Commencement
Date. If the Rent Commencement Date occurs on the first day of a calendar
month, then that calendar month shall be the first full calendar month after
the Rent Commencement Date for purposes of computing the Initial Term under
this Paragraph 3A. The RENT COMMENCEMENT DATE shall be the later to occur of
(i) May 1, 1996, (ii) one hundred twenty (120) days after the Commencement
Date, and (iii) thirty (30) days after the later to occur of (A) substantial
completion of the Improvements, and (B) the issuance of a certificate of
occupancy covering the Building and allowing Tenant to occupy the Building;
provided, however, that if the sole reason a certificate of occupancy cannot be
issued is due to work yet to be performed by Tenant or Tenant's contractors or
subcontractors, as determined by Architect, the failure of a certificate of
occupancy to be issued will not delay the occurrence of the Rent Commencement
Date. The Rent Commencement Date may be extended pursuant to Paragraph 2C
above. Additionally, the Rent Commencement Date will be advanced (i.e., to an
earlier date) for each day a Tenant Delay exists.
B. Renewal Options.
(a) If Tenant is not in default under this Lease
beyond applicable notice and cure periods at the time of the exercise of the
Option granted herein or at the commencement of the applicable Option Term
(hereinafter defined), Tenant is granted the option (the OPTION) to renew this
Lease for four (4) consecutive terms (each such renewal term being hereinafter
referred to as an OPTION TERM) of (5) years each commencing on the next day
after the expiration of the Initial Term or the then current Option Term, as
applicable. Tenant shall exercise the Option, if at all, by delivering
Landlord written notice of the exercise of the Option at least one hundred
eighty (180) days prior to the expiration of the Initial Term or the then
current Option Term, as applicable. Tenant's lease of the Premises during any
Option Term will be upon the same terms as for the Initial Term, except that
the Base Monthly Rent will adjust as hereinafter provided and during each
Option Term Tenant will have one (1) less Option to renew the Lease. If
Landlord does not receive Tenant's exercise notice at least one hundred eighty
(180) days prior to the expiration of the Initial Term or the then current
Option Term, as applicable, then, at Landlord's option, Tenant shall have
forever waived the Option. Once delivered to Landlord, Tenant's election shall
be irrevocable.
(b) Tenant may not assign the Option to any
assignee of the Lease except pursuant to an assignment allowed under Paragraph
17C below. Other than an assignee pursuant to Paragraph 17C below, no
sublessee and no assignee may exercise this option to renew.
(c) If the Lease Term is extended under this
Paragraph 3, Landlord shall prepare, and Landlord and Tenant shall execute and
deliver an amendment to the Lease evidencing the extension of the Lease Term
within fifteen (15) days after the Fair Market Rental Rate (hereinafter
defined) is determined but in no event later than the date that the applicable
Option Term commences. The Initial Term and any applicable Option Terms are
herein referred to together as the LEASE TERM or the TERM OF THIS LEASE.
4. RENT.
A. Base Monthly Rent during Initial Term. Tenant agrees
to pay to Landlord rent for the Premises for the Initial Term in the total
amount of $11,311,162.50. This amount shall be payable in one hundred twenty
(120) equal monthly installments, in advance, beginning on the Rent
Commencement Date (BASE MONTHLY RENT), as follows:
-- From and after the Rent Commencement Date through and
including the end of the sixtieth (60th) complete calendar
month thereafter, the amount of $87,706.88 per month
($1,052,482.50 on an annualized basis);
-- Beginning on the first day of the sixty-first (61st) calendar
month after the Rent Commencement Date through and including
the end of the one hundred twentieth (120) calendar month
after the Rent Commencement Date: $100,812.50 per month
($1,209,750.00 on an annualized basis).
B. Base Monthly Rent during Option Terms.
(a) First Option Term. If the first Option is
exercised, Tenant agrees to pay to Landlord rent for the Premises for the first
Option Term in the total amount of $6,956,062.20. The Base Monthly Rent for
the first Option Term, which shall be payable in advance in equal monthly
installments, shall be $115,934.37 per month ($1,391,212.44 on an annualized
basis).
COMMERCIAL LEASE AGREEMENT PAGE 6
<PAGE> 9
(b) Remaining Option Terms. Within fifteen (15)
days after Landlord receives Tenant's written and timely Option exercise
notice, Landlord shall deliver a notice to Tenant specifying the Fair Market
Rental Rate for the applicable Option Term. Tenant shall have fifteen (15)
days from its receipt of Landlord's notice to accept or reject Landlord's
designation of the Fair Market Rental Rate. If Tenant accepts Landlord's
designation of Fair Market Rental Rate, the FAIR MARKET RENTAL RATE will be as
set forth in Landlord's notice. If Landlord and Tenant cannot agree on a
designation of the Fair Market Rental Rate within fifteen (15) days after the
date of Landlord's notice, the FAIR MARKET RENTAL RATE will be determined as
follows:
(i) Tenant shall select an appraiser of
its choice and give Landlord written notice of such appraiser's name,
address and telephone number. Within ten (10) days after receipt of
such notice by Landlord, Landlord shall select an appraiser of its
choice and give Tenant written notice of such appraiser's name,
address and telephone number.
(ii) The two appraisers shall together
determine the Fair Market Rental Rate within thirty (30) days after
Landlord's selection of its appraiser. If the two appraisers cannot
agree on the Fair Market Rental Rate but there is less than a ten
percent (10%) difference in the Fair Market Rental Rate as determined
by each appraiser, then the average of the two Fair Market Rental
Rates as determined by the appraisers shall be the Fair Market Rental
Rate for the applicable Option Term.
(iii) If there is greater than a ten
percent (10%) disparity between Landlord's and Tenant's appraiser's
determination of the Fair Market Rental Rate, then such appraisers
shall jointly select a third appraiser to determine the Fair Market
Rental Rate. If the Fair Market Rental Rate determined by the third
appraiser is within five percent (5%) of the determination of Fair
Market Rental Rate of either of Landlord's or Tenant's appraiser, then
the Fair Market Rental Rate of whichever of Landlord's or Tenant's
appraiser is within five percent (5%) of the third appraiser's
determination shall be the Fair Market Rental Rate for the applicable
Option Term. If the Fair Market Rental Rate determined by the third
appraiser is not within five percent (5%) of either Landlord's or
Tenant's determination of Fair Market Rental Rate, then the Fair
Market Rental Rate determined by the third appraiser shall be the Fair
Market Rental Rate for the applicable Option Term; provided that in no
event may the Fair Market Rental Rate be in excess of the highest Fair
Market Rental Rate determined by Landlord's or Tenant's appraiser or
less than the lowest Fair Market Rental Rate determined by Landlord's
or Tenant's appraiser. Additionally, the Fair Market Rental Rate may
not be in excess of one hundred five percent (105%) of the Base
Monthly Rent for the last year of the Lease Term just expiring.
(iv) All appraisers selected shall be
M.A.I. appraisers, unless Landlord and Tenant shall otherwise agree in
writing, each having at least ten (10) years experience with
commercial property in the Dallas/Fort Worth, Texas metroplex area.
(v) When determining the Fair Market
Rental Rate, the appraisers shall give fair consideration to the types
and amounts of rent concessions that are typical at that time, the
amount of any other economic concessions Landlord would likely grant
to a new tenant, and cost savings that Landlord may realize by
renewing an in-place tenant, and the age, quality and location of the
Premises. Appropriate allowances shall be made for such concessions,
savings and all other appropriate factors.
(vi) If the procedure set forth above is
implemented, and if for any reason whatsoever (including, without
limitation, the institution of any judicial or other legal
proceedings), the Fair Market Rental Rate for the applicable Option
Term has not been finally determined prior to the first day of the
applicable Option Term, then the Base Monthly Rent payable by Tenant
shall be the same amount as the Base Monthly Rent payable for last
month of the unexpired Lease Term until such time as the Fair Market
Rental Rate is finally determined as set forth above, and Landlord and
Tenant shall, by appropriate payments to the other, correct any
overpayment or underpayment which may have been made prior to such
final determination.
All fees, costs and expenses incurred in connection with obtaining the
appraisals and the arbitration procedure set forth in this Paragraph 4B,
including the costs of the third appraiser, shall be shared equally by Landlord
and Tenant; however, Landlord and Tenant shall each bear their own attorneys'
fees incurred with respect to this procedure and the costs of the initial
appraisers selected by them.
C. Adjustments. Tenant agrees to reimburse Landlord for
(i) Real Property Taxes (hereinafter defined) paid by Landlord in accordance
with Paragraph 10 below, (ii) Landlord's costs of maintaining insurance
required to be carried by Landlord pursuant to Paragraph 13A below and (iii)
the cost of any landscape maintenance performed by Landlord in accordance with
Paragraph 12A(b) below (collectively, the ADJUSTMENTS). During each month of
the term of this Lease, on the same day that Base Monthly Rent is due
hereunder, Tenant shall make an estimated payment to Landlord in an amount
equal to 1/12 of the estimated annual cost of the Adjustments, as reasonably
determined by Landlord. Tenant authorizes Landlord to use such funds to pay
such costs. The initial monthly payments of Adjustments are based
COMMERCIAL LEASE AGREEMENT PAGE 7
<PAGE> 10
upon the estimated amounts for the current Lease Year (hereinafter defined) and
shall be increased or decreased each Lease Year to reflect the projected actual
cost of all Adjustments. If Tenant's total monthly payments of Adjustments are
less than the actual costs of all Adjustments, Tenant shall pay the difference
to Landlord within thirty (30) days after demand. If the total monthly
payments of Adjustments by Tenant are more than the actual costs of all
Adjustments, Landlord shall retain such excess and credit it against the next
installments of Adjustments due until the excess is fully used or, if the Lease
terminates prior to the full application of such excess and provided that
Tenant is not then in default, return the remaining balance of such excess to
Tenant upon termination of this Lease. The amount of the Base Monthly Rent and
the initial monthly estimated payments of the Adjustments is as follows:
<TABLE>
<S> <C> <C>
(1) Base Monthly Rent $ 87,706.88
(2) Tax Estimated Payment $ 17,138.13
(3) Insurance Estimated Payment $ 1,008.13
(4) Landscape Maintenance Charge $ 2,016.25
------------
Monthly Payment Total $ 107,869.39
============
</TABLE>
Within ninety (90) days after the end of each Lease Year, Landlord
will provide to Tenant a statement of Adjustments paid by Landlord for the just
ended Lease Year. Tenant may at any time within ninety (90) days after its
receipt of Landlord's statement, but in any event upon ten (10) days advance
written notice to Landlord, audit, inspect and copy the books and records of
Landlord with respect to the Adjustments. Landlord shall cooperate with Tenant
in providing Tenant reasonable access to its books and records during normal
business hours for this purpose. If the results of any inspection or audit
show an overcharge to Tenant of more than five percent (5%) of the actual
amount of Adjustments owed by Tenant, then Landlord shall pay the reasonable
costs of such audit (assuming the audit is performed by a third party
unaffiliated with Tenant and not including the travel, meal or incidental
expenses of the auditor), and Landlord shall credit or refund to Tenant any
overcharge of such items as discovered by the inspection or audit within thirty
(30) days of completion of such inspection or audit. In the event such audit
discloses an undercharge of Adjustments billed to Tenant, Tenant shall pay
Landlord the amount of such undercharge within thirty (30) days of the
completion of such audit.
D. Payments of Base Monthly Rent and Adjustments. Each
installment of Base Monthly Rent and Adjustments shall be due and payable on
the first day of each calendar month; provided that one full installment of
Base Monthly Rent shall be due and payable on the date of this Lease, such to
be applied to the installment of Base Monthly Rent for the month in which the
Rent Commencement Date occurs and thereafter applied until fully utilized, and
a prorated installment of Adjustments shall be due on the Rent Commencement
Date for the month in which the Rent Commencement Date occurs. Any installment
of Base Monthly Rent or Adjustments due for any fractional calendar month shall
be prorated based upon the actual number of days in that month. If the Rent
Commencement Date occurs on the first day of a calendar month, then that
calendar month shall be the first full calendar month after the Rent
Commencement Date for purposes of computing the Base Monthly Rent and
Adjustments due under this Paragraph 4. As part of its walk through inspection
of the Improvements pursuant to Paragraph 2C(f) above, Tenant shall have the
one time right to measure the square footage of the Building. If such
measurement discloses that the actual square footage different is less than
that set forth in Paragraph 1 above, then Base Monthly Rent will be adjusted
such that Base Monthly Rent for months 1-60 is based upon $4.35 per square foot
and $5.00 per square foot for months 61-120 and $5.75 per square foot for the
first Option Term.
E. Lease Year. As used in this Lease, a LEASE YEAR
shall mean a twelve (12) month period commencing each January 1st and ending on
the following December 31st; provided, however, Landlord may from time to time
(but no more often than once every eighteen (18) months) change the twelve (12)
month period designated as a Lease Year by notice thereof to Tenant, in which
event the obligations of Tenant measured by Lease Years shall be prorated as
appropriate during any Lease Year of less than twelve (12) months based on the
number of days in any such Lease Year divided by 365; and provided, further,
the first and last Lease Years, and all obligations of Tenant measured by such
Lease Years, shall be prorated as appropriate based upon the number of days in
the applicable Lease Year during the term of this Lease divided by 365.
F. Definition of Rent. As used in this Lease, RENT
shall mean the rent set forth under Paragraph 4A and 4B above, the Adjustments
and all other amounts provided for in this Lease to be paid by Tenant to
Landlord, all of which shall constitute rental in consideration for this Lease
and the leasing of the Premises. The Rent shall be paid at the times and in
the amounts provided for herein in legal tender of the United States of America
to Landlord at the address specified in Paragraph 32 hereof or to such other
person or at such other address in the forty-eight (48) contiguous states of
the United Sates of America as Landlord may from time to time designate in
writing. Except as expressly set forth in this Lease, the Rent shall be paid
without notice, demand, abatement, deduction or offset and shall be a covenant
of Tenant independent of any obligation of Landlord under this Lease. Tenant's
obligation to pay any installment of Rent shall not be deemed satisfied until
such installment of Rent has actually been received by Landlord.
5. USE. The Premises shall be used only for the purpose of
an office/warehouse facility, manufacturing, receiving, storing, shipping and
selling products, materials and merchandise made and/or distributed by Tenant,
and for such
COMMERCIAL LEASE AGREEMENT PAGE 8
<PAGE> 11
other lawful purposes as may be incidental thereto. Tenant shall not permit
any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to
emanate from the Premises, nor take any other action that would constitute a
health or environmental hazard or nuisance or that would disturb, unreasonably
interfere with, or endanger Landlord or the occupant of any other land or
buildings in the vicinity of the Premises. Tenants use of the Premises must in
any event comply with all Applicable Laws. If Tenant's particular use of the
Premises results in Landlord being required by Applicable Laws to make any
alterations or improvements to the Premises to comply with the provisions of
ADA, Tenant shall reimburse Landlord for the cost of the alterations or
improvements within thirty (30) days after demand as additional Rent.
6. COMPLIANCE WITH LAWS. With reference to their respective
obligations hereunder, Landlord and Tenant each shall comply with all laws,
ordinances, orders, deed restrictions, easements of record, rules, and
regulations of all governmental bodies (state, federal, and municipal)
applicable to or having jurisdiction over the use, occupancy, and maintenance
of the Premises, including without limitation, the Americans With Disabilities
Act of 1990, as amended from time to time (ADA), and laws pertaining to health
or the environment (all of the above being referred to in this Lease as
APPLICABLE LAWS).
7. HAZARDOUS SUBSTANCES.
A. Landlord represents and warrants that to its current
actual knowledge no Hazardous Substances (hereinafter defined) exist in, on or
under the Premises except as may have been disclosed to Tenant in writing prior
to the date hereof. Landlord further agrees to provide Tenant with copies of
any environmental studies or reports that Landlord has in its possession
pertaining to the Land. Landlord shall and does hereby indemnify Tenant and
agrees to save Tenant harmless and, at Tenant's option, defend it from and
against any and all claims, actions, damages, liabilities and expenses
(including attorneys and other professional fees), judgments, settlement
payments and fines paid, inspection fees and remediation costs, incurred or
suffered by Tenant in connection with loss of life, personal injury and or
damage to property or the environment arising from any conduct, activity, act
or omission, or operation involving the use, handling, generation, treatment,
storage, disposal, other management or release of any Hazardous Substances in,
from, or about the Premises to the extent, but only to the extent, that such
use, handling, generation, treatment, storage, disposal, other management or
release of Hazardous Substances resulted from the direct actions of Landlord or
any Landlord Party (a LANDLORD RELEASE). Tenant shall be excused from all
obligations under the Lease during any period of time that Tenant is unable to
conduct normal business operations due to a Landlord Release, and further, if,
due to a Landlord Release, Tenant is unable to conduct its normal business
operations for a period of more than ninety (90) days, Tenant shall have the
right to terminate this Lease and Landlord shall reimburse Tenant for all of
Tenant's reasonable and actual costs relating to leasehold improvements,
fixtures, moving expenses and all other direct and incidental costs. The term
HAZARDOUS SUBSTANCES, as used herein, includes any biologically active,
chemically active, or hazardous substances or materials including, but not
limited to, those described in the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901 et seq., the Texas Water Code, the Texas Solid Waste Disposal Act, and
other applicable state or local environmental laws and the regulations adopted
under those acts, and specifically includes asbestos and petroleum products and
byproducts. This Paragraph 7A shall survive the termination of this Lease.
B. Except as expressly permitted hereby, Tenant may not
store, generate, use, dispose of or release or cause or permit any Tenant
Party, or any of their invitees, to store, generate, use, dispose of or release
in, on or under the Premises any Hazardous Substances. Tenant shall and does
hereby indemnify Landlord and agrees to save Landlord harmless and, at
Landlord's option, defend it from and against any and all claims, actions,
damages, liabilities and expenses (including attorneys and other professional
fees), judgments, settlement payments and fines paid, inspection fees and
remediation costs, incurred or suffered by Landlord in connection with loss of
life, personal injury and or damage to property or the environment arising from
any conduct, activity, act or omission, or operation involving the use,
handling, generation, treatment, storage, disposal, other management or release
of any Hazardous Substances in, from, or about the Premises to the extent, but
only to the extent, that such use, handling, generation, treatment, storage,
disposal, other management or release of Hazardous Substances resulted from the
direct actions of Tenant or any Tenant Party (a TENANT RELEASE). If any lender
or governmental agency requires testing to ascertain whether or not a release
of Hazardous Substances has occurred in, on or under the Premises, and it its
determined that a Tenant Release has in fact occurred, then Tenant shall
reimburse the actual costs of the testing to Landlord on demand as additional
Rent. Tenant shall execute affidavits, representations, and the like from time
to time at Landlord's request concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Substances in, on or under the Premises.
This Paragraph 7B shall not prohibit Tenant from bringing onto the Premises and
using fuel oils and cleaning supplies which may be defined in whole or in part
as Hazardous Substances so long as such substances are used only as an
incidental part of Tenant's day to day business operations and not as an
integral part thereof (i.e., fuel for forklifts and similar equipment, cleaning
solvents) and further provided that Tenant may not store any fuel oil or
petroleum products in a quantity over 100 gallons without Landlord's prior
written consent and in no event may such substances be stored below ground.
Tenant shall in any event comply with Applicable Laws with respect to any such
Hazardous
COMMERCIAL LEASE AGREEMENT PAGE 9
<PAGE> 12
Substances. At Landlord's request, Tenant will provide Landlord with a listing
of Hazardous Substances being stored at the Premises in excess of twenty (20)
gallons.
8. ALTERATIONS AND IMPROVEMENTS.
A. Tenant may not make or permit any alterations,
improvements, or additions in or to the Premises or any part thereof without
Landlord's prior written consent, such not to be unreasonably withheld. ANY
AND ALL ALTERATIONS, IMPROVEMENTS AND ADDITIONS IN AND TO THE PREMISES
REQUESTED BY TENANT MUST BE MADE IN ACCORDANCE WITH PLANS AND SPECIFICATIONS
FIRST APPROVED IN WRITING BY LANDLORD. All work must be performed at Tenant's
expense (subject, however, to any available excess Finish Allowance as provided
in Paragraph 2D(b) above) by contractors and subcontractors approved in advance
by Landlord, such not to be unreasonably withheld. All work performed by
Tenant's contractors and subcontractors is subject to the following conditions:
- Each contractor and subcontractor must deliver evidence
satisfactory to Landlord that the insurance specified on
Exhibit "F" (attached hereto and incorporated herein by
reference) is in force prior to commencing work.
- Tenant must deliver to Landlord evidence that Tenant has
obtained all necessary governmental permits and approvals for
the improvements or alterations prior to starting any work.
- All construction must be done in a good and workmanlike manner
so as not to damage or alter the primary structure or
structural qualities or the utility or other systems of the
Premises and is subject to approval by Landlord during and
after construction, in its sole but reasonable discretion.
- Tenant shall diligently seek to obtain lien releases from each
contractor and subcontractor must be submitted to Landlord
within thirty (30) days after completion of the work performed
by the contractor or subcontractor.
- All alterations and improvements made by Tenant must comply
with all Applicable Laws including, specifically, the ADA, and
applicable building permits and certificates of occupancy.
Landlord's approval of Tenant's plans and specifications for
the alterations or improvements will not act as a confirmation
or agreement by Landlord that the improvements and alterations
comply with Applicable Laws.
B. Notwithstanding any other provision of this Paragraph
8, Tenant, at its own cost and expense, may (i) make non-structural
improvements to the interior of the Building provided that the aggregate
expense of such does not exceed $25,000.00 per year (provided that such
limitation shall not imply to Tenant's initial installation of its property as
contemplated under Paragraph 2E above), and (ii) erect in the Building such
shelves, racks, bins and trade fixtures (collectively, TENANT'S PROPERTY) as it
desires and without Landlord's prior consent provided that with respect to both
(i) and (ii): (a) such items do not alter the basic character of the Building;
(b) such items do not overload or damage the Building or the utility or other
systems serving same; (c) such items may be removed without material injury to
the Building; and (d) the construction, erection or installation thereof
complies with all Applicable Laws, applicable building permits and certificates
of occupancy. All of Tenant's Property shall remain the property of Tenant and
shall be removed on or before the earlier to occur of the date of termination
of this Lease or Tenant's vacating the Premises. Any of Tenant's Property not
so removed and any other property of Tenant not removed within thirty (30) days
after the termination of this Lease or Tenant's vacating the Premises shall
thereupon be conclusively presumed to have been abandoned by Tenant, and
Landlord may, at its option, take over possession of any and all of the
foregoing and either (i) declare the same to be the property of Landlord by
written notice to Tenant at the address provided herein or (ii) at the sole
cost and expense of Tenant, remove, store, and/or dispose of the same or any
part thereof, all at Tenant's cost, in any manner that Landlord shall choose
without incurring liability to Tenant or any other person.
C. All alterations, additions, and improvements made to,
or fixtures or other improvements placed in or on the Premises, whether
temporary or permanent in character (except as provided in Paragraph 8B above),
are a part of the Premises and are the property of Landlord when they are
placed in or on the Premises without compensation to Tenant; provided, however,
that, at Landlord's option, Landlord may require that Tenant remove any
improvements or alterations made to the Premises by Tenant (not inclusive of
the Tenant Finish Work) and repair any damage caused thereby if, at the time
such improvements or alterations were made, and whether or not such
improvements or alterations required Landlord's consent hereunder, Landlord did
not expressly agree to allow such alterations or improvements to remain in the
Premises after termination.
9. SIGNAGE. Any signage Tenant desires for the Premises shall be
subject to Landlord's written approval, such not to be unreasonably withheld or
delayed, and shall be submitted to Landlord prior to the Commencement Date of
this Lease. Tenant shall repair, paint and/or replace the building facia
surface to which its signs are attached upon vacation of the Premises, or the
removal or alteration of its signage. Any signage desired by Tenant must in
all events comply with Applicable Laws.
COMMERCIAL LEASE AGREEMENT PAGE 10
<PAGE> 13
10. TAXES.
A. Subject to reimbursement by Tenant as provided in
Paragraph 4B above, Landlord shall pay all taxes, assessments and governmental
charges of any kind and nature and all assessments due to deed restrictions
and/or owner or community associations (collectively referred to herein as REAL
PROPERTY TAXES) that accrue against the Premises or any part thereof. If at
any time during the term of this Lease, there shall be levied, assessed or
imposed on Landlord a capital levy or other tax directly on the Rent received
under this Lease and/or a franchise tax, assessment, levy or charge measured by
or based, in whole or in part, upon Rent paid under this Lease, then all such
taxes, assessments, levies or charges, or the part thereof so measured or
based, shall be deemed to be included within the term REAL PROPERTY TAXES for
the purposes hereof. Real Property Taxes shall not include a tax upon the
income of Landlord. Landlord shall have the right to employ a tax consulting
firm to attempt to assure a fair tax burden on the Premises within the
applicable taxing jurisdiction and, at Tenant's request, Landlord shall employ
such tax consultant. Tenant agrees to pay the reasonable cost of such
consultant as additional Rent. Additionally, Tenant may elect to contest the
imposition or assessment of any Real Property Taxes with the appropriate taxing
authority, provided that such shall be at Tenant's expense and such contest
shall not relieve Tenant from paying Real Property Taxes hereunder when such
are due hereunder.
B. Notwithstanding anything contained herein to the
contrary, in the event that any governmental entity makes any improvements and
assesses any portion of the Premises therefor, Tenant shall be liable only for
its pro rata share of that portion of such assessment in proportion to the
remainder of the Lease Term and the useful life of such assessment. Whether or
not Landlord takes the benefit of the provision of any statue or ordinance
permitting any assessment for public betterments or improvements to be paid
over a period of time Landlord shall, nevertheless, be deemed to have take such
benefits so that the term Real Property Taxes shall include only the current
annual installment of any such assessment.
C. Tenant shall be liable for all taxes levied or
assessed against Tenant's Property and any other personal property or fixtures
placed or installed in the Premises. If any such taxes are levied or assessed
against Landlord or Landlord's property and (i) Landlord pays the same, or (ii)
the assessed value of Landlord's property is increased by inclusion of such
personal property and fixtures and Landlord pays the increased taxes, then,
Tenant shall pay to Landlord such taxes within ten (10) days after demand.
11. UTILITIES. Landlord agrees to provide water, gas, sewer and
electricity service to the Building as set forth in the Base Plans and to
distribute such utilities throughout the Building as required by the Finish
Plans, all at Landlord's cost and expense, but subject to Paragraph 2D above.
From and after the Date of Substantial Completion, Tenant shall pay for all
water, gas, heat, telephone, sewer, sprinkler charges and other utilities and
services used on or at the Premises, together with any taxes, penalties,
surcharges or the like pertaining to the Tenant's use of the Premises, and any
maintenance charges for utilities. Tenant will be responsible for all
electricity supplied to the Premises through the transformer at the Premises
beginning on the earlier to occur of (i) Tenant requesting that the transformer
at the Premises be "energized" or turned on, or (ii) Project manager
determining that it is necessary to energize the transformer for purposes of
testing the HVAC in the Building. Landlord shall bear the costs of all 120
volt electricity supplied to the Premises other than as set forth in the
preceding sentence, including a maximum of 60 amps for Tenant's contractors and
subcontractors. Additionally, even after the transformer is energized,
Landlord shall cause all electricity utilized by Contractor and Contractor's
subcontractors to be obtained from a separate source not charged to Tenant.
Landlord shall not be liable for any interruption or failure of utility service
at the Premises unless due to the negligence of Landlord or any Landlord Party.
12. REPAIRS AND MAINTENANCE.
A. Landlord's Obligation to Repair and Maintain.
(a) Landlord, at its own cost and expense, shall
maintain the roof, foundation and the structural soundness of the exterior
walls of the Building in good repair, except for damage caused by any act or
omission of Tenant or any Tenant Party or their invitees. If any such damage is
not repaired by Tenant within thirty (30) days after written notice by
Landlord, Landlord may elect to repair such damage and Tenant shall pay
Landlord the cost or anticipated cost of such repair on demand, subject to
Paragraph 13C hereof; provided that such remedy shall not be in lieu of any
other remedies available to Landlord hereunder for default by Tenant. The term
WALLS as used herein shall not include windows, glass or plate glass, doors,
special store fronts or office entries. Notwithstanding the above, any
decision regarding the replacement of any structural item of the Building will
be made in Landlord's sole discretion.
(b) Subject to reimbursement from Tenant as
provided in Paragraph 4C above, Landlord will maintain and keep in good
condition all exterior landscaping at the Premises; provided that upon
Landlord's notification to Tenant of estimated landscape maintenance costs for
the second Lease Year, Tenant may elect, by written notice to Landlord prior to
the commencement of the second Lease Year to maintain the landscaping of the
Premises at its sole costs, in which event the landscape maintenance obligation
shall be included within Tenant's obligations under Paragraph 12B below and
COMMERCIAL LEASE AGREEMENT PAGE 11
<PAGE> 14
no Adjustments will be due during such Lease Year for landscape maintenance.
(c) Tenant shall immediately give Landlord
written notice of any defect or need for repairs, after which Landlord shall
have reasonable opportunity to repair same or cure such defect. If Landlord
fails to commence the repair or cure of any work required by this Paragraph 12
within ten (10) days after Tenant has delivered a written request (except with
respect to repairs which must be made immediately to prevent substantial loss
of property or any bodily injury, for which telephonic notice will be
sufficient) for performance and thereafter diligently prosecute such cure or
repair to completion, then Tenant may give a second written notice to Landlord
demanding a cure or repair and, if Landlord fails to commence the repair of
cure within five (5) days after receipt of such notice, Tenant may then elect
to perform Landlord's obligations under this Paragraph 12A. In such event,
Landlord shall, within thirty (30) days after receipt of demand from Tenant
accompanied by paid invoices, reimburse Tenant for Tenant's actual costs
incurred in performing Landlord's obligations. If Landlord does not fully
reimburse Tenant within such time period the (i) with respect to invoices for
such repair that were incurred due to an emergency, as described above, and
provided that such invoices total less than $25,000.00, Tenant may set-off such
costs against Base Monthly Rent thereafter due until such amount is paid in
full, or (ii) with respect to all other invoices for such repair and emergency
repairs in excess of $25,000.00, and provided that Tenant receives a final
money judgment against Landlord for Tenant's actual costs, Tenant may set-off
the amount of such judgment against Base Monthly Rent due hereunder until the
amount of the judgment is recovered in full.
(d) Landlord agrees to use reasonable efforts to
minimize interference with Tenant's business operations when performing any
repairs required under this Paragraph 12A or otherwise.
B. Tenant's Obligation to Repair and Maintain. Except only
for maintenance, repair and replacement performed by Landlord pursuant to
Paragraph 12A hereof, Tenant, at its own cost and expense, shall (i) maintain
all parts of the Premises, inclusive of the parking lot, the utility lines and
other appurtenances in good condition, including without limitation any
overhead doors, loading docks, loading dock levelers and loading dock
equipment, (ii) promptly make all necessary repairs and replacements, and (iii)
keep the walkways, parking areas and facilities, driveways and alleys
comprising part of and surrounding the Premises in a clean and sanitary
condition. Tenant, at its own cost and expense, shall enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
approved by Landlord, such not to be unreasonably withheld, for servicing all
hot water, heating and air conditioning systems and equipment within the
Premises. The service contract must include all services suggested by the
equipment manufacturer in its operations/maintenance manual and must become
effective within thirty (30) days of the date Tenant takes possession of the
Premises.
Landlord reserves the right to perform the paving, landscape
replacement and maintenance, exterior painting, utility line maintenance and
any other items that are otherwise Tenant's obligations under this Paragraph
12B if Tenant fails to commence performance of such within thirty (30) days
after written notice from Landlord and thereafter diligently prosecute such
repair to completion within sixty (60) days thereafter. In such event, Tenant
shall reimburse Landlord for all costs incurred by Landlord within thirty (30)
days after demand. All such amounts shall be owned to Landlord as additional
Rent.
13. INSURANCE.
A. Insurance Required to be Carried by Landlord.
Landlord shall maintain insurance covering the Building (except that Landlord
shall not be required to insure any part of the partitions, fixtures, additions
and other improvements that may have been constructed, erected or installed in
or about the Premises or for the benefit of, or by or for Tenant) in an amount
not less than one hundred percent (100%) of the replacement cost thereof
insuring against the perils of Fire, Lightning, Extended Coverage, Vandalism
and Malicious Mischief.
B. Insurance Required to be Carried by Tenant. Tenant,
at its own expense, shall maintain during the term of this Lease a policy or
policies of worker's compensation (or its equivalent provided such is approved
by Landlord, such not to be unreasonably withheld) and commercial general
liability insurance, including personal injury and property damage, with
contractual liability endorsement, in the amount of Five Hundred Thousand
Dollars ($500,000.00) for property damages and One Million Dollars
($1,000,000.00) per occurrence for personal injuries or deaths of persons
occurring in or about the Premises; provided, such limits may be adjusted
upward in Landlord's reasonable discretion based upon inflation or upon the
type of business conducted by Tenant in the Premises. Said policies shall (i)
name Landlord as an additional insured and insure Landlord's contingent
liability under this Lease (except for the worker's compensation policy, which
instead shall include waiver of subrogation endorsement in favor of Landlord),
(ii) be issued on an occurrence (not claims made) basis, (iii) be issued by an
insurance company which is reasonably acceptable to Landlord, and (iv) provide
that said insurance shall not be cancelled unless thirty (30) days prior
written notice shall have been given to Landlord. In addition to the above,
Tenant shall maintain insurance insuring the interest of Tenant and covering
all of Tenant's property and all partitions, fixtures, additions and other
improvements that may have been constructed, erected or installed in or about
the Premises or for the benefit of, or by or for Tenant that Tenant is entitled
to remove upon the
COMMERCIAL LEASE AGREEMENT PAGE 12
<PAGE> 15
termination of this Lease, and covering all contents of the Premises, in an
amount not less than one hundred percent (100%) of the replacement cost
thereof insuring against the perils of Fire, Lightning, Extended Coverage,
Vandalism and Malicious Mischief. Said policy or policies or certificates
thereof shall be delivered to Landlord by Tenant upon commencement of the term
of the Lease and at least thirty (30) days prior to the effective date of each
renewal of said insurance. Notwithstanding the above, Tenant may satisfy one
or more of its insurance requirements through "umbrella" policies provided that
such umbrella coverage satisfies the above criteria with respect to this Lease.
Tenant will not permit the Premises to be used for any purpose or in
any manner that would (i) void the insurance thereon, (ii) increase the
insurance risk, or (iii) cause the disallowance of any sprinkler credits,
including without limitation, use of the Premises for the receipt, storage or
handling of any product, material or merchandise that is explosive or highly
inflammable. If any increase in the cost of any insurance on the Premises or
the Building is caused by Tenant's use of the Premises, or because Tenant
vacates the Premises, then Tenant shall pay the amount of such increase to
Landlord upon demand.
C. Waiver of Subrogation. Landlord and Tenant hereby
waive any rights each may have against the other on account of any loss or
damage occasioned to Landlord or Tenant, as the case may be (whether or not
such loss or damage is caused by the fault of the other party), to their
respective property, the Premises, its contents or to any other portion of the
Building arising from any risk covered by the standard form of fire and
extended coverage insurance used in the State of Texas at the time of the loss
or damage. The parties hereto each, on behalf of their respective insurance
companies insuring the property of either Landlord or Tenant against any such
loss, waive any right of subrogation that it may have against Landlord or
Tenant, as the case may be. Each party to this Lease agrees immediately to
give to each such insurance company written notification of the terms of the
mutual waivers contained in this paragraph, and to have said insurance policies
properly endorsed, if necessary, to prevent the invalidation of said insurance
coverages by reason of said waivers.
14. RISK ALLOCATION.
A. Liability of Landlord. Landlord shall not be liable
to Tenant or to Tenant's employees, agents, licensees or visitors, or to any
other person whomsoever for, and Tenant hereby holds Landlord harmless and
agrees to defend Landlord from and against, (i) any injury or damage to person
or property due to the Premises or related improvements or appurtenances or any
part thereof becoming out of repair or by defect in or failure of pipes or
wiring, or by the backing up of drains or by the bursting or leaking of pipes,
faucets, and plumbing fixtures or by gas, water, steam, electricity, oil
leaking, escaping or flowing into the Building, or any other cause, unless due
to the negligence of Landlord or any Landlord Party; or (ii) any loss or damage
that may be occasioned by or through the acts or omissions of any other persons
whatsoever, excepting only the willful conduct or negligence of Landlord or any
Landlord Party; or (iii) any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot,
insurrection, war, court order, requisition or order of governmental authority,
any Force Majeure event, or any other matter beyond the reasonable control of
Landlord. In no event shall Landlord be liable for consequential or
speculative damages to Tenant such as, but not limited to, loss of business.
Landlord shall not be liable to Tenant for any damage to or loss of Tenant's
Property on or about the Premises. Tenant agrees that all personal property
upon the Premises shall be at the risk of Tenant only, and that Landlord shall
not be liable for any damage thereto or theft thereof except as specifically
provided herein to the contrary. The releases contained herein are not in
limitation of any other releases by Tenant that may be contained in this Lease.
B. Indemnity by Landlord. Except for any claims,
rights of recovery and causes of action that Tenant has waived or released or
for which Landlord is not responsible for hereunder, Landlord shall indemnify
and hold Tenant, its partners, officers, directors, employees and agents, whole
and harmless of, from and against any and all fines, suits, losses, costs,
liabilities, claims, demands, actions and judgments of every kind and character
for any injury to any person or damage to any property in, on, or about the
Premises or any part thereof, when such injury or damage shall be caused by the
neglect, fault of, or omission of any duty with respect to the same by Landlord
or any Landlord Party, together with reasonable court costs and attorneys fees
incurred by Tenant in defending same. Upon the occurrence of an event which
Landlord is required to indemnify Tenant against, and upon demand by Tenant,
Landlord shall employ counsel reasonably acceptable to Tenant and defend Tenant
against any liability for such event, all at Landlord's cost. The provisions
of this Paragraph 14B shall survive the expiration or termination of this Lease
with respect to any claims or liability occurring prior to such expiration or
termination.
C. Indemnity by Tenant. From and after the Commencement
Date, Tenant agrees that it will indemnify, defend and hold and save Landlord,
its partners, officers, directors, employees and agents whole and harmless of,
from and against any and all fines, suits, losses, costs, liabilities, claims,
demands, actions and judgments of every kind and character (i) arising by
reason of any breach, violation or non-performance by Tenant of any term,
provision, covenant, condition or agreement to be performed or abided by Tenant
hereunder, and (ii) all claims, demands, actions, damages, losses, costs,
liabilities, expenses and judgments suffered by, recovered from, or asserted
against Landlord or any Landlord Party on account of death, injury or damage to
person or property where such death, injury or damage is caused, in whole
COMMERCIAL LEASE AGREEMENT PAGE 13
<PAGE> 16
or in part, by Tenant or any Tenant Party or their invitees, together with
reasonable court costs and attorneys fees incurred by Landlord in defending
same. Upon the occurrence of an event which Tenant is required to indemnify
Landlord against, and upon demand by Landlord, Tenant shall employ counsel
reasonably acceptable to Landlord and defend Landlord against any liability for
such event, all at Tenant's cost. The provisions of this Paragraph 14C shall
survive the expiration or termination of this Lease with respect to any claims
or liability occurring prior to such expiration or termination. The
indemnities in this Paragraph 14C are cumulative with, and are not to be
construed as in limitation of, any other express indemnities of Tenant
contained elsewhere herein.
D. Survival. The releases and indemnities contained in
this Paragraph 14 will survive the termination of this Lease.
15. CASUALTY.
A. If the Premises should be damaged or destroyed by
fire or other peril, Tenant immediately shall give written notice to Landlord.
If: (i) the Building should be totally destroyed by any peril not covered by
the insurance to be provided by Landlord under Paragraph 13A above; or if (ii)
the Premises should be so damaged thereby that, in Landlord's good faith
estimation, rebuilding or repairs cannot be completed within one hundred eighty
(180) days after the date of such damage; or if (iii) the Premises should be so
damaged thereby that, in Landlord's good faith estimation, rebuilding or
repairs of the portion thereof required to be insured by Landlord can be
substantially completed within one hundred eighty (180) days after the date of
such damage, but the insurance proceeds available to Landlord will not, in
Landlord's estimation, be sufficient to complete such rebuilding or repairs
(due to such insurance proceeds being applied to mortgage debt or otherwise)
and Landlord is either unable or unwilling to advance sufficient funds to
complete such rebuilding or repairs; then in any of such events this Lease
shall cease and terminate as if and to the extent the effective date of such
termination had been the date originally scheduled for the expiration of the
term of this Lease, and the Rent shall be abated during the previously
unexpired term of this Lease, effective as of the date of the occurrence of
such damage. Landlord's determinations under this paragraph must be made in
writing to Tenant within sixty (60) days after the subject casualty. If
Landlord elects or is required to rebuild the Premises pursuant to this
Paragraph 15A, Landlord will diligently prosecute such rebuilding to its
completion.
B. If the Premises should be damaged by any peril
covered by the insurance to be provided by Landlord under Paragraph 13A above,
and in Landlord's estimation, rebuilding or repairs of the portion thereof
required to be insured by Landlord can be substantially completed within one
hundred eighty (180) days after the date of such damage, subject, however to
subparagraph 15A(iii) above, this Lease shall not terminate, and Landlord shall
restore the Premises in accordance with the Base Plans and the Finish Plans,
except that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, additions and other improvements that may
have been constructed, erected or installed in, or about the Premises or for
the benefit of, or by or for Tenant (other than the Tenant Finish Work).
During any period of rebuilding, repair and restoration, Landlord shall allow
Tenant a fair diminution in Rent. If such repairs and rebuilding of the
Premises have not been substantially completed within one hundred eighty (180)
days after the date of such damage, Tenant, as Tenant's exclusive remedy, may
give Landlord notice of Tenant's intention to terminate the Lease effective as
of the date specified in such notice, which date shall be not less that thirty
(30) days after the notice. If the repairs and rebuilding have not been
substantially completed by the date specified in such notice, Tenant, as
Tenant's exclusive remedy, may immediately terminate this Lease by delivering
written notice of termination to Landlord, in which event the rights and
obligations hereunder shall cease and terminate as if and to the extent the
effective date of such termination had been the date originally scheduled for
the expiration of the term of this Lease, and Rent shall be abated during the
previously unexpired term of this Lease, effective upon the date of the
termination.
16. CONDEMNATION. If any portion of the Premises beyond that
portion of the parking area cross-hatched on the Site Plan is taken for any
public or quasi-public use under governmental law, ordinance or regulation, or
by right of eminent domain, or by private purchase in lieu thereof and the
taking prevents or materially interferes with the use of the Premises for the
purpose for which they were leased to Tenant, this Lease shall terminate and
the Rent shall be abated during the unexpired portion of this Lease, effective
as of the date of such taking. If any taking for any public or quasi-public
use under any governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof occurs but such affects only the
portion of the parking area cross-hatched on the Site Plan, or if such affects
more that the parking area cross-hatched on the Site Plan but otherwise does
not prevent or materially interfere with the use of the Premises for the
purpose for which they were leased to Tenant, this Lease shall not terminate,
but the Rent payable hereunder during the unexpired portion of this Lease shall
be reduced to such extent as may be fair and reasonable under all of the
circumstances. All compensation awarded in connection with or as a result of
any of the foregoing proceedings shall be the property of Landlord, and Tenant
hereby assigns any interest in any such award to Landlord; provided, however,
Landlord shall have no interest in any award made to Tenant for loss of
business or goodwill or for the taking of Tenant's fixtures and improvements,
if a separate award for such items is made to Tenant.
17. ASSIGNMENT AND SUBLETTING.
COMMERCIAL LEASE AGREEMENT PAGE 14
<PAGE> 17
A. Prohibition on Assignment and Subletting. Tenant
shall not have the right to assign, sublet, transfer or encumber this Lease, or
any interest therein, without the prior written consent of Landlord, such not
to be unreasonably withheld. Any attempted assignment, subletting, transfer or
encumbrance by Tenant in violation of the terms and covenants of this Paragraph
shall be void. If Tenant requests Landlord's consent to an assignment of this
Lease or subletting of all or a part of the Premises, it shall submit to
Landlord, in writing, the name of the proposed assignee or subtenant, the
commencement date of such assignment or subletting, the nature and character of
the business of the proposed assignee or subtenant and the proposed rates,
terms and other pertinent conditions of such assignment or subletting.
Landlord shall have the option (to be exercised within thirty (30) days from
the submission of Tenant's written request) to cancel this Lease (or the
applicable portion thereof as to a partial subletting) as of the commencement
date stated in the above-mentioned notice of subletting or assignment, unless
Tenant withdraws the proposal to sublet or assign within ten (10) days after
Landlord's notice of cancellation is given. If Landlord elects to cancel this
Lease and Tenant does not withdraw the proposal to sublet or assign, then the
term of this Lease (as to the applicable portion of the Premises), and the
tenancy and occupancy of the applicable portion of the Premises by Tenant
hereunder, shall cease, terminate, expire, and come to an end as if the
cancellation date was the original termination date of this Lease with respect
to the applicable portion of the Premises. In the event Landlord consents to a
proposed assignment or subletting and the rent due and payable by any such
assignee or sublessee under any such permitted assignment or sublease (or a
combination of the rent payable under such assignment or sublease plus any
bonus or any other consideration therefor or any payment, incident thereto)
exceeds the Rent payable under Paragraph 4 of this Lease for the applicable
space, Tenant shall pay to Landlord all such excess rent and other excess
consideration with ten (10) days following receipt thereof by Tenant. Any
assignee, sublessee or transferee of Tenant's interest in this Lease (all such
assignees, sublessees and transferees being hereinafter referred to as
TRANSFEREES), by assuming Tenant's obligations hereunder, shall assume
liability to Landlord for all amounts paid to persons other than Landlord by
such Transferees in contravention of this Paragraph. No assignment, subletting
or other transfer, whether consented to by Landlord or not or permitted
hereunder shall relieve Tenant of its liability hereunder. If an event of
default occurs while the Premises or any part thereof are assigned or sublet,
then Landlord, in addition to any other remedies herein provided, or provided
by law, may collect directly from such Transferee all rents payable to the
Tenant and apply such rent against any sum due Landlord hereunder. No such
collection shall be construed to constitute a novation or a release of Tenant
from the further performance of Tenant's obligations hereunder.
B. Assignments in Bankruptcy. If this Lease is assigned
to any person or entity pursuant to the provisions of the Bankruptcy Code, 11
U.S.C. Section 101 et. seq. (the BANKRUPTCY CODE), any and all monies or other
consideration payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or
of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and be promptly paid or delivered to Landlord. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code, shall be deemed, without further act or deed, to have
assumed all of the obligations arising under this Lease on and after the date
of such assignment. Any such assignee shall upon demand execute and deliver to
Landlord an instrument confirming such assumption.
C. Permitted Assignments. Notwithstanding the
provisions of Paragraph 16A, Tenant may, without the consent of Landlord, at
any time assign or otherwise transfer this Lease or any portion thereof to any
Affiliate (hereinafter defined); or any corporation resulting from the
consolidation or merger of Tenant into or with any other entity; or to any
person, firm, entity or corporation acquiring a majority of Tenant's issued and
outstanding capital stock or substantially all of Tenant's assets. As used
herein, the term AFFILIATE shall mean a person or entity, corporate or
otherwise, that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with Tenant. The term
CONTROL means the right and power, direct or indirect, to direct or cause the
direction of the management and policies of a person or business entity,
corporation or otherwise, through ownership or voting securities, by contract
or otherwise; provided, however, that in the event of an assignment, the
assignee shall assume in writing the terms and conditions set forth herein to
be observed and performed by the Tenant in a form approved by Landlord.
Additionally, no assignment under this paragraph or otherwise will operate to
release the tenant named herein from any obligations or liabilities hereunder,
unless the assignee or transferee has a net worth greater than $10,000,000.00,
in which event the tenant named herein will be released upon such assignment.
COMMERCIAL LEASE AGREEMENT PAGE 15
<PAGE> 18
18. DEFAULT BY TENANT. The following events (herein individually
referred to as EVENT OF DEFAULT) each shall be deemed to be events of
nonperformance by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the Rent
herein reserved, or any other payment or reimbursement to Landlord required
herein, within five (5) days of the date it is due, and such failure shall
continue for a period of ten (10) days after receipt of written notice from
Landlord; provided, however, that an event of default will occur without any
obligation of Landlord to deliver any notice if Landlord has given Tenant
written notice under this Paragraph 18A on two (2) or more occasions during the
twelve (12) month period preceding the current failure by Tenant to timely pay
Rent.
B. Tenant or any guarantor of the Tenant's obligations
hereunder shall (i) become insolvent; (ii) admit in writing its inability to
pay its debts; (iii) make a general assignment for the benefit of creditors;
(iv) commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or of any substantial part of its property; or (v) take any action
to authorize or in contemplation of any of the actions set forth above in this
paragraph.
C. Any case, proceeding or other action against the
Tenant or any guarantor of the Tenant's obligations hereunder shall be
commenced seeking (i) to have an order for relief entered against it as debtor
or to adjudicate it a bankrupt or insolvent; (ii) reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or relief of
debtors; (iii) appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property, and such
case, proceeding or other action (a) results in the entry of an order for
relief against it, or (b) shall remain undismissed for a period of sixty-five
(65) days.
D. Tenant shall fail to occupy the Premises within
thirty (30) days after the Date of Substantial Completion.
E. Tenant shall fail to comply with any material terms
in this Lease other than those for which an event of default has been described
in this Paragraph 18, and such failure is not cured within thirty (30) days
after written notice thereof to Tenant, or if such obligations cannot
reasonably be accomplished in thirty (30) days, such time as is reasonable
under the circumstances and provided that Tenant must diligently proceed to
cure the default.
19. LANDLORD'S REMEDIES. Upon the occurrence of any event of
default specified in this Lease, Landlord, at its option, may exercise one (1)
or more of the following remedies, in addition to all other rights and remedies
provided at law or in equity.
A. Landlord may, without judicial process, terminate
this Lease (whereupon all obligations and liabilities of Landlord hereunder
shall terminate) and without further notice repossess the Premises without
having any liability therefor (including specifically any liability or duty
under Section 93.002 of the Texas Property Code which is specifically
superseded by this Paragraph 19A) and be entitled to recover all loss and
damage Landlord may suffer by reason of such termination, whether through
inability to relet the Premises on satisfactory terms or otherwise, including
without limitation, accrued Rent and interest thereon, accrued late charges and
interest thereon, the cost of recovering the Premises and the costs of
reletting the Premises (including without limitation advertising costs,
brokerage fees, leasing commissions, reasonable attorneys' fees and
refurbishing costs). If such termination is caused by the failure to pay Rent,
Landlord may elect, by sending written notice thereof to Tenant, to recover
from Tenant, and Tenant shall pay to Landlord, on demand, as and for final
damages for Tenant's default, an amount equal to the difference between the
then present worth of the aggregate of the Base Monthly Rent and Adjustments
and any other charges to be paid by Tenant hereunder for the unexpired portion
of the term of this Lease (assuming this Lease had not been so terminated), and
the then present worth of the then aggregate fair and reasonable fair market
rent of the Premises for the same period. In the computation of present worth,
a discount at the rate of 7.50% per annum shall be employed. Nothing contained
in this Lease shall limit or prejudice the right of Landlord to prove for and
obtain in proceedings for bankruptcy or insolvency by reason of the termination
of this Lease, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, the
damages are to be proved, whether the amount be greater, equal to, or less than
the amount of the loss or damages referred to above.
B. Landlord may, without judicial process, immediately
terminate Tenant's right of possession of the Premises by delivering to Tenant
written notice of such termination, but not terminate this Lease, and, without
notice or demand, enter upon the Premises or any part thereof and take absolute
possession of the same, expel or remove Tenant and any other person or entity
who may be occupying the Premises, by force if necessary, change the locks,
without having any liability therefor (including specifically any liability or
duty under Section 93.002 of the Texas Property Code which is specifically
superseded by this Paragraph 19B) and at Landlord's option, Landlord may relet
the Premises or any part thereof for such terms and such rents as
COMMERCIAL LEASE AGREEMENT PAGE 16
<PAGE> 19
Landlord may in its sole discretion elect. In the event of a termination of
Tenant's possession of the Premises under this Part B and notwithstanding
anything in Section 93.002 of the Texas Property Code to the contrary, Landlord
shall have no obligation whatsoever to tender to Tenant a key for new locks
installed in the Premises and Tenant shall have no further right to possession
of the Premises. In the event Landlord shall elect to relet, then rent
received by Landlord from such reletting shall be applied first, to the payment
of any indebtedness other than Rent due hereunder from Tenant to Landlord (in
such order as Landlord shall designate), second, to the payment of any cost of
such reletting, including, without limitation, refurbishing costs, reasonable
attorneys' fees, advertising costs, brokerage fees and leasing commissions, and
third, to the payment of Rent due and unpaid hereunder (in such order as
Landlord shall designate), and Tenant shall satisfy and pay any deficiency upon
demand thereof from time to time. Landlord shall not be responsible or liable
for any failure, and Tenant hereby waives any obligation on the part of
Landlord, to relet the Premises or any part thereof or to collect any rent due
upon any such reletting. No re-entry or taking of possession of the Premises
by Landlord pursuant to this Paragraph 19B shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
termination is given to Tenant pursuant to Paragraph 19A above and,
notwithstanding any such reletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such previous breach. If
Landlord relets the Premises (it being understood and agreed that Landlord
shall have no obligation whatsoever to relet the Premises), either before or
after the termination of this Lease for a rental rate greater than the Rent
provided in this Lease, then for that portion of the Premises that is subject
to such new lease, all such excess rentals shall be and remain the exclusive
property of Landlord, and Tenant shall not be, at any time, entitled to recover
said excess rental.
C. Landlord may, without judicial process enter upon the
Premises, by force if necessary, without having any civil or criminal liability
therefor (including specifically any liability or duty under Section 93.002 of
the Texas Property Code which is superseded by this Paragraph 19C), and do
whatever Tenant is obligated to do under the terms of this Lease, and Tenant
agrees to reimburse Landlord on demand for any reasonable expenses which
Landlord may incur in effecting compliance with Tenant's obligations under this
Lease. Tenant further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action, unless due to the negligence or willful
misconduct of Landlord or any Landlord Party.
D. Any repossession of or re-entering on the Premises by
Landlord under this Article shall be without liability or responsibility for
damages to Tenant, unless due to the negligence or willful misconduct of
Landlord or any Landlord Party. No repossession of or re-entering upon the
Premises or any part thereof pursuant to Paragraphs 19B or 19C or otherwise and
no reletting of the Premises or any part thereof pursuant to Paragraph 19B
shall relieve Tenant or any guarantor of its liabilities and obligations
hereunder, all of which shall survive such repossession or re-entering. In the
event of any such repossession of or re-entering upon the Premises or any part
thereof by reason of the occurrence of an event of default, Tenant will
continue to pay to Landlord Rent required to be paid by Tenant.
E. No right or remedy herein conferred upon or reserved
to Landlord is intended to be exclusive of any other right or remedy, and each
and every right and remedy shall be cumulative and in addition to any other
right or remedy given hereunder or now or hereafter existing at law or in
equity or by statute. In addition to the other remedies provided in this
Lease, Landlord shall be entitled, to the extent permitted by applicable law,
to injunctive relief in case of the violation, or attempted or threatened
violation, of any of the covenants, agreements, conditions or provisions of
this Lease, or to a decree compelling performance of any of the covenants,
agreements, conditions or provisions of this Lease, or to any other remedy
allowed to Landlord at law or in equity. Tenant shall indemnify and hold
Landlord harmless from any and all costs, expenses (including reasonable
attorneys' fees), claims and causes of action arising from or in connection
with any default by Tenant under this Lease.
F. If Landlord repossesses the Premises pursuant to the
authority herein granted, then Landlord shall have the right to remove and
store all of the furniture, fixtures and equipment at the Premises, including
that which is owned by or leased to Tenant at all times prior to any
foreclosure thereon by Landlord or repossession thereof by any lessor thereof
or third party having a superior lien thereon. Landlord also shall have the
right to relinquish possession of all or any portion of such furniture,
fixtures, equipment and other property to any person (CLAIMANT) who presents to
Landlord a copy of any instrument represented by Claimant to have been executed
by Tenant (or any predecessor of Tenant) granting Claimant the right under
various circumstances to take possession of such furniture, fixtures, equipment
or other property, without the necessity on the part of Landlord to inquire
into the authenticity or legality of said instrument. The rights of Landlord
herein stated shall be in addition to any and all other rights that Landlord
has or may hereafter have at law or in equity; and Tenant stipulates and agrees
that the rights herein granted Landlord are commercially reasonable.
G. In the event Tenant fails to make any installment of
Rent to Landlord prior to the expiration of any applicable grace or notice and
cure period, to help defray the additional cost to Landlord for processing such
late payments, Tenant shall pay to Landlord on demand a late charge in an
amount equal to $1,500.00; and the failure to pay such late charge within ten
(10) days after demand therefor shall be an additional event of default
hereunder. The provision for such late charge shall be in
COMMERCIAL LEASE AGREEMENT PAGE 17
<PAGE> 20
addition to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner. Any assessed late charge will be additional Rent owed
hereunder.
H. Any Rent due from Tenant to Landlord which is not
paid when due shall bear interest from the date any applicable grace or notice
and cure period expires until paid at the lower of (i) eighteen percent (18%)
per annum or (ii) the highest rate from time to time allowed by applicable law,
from the date such payment is due until paid, but the payment of such interest
shall not excuse or cure the default. The failure to pay such late charge
shall be an additional event of default hereunder. The provision for such
default interest shall be in addition to all of Landlord's other rights and
remedies hereunder or at law and shall not be construed as liquidated damages
or as limiting Landlord's remedies in any manner. Any assessed default
interest charge will be additional Rent owed hereunder.
20. DEFAULT BY LANDLORD AND TENANT'S REMEDIES. If Landlord fails
to perform any of its obligations hereunder within thirty (30) days after
written notice from Tenant specifying such failure, or if such obligations
cannot reasonably be accomplished in thirty (30) days, Landlord has not
commenced performance within such thirty (30) day period and thereafter
diligently prosecutes performance through completion, Tenant's sole and
exclusive remedy shall be, (i) if Landlord's alleged default is with respect to
its affirmative obligations under Paragraph 12A above, exercise the remedies
set forth in Paragraph 12A(c), and (ii) if Landlord's default is with respect
to any other obligation of Landlord hereunder, (A) Tenant may undertake to
perform such obligations and seek damages from Landlord for Tenant's actual
costs in connection therewith, (B) seek actual damages or injunctive relief
against Landlord, or (C) set-off any damages or expenses incurred by Tenant
against Rent provided that Tenant has first received a final money judgment
against Landlord for Landlord's default. In no event shall Landlord be liable
to Tenant for consequential or special damages by reason of a failure to
perform (or a default) by Landlord hereunder or otherwise. Unless and until
Landlord fails to so cure any default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. All obligations of Landlord
hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
ownership of the Premises and not thereafter. The term "Landlord" shall mean
only the owner, for the time being, of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all covenants and obligations of the
Landlord thereafter accruing, but such covenants and obligations shall be
binding during the term of this Lease upon each new owner for the duration of
such owner's ownership. Notwithstanding any other provisions hereof, Landlord
shall not have any personal liability hereunder. In the event of any breach or
default by Landlord in any term or provision of this Lease, Tenant agrees to
look solely to the equity or interest then owned by Landlord in the Premises or
the Building of which the Premises is a part; however, in no event, shall any
deficiency judgment or, unless expressly provided for herein, any money
judgment of any kind be sought or obtained against any party Landlord.
21. BANKRUPTCY.
A. Notwithstanding anything in this Lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated as Rent, shall constitute rent for
the purposes of Section 502(b)(7) of the Bankruptcy Code.
B. This a contract under which applicable law excuses
Landlord from accepting performance from (or rendering performance to) any
person or entity other than Tenant within the meaning of Sections 365(c) and
365(e)(2) of the Bankruptcy Code.
22. SECURITY DEPOSIT. Tenant agrees to deposit with Landlord on
the date hereof an amount equal to $87,706.88, which shall be held by Landlord,
without obligation for interest, as security for the performance of Tenant's
obligations under this Lease, it being expressly understood and agreed that
this deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of an event of
default by Tenant, Landlord may use all or part of the deposit to pay past due
Rent or other payments due Landlord under this Lease, and the cost of any other
damage, injury, expense or liability caused by such event of default without
prejudice to any other remedy provided herein or provided by law. On demand,
Tenant shall pay Landlord the amount that will restore the security deposit to
its original amount. The security deposit shall be deemed the property of
Landlord, but any remaining balance of such deposit shall be returned by
Landlord to Tenant when Tenant's obligations under this Lease have been
fulfilled and this Lease terminated.
23. WAIVER OF SECURITY INTEREST. Tenant shall have the right to
obtain financing secured by its trade fixtures, accounts receivables and other
personal property and inventory. Tenant shall also have the right to lease its
trade fixtures and other personal property from a third party. If Tenant
elects to finance or lease its trade fixtures and other personal property and
inventory or to grant a lender a security interest in any of Tenant's Property,
inventory, cash or receivables, Landlord shall, within thirty (30) days of
Tenant's request, execute a lien waiver or subordination of lien in a form
reasonably acceptable to Landlord, Tenant and the third party providing the
financing to Tenant or leasing trade fixtures or other personal property to
Tenant. Landlord hereby waives any negates any and all contractual liens and
security interests, statutory liens and security interest or constitutional
liens and security interests arising by operation of law to which Landlord
might now or
COMMERCIAL LEASE AGREEMENT PAGE 18
<PAGE> 21
hereafter be entitled on all property of Tenant now owned or hereafter placed
in or upon the Premises (except for judgment liens which may hereafter arise in
favor of Landlord).
24. SURRENDER UPON TERMINATION. At the termination of this Lease,
by its expiration or otherwise, Tenant immediately shall deliver possession of
the Premises to Landlord with all repairs and maintenance required herein to be
performed by Tenant completed, except for reasonable wear and tear for which
Tenant is not responsible hereunder and any damage caused by an insured event.
Prior to Tenant vacating the Premises, Tenant shall pay to Landlord any amount
reasonably estimated by Landlord as necessary to put the Premises, including
without limitation, all heating and air conditioning systems and equipment
therein, in good condition and repair, reasonable wear and tear and damage due
to any insured casualty excluded. Tenant shall also, prior to vacating the
Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's
obligation hereunder for real estate taxes and insurance premiums for the year
in which the Lease expires or terminates. All such amounts shall be used and
held by Landlord for payment of such obligation of Tenant hereunder, with
Tenant being liable for any additional costs therefor upon demand by Landlord,
or with any excess to be returned to Tenant after all such obligations have
been determined and satisfied as the case may be. ANY SECURITY DEPOSIT HELD BY
LANDLORD SHALL BE CREDITED AGAINST THE AMOUNT DUE FROM TENANT UNDER THIS
PARAGRAPH 24. All obligations of Landlord or Tenant hereunder not fully
performed as of the expiration or earlier termination of the term of this Lease
shall survive the expiration or earlier termination of the term hereof, unless
otherwise provided herein, including without limitation, all payment
obligations with respect to taxes and insurance and all obligations concerning
the condition and repair of the Premises.
25. HOLDING OVER. If, for any reason, Tenant retains possession
of the Premises after the expiration or termination of this Lease, unless the
parties hereto otherwise agree in writing, such possession shall be subject to
termination by either Landlord or Tenant at any time upon not less than thirty
(30) days advance written notice, and all of the other terms and provisions of
this Lease shall be applicable during such period, except that Tenant shall pay
Landlord from time to time, upon demand, as rental for the period of such
possession, an amount equal to 150% of the Base Monthly Rent in effect on the
termination date, computed on a daily basis for each day of such period. No
holding over by Tenant, whether with or without consent of Landlord, will shall
operate to extend this Lease except as otherwise expressly provided. The
preceding provisions of this Paragraph 25 shall not be construed as consent for
Tenant to retain possession of the Premises in the absence of written consent
thereto by Landlord.
26. QUIET ENJOYMENT. Landlord covenants that on or before the
Commencement Date it will have good title to the Premises, free and clear of
all liens and encumbrances, excepting only the lien for current taxes not yet
due, zoning ordinances and other building and fire ordinances and governmental
regulations relating to the use of such property, and easements, restrictions
and other conditions of record, and Landlord agrees to defend and hold Tenant
harmless from any claim arising out of a claim of superior title or right to
the Premises. Landlord agrees that so long as Tenant pays all amounts due
hereunder and performs all other covenants and agreements herein set forth,
Tenant shall peaceably and quietly have, hold and enjoy the Premises for the
term of this Lease without hindrance or molestation from Landlord or any
Landlord Party, subject to the terms and provisions of this Lease.
27. INSPECTION BY LANDLORD. Landlord and Landlord's agents and
representatives shall have the right to enter the Premises at any reasonable
time during business hours, but upon at least 24-hours advance verbal notice,
to inspect the Premises and to make such repairs as may be required or
permitted pursuant to this Lease (provided that no notice will be required if
Landlord reasonably believes that immediate entry is necessary to preserve life
or property). During the period that is one hundred eighty (180) days prior to
the end of the term of this Lease (and provided that Tenant has not exercised
any available Option), upon telephonic notice to Tenant, Landlord and
Landlord's representatives may enter the Premises during business hours for the
purpose of showing the Premises and may also erect a suitable sign on the
Premises stating the Premises is available. Landlord shall also have the right
(but not the obligation) to enter the Premises at any time, and by force if
necessary, in the case of an emergency. Tenant shall notify Landlord in
writing at least thirty (30) days prior to vacating the Premises and shall
arrange to meet with Landlord for a joint inspection of the Premises prior to
vacating.
28. MECHANICS LIENS.
A. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind the interest of Landlord or Tenant in the Premises or
to charge the Rent payable hereunder for any claim in favor of any person
dealing with Tenant, including those who may furnish materials or perform labor
for any construction or repairs. Tenant covenants and agrees that it will pay
or cause to be paid all sums legally due and payable by it on account of any
labor performed or materials furnished in connection with any work performed at
the Premises by or for Tenant (other than the Improvements) and that it will
indemnify and hold Landlord harmless from and against any and all loss, cost or
expense based on or arising out of asserted claims or liens against the
leasehold estate or against the right, title and interest of Landlord in the
Premises or under the terms of this Lease. Tenant agrees to give Landlord
immediate written notice of
COMMERCIAL LEASE AGREEMENT PAGE 19
<PAGE> 22
the placing of any lien or encumbrance against the Premises. In addition to the
above, should any such liens be filed against the Premises by parties claiming
by or through Tenant or any Tenant Party, Tenant agrees that it shall remove
and discharge, by bond or otherwise, any such lien, and if it shall fail to do
so within ninety (90) days after the date Tenant receives written notice that
such lien has been filed against the Premises, Landlord shall have, in addition
to any other remedy Landlord may have hereunder for breach by Tenant, the right
to remove such lien and Tenant shall reimburse Landlord for all reasonable
expenses incurred by Landlord, including reasonable attorney's fees within
thirty (30) days after receipt of an invoice from Landlord.
B. Landlord shall not permit any mechanic's or
materialmen's lien or liens to be filed against the Premises or any portion
thereof. Landlord covenants and agrees that it will pay or cause to be paid
all sums legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed at the Premises which
is ordered or contracted for by Landlord and that it will indemnify and hold
Tenant harmless from and against any and all loss, cost or expense based on or
arising out of asserted claims or liens against the leasehold estate or against
the right, title and interest of Tenant in the Premises or under the terms of
this Lease which claims or liens arise on account of any labor performed or
materials furnished in connection with any work performed at the Premises which
is ordered or contracted for by Landlord. Should any such liens be filed
against the Premises by parties claiming by or through Landlord or any Landlord
Party, Landlord agrees that it shall remove and discharge, by bond or
otherwise, any such lien, and if its shall fail to do so within ninety (90)
days after the date Landlord receives written notice that such lien has been
filed against the Premises, Tenant shall have the right to remove such lien and
Landlord shall reimburse Tenant for all reasonable expenses incurred by Tenant,
including reasonable attorney's fees within thirty (30) days after receipt of
an invoice from Tenant.
29. WAIVER. No waiver by either party of any provision of
this Lease or of any default, event of default or breach hereunder shall be
deemed to be a waiver of any other provision of this Lease, or of any
subsequent default, event of default or breach of the same or any other
provision. Either party's consent to or approval of any act requiring consent
or approval shall not be deemed to render unnecessary the obtaining of consent
to or approval of any subsequent act requiring consent. No act or thing done
by Landlord or Landlord's agents during the term of this Lease shall be deemed
an acceptance of a surrender of the Premises, unless done in writing signed by
Landlord. The delivery of the keys to any employee or agent of Landlord shall
not operate as a termination of this Lease or a surrender of the Premises. The
acceptance of any Rent by Landlord following a default, event of default or
breach of this Lease by Tenant shall not constitute a waiver by Landlord of
such default, event of default or breach or any other default, event of default
or breach unless such waiver is expressly stated in writing and signed by
Landlord.
30. SUBORDINATION. Conditioned upon the beneficiary of any
mortgages and/or deeds of trust now existing or hereafter placed upon the
Premises entering into an agreement (herein an ATTORNMENT AGREEMENT) with
Tenant in form and substance reasonably acceptable to Tenant in which such
beneficiary agrees not to disturb the possession and other rights of Tenant
under this Lease so long as Tenant is not in default in the performance of its
obligations hereunder, and, in the event of the acquisition of title by such
beneficiary or third party purchaser through foreclosure proceedings or a deed
in lieu of foreclosure, to accept Tenant as tenant of the Premises under the
terms and conditions of this Lease, Tenant accepts this Lease subject and
subordinate to any mortgages and/or deeds of trust now or hereafter
constituting a lien or charge upon the Premises, provided, however, that if the
mortgagee, trustee, or holder of any such mortgage or deed of trust elects to
have Tenant's interest in this Lease superior to any such instrument, then by
written notice to Tenant from such mortgagee, trustee or holder, this Lease
shall be deemed superior to such lien, whether this Lease was executed before
or after said mortgage or deed of trust. Subject to the foregoing, Tenant, at
any time hereafter on demand, shall execute any instruments, releases or other
documents that may be required by any mortgagee for the purpose of subjecting
and subordinating this Lease to the lien of any such mortgage. For purposes
of this paragraph, Landlord will be deemed to have satisfied the condition of
obtaining an Attornment Agreement if the form thereof required by the mortgagee
is a type of form that is customarily given by institutional lenders; provided
that Tenant shall have the right to attempt to negotiate more favorable terms.
31. ESTOPPELS. Each party agrees, from time to time, within ten
(10) days after request of the other, to deliver to the requesting party, or
its designee, an estoppel certificate stating whether or not this Lease is in
full force and effect, the date to which Rent has been paid, the unexpired term
of this Lease and such other factual matters pertaining to this Lease as deemed
reasonably necessary by the requesting party.
32. NOTICES. Any notice or communication required or
permitted in this Lease shall be given in writing, sent by (a) personal
delivery, or (b) expedited delivery service with proof of delivery, or (c)
United States mail, postage prepaid, registered or certified mail, return
receipt requested, or (d) prepaid telegram (provided that such telegram is
confirmed by expedited delivery service or by mail in the manner previously
described), addressed:
COMMERCIAL LEASE AGREEMENT PAGE 20
<PAGE> 23
if to Landlord, as follows:
MEPC Quorum Properties II Inc.
15303 Dallas Parkway
Suite 100, LB 10
Dallas, Texas 75248
Attn: Property Manager
Telecopy: (214) 851-7012
and, if to Tenant, as follows:
NeoStar Retail Group, Inc.
10741 King William Drive
Dallas, Texas 75220
Attn: Chief Financial Officer
Telecopy: (214) 401-9002
With copy to: Cox & Smith
112 East Pecan Street
Suite 1800
San Antonio
Attn: Ward T. Blacklock, Jr.
Telecopy: (210) 226-8395
or to such other address or to the attention of such other person as shall be
designated by the applicable party and on fifteen (15) days notice from time to
time in writing and sent in accordance herewith. Any such notice or
communication shall be deemed to have been given either at the time of personal
delivery or, in the case of delivery service or mail, as of the date of first
attempted delivery at the address and in the manner provided herein, or in the
case of telegram or telex, upon receipt.
33. CONDITIONS. Landlord and Tenant acknowledge that on the date
of this Lease Tenant is under contract to purchase the Land. This Lease and
Landlord's and Tenant's obligations hereunder are conditioned upon (i) Landlord
and Tenant (and the seller under Tenant's contract to purchase the Land if its
consent is required for any assignment) having entered into an assignment
agreement in a form satisfactory to Landlord and Tenant, pursuant to which
Tenant assigns to Landlord all of Tenant's interest in the Land including the
rights of Tenant under its contract to purchase the Land, and (ii) Landlord
performing all of Tenant's obligations under such contract and acquiring fee
simple title to the Land. If both of these conditions are not satisfied by
October 31, 1995, then, at either party's option and upon written notice to the
other, this Lease shall terminate and neither party will thereafter have any
obligations one to the other save for those which by their terms expressly
survive termination hereof. If both of these conditions are satisfied by
October 31, 1995, then Landlord shall, within thirty (30) days after its
acquires fee simple title to the Land, reimburse Tenant for all due diligence
costs and reasonable attorneys fees incurred by Tenant with respect to the
Land.
34. TENANT'S CONDITIONAL RIGHT TO PURCHASE THE LAND. If the
conditions set forth in Paragraph 33 above are satisfied but Landlord fails to
commence construction by November 1, 1995 for reasons other than Force Majeure
or Tenant Delays, then Tenant may give written notice to Landlord on or before
November 15, 1995, that Tenant elects to purchase the Land from Seller for a
purchase price of $1,573,000.00, such sale to be consummated by November 30,
1995. If Tenant fails to give written notice of its election to purchase the
Land by November 15, 1995, then Tenant's rights under this Paragraph 34 will be
forever waived.
35. MISCELLANEOUS.
A. Headings/Gender. Words of any gender used in this
Lease shall be held and construed to include any other gender, and words in the
singular number shall be held to include the plural, unless the context
otherwise requires. The captions inserted in this Lease are for convenience
only and in no way define, limit or otherwise describe the scope or intent of
this Lease, or any provision hereof, or in any way affect the interpretation of
this Lease.
B. Run with the Land. The terms, provisions and
covenants and conditions contained in this Lease shall run with the land and
shall apply to, inure to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, executors, personal representatives,
legal representatives, successor and assigns, except as otherwise herein
expressly provided. Landlord shall have the right to transfer and assign, in
whole or in part, its rights and obligations in the Premises, Building and/or
Land that are the subject of this Lease. Each party agrees to furnish to the
other, promptly upon demand, a corporate resolution, proof of due authorization
by partners, or other appropriate documentation evidencing the due
authorization of such party to enter into this Lease.
C. Recording. Upon request by Tenant, Landlord and
Tenant will execute and record, at Tenant's cost, a memorandum of lease;
provided, however that Tenant shall concurrently place in escrow with
Landlord's attorney an original executed and recordable release that Landlord
is permitted to record once this Lease is terminated to remove the memorandum
of lease from record.
D. Entire Agreement. This Lease constitutes the entire
understanding
COMMERCIAL LEASE AGREEMENT PAGE 21
<PAGE> 24
and agreement of the Landlord and Tenant with respect to the subject matter of
this Lease, and contains all of the covenants and agreements of Landlord and
Tenant with respect thereto. Landlord and Tenant each acknowledge that no
representations, inducements, promises or agreements, oral or written, have
been made by Landlord or Tenant, or anyone acting on behalf of Landlord or
Tenant, which are not contained herein, and any prior agreements, promises,
negotiations, or representations not expressly set forth in this Lease are of
no force or effect. This Lease may not be altered, changed or amended except
by an instrument in writing signed by both parties hereto.
E. Severability. If any clause or provision of this
Lease is illegal, invalid, or unenforceable under present or future laws
effective during the term of this Lease, then and in that event, it is the
intention of the parties hereto that the remainder of this Lease shall not be
affected thereby, and it is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and be legal, valid and enforceable.
F. Date of Lease. All references in this Lease to THE
DATE HEREOF, THE DATE OF THIS LEASE or similar references shall be deemed to
refer to the last date, in point of time, on which all parties hereto have
executed this Lease.
G. Brokers.
(a) Tenant represents and warrants that, except for The
Staubach Company (BROKER), Tenant has not dealt with any broker, agent or other
person in connection with this transaction and that, except for Broker, no
broker, agent or other person brought about this transaction through the acts
of or employment by Tenant, and, except with respect to any commission or fee
owed to Broker, Tenant agrees to indemnify and hold Landlord harmless from and
against any claims by any broker, agent or other person claiming a commission
or other form of compensation by virtue of having dealt with Tenant with regard
to this leasing transaction.
(b) Landlord represents and warrants that, except for
Broker, Landlord has not dealt with any broker, agent or other person in
connection with this transaction and that, except for Broker, no broker, agent
or other person brought about this transaction through the acts of or
employment by Landlord. Landlord has agreed to pay Broker a commission
pursuant to a separate written agreement between Landlord and Broker, and
Landlord agrees to indemnify and hold Tenant harmless from and against any
claims by Broker or any broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with Landlord with regard
to this leasing transaction.
H. Counterparts. This Lease may be executed in
counterparts, each being deemed an original, but together constituting only one
instrument.
I. Time for Performance TIME IS OF THE ESSENCE IN THE
PERFORMANCE OF EACH PARTIES OBLIGATIONS UNDER THIS LEASE.
J. Attorneys Fees. In the event it becomes necessary
for either party hereto to file a suit to enforce this Lease or any provisions
contained herein, the party prevailing in such action shall be entitled to
recover, in addition to all other remedies or damages, reasonable attorneys
fees incurred in such suit.
K. Law Governing. This Lease shall be construed and
interpreted in accordance with the laws of the State of Texas and the
obligations of the parties hereto are and shall be performable in, and venue
for any claim or cause of action shall reside in, Dallas County or Tarrant
County, Texas.
COMMERCIAL LEASE AGREEMENT PAGE 22
<PAGE> 25
L. Amendments. This Lease may not be modified or
amended, except by an agreement in writing signed by Landlord and Tenant. The
parties may waive any of the conditions contained herein or any of the
obligations of the other party hereunder, but any such waiver shall be
effective only if in writing and signed by the party waiving such conditions or
obligations, except as specifically set forth herein.
M. Moving Allowance. Within ten (10) days after Tenant
executes and delivers to Landlord the Acceptance of Premises Memorandum,
Landlord will pay to Tenant the amount of $80,000.00 to reimburse Tenant for
moving expenses incurred by Tenant in moving into the Premises.
EXECUTED BY Landlord, this 19th day of October, 1995.
MEPC QUORUM PROPERTIES II INC.,
a Delaware corporation
By:/s/ PETER JOHNSON
----------------------------------------
Name: Peter Johnson
--------------------------------------
Title: Sr. Vice President
-------------------------------------
By:/s/ HOWARD GARFIELD
----------------------------------------
Name: Howard Garfield
--------------------------------------
Title: Vice President
-------------------------------------
EXECUTED BY Tenant, this 19th day of October, 1995.
NEOSTAR RETAIL GROUP, INC.
a Delaware corporation
By:/s/ JAMES B. MCCURRY
----------------------------------------
Name: JAMES B. MCCURRY
--------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
Exhibits:
- --------
Exhibit A: Land
Exhibit B: Base Plans
Exhibit C: Site Plan
Exhibit D: Finish Plans
Exhibit E: Acceptance of Premises Memorandum
Exhibit F: Contractor Insurance Requirements
Exhibit G: Progress Requirements
COMMERCIAL LEASE AGREEMENT PAGE 23
<PAGE> 26
Exhibit "A"
Legal Description of the Land
<PAGE> 27
Exhibit "B"
Base Plans
<PAGE> 28
Exhibit "C"
Site Plan
<PAGE> 29
Exhibit "D"
Finish Plans
<PAGE> 30
Exhibit "E"
Acceptance of Premises Memorandum
This memorandum is being executed pursuant to the lease (the LEASE)
executed on the ____ day of __________, 1996, between MEPC QUORUM PROPERTIES II
INC., a Delaware corporation (LANDLORD), and NEOSTAR RETAIL GROUP, INC., a
Delaware corporation (TENANT).
Landlord and Tenant hereby agree that:
1. Except for the Punch List Items (as shown on the attached Punch List),
Landlord has fully completed the construction work required under the
terms of the Lease and the Plans and the Finish Plans attached
thereto. Landlord will use reasonable efforts to complete the Punch
List Items within thirty (30) days after the date hereof.
2. Tenant acknowledges that (i) it has inspected and accepts the
Premises, (ii) to the best of Tenant's knowledge and subject to
Paragraph 2F of the Lease, the Premises is suitable for the purpose
for which they are leased, (iii) to the best of Tenant's knowledge,
and subject to Paragraph 2F of the Lease, the Premises is in good and
satisfactory condition (subject only to the Punch List), (iv) no
representations as to the repair of the Premises, nor promises to
alter, remodel or improve the Premises which have been made by
Landlord remain unsatisfied (subject to the Punch List and those
contained in Paragraph 2F of the Lease).
3. Landlord represents and warrants that to the best of its knowledge the
Premises complies with all Applicable Laws.
4. The Commencement Date of the Lease is the _____ day of ____________,
1996.
5. The Rent Commencement Date of the Lease is the _____ day of
____________, 1996.
6. The expiration date of the Initial Term of the Lease is the _____ day
of __________, ________
7. All capitalized terms not defined herein shall have the meaning
assigned to them in the Lease.
Agreed and Executed this _____ day of __________, 1996.
LANDLORD TENANT
MEPC QUORUM PROPERTIES II INC., NEOSTAR RETAIL GROUP, INC.
a Delaware corporation a Delaware corporation
By:______________________ By:______________________
Name:_________________ Name:_________________
Title:________________ Title:________________
By:______________________
Name:_________________
Title:________________
<PAGE> 31
Exhibit "F"
Contractor Insurance Requirements
All contractors, subcontractors, suppliers, service providers, moving
companies, and others performing work of any type for Tenant at the Premises
shall:
- carry the insurance listed below with companies acceptable to
Landlord; and
- furnish Certificates of Insurance to Landlord evidencing
required coverages at least two (2) days prior to entry in the
Premises and Renewal Certificates at least ten (10) days prior
to the expiration dates of Certificates previously furnished.
Certificates of Insurance must provide for thirty (30) days' prior written
notice of cancellation or material change to Landlord.
(1) Workers Compensation: Statutory workers compensation insurance
covering full liability under applicable Workers Compensation Laws at
the required statutory limits.
(2) Employers' Liability: Employers' liability insurance with the
following minimum limits of liability:
$100,000 Each Accident
$500,000 Disease-Policy Limit
$100,000 Disease-Each Employee
(3) Commercial General Liability: This insurance policy must:
(a) Be written on a standard liability policy form (sometimes
known as commercial general liability insurance) but without
exclusionary endorsements that may delete coverage for
products/completed operations, personal and advertising
injury, blanket contractual, fire, legal liability, or medical
payments.
(b) Be endorsed to provide that:
- aggregate limits, if any, apply separately to each of
the insured's jobs or projects away from premises
owned by or rented to the insured;
- the insurance is primary and non-contributory to any
insurance provided by Landlord; and
- include the following minimum limits:
$1,000,000 General Aggregate
$1,000,000 Products-Completed Operations Aggregate
$1,000,000 Personal & Advertising Injury
$1,000,000 Each Occurrence
$ 50,000 Fire Damage (Any one fire)
$ 5,000 Medical Expense (Any one person)
(4) Automobile Liability: Automobile liability insurance for claims of
ownership, maintenance, or use of owned, non-owned, and hired motor
vehicles at, upon, or away from the Premises with the following
minimum limits:
$500,000 Combined Single Limit Bodily Injury and
Property Damage per Occurrence
(5) Excess Liability: Following form excess liability insurance with
coverages at least as broad as the required commercial general
liability insurance with the following minimum limits:
$1,000,000 Each Occurrence
$2,000,000 Aggregate
(6) General Requirements: All policies must be:
- written on an occurrence basis and not on a claims-made basis;
- endorsed to name as additional insureds Landlord, Tenant and
their respective officers, directors, employees, agents,
partners, and assigns;
- endorsed to waive any rights of subrogation against Landlord,
Tenant and their respective officers, directors, employees,
agents, partners, and assigns; and
- primary and non-contributing with, and not in excess of, any
other insurance available to Tenant and Landlord (or any other
entity named as an additional insured).
<PAGE> 32
Exhibit "G"
Progress Requirements
The Commencement Date will occur once the construction of the Building
has progressed to the extent that the following features have been completed:
- Concrete floor slab
- Exterior walls erected, not painted
- Roof structure, decking and roofing system to a dried in
condition
- Storefront system
- Main electrical service conduits stubbed into the Building; and
- The following features are in place and ready for final
connections in the portion of the Building bounded by the
column line designations A-1 through E-6, as shown on the Base
Plans: --fire sprinkler lines --lights --HVAC curbs and
ductwork --wall paint --acrylic floor sealer
The mechanical, electrical, and fire sprinkler systems will not be
placed "in service" until the Improvements are substantially complete and
therefore are not a condition to the occurrence of the Commencement Date.
Additionally, any temporary walls or other means of protection that Tenant, its
contractors or subcontractors requires in connection with it/their work will be
at Tenant's sole cost and the installation thereof is not a condition to the
occurrence of the Commencement Date.
<PAGE> 1
EXHIBIT 10.6
SUMMARY OF FISCAL 1996 MANAGEMENT BONUS PLAN
The Fiscal 1996 Management Bonus Plan (the "Bonus Plan") was approved
by the Compensation Committee of the Board of Directors at its meeting on
September 12, 1995. The Bonus Plan is effective for the fiscal year ending
February 3, 1996 ("fiscal 1996"), covering the senior executive officers
("Executive Management"), vice presidents ("Vice Presidents") and certain other
key members of management ("Other Management") (Executive Management, Vice
Presidents and Other Management are hereinafter collectively referred to as the
"Management"). Executive Management consists of the Chief Executive Officer,
the Chief Operating Officer and the Chief Financial Officer. Persons eligible
to participate in the Bonus Plan at the Other Management level will be selected
by the Executive Management, in its sole discretion. Payments under the Bonus
Plan are conditioned upon the Company's earnings per share (after bonuses and
taxes) for fiscal 1996 ("EPS") as measured against certain predetermined EPS
goals. The Compensation Committee established certain minimum and maximum
goals pertaining to the Company's earnings per share, after bonuses and taxes
(the "Minimum EPS" and "Maximum EPS"). The Minimum EPS is substantially higher
than the Company's earnings per share for the fiscal year ended January 28,
1995, excluding the cost of the business combination of Babbage's, Inc. and
Software Etc. Stores, Inc.
If EPS equals or exceeds the Minimum EPS, each member of the
Management is entitled to a bonus; provided, however, that EPS must exceed the
Minimum EPS in order for Executive Management to be entitled to bonuses. The
amount of the bonus shall be calculated based upon a percentage of such
person's base salary, with such percentage to fall within the applicable range
of percentages as set forth below. The ranges of percentages upon which
bonuses will be calculated for the Minimum EPS and Maximum EPS are as follows:
<TABLE>
<CAPTION>
At the Minimum EPS At the Maximum EPS
------------------ ------------------
<S> <C> <C>
Executive Management 0% 30.0% to 50.0%
Vice Presidents 5.0% to 6.0% 20.0% to 25.0%
Other Management 5.0% to 7.5% 10.0% to 15.0%
</TABLE>
If EPS is between the Minimum EPS and Maximum EPS, the ranges of
percentages for Executive Management, Vice Presidents and Other Management will
each be ratably adjusted.
<PAGE> 2
The percentage used in calculating the bonus for the Chief Executive
Officer and the Chief Operating Officer will be the highest point of the
applicable range of percentages set forth above and the percentage used in
calculating the bonus for the Chief Financial Officer will be the lowest point
of the applicable range of percentages set forth above. The amount of the
bonus earned by each of the Vice Presidents and each of the persons at the
Other Management level, within the ranges set forth above, will be at the
discretion of Executive Management. At the Minimum EPS, the aggregate amount
of the bonuses that would be paid to all members of the Management is
approximately $265,000. At the Maximum EPS, the aggregate amount of the
bonuses that would be paid to all members of the Management is approximately
$1,120,000.
Any bonuses earned under the Bonus Plan will be paid on the later of
March 15, 1996 or upon completion of audit procedures by the Company's
independent public accountants. An individual must be employed by NeoStar
Retail Group, Inc. on March 15, 1996 to be eligible to receive the bonus.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> OCT-28-1995
<CASH> 1,419
<SECURITIES> 0
<RECEIVABLES> 1,576
<ALLOWANCES> 0
<INVENTORY> 178,141
<CURRENT-ASSETS> 191,502
<PP&E> 115,891
<DEPRECIATION> 53,068
<TOTAL-ASSETS> 258,865
<CURRENT-LIABILITIES> 171,224
<BONDS> 13,000
<COMMON> 149
0
0
<OTHER-SE> 70,166
<TOTAL-LIABILITY-AND-EQUITY> 258,865
<SALES> 305,372
<TOTAL-REVENUES> 305,372
<CGS> 223,696
<TOTAL-COSTS> 223,696
<OTHER-EXPENSES> 100,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,943
<INCOME-PRETAX> (21,211)
<INCOME-TAX> 8,385
<INCOME-CONTINUING> (12,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,826)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
</TABLE>
