<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_______
Commission file number 1-7708
MARLTON TECHNOLOGIES, INC.
------------------------------------------------------------------------
(Exact name of issuer as specified in its charter)
New Jersey 22-1825970
------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2828 Charter Road, Suite 101. Philadelphia, PA 19154
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 676-6900
----------------
Former name, former address and former fiscal
year, if changed since last report.
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by court.
Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding
of each of the issuer's classes of common equity as of the last practicable
date: 7,175,329
-----------
Transitional Small Business Disclosure Form (check one):
Yes No X
---- -----
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997
<TABLE>
(Unaudited)
June 30, December 31,
ASSETS 1998 1997
------------ -------------
<S> <C> <C>
Current:
Cash and cash equivalents $ 2,289,827 $ 7,115,100
Accounts receivable, net of allowance
of $365,000 and $266,000, respectively 17,747,591 10,444,298
Inventory 8,017,032 10,073,491
Prepaids and other current assets 2,403,681 1,337,497
Deferred income taxes 802,000 965,000
------------ ------------
Total current assets 31,260,131 29,935,386
Property and equipment, net of accumulated
depreciation and amortization of $3,865,170
and $3,976,745, respectively 2,874,015 2,268,994
Rental assets, net of accumulated amortization
of $1,574,414 and $1,348,279, respectively 1,335,865 901,651
Goodwill, net of accumulated amortization of $1,242,588
and $871,546, respectively 20,702,706 19,763,768
Deferred income taxes 327,870 616,870
Other assets, net of accumulated amortization
$1,074,494 and $1,112,601, respectively 1,049,521 626,586
------------ ------------
Total assets $ 57,550,108 $ 54,113,255
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,613,799 $ 1,386,117
Accounts payable 5,043,112 4,294,971
Accrued expenses and other 12,788,481 12,235,351
------------ ------------
Total current liabilities 19,445,392 17,916,439
Long-term debt, net of current portion 11,949,485 12,243,312
------------ ------------
Total liabilities 31,394,877 30,159,751
------------ ------------
Stockholders' equity:
Preferred stock, $.10 par - shares authorized
10,000,000; no shares issued or outstanding -- --
Common stock, $.10 par - shares authorized
50,000,000; 7,175,329 and 6,889,444 issued, respectively 717,533 688,944
Additional paid-in capital 29,983,273 29,169,410
Accumulated deficit (4,433,898) (5,793,173)
------------ ------------
26,266,908 24,065,181
Less cost of 5,000 treasury shares 111,677 111,677
------------ ------------
Total stockholders' equity 26,155,231 23,953,504
------------ ------------
Total liabilities and stockholders' equity $ 57,550,108 $ 54,113,255
============ ============
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Total
Shares Issued Paid-in Accumulated Treasury Shareholder's
Issued Amount Capital Deficit Amount Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 6,889,444 $ 688,944 $29,169,410 $(5,793,173) $ (111,677) $23,953,504
Additional shares issued:
Under compensation arrangements 243,494 24,350 568,759 -- -- 593,109
Acquisitions 42,391 4,239 245,104 -- -- 249,343
Net income for the six month period -- -- -- 1,359,275 -- 1,359,275
----------- ---------- ----------- ----------- ----------- -----------
Balance, June 30, 1998 7,175,329 $ 717,533 $29,983,273 $(4,433,898) $ (111,677) $26,155,231
=========== ========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended For the three months ended
June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 44,367,765 $ 24,023,099 $ 22,317,220 $ 12,184,841
Cost of sales 33,321,971 17,209,149 16,750,271 8,888,040
------------ ------------ ------------ ------------
Gross profit 11,045,794 6,813,950 5,566,949 3,296,801
------------ ------------ ------------ ------------
Expenses:
Selling 5,029,674 3,728,754 2,567,578 1,862,996
Administrative and general 3,435,150 1,814,744 1,722,739 853,302
------------ ------------ ------------ ------------
8,464,824 5,543,498 4,290,317 2,716,298
------------ ------------ ------------ ------------
Operating profit 2,580,970 1,270,452 1,276,632 580,503
------------ ------------ ------------ ------------
Other income (expense):
Interest income 158,179 123,874 60,426 84,390
Interest (expense) (466,754) (28,371) (232,803) (13,779)
Other (expense) (11,120) (70,927) (6,111) (18,390)
------------ ------------ ------------ ------------
(319,695) 24,576 (178,488) 52,221
------------ ------------ ------------ ------------
Income before provision for income taxes 2,261,275 1,295,028 1,098,144 632,724
Provision for income taxes (Note 3) 902,000 510,000 439,000 250,000
------------ ------------ ------------ ------------
Net income $ 1,359,275 $ 785,028 $ 659,145 $ 382,724
============ ============ ============ ============
Income per common share (Note 4):
Basic $ .19 $ .16 $ .09 $ .08
Diluted $ .17 $ .14 $ .08 $ .07
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 1,359,275 $ 785,028
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 876,490 909,615
Decrease in deferred tax asset 452,000 281,000
Other operating items -- (95,065)
Change in assets and liabilities; net of assets and liabilities
acquired from Steele Productions (5,991,957) 1,299,662
----------- -----------
Net cash provided by (used in) operating activities (3,304,192) 3,180,240
----------- -----------
Cash flows (expended through) investing activities:
Acquisition of Steele Productions (394,614) --
Capital expenditures (1,085,185) (310,382)
Minority investment in ADSI (179,646) --
Other intangible assets (73,084) (30,286)
----------- -----------
Net cash (expended through) investing activities (1,732,529) (340,668)
----------- -----------
Cash flows provided by (expended through) financing activities:
Issuance of common stock 593,109 340,160
Principal payments on long-term debt (381,661) (930,483)
----------- -----------
Net cash provided by (expended through) financing activities 211,448 (590,323)
----------- -----------
Increase (decrease) in cash and cash equivalents (4,825,273) 2,249,249
Cash and cash equivalents - beginning of period 7,115,100 3,300,010
----------- -----------
Cash and cash equivalents - end of period $ 2,289,827 $ 5,549,259
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 238,615 $ 28,371
=========== ===========
Cash paid for income taxes $ 295,221 $ 27,000
=========== ===========
Non-cash financing and investing activities:
Issuance of common stock in connection with acquisition $ 249,343
Issuance of note in connection with acquisition $ 197,307
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF ACCOUNTING POLICIES:
Basis of Presentation:
The consolidated financial statements include the accounts of Marlton
Technologies, Inc., its wholly-owned subsidiaries and the effects of minority
investments in non-consolidated businesses (the "Company"). All intercompany
accounts and transactions have been eliminated. In the opinion of the Company's
management, all adjustments (primarily consisting of normal recurring accruals)
have been made which are necessary to present fairly the financial condition as
of June 30, 1998 and the results of operations and cash flows for the six month
periods ended June 30, 1998 and 1997, respectively. The December 31, 1997
condensed balance sheet data was derived from audited financial statements but
does not includes all disclosures required by generally accepted accounting
principles and may include certain account reclassifications for comparative
purposes with the June 30, 1998 consolidated balance sheet.
Activity included in the consolidated statement of operations
consists primarily of the design, manufacture, sale and servicing of custom and
portable trade show exhibits and the manufacturing of museum exhibits, themed
interiors, theme park attractions, store fixtures and point of purchase
displays.
Acquisitions:
DMS Store Fixtures Corp.
On December 31, 1997, the Company acquired the assets and
liabilities of DMS Store Fixtures L.P. ("LP") through its newly-formed,
wholly-owned subsidiary DMS Store Fixtures Corp. ("DMS"), a supplier of custom
store fixtures and displays to national retailers, department stores and
consumer product manufacturers. The acquired assets and liabilities of LP were
recorded at their estimated fair value with the excess purchase price and
related costs of acquisition recorded as goodwill at December 31, 1997. During
the first six months of 1998, the Company recognized as an additional charge to
cost of sales, $185,000 of the inventory write-up to fair market value leaving
$175,000 to be recognized as an additional charge to cost of sales relative to
the remaining inventory turnover for the balance 1998.
The following table summarizes the unaudited consolidated pro forma
information for the Company for the three and six month periods ended June 30,
1997 assuming the acquisition occurred at the beginning of 1997, along with the
Company's actual results of operations for the three and six month periods June
30, 1998 (in thousands except per share data).
<TABLE>
<CAPTION>
ACTUAL - June 30, 1998 PRO FORMA - June 30, 1997
---------------------- -------------------------
Three months ended Six months ended Three months ended Six months ended
<S> <C> <C> <C> <C>
Net sales $22,317 $44,368 $19,492 $37,466
Operating profit 1,277 2,581 1,293 2,192
Net income $659 $1,359 $723 $1,074
Weighted average of common shares:
Basic 7,161 7,100 6,750 6,748
Diluted 8,088 7,997 7,603 7,617
Net income per common shares:
Basic $.09 $.19 $.11 $.16
Diluted $.08 $.17 $.10 $.14
</TABLE>
6
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DMS Store Fixtures Corp. (continued):
The pro forma consolidated results of operations for the three and six
month periods ended June 30, 1998 include adjustments to give effect to
amortization for goodwill, interest expense on acquisition debt and certain
other adjustments, together with related income tax effects. The unaudited pro
forma information is not necessarily indicative of the results of operations
which would have occurred had the purchase been made at the beginning of 1997.
Abex Display Systems, Inc. ("ADSI")
Effective February 1, 1998, the Company forgave approximately $1.12
million of EDSI's inter-company debt, exchanged its 51% majority interest in
Expose' Display Systems, Inc. ("EDSI"), and paid approximately $180,000 in cash,
for its 25% interest in ADSI. The Company's investment in ADSI has been
accounted for using the equity method. Accordingly, the Company did not
consolidate EDSI's revenues and expenses within its operating results subsequent
to January 31, 1998. The Company has recognized its pro-rata portion of ADSI's
operating results, net of amortization of goodwill relative to the acquisition,
as a part of Other income.
For the five-months ended June 30, 1998, the Company included $1,184 as
part of Other income, representing its pro-rata share of ADSI's net income after
amortization for that period.
Sparks Scenic Ltd.
On April 1, 1998, the Company acquired 100% of the stock of Rusty
Hinges, Inc. d/b/a Steele Productions ("Steele") located in the San Francisco,
California area. Steele produces properties for industrial and corporate theater
events throughout the United States.
The transaction, recorded utilizing the purchase method of accounting,
included a cash payment of approximately $395,000, a five year note of
approximating $197,000 payable in equal annual installments bearing interest at
6% per annum, and 42,391 shares of the Company's common stock. The excess cost
of the acquisition including related costs of the transaction over the net
assets acquired of approximately $192,000 is being amortized on a straight-line
basis over a period of 10 years commencing April 1998.
Per Share Data
Basic net income per common share is calculated using the average
shares of common stock outstanding, while diluted net income per common share
reflects the potential dilution that could occur if stock options were
exercised. Prior periods have been restated in accordance with Statement of
Financial Accounting Standards (SFAS) 128 "Earnings Per Share." Restated diluted
net income per common share amounts do not differ materially from previously
reported primary net income per common share amounts.
7
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recently Issued Accounting Standards
Effective January 1, 1998 the Company was required to adopt the
provisions of SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. For the quarter and six months ended June 30, 1998
the Company had no items of other comprehensive income.
2. INVENTORY:
Inventory, as of the respective dates, consists of the following:
June 30, 1998 December 31, 1997
------------- -----------------
Raw Materials $ 407,117 $ 819,273
Work In Process 3,879,479 6,763,508
Finished Goods 3,730,436 2,490,710
----------- ------------
$8,017,032 $10,073,491
========== ===========
3. INCOME TAXES:
The components of the provision for income taxes for the respective six
month periods ended June 30, were as follows:
1998 1997
---- ------
Currently payable:
Federal $300,000 $102,000
State 150,000 127,000
-------- -------
450,000 229,000
Deferred:
Federal 452,000 281,000
------- -------
$902,000 $510,000
======== ========
8
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. NET INCOME PER COMMON SHARE:
Income per share amounts have been restated in accordance with SFAS
128, "Earnings Per Share." This restatement did not result in a material change
between diluted per common share amounts and previously reported primary per
common share amounts.
The following table sets forth the computation of basic and diluted net
income per common share (in thousands except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $659 $383 $1,359 $785
==== ==== ====== ====
Weighted average common shares
outstanding used to compute basic net
income per common share 7,161 4,750 7,100 4,748
Additional common shares to be issued
assuming exercise of stock options, net of
shares assumed reacquired 927 853 897 869
--- --- --- ---
Total shares used to compute diluted net
income per common share 8,088 5,603 7,997 5,617
===== ===== ===== =====
Basic net income per share $ .09 $ .08 $ .19 $ .16
===== ===== ===== =====
Diluted net income per share $ .08 $ .07 $ .17 $ 14
===== ===== ===== =====
</TABLE>
Options to purchase 10,000 shares of common stock at prices ranging from $6.88
per share to $7.00 per share were outstanding at June 30, 1998, but were not
included in the computation of diluted income per common share because the
option exercise price was greater than the average market price of the common
shares during the first six months of 1998.
9
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL OVERVIEW
The Company's core business is the custom design, manufacture and sale of
sophisticated trade show exhibits, displays, signage and graphics for clients in
industry, government, consumer electronics, athletic goods, healthcare,
telecommunications and other specialized fields. Through its wholly-owned
subsidiary, Piper Productions, Inc. ("Piper") of Orlando, Florida, the Company
produces business theater, theme park attractions, themed interiors, theatrical
scenery and special effects.
The Company acquired the business of DMS Store Fixtures Corp. on December 31,
1997, a supplier of custom-made store fixtures and displays to national
retailers, department stores and consumer product manufacturers. During 1997,
DMS generated over $30 million of revenues to a well-established customer base
for which cross marketing opportunities exist to other business groups of the
Company.
The Company expanded its business opportunities in corporate and industrial
theater events through the April 1, 1998 acquisition of Steele Productions
("Steele"), renamed Sparks Scenic Ltd. ("Scenic"), in the San Francisco Bay
area. See Note 1 of the consolidated financial statements.
Management's aggressive growth plan from the August 1990 acquisition of Sparks
Exhibits Corp. ("Sparks"), the December 31, 1997 acquisition of the business of
DMS and the April 1, 1998 acquisition of Steele, has resulted in the dramatic
expansion of the Company's client base, the development of new business groups
for expansion of its products and services, and the extension into major
geographic markets in the United States and internationally. Management believes
the acquisitions and the continuing development of the new business groups
should position the Company to increase its revenue base and move toward its
goal of becoming a leading dimensional marketing company through the continued
offering of expanded products and services to a larger customer network.
RESULTS OF OPERATIONS
Three months ended June 30, 1998 as compared with three months ended
June 30, 1997
Sales
Total Company revenues for the three months ended June 30, 1998 as
compared with the same period during 1997 increased by 83.1%, to $22.3 million
from $12.2 million. Two -thirds of the overall sales increase during 1998 was
due to the revenues generated by the December 31, 1997 acquired DMS Store
Fixtures Corp., which is included as part of the Permanent and scenic displays
group. All other business groups generated the remaining one-third of the
overall $10.1 million increase in revenues for the three month period ended June
30, 1998 as compared with the same period during 1997. Sales generated by EDSI
during the three month period ended June 30, 1997 approximated $1.2 million. Due
to the February 1, 1998 acquisition of a 25% interest in ADSI (see Note 1 to the
consolidated financial statements), EDSI sales volume is not included as part of
the Company's reported revenues during the three month period ended June 30,
1998.
Three months ended June 30,
(in thousands)
Reported business groups 1998 1997 % Increase
------------------------ ---- ---- ----------
EDSI - $ 1,229 -
Trade show exhibits group $10,850 8,897 22%
Permanent and scenic displays group 11,467 2,059 457%
------- ------- --
Total revenues $22,317 $12,185 83%
======= ======= ==
10
<PAGE>
The Trade show exhibits group experienced a $2.0 million sales
increase during the second quarter of 1998 as compared with the related quarter
during 1997. This 22% increase in Trade show exhibits group sales reflects the
Company's continuing program of client expansion. The Company's portable/modular
exhibit sales group and international sales group - reported as a part of the
Trade show exhibits group - also experienced combined sales increases during the
second quarter of 1998 as compared with their combined sales during the second
quarter of 1997.
The Permanent and scenic displays group, comprised of DMS, the
museum/productions sales group, Piper Productions and newly-acquired Steele,
experienced an $9.4 million increase in second quarter 1998 revenues as compared
with second quarter 1997 revenues. Exclusive of the sales generated by the
December 31, 1997-acquired business of DMS and the April 1, 1998 acquired
Steele, the museum/production and Piper sales groups experienced a combined
sales increase during the second quarter of 1998 as compared with the same
period during 1997.
The Company exchanged its interest in Expose' Display Systems, Inc.
("EDSI"), forgave inter-company debt and paid cash to acquire a 25% interest in
Abex Display Systems, Inc. ("ADSI"), a manufacturer of portable and modular
trade show exhibits distributed throughout the world via ADSI's distribution
network. The exchange occurred on February 1, 1998. Sales and the related costs
of operations generated by EDSI, formerly a consolidated 51% owned subsidiary of
the Company, were recorded through January 31, 1998. Subsequent to that
exchange, the Company records its pro-rata equity interest in ADSI's net profits
or losses using the equity method of accounting. (See Note 1 to the consolidated
financial statements.)
Operating Profits
Operating profits more than doubled from approximately $581,000 to
$1,277,000 for the comparative second quarters of 1997 and 1998, respectively.
This increase in 1998 operating profits occurred despite a 2.2% decrease in the
gross profit margin, as a percentage of sales, during the second quarter of 1998
as compared with the second quarter of 1997. This expected decrease is
predominantly due to the lower gross profit margins on sales generated by the
newly-acquired DMS business and Steele, whose gross margins are similar to the
Company's museum/productions group and Piper Productions. These three sales
groups achieve historically lower gross margins than the gross margins generated
by the Company's core business group - Trade show exhibits. However, the
revenues generated by the Permanent and scenic displays business group provides
operating efficiencies in the Company's manufacturing facilities as well as
absorbing fixed overhead, selling, and general and administrative costs. The
lower gross profit margin percentage was mitigated by 3.8% lower selling costs,
as a percentage of sales, during the second quarter of 1998 as compared with the
second quarter of 1997.
Other Income/(Expense)
Other expenses increased $230,000 during the second quarter of 1998 as
compared with second quarter 1997 due to interest expense attributed to the
$13.5 million term debt associated with the December 31, 1997 acquisition of the
DMS business.
Income Taxes
The provision for income taxes, as a percentage of income before income
taxes, remained relatively consistent for the second quarter of 1998 and 1997,
40.1% and 39.5% respectively.
Net Income
Net income increased to $659,145 ($.08 per diluted share) during the
second quarter of 1998 from $382,724 ($.07 per diluted share) during the second
quarter of 1997, a 72% increase. This increase is attributed to the higher sales
levels and related operating profits generated by the reported business groups
during the second quarter of 1998.
11
<PAGE>
BACKLOG
The Company's backlog of orders at June 30, 1998 was approximately
$25.0 million as compared with approximately $13.0 million as of June 30, 1997.
The $12.0 million backlog increase is primarily attritubutable to the December
31, 1997 acquired DMS backlog of orders.
Six months ended June 30, 1998 as compared with six months ended June
30, 1997
Sales
Total Company revenues for the six months ended June 30, 1998, as
compared with the same period during 1997 increased by 85%, to $44.4 million
from $24.0 million. Sixty-one percent of the overall sales increase during 1998
was due to the revenues generated by the December 31, 1997 acquired business of
DMS Store Fixtures Corp., and the April 1, 1998 acquired Steele which is
included as part of the Permanent and scenic displays group. The trade show
exhibits group generated the remainder of the overall $20.3 million increase in
revenues for the six month period ended June 30, 1998 as compared with the same
period during 1997. Sales generated by EDSI amounted to $2.5 million during the
six month period ended June 30, 1997 as compared with $.4 million during the
same period in 1998, due to the Company's acquisition of a minority interest in
ADSI as of February 1, 1998 (see Note 1 of the consolidated financial
statements).
<TABLE>
<CAPTION>
Six months ended June 30,
(in thousands)
Reported business groups 1998 1997 % Increase (Decrease)
------------------------ ---- ---- ---------------------
<S> <C> <C> <C>
EDSI $ 400 $ 2,513 (84%)
Trade show exhibits group 23,672 16,622 42%
Permanent and scenic displays group 20,296 4,888 315%
--------- -------- ----
Total revenues $44,368 $24,023 85%
======= ======= ==
</TABLE>
The Trade show exhibits group experienced a $7.0 million sales
increase during the first six months of 1998 as compared with the related period
during 1997. This 42% increase in Trade show exhibits group sales reflects the
Company's continuing program of client expansion. The Company's rental exhibit
sales group, portable/modular exhibit sales group and international sales group
- - - reported as a part of the Trade show exhibits group - also experienced
combined sales increases during the first six months of 1998 as compared with
their combined sales during the first six months of 1997.
The Permanent and scenic displays group, comprised of DMS, the
museum/productions sales, Piper Productions and Steele, experienced an $15.4
million increase in first six months 1998 revenues as compared with the first
six months of 1997 revenues. Exclusive of the sales generated by the December
31, 1997-acquired business of DMS and the April 1, 1998 acquired Steele, the
museum/production and Piper sales groups experienced sales increases of $3.1
million during the first six months of 1998 as compared with the same period
during 1997.
12
<PAGE>
Operating Profits
Operating profits more than doubled from approximately $1.27 million to
$2.58 million for the comparative first six months of 1997 and 1998,
respectively. This increase in 1998 operating profits occurred despite a 3.5%
decrease in the gross profit margin, as a percentage of sales, during the first
six months of 1998 as compared with the first six months of 1997. This expected
decrease is predominantly due to the lower gross profit margins on sales
generated by the newly-acquired DMS business and Steele, whose gross margins are
similar to the Company's museum/productions group and Piper Productions. These
three sales groups achieve historically lower gross margins than the gross
margins generated by the Company's core business group - Trade show exhibits.
However, the revenues generated by the Permanent and scenic displays business
group provides operating efficiencies in the Company's manufacturing facilities
as well as absorbing fixed overhead, selling, and general and administrative
costs. The lower gross profit margin percentage was mitigated by 4% lower
selling and administrative/general costs, as a percentage of sales, during the
first six months of 1998 as compared with the first six months of 1997.
Other Income/(Expense)
Other expenses increased $344,000 during the first six months of 1998
as compared with the first six months of 1997 predominantly due to interest
expense attributable to the $13.5 million term debt associated with the December
31, 1997 acquisition of the DMS business.
Income Taxes
The provision of income taxes, as a percentage of income before income
taxes, remained relatively consistent for the first six months of 1998 and 1997,
39.9% and 39.4% respectively.
Net Income
Net income increased to $1,359,275 ($.17 per diluted share) during the
first six months of 1998 from $785,028 ($.14 per diluted share) during the first
six months of 1997, a 73% increase. This increase is attributed to the higher
sales levels and related operating profits generated by the reported business
groups during the first six months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the initial six months of 1998, the Company's cash reserves
decreased by approximately $4.8 million. This decrease, net of the effects of
assets acquired and liabilities assumed as part of the April 1, 1998 Steele
Productions acquisition and the elimination of EDSI's accounts from the
Company's consolidated balance sheet as part of the Company's February 1, 1998
acquisition of a 25% interest in ADSI, was primarily due to the net increase in
inventory and trade receivables of $7.9 million; a result of the higher sales
levels achieved during the first six months of 1998. Additionally, prepaid
expenses and other current assets increased approximately $1.2 million primarily
due to advances made by DMS to its suppliers for product and equipment during
the first six months of 1998. Accounts payable and accrued expenses also
increased by approximately $2.0 million during the first six months of 1998.
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The Company invested $179,646 as part of obtaining a 25%
interest in ADSI during the first quarter of 1998. Additionally, as part of this
investment, the Company forgave approximately $1.1 million of inter-company debt
from ADSI prior to exchanging its 51% majority interest in EDSI for a 25%
minority interest in ADSI. Additionally, the Company paid approximately $841,000
to acquire 100% of the stock of Steele Productions in cash, Company stock and a
note to the seller of Steele.
The Company expended approximately $1,085,000 during the first six
months of 1998 for capital assets, including approximately $500,000 for hardware
and software relative to the Management Information System ("MIS") program,
$200,000 for rental assets, $85,000 for leasehold improvements, $75,000 for
computer-aided design ("CAD") equipment and approximately $225,000 for other
machinery and equipment.
The Company did not borrow against its $6.5 million revolving credit
facility during the first six months of 1998 to support the higher levels of
trade receivables during that period. However, the Company does expect to
utilize the facility during the balance of 1998 to support the higher levels of
inventory and trade receivables expected with the higher sales levels. The first
principal and interest payment against the Company's term loan related to the
acquisition of DMS was paid on April 1, 1998 in accordance with the terms and
conditions of its lending agreement.
The June 30, 1998 current ratio remained consistant at approximately
1.6 : 1 with the December 31, 1997 current ratio. Additionally, the Company's
debt to worth ratio improved from 1.26 : 1 to 1.20 : 1 on the respective balance
sheet dates of December 31, 1997 and June 30, 1998. The Company was in
compliance with its lending institution covenants as of June 30, 1998.
OUTLOOK
Sales volume of $44.4 million during the first six months of 1998
contributed greatly to the higher operating profits experienced during that
period. The Company expects continued sales growth from both the Tradeshow
exhibits group and Permanent and scenic displays group during the balance of
1998. The planned expansion of the Company's Western region has created the need
for a significantly larger facility in the San Diego area. Accordingly, the
Company has entered into a lease for the second quarter of 1999 for another
sales and production facility, within the San Diego area, to be used as a
producer of tradeshow and permanent exhibitry, in addition to being a major
storage facility for client exhibit properties. The April 1, 1998 acquisition of
Sparks Scenic Ltd. (see Note 1 to the consolidated financial statements)
provides the Company with a presence in the San Francisco/Silicon Valley region
of California as well as an additional manufacturing facility. Management hopes
this acquisition will expand the Company's client base in that region and
provide cross-marketing opportunities to the existing client base. Additionally,
the Company acquired expertise in the techniques of producing industrial and
corporate theater events which may be advantageously utilized within the
Company's core business - trade show exhibit design and fabrication.
The Company's historic overall gross profit percentages may be
difficult to maintain in light of the expected increase in 1998 sales volume
from the Permanent and scenic displays group, whose historic margins are less
than traditional custom exhibit margins. Additionally, the Company's core
business client base of Fortune 1000 companies, as well as Pacific Rim clients,
are tightly managing their marketing budgets which could negatively impact the
Company's historic custom exhibit margins. However, the expected higher revenues
and gross profit dollars from both the Trade show exhibits group and the
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Permanent and scenic displays group should continue to enhance the Company's
1998 operating profits by assisting all manufacturing facilities to generate
more consistent operating efficiencies.
The Company is continuing its project of replacing existing management
information systems hardware and software with state-of-the-art technology,
positioning the organization to effectively meet the changing environment of
information processing among its clients and suppliers as well as year 2000
issues. The Company believes this necessary investment in technology will assist
it in minimizing the need for additional administrative personnel as its sales
growth continues.
Management is encouraged by the Company's overall performance during
the first six months of 1998 and realizes certain areas will require additional
attention and resources during the balance of 1998. As the Western Region
develops, the Company will continue to seek additional account executives and
invest in appropriate sales support and infrastructure to create long-term
growth opportunities in that region. The Atlanta operation has not generated
significant new sales volume opportunities due to the Company's inability to
attract and retain experienced account executives. However, the Atlanta
operation continues to profitably produce custom exhibit work transferred from
other facilities. Management will continue to review the most effective
utilization of this facility.
DMS, the Company's newly-acquired store fixture and display business,
is committed to making current investments to expand and diversify its client
base, promoting longer-term sales growth and reducing its reliance upon any one
customer. The cyclical nature of the retail industry's demand for store fixtures
and displays has historically benefitted DMS through the second and third
quarters of the year. Due to the deferral of store fixture and display
installations by some of DMS' major customers until the third and fourth
quarters of 1998, DMS had a $12.0 million backlog of orders at June 30, 1998 as
compared with a June 30, 1997 backlog of orders of $9.0 milllion, a 33%
increase.
Management is committed to growing the Company's internally, while
aggressively seeking acquisition possibilities, meeting synergistic and
financial-structure requirements. By following this strategy, the Company hopes
to achieve its objective of increasing shareholder value.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, there are certain important factors that could cause the Company's actual
results to differ materially from those included in such forward-looking
statements. Some of the important factors which could cause actual results to
differ materially from those projected include, but are not limited to: the
Company's ability to continue to identify and complete strategic acquisitions to
enter new markets and expand existing business; continued availability of
financing to provide additional sources of funding for future acquisitions,
capital expenditure requirements and foreign investments; satisfying any
potential year 2000 issues with no material adverse effect on operations; the
effects of competition on products and pricing, growth and acceptance of new
product lines through the company's sales and marketing programs; changes in
material prices from suppliers; uncertainties regarding accidents or litigation
which may arise in the ordinary course of business; and the effects of, and
changes in the economy, monetary and fiscal policies, laws and regulations,
inflation and monetary fluctuations as well as fluctuations in interest rates,
both on a national and international basis.
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PART II. OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on June 18, 1998.
Dr. William F. Hamilton and Mr. Fred Cohen were elected as director to serve for
a three year term.. Robert B. Ginsburg, Alan I. Goldberg and Seymour Hernes
continued their respective terms of office as directors. At such meeting votes
were cast as follows:
<TABLE>
<CAPTION>
Election of Directors For Against Abstain
- - --------------------- --- ------- -------
<S> <C> <C> <C>
Dr. Hamilton 5,296,571 14,624
Fred Cohen 5,290,711 20,484
Amendment of 1992 Directors Stock Plan 5,099,707 187,938 2,650
- - --------------------------------------
</TABLE>
ITEM 5 OTHER INFORMATION
On July 28, 1998, the Board of the Company expanded the size of
the Board of Directors to six directors, and designated Jeffrey Harrow to fill
the resulting vacancy.
Responses to Items one through six are omitted since these items
are either inapplicable or response thereto would be negative.
ITEM 7. EXHIBITS
(1) Lease Agreement dated March 1984 between Ingerman-
Ginsburg Partnership And Diversified Marketing Sales.
Inc. and Amendments Page 17
(2) Lease Agrement dated June 29, 1998 between Gillespie Field
Partners, LLC And Sparks Exhibits, Ltd. Page 26
SIGNATURE
In accordance with the requirements of the Securities Exchange
Act of 1993, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARLTON TECHNOLOGIES, INC.
/s/ E. D. Costantini, Jr. /s/ Robert B. Ginsburg
- - -------------------------- -----------------------
Edmond D. Costantini, Jr. Robert B. Ginsburg
Chief Financial Officer President and Chief Executive Officer
Dated: July 31, 1998
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LEASE AGREEMENT
AGREEMENT OF LEASE made as of the _______ day of March, 1984 by and
between Ingerman-Ginsburg Partnership ("Landlord"), and Diversified Marketing
Sales, Inc., a Pennsylvania corporation ("Tenant").
1. DEFINITIONS
The term "Leased or Demised Premises" means that portion of the
buildings and improvements situate and located at 250 King Manor Drive,
Bridgeport, Pennsylvania (consisting of approximately 127,000 square feet), as
set forth on Exhibit "A", made part hereof.
2. LEASE OF PREMISES
Landlord (which is purchaser under an installment sale agreement with
the record title holder, Montgomery County Industrial Development Authority)
hereby leases to the Tenant and Tenant hereby leases from the Landlord, upon and
subject to the terms and provisions of this Lease, the Demised Premises,
together with all rights and benefits appurtenant to the Demised Premises
including the right to park vehicles on the parking lot.
3. TERM
The term of this Lease shall be for ten (10) years to begin on March
__, 1984 ("Commencement Date"). Tenant shall have the option to extend this
Lease for an additional term of ten (10) years by giving written notice to
Landlord not less than sixty (60) days prior to the termination of the original
term of this Lease.
4. COMMENCEMENT OF RENT
4.1 The rent shall commence to accrue and be payable from the
Commencement Date.
4.2 Tenant shall pay to Landlord, as additional rent (or with
Landlord's prior consent, directly to the entity to which such sums are owed),
in addition to the sums set forth as rent under this Lease, the following:
a. Before any fines, penalties, interest or costs may be added
thereto for non-payment thereof,
(i) Tenant's proportionate share (being that percentage of
the 127,000 square foot building occupied by Tenant hereunder) or all real
estate taxes, assessments, charges for water and sewer rentals, public
utilities, excise, license and permit fees, and any other governmental charges,
of any kind and nature whatsoever which at any time prior to or during the term
of the Lease may be assessed, levied, confirmed, imposed upon, or grow or become
due and payable out of, or become a lien on, the Demised Premises, or any
appurtenances thereto, (all such taxes, assessments, franchise charges, water
and sewer rents, rates and charges, charges for public utilities, excise levies,
license and permit fees and other governmental charges being herein referred to
as "Impositions" and any of the same being hereinafter referred to as an
"Imposition"), and Tenant shall present receipts evidencing such payment to
Landlord at least ten (10) days before the last day when the same may be paid
without interest or penalty.
(ii) Tenant shall have the right, after prior written notice
to Landlord, either in its name or in that of Landlord, to contest the amount or
validity, in whole or in part, of any such Impositions by appropriate
proceedings, conducted in good faith and with due diligence, and to request the
postponement or deferment of the payment of such taxes or assessments. Landlord
shall not ultimately be subjected to any liability for the payment of any costs
or expenses in connection with any such proceedings and Tenant will defend,
indemnify and save harmless Landlord from any and all costs, expenses, damages,
fees or interest, including reasonable counsel fees, arising out of or in
connection with any such contest.
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(b) Such other sums Tenant may be required to pay as
hereinafter provided.
5. RENT
5.1 Tenant covenants and agrees to pay to Landlord, a net rental as
follows:
(a) From the date of commencement until the end of the term
the annual sum of $375,000, payable in monthly installments of $31,250, subject
to adjustment as set forth below.
Such net annual rental (hereinafter called the "net
rent") shall be in addition to, and over and above all other payments made by
the Tenant as herein provided, and such net rent shall be paid in equal monthly
installments in advance on the first day of each calendar month during the term
of this lease.
5.2 It is the purpose and intent of Landlord and Tenant that the net
rent shall be absolutely net to Landlord, so that this lease shall yield net to
Landlord, the net rent specified in Section 5.1 hereof in each year during the
term of this lease and that all costs, expenses and obligation, of every kind
and nature whatsoever relating to the Demised Premises which may arise or become
due during the initial term of this lease shall be paid by Tenant and that
Landlord shall be indemnified and saved harmless by Tenant from and against the
same.
5.3 The net rent shall be paid to Landlord without notice or demand and
without abatement, deduction or set-off.
6. CONDITION OF TENANT'S BUILDING
Except as elsewhere expressly provided herein, from and after the time
and term commences, Landlord shall be under no duty or obligation to make any
repairs or alterations to the Demised Premises.
7. ALTERATIONS, ADDITIONS AND IMPROVEMENTS
Tenant shall have the right, from time to time, at its own expense, to
make additions, alterations, improvements and installations in and to the
Demised Premises; provided, however, that Tenant may make no alterations or
additions of a structural nature without first obtaining the written consent of
Landlord. Landlord shall not unreasonably withhold its consent. Except for trade
fixtures, any additions or alterations made by Tenant in or upon the Demised
Premises shall become the property of Landlord upon termination of this Lease
for any cause whatsoever other than Landlord's default.
8. INDEMNITY AND PUBLIC LIABILITY INSURANCE
8.1 Tenant agrees to indemnify and save harmless Landlord from and
against all claims of whatever nature arising from any act, omission or
negligence of Tenant, or Tenant's contractors, licensees, agents, servants or
employees, or arising from any accident, injury or damage whatsoever caused to
any person, or to the property of the Landlord or any person, occurring during
the term hereof in or about the Demised Premises, or arising from any accident,
injury or damage occurring outside of the Demised Premises where such accident,
damage or injury results from an act or omission on the part of Tenant or
Tenant's agents or employees. This indemnify and hold harmless agreement shall
include indemnify against all costs, expenses (including reasonable attorneys'
fees) and liabilities incurred in or in connection with any such claim or
proceeding brought thereof, and the defense thereof.
8.2 Tenant agrees to maintain in full force during the term hereof at
its sole cost and expense a policy of public liability and property damage
insurance under which Tenant, the record owner of the Demised Premises, Landlord
or Landlord's mortgagees are named as insured, and under which the insurer
agrees to insure Tenant and Landlord (and such mortgagees as Landlord may
designate) against all cost, expense and/or liability arising out of or based
upon any and all claims, accidents, injuries and damages. A duplicate original
or certificate of such insurance shall be delivered to Landlord. The minimum
limits of liability of such insurance shall be determined by Landlord. All
policies which shall be non-cancelable.
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9. UTILITIES
Tenant shall pay for all water, gas, telephone, electricity and other
such services used or consumed in or upon the Demised Premises, including the
parking area, and shall likewise pay for the cost of heating and
air-conditioning the Demised Premises.
10. QUIET ENJOYMENT
Subject only to the performance by Tenant of the terms, covenants and
conditions of this Lease on the part of Tenant to be kept and performed, and the
terms of any installment sale agreement or mortgages to which this Lease is now
or hereafter subordinate, Landlord warrants and represents that Tenant shall
have the quiet and peaceable possession and enjoyment of the Demised premises
for the purposes demised and every party thereof, without any hindrance or
disturbance whatsoever throughout the term of this Lease and any extensions or
renewals thereof.
11. INSURANCE
11.1 Tenant shall keep and maintain in force at all times during the
term hereof at its sole cost and expense and any extensions or renewals thereof
an all risk fire insurance policy with extended coverage endorsement in the
amount of the full insurable value of the building of which the Demised Premises
is a part and naming the record owner, Landlord, Tenant and Landlord's
designated mortgagees as the insureds. The said policy shall provide that it may
not be canceled or modified without thirty (30) days prior written notice to
Landlord and Landlord's mortgagees. At Landlord's option, Tenant shall cause the
holder of any mortgage secured upon the Demised Premises to be named as an
insured in such policy and a copy thereof supplied to such mortgagee upon
demand. Tenant shall supply Landlord with certificates of insurance evidencing
such and with evidence of payment of premiums upon demand.
11.2 At Landlord's election, Tenant shall obtain and maintain during
the term of this Lease rent insurance covering at least twelve (12) months loss
of rents and naming Landlord as the beneficiary thereof. Tenant shall supply
Landlord with a certificate of insurance evidencing such coverage and payment of
premiums.
11.3 Landlord hereby releases Tenant (and anyone claiming through or
under Tenant) from any liability or responsibility (to Landlord or anyone
claiming through or under Landlord by way of subrogation or otherwise) for any
loss or damage to Landlord's property caused by fire or other risks covered in a
standard fire policy, and in rent insurance policies if rent insurance is
carried, even if such loss or damage shall have been caused by the fault or
negligence of Tenant (and anyone claiming through or under Tenant) or its agents
or employees; provided, however, that this release shall apply and be effective
if and only so long as the loss or damage in question shall be covered by a
policy or policies containing a clause or endorsement substantially to the
effect that any such release by the insured shall not adversely affect, impair,
or prejudice the right of the insured to recover for such loss or damage, but
this release shall not be effective as to the amount of any destruction or
damage in excess of the amount recoverable by Landlord under such insurance
policies in force when such loss or damage occurs.
11.4 Tenant hereby releases Landlord from any liability or
responsibility (to Tenant or anyone claiming through or under Tenant by way of
subrogation or otherwise) for any loss or damage to Tenant's property caused by
fire or other risks covered in Tenant's fire policies, even if such loss or
damage shall have been caused by the fault or negligence of the Landlord or its
agents or employees; provided, however, that this release shall apply and be
effective if and only so long as the loss or damage in question shall be covered
by a policy or policies containing a clause or endorsement substantially to the
effect that any such release by the insured shall not adversely affect, impair,
or prejudice the right of the insured to recover for such loss or damage.
11.5 Tenant, at Tenant's sole cost and expense, shall keep and maintain
in force at all times during the term hereof and any extensions or renewals
thereof an all-risk fire insurance policy with extended coverage endorsement
covering Tenant's trade fixtures in an amount equal to the full replacement
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value thereof. Any such policy shall provide that it may not be canceled or
modified without thirty (30) days prior written notice to Landlord. Tenant shall
deliver to Landlord, upon demand, a copy of such insurance policy together with
evidence of payment of premiums.
12. DAMAGE OR DESTRUCTION OF LEASED FACILITY
12.1 Landlord agrees that if the Leased Premises is damaged by fire or
other casualty, Landlord shall promptly cause such damage to be repaired and
restored, provided that in Landlord's opinion the repairs and restoration can be
completed with the proceeds of the insurance upon the premises within one
hundred twenty (120) days. The rental and other payments hereunder shall not
abate from the date of such damage to the completion of such repairs and
restoration. Landlord's obligation to repair and restore is subject to any right
of Landlord's mortgagees to take such insurance proceeds and apply them to the
reduction of payment of any outstanding mortgages.
12.2 If the Leased Premises cannot be restored to tenantable condition
in the opinion of the Landlord, within one hundred twenty (120) days from the
date of the damage, then at the option of either Landlord or Tenant (after
notice from Landlord that the premises cannot be so restored), this Lease shall
automatically terminate as of the date of damage and Landlord shall be entitled
to immediate possession of the Leased Premises.
13. CONDEMNATION
13.1 If the whole or a substantial part of the Leased Premises shall be
taken for any public or quasi-public action under any statute or by right of
eminent domain or private purchase in lieu thereof rendering the premises unfit
for Tenant's use thereof, then, when possession thereof is taken, this Lease
shall immediately cease and terminate and Tenant shall be released of all rights
and future obligations hereunder and the rent and other payments shall be
adjusted as of the time of such termination. In such event the entire award or
all the money received therefrom shall belong solely to the Landlord.
13.2 For the purpose of this Section, Landlord's award shall not be
considered as including any sums received for moving or business dislocation
expenses or for the taking of any of Tenant's trade fixtures.
14. AFFIRMATIVE COVENANTS OF TENANT
14.1 Tenant shall pay the rent and all other charges herein reserved as
rent on the days and times and at the place that the same are made payable.
14.2 Tenant shall without demand keep and maintain the Demised Premises
clean and free from all ashes, dirt and other refuse matter, including refuse
removed from the Demised Premises; replace all glass windows, doors, which
become broken; keep and maintain all waste and drain pipes open; repair all
damage to plumbing; keep in good order and repair and maintain all structural
and non-structural portions of the Demised Premises including without limiting
the generality thereof, roof, walls, columns and beams; and generally keep and
maintain the Demised Premises in good order and repair as they are at the time
of the commencement of the term hereof ordinary wear and tear alone excepted and
subject to damage by fire pursuant to the provisions of Section 12. Maintenance
shall include replacements and betterments as and when needed.
14.3 Comply with all the terms of any State or Federal statute or local
ordinance or regulation applicable to Tenant or its use of the Demised Premises
and save, indemnify, defend and hold Landlord harmless from penalties, fines,
costs or damages resulting from failure to do so.
14.4 Peaceably deliver up and surrender possession of the Demised
Premises to the Landlord at the expiration or sooner termination of this Lease,
promptly delivering to Landlord, at its office, all keys to the Demised
Premises.
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14.5 Surrender the Demised Premises at the expiration or sooner
termination of the term hereof I the same good order and repair it is at the
time rent commences to accrue, ordinary wear and tear alone excepted, and
subject to damage by fire pursuant to the provisions of Section 12.
15. INSPECTION BY LANDLORD
Landlord, at all reasonable times, by itself or its duly authorized
representatives, shall have the right to go upon and inspect the Demised
Premises and every party thereof.
16. EVENT OF DEFAULT
16.1 Subject to the grace period elsewhere herein provided, an Event of
Default shall occur if Tenant,
(a) Does not pay in full when due any and all installments of
rent and/or any other charge or payment herein reserved, included, or agreed to
be treated or collected as rent and/or any other charge, expense, or cost herein
agreed to be paid by Tenant; or
(b) Violates or fails to perform or otherwise breaks any covenant
or agreement herein contained; or
(c) Becomes insolvent, or makes an assignment for the benefit of
creditors, or if a petition in bankruptcy is filed by Tenant, or if Tenant is
adjudicated a bankrupt, or a bill in equity or other proceeding for the
appointment of a receiver for Tenant, or if the real or personal property of
Tenant shall be levied upon or sold.
16.2 Upon occurrence of any Event of Default, there shall be deemed to
be a breach of this Lease, and thereupon without entry or other action by
Landlord,
(a) The rent for the balance of the term of this Lease, as well
as all other charges, payments, costs and expenses herein agreed to be paid by
Tenant during such period or, at the option of Landlord, any part thereof, and
also any costs and officers' commissions, including a collection fee of five
percent (5%), shall, in addition to any and all installments of rent already due
and payable and in arrears and/or any other charge or payment herein reserved,
included or agreed to be treated or collected as rent, and/or any other charge,
expense or cost herein agreed to be paid by Tenant which may be due and payable
and in arrears, shall be taken to be due and payable and in arrears as if, by
the terms and provisions of this Lease, the whole balance of the rent for the
term and other charges, payments, taxes, costs and expenses were on that date
payable in advance; and
(b) Landlord may relet said Demised Premises or any parts hereof
to such person or persons as may, in Landlord's discretion, be best; and Tenant
shall be liable for any loss of rent for the balance of the then current term.
Any such re-entry or re-letting by Landlord under the terms hereof shall be
without prejudice to Landlord's claim for actual damages, and shall under no
circumstances, release Tenant from liability for such damages arising out of the
breach of any of the covenants, terms, and conditions of this Lease.
(c) Landlord may exercise all or any of the rights granted to a
landlord in law or in equity upon the event of a default by Tenant under a lease
including, without limitation, termination of the Lease of the Demised Premises
and a suit to recover damages for such breach in an amount equal to the amount
of the rent reserved in the balance of the term of this Lease less the fair
rental value of said Demised Premises for the remainder of the lease term.
17. LANDLORD'S DEFAULTS
In the event of Landlord's failure to pay any sum or sums which
Landlord is obligated to pay and the nonpayment of which may result in a charge
or encumbrance upon the Demised Premises, or in the
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event it is judicially determined that Landlord has failed to perform any of
Landlord's obligations hereunder, Tenant, in addition to any other rights it may
have in law or in equity, shall have the right to make payment of such sums or
to perform such obligations. Landlord shall reimburse Tenant for all such sums
and Tenant shall have the right to receive an assignment of the claim of any
payee against Landlord and shall have the further right after such judicial
determination to set off against accrued or accruing rents or other sums payable
to Landlord any such payments or expenditures and to hold Landlord liable for
any excess of such payments or expenditures over any amounts set off against
accruing rents and other sums.
18. SIGNS
Tenant is hereby granted the right after obtaining Landlord's prior
written consent, which consent shall not be unreasonably withheld, to maintain
and replace signs on the exterior of the Demised Premises in conformity with
applicable laws and ordinances.
19. ASSIGNING, MORTGAGING, SUBLETTING
Tenant shall not assign, mortgage, pledge or encumber this Lease, or
sublet the whole or any part of the Demised Premises without first obtaining the
written consent of Landlord. Landlord shall not unreasonably withhold this
consent. It shall be unreasonable for Landlord to withhold its consent to an
assignment to a company having a net worth at least equal to Tenant's net worth
on the date of the assignment. A transfer by operation of law as in a merger or
dissolution shall not require Landlord's consent. No assignment or sublease
shall relieve Tenant from any of its obligations hereunder.
20. SUBORDINATION
This Lease shall be subject and subordinate at all times to the lien
and operation of any mortgage now or hereafter placed on the Demised Premises
without the necessity of any further instrument or act on the part of Tenant to
effectuate such subordination. Tenant shall make, execute, acknowledge and
deliver any and all instruments deemed necessary by any such mortgagee to
accomplish such subordination, upon demand and Tenant herewith appoints Landlord
as its attorney-in-fact to execute and deliver such instrument of subordination.
21. GRACE PERIOD
21.1 Anything herein contained to the contrary notwithstanding, any
thing or act which would otherwise be a default by Tenant hereunder shall not be
a default hereunder unless:
(a) Landlord shall have given Tenant written notice of the
alleged default; and
(b) Tenant shall have failed to correct the alleged default
within a period of fifteen (15) days thereafter if the default be one which can
be cured by the payment of money; or
(c) Tenant shall have failed to correct the alleged default
within a period of thirty (30) days thereafter if the default be one which
cannot be cured by the payment of money or, if not cured within said thirty (30)
day period, within such additional period as is reasonably necessary to correct
the alleged default, provided Tenant shall commence during such default and
shall thereafter diligently prosecute the curing of the alleged default.
22. NOTICES
All notices required to be given hereunder shall be sufficiently given
only if mailed by certified mail, postage prepaid, addressed to the party
entitled to receive the same at the following address, or at such other address
as may be given hereafter, in writing, or to the other party by notice as
aforesaid:
TO LANDLORD: Ingerman-Ginsburg Partnership
1429 Walnut Street
Philadelphia, PA 19102
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TO TENANT: Diversified Marketing Sales, Inc.
250 King Manor Drive
Bridgeport, PA 19405
23. USE
Tenant may use the Demised Premises for any lawful use.
24. LIMITATION OF LANDLORD'S LIABILITY
Notwithstanding anything to the contrary contained herein or
inconsistent herewith, the liability of Landlord in the event of any breach of
the covenants or conditions of this Lease shall be restricted solely to the
Landlord's interest in the Demised Premises.
25. PARTIES BOUND
Subject to Section 19, this Lease shall insure to the benefit of and be
binding upon the parties hereto, their successors and assigns.
26. INTEGRATION CLAUSE
This Lease contains the entire agreement between the parties and may
not be modified or terminated except by agreement in writing signed by both of
the parties hereto.
27. HEADINGS
Any headings preceding the test of the several paragraphs or
subparagraphs hereof are inserted solely for convenience of reference, shall not
constitute a part of this Lease nor shall they affect its meaning, construction
or effect.
28. TENANT'S EQUIPMENT
All trade fixtures, trade machinery and other trade equipment which is
supplied and used by Tenant in the conduct of its business hall be the property
of Tenant, and may be removed by Tenant at any time prior to and at the
termination of its tenancy. Tenant shall at Tenant's expense, remove such
property at the expiration or termination of this Lease, and repair any damaged
caused by such removal.
29. COMMON AREA MAINTENANCE
Tenant shall be obligated to pay for its proportionate share of all
costs of maintenance and repair of the parting lot and common area and
facilities.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed the day and year first above written.
INGERMAN-GINSBURG PARTNERSHIP DIVERSIFIED MARKETING SALES, INC.
/s/ Ira M. Ingerman (SEAL) /s/ Ira M. Ingerman, President (SEAL)
/s/ Stanley D. Ginsburg (SEAL) Attest: /s/ Diane C. Hazen, Secretary
23
<PAGE>
EXHIBIT "A"
ALL THAT CERTAIN tract or parcel of ground, with the buildings and improvements
thereon erected, SITUATE in the Township of Upper Merion, County of Montgomery,
Commonwealth of Pennsylvania, bounded and described according to a Map of
Property made for Ingerman-Ginsburg Part. By Hookins and Scott, Inc., Registered
Surveyors, dated February 12th, 1984 as follows, to wit:
BEGINNING at a point of reverse curve on the Northwesterly side of Proposed King
Manor Drive (sixty feet wise) said point being at the distance of Seventy and
sixty nine one-hundreths feet measured on the arc of a circle curving to the
right having a radius of Forty five feet from a point of curve on the
Southwesterly side of Crooked Lane; thence extending from said point of
beginning along the Northwesterly side of Proposed King Manor Drive the two
following courses and distances: (1) Southwestwardly on the arc of a circle
curving to the left having a radius of Five hundred ninety one and seventy four
one-hundredths feet the arc distance of Ninety one and forty one-hundredths feet
to a point of tanget and (2) South sixty one degrees, twenty nine minutes West
three hundred eighty four and eighty three one-hundredths feet to a point of
curve on the same; thence extending Southwestwardly and Westwardly partly along
the Northwesterly and Northerly sides of Proposed King Manor Drive on the arc of
a circle curving to the right having a radius of Six hundred thirty feet the arc
distance of Two hundred eighteen and forty five one-hundredths feet to a point
of tangent on the Northerly side of same; thence extending South eighty one
degrees, twenty one minutes West along the Northerly side of Proposed King Manor
Drive Sixty one and forty four one-hundredths feet to a point of curve at the
beginning of a cul-de-sac (of irregular width) at the end of Proposed King Manor
Drive; thence extending along the aforesaid cul-de-sac the two following courses
and distances: (1) Westwardly and Northwestwardly on the arc of a circle curving
to the right having a radius of Sixty feet the arc distance of Sixty two and
eighty three one-hundredths feet to a point of reverse curve and (2)
Northwestwardly and Southwestwardly on the arc of a circle curving to the left
having a radius of Sixty feet the arc distance of One hundred fourteen and
twenty four one-hundredths feet to a point; thence extending North fifteen
degrees, seven minutes, forty seconds West Three hundred thirty eight and eighty
nine one-hundredths feet to a point in line of Philadelphia Electric
Transmission Line Nine hundred eleven and fifty one one-hundredths feet to a
point on the Southwesterly side of Crooked Lane; thence extending South nineteen
degrees, forty minutes East along the Southwesterly side of Crooked Lane Two
hundred ten and twenty nine one-hundredths feet to a point of curve on the same;
thence extending on the arc of a circle curving to the right having a radius of
Forty five feet the arc distance of Seventy and sixty nine one-hundredths feet
to the first mentioned Norristown in the office for the Recording of Deeds, in
and and for the County of Montgomery on 16th day of November A.D., 1971 in Deed
Book No. 3713 Page 58 etc., granted and conveyed unto Montgomery County
Industrial Development Authority, a Pennsylvania Corporation in fee.
Being Parcel No. 58-00-11896-00-7.
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<PAGE>
January 1, 1992
Re: Amendment to Letter of Agreement of May 1991
Respecting Organization of New Company to
Operate Assets of Diversified Marketing Sales Inc.
The purpose of this letter is to supplement our letter agreement of May 1991
(The Agreement) as set forth below. For these purposes, defined terms shall have
the same meaning as set forth in the agreement.
1. RENT OF D.M.S. PROPERTY
The Landlord has agreed to attempt to find another tenant for the
property. The parties have agreed to terminate the existing lease when
and if the Landlord finds a replacement tenant. The Landlord has agreed
to reduce the rent to $11,500 per month or 1.15% of sales which ever is
higher for the period beginning September 1, 1991 to December 1, 1992.
2. OTHER PROVISIONS OF AGREEMENT IN FULL FORCE
Except as set forth above, all provisions of the Agreement shall remain
in full force and effect.
If the above sets forth your understanding with respect to the supplemental
terms and conditions upon which we have agreed, please so evidence by signing
the enclosed copy of this letter in the space provided.
Sincerely yours,
/s/ Stanley D. Ginsburg
/s/ Ira M. Ingerman
Agreed and Accepted this
___ day of ____, 1992
/s/ Larry Schan
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GILLESPIE FIELD BUSINESS PARK
Lease Agreement - Net
PROPERTY: Lot 14, Gillespie Field Business Park
LANDLORD: Gillespie Field Partners, LLC
a California limited liability company
TENANT: Sparks Exhibits, LTD.
<PAGE>
LEASE AGREEMENT INDEX
ARTICLE 1 Description of Premises
ARTICLE 2 Term
ARTICLE 3 Rent
ARTICLE 4 Use
ARTICLE 5 Alterations and Additions
ARTICLE 6 Utilities and Services
ARTICLE 7 Indemnification by Tenant
ARTICLE 8 Insurance
ARTICLE 9 Care of the Premises
ARTICLE 10 Taxes
ARTICLE 11 Common Areas
ARTICLE 12 Signs and Advertising
ARTICLE 13 Entry by Landlord
ARTICLE 14 Assignment and Subletting
ARTICLE 15 Abandonment
ARTICLE 16 Breach by Tenant
ARTICLE 17 Remedies upon Breach
ARTICLE 18 Damage or Destruction
ARTICLE 19 Condemnation
ARTICLE 20 Surrender of Lease
ARTICLE 21 Attorneys' Fees
ARTICLE 22 Sale of the Premises by Landlord
ARTICLE 23 Quiet Enjoyment
ARTICLE 24 Estoppel Certificates - Financial Statements
ARTICLE 25 Subordination and Attornment
ARTICLE 26 Holding Over
ARTICLE 27 Liability of Successors
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ARTICLE 28 Easements
ARTICLE 29 Master Lease
ARTICLE 30 Quitclaim Deed
ARTICLE 31 Hazardous Materials
ARTICLE 32 Interpretation
ARTICLE 33 Time of Essence
ARTICLE 34 Force Majeure
ARTICLE 35 Notices
ARTICLE 36 Brokers
ARTICLE 37 Option to Extend
ARTICLE 38 First Right of Negotiation on Expansion Development
ARTICLE 39 Rent Abatement
Exhibits: Exhibit A Premises
Exhibit B Property
Exhibit C Improvements
Exhibit D Estimated Common Area Maintenance Expenses for
First Twelve Months
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<PAGE>
LEASE AGREEMENT
THIS LEASE is entered into on June 29, 1998 by and between GILLESPIE
FIELD PARTNERS, LLC, a California limited liability company (the "Landlord") and
SPARKS EXHIBITS, LTD., a California corporation (the "Tenant").
ARTICLE 1
Description of Premises
1.1 Landlord hereby leases to Tenant and Tenant hires from Landlord,
pursuant to the terms, conditions and uses herein set forth, the real property
together with a single industrial building thereon (the "Building") having
approximately 150,159 square feet more particularly described in Exhibit "A" and
attached hereto (the "Premises"), located at 2025 Gillespie Way, El Cajon,
California (the "Building") and situated on the land depicted in Exhibit "B"
attached hereto and more particularly described as Lot 14 of Cuyamaca West Unit
No. 2 in the City of El Cajon, County of San Diego, State of California,
according to Map thereof no. 12943, filed in the Office of the County Recorder
of San Diego County, June 5, 1992 (the "Property"), reserving to Landlord,
however, the use of the exterior walls and the right to install, maintain, use,
repair and replace pipes, ducts, conduits, and wires through the Premises in
locations which will not materially interfere with Tenant's use thereof. The
Premises shall contain not less than 200 parking spaces.
1.2 The Premises shall be improved with the Building in accordance with
the site elevations and site development plan, each dated June 15, 1998 and
prepared by Ware & Malcomb, Architects which have been provided to Tenant and
certain other improvements (the "Tenant Improvements") as more fully described
in Exhibit "C" attached hereto.
ARTICLE 2
Term
2.1 The term of this Lease shall be for eighty-four (84) months
commencing on the date that the Premises are ready for occupancy and approved
for occupancy by the City of El Cajon, California but in no event earlier than
April 1, 1999 (the "Commencement Date") and ending on the last day of the
calendar month in which the Commencement Date occurs, 84 months following the
Commencement Date. Tenant acknowledges that this Lease does not provide for any
period of occupancy prior to April 1, 1999, notwithstanding the earlier
completion of construction of the Building and the Tenant Improvements. Should
Tenant desire to occupy the Premises prior to April 1, 1999, subject to
completion of the Building and the Tenant Improvements as of such earlier
occupancy, this Lease shall be deemed to have commenced as of the first date of
such earlier occupancy, and the term "Commencement Date" as used and set forth
herein shall refer to the first date of such earlier occupancy.
2.2 Subject to the further provisions set forth hereinbelow in this
Section 2.2, notwithstanding the Commencement Date set forth in Section 2.1, if
Landlord, for any reason, cannot deliver possession of the Premises to Tenant on
April 1, 1999, Landlord shall not be subject to any liability therefor, nor
(subject to Section 2.5 hereof) shall such failure affect the validity of this
Lease or the obligations of Tenant hereunder; provided that, Tenant shall not be
obligated to pay rent until possession of the Premises is tendered to Tenant
which shall not, under any circumstances, be earlier than April 1, 1999, unless
Tenant shall elect to occupy the Premises earlier than such date in accordance
with Section 2.1 hereof. The preceding sentence to the contrary notwithstanding,
and subject to the provisions of Article 34 hereof which shall have the effect
of extending the date by which Landlord is to deliver possession of the Premises
to Tenant in the event certain circumstances described in said Article 34 hereof
occur, if, through no fault of Tenant, Landlord shall not deliver possession of
the Premises to Tenant by April 1, 1999 (subject to extension of said date as
set forth in said Article 34), Tenant shall be entitled to a credit against Base
Monthly Rental (but not common
<PAGE>
area maintenance expenses and costs and expenses (other than Base Monthly
Rental) which Landlord is entitled to pass through to Tenant) in the future,
which credit shall be equal to one day's credit against future Base Monthly
Rental, up to a maximum of 90 calendar days, for each day beyond April 1, 1999
(subject to extension of said date as set forth in said Article 34), in which,
through no fault of Tenant, Landlord fails to deliver possession of the
Premises. The credit against Base Monthly Rental referred to in the preceding
sentence shall be calculated based upon a rental rate of $0.42 per square foot
per month. Tenant may utilize such credit against Base Monthly Rental, if any,
against future Base Monthly Rental commencing with the first day upon which Base
Monthly Rental accrues and is owing from Tenant to Landlord hereunder until such
time as such credit against Base Monthly Rental shall have been fully utilized.
The credit against Base Monthly Rental to be provided to Tenant pursuant to this
Section 2.2 shall be in addition to any abatement of rent provided to Tenant
pursuant to Article 39 of this Lease.
2.3 In the event Landlord shall not have delivered possession of the
Premises within 90 calendar days following the Commencement Date set forth in
Section 2.1, at Tenant's option to be exercised within ten (10) days after the
expiration of said 90-calendar day period, this Lease shall terminate and, upon
Landlord's return of any monies previously deposited by Tenant, the parties
shall have no further rights or liabilities towards each other. In the event
Tenant does not exercise its option to terminate this Lease within the time
period specified in this Section 2.3, Tenant shall be deemed to have waived such
right to terminate this Lease and Landlord shall forthwith, and as soon as
reasonably practicable, deliver possession of the Premises to Tenant. Tenant's
waiver of the Lease termination right in this Section 2.3 shall not affect the
rights and obligations of the parties in Section 2.2. For purposes of this
Section 2.3, the 90-calendar day period described above in this Section 2.3
shall be extended one day for each calendar day delivery of possession of the
Premises is at least partially caused or occasioned by Tenant's delay, but not
as a result of the application of the provisions of Article 34 hereof.
2.4 Tenant agrees to execute a supplemental agreement within ten (10)
days after receipt in form requested by Landlord which shall confirm the date
upon which this Lease actually commences.
2.5 Tenant's possession of the Premises on the Commencement Date or
thereafter (or prior thereto if Tenant so elects pursuant to Section 2.1 hereof)
shall constitute Tenant's acceptance of the Premises as being substantially
complete in accordance with this Lease. Prior to Tenant taking possession of the
Premises Tenant and Landlord shall inspect the Premises and prepare a "punch
list" of items to be completed by Landlord after Tenant has taken possession of
the Premises. Landlord shall diligently pursue the completion of all "punch
list" items and complete same within thirty (30) days of the Commencement Date,
or other date upon which Tenant actually takes possession of the Premises,
except for items where material or equipment may not be readily available in
which case those items shall be completed within thirty (30) days of the
availability of the material or equipment.
2.6 Landlord agrees to commence construction of the Premises on or
before August 15, 1998, which for purposes of this Lease, commencement of
construction shall mean the earliest date upon which both (i) the building
permit for the shell of the Building has been issued and (ii) fine grading of
the Property has commenced; provided however, once construction has commenced in
accordance with the foregoing, Landlord shall thereafter diligently pursue the
construction to completion. In the event Landlord shall not have commenced
construction on or before September 15, 1998, at Tenant's option to be exercised
within ten (10) days following September 15, 1998, this Lease shall terminate
and, upon Landlord's return of any monies previously deposited by Tenant, the
parties shall have no further rights or liabilities towards each other. In the
event Tenant does not exercise its option to terminate this Lease within the
time period specified in this Section 2.6, Tenant shall be deemed to have waived
such right to terminate this Lease and Landlord shall forthwith, and as soon as
reasonably practicable, commence construction of the Premises, subject to all
other requirements of this Article 2. Further, in order to demonstrate
Landlord's diligence with respect to timely construction of the Building and the
Tenant Improvements, Landlord shall provide to Tenant, on or before the
commencement of construction, the construction schedule
2
<PAGE>
prepared by Koll Construction Company, L.P., the general contractor, indicating
that construction is estimated to be completed within the specified time
parameters as shown in this Lease. Notwithstanding the foregoing provisions,
each of the dates listed above shall be extended by an equal number of days for
any delays in completing the plans and building permit process that are caused
by the lack of timely response by Tenant.
ARTICLE 3
Rent
3.1 Subject to the provisions of Article 39 hereof, Tenant shall pay to
Landlord at the address set forth in Article 35, or such other address as
Landlord may advise Tenant in writing, without deduction, offset or prior notice
or demand, and Landlord shall accept, as rent for the Premises the sum of
Seventy-Two Thousand Seventy-Six Dollars ($72,076.00) per month in lawful money
of the United States payable in advance on the first day of each month of the
term of this Lease. Said monthly installments shall hereinafter be referred to
as the "Base Monthly Rental". Tenant has delivered to Landlord the Base Monthly
Rental for the first full month of the term hereof upon execution and delivery
of this Lease.
3.2 In the event that the Commencement Date occurs on a day other than
the first day of the month resulting in a period of occupancy (for the first
month of the Lease) of less than a full month (the "Partial Month"), Tenant
shall pay to Landlord prior to the Commencement Date as rent for such Partial
Month, an amount equal to the Base Monthly Rental multiplied by a factor having
as its numerator the number of days remaining in the month and as its
denominator the number thirty. Thereafter, rent shall be payable in accordance
with the terms of Section 3.1.
3.3 The Base Monthly Rental shall remain fixed throughout the initial
term of the Lease as set forth in Section 2.1 hereof.
3.4 Tenant shall pay as additional rent all utilities, taxes,
insurance, repairs, maintenance or other charges as described in Article 9 and
common area expenses, or other charges, as described and in the manner provided
in Article 11.
3.5 Tenant acknowledges that late payment by Tenant to Landlord of the
Base Monthly Rental or other charges incurred under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
costs being extremely difficult and impracticable to fix. Such costs include,
without limitation, processing, administrative and accounting charges, and late
charges that may be imposed on Landlord by the terms of any note secured by any
mortgage encumbering the Premises. If any payment of Base Monthly Rental, common
area maintenance charges and/or operating expenses, or other charges due from
Tenant is not received by Landlord within five calendar days of the date upon
which such payment is due and payable, Tenant shall pay to Landlord an
additional sum of the greater of (i) three percent (3%) of the overdue rent or
(ii) Fifteen Dollars ($15.00) as a late charge; provided that the late charge
shall not be imposed if Tenant pays all sums due not later than two business
days following the receipt of facsimile notice from Landlord (in accordance with
Article 35 of this Lease); and provided, further, that Landlord shall be
obligated to give said facsimile notice only upon the first instance, if any,
giving rise to late charges in each twelve month period during the term of this
Lease; thereafter, Tenant shall be subject to the late charges set forth above
without prior facsimile notice. Late charges shall constitute additional rent.
The parties agree that the late charge represents a fair and reasonable estimate
of the costs that Landlord will incur by reason of late payment by Tenant.
Acceptance of any late charge shall not constitute a waiver of Tenant's default
with respect to amounts other than the amount giving rise to the payment of such
late charge (and provided such amount giving rise to the payment of such late
charge is in fact paid), or prevent Landlord from exercising any of the other
rights and remedies available to Landlord hereunder with respect to other
breaches or defaults by Tenant.
3
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3.6 Tenant has deposited with Landlord the cash sum of Thirty Thousand
Seven Hundred Eight-Two Dollars and Sixty Cents ($30,782.60), receipt of which
is hereby acknowledged, as security for the full performance of the obligations
of Tenant under this Lease.
3.6.1 If Tenant shall be in default with respect to the
payment of the Base Monthly Rental or any other covenant contained herein,
Landlord may use or retain all or any part of the security deposit for the
payment of any sum in default, or for the payment of any amount which Landlord
may spend or become obligated to spend by reason of Tenant's default. If any
portion of said security deposit be so applied or used, Tenant shall, within
five (5) days after written notice thereof, deposit an additional amount with
Landlord sufficient to restore said security deposit to the amount set forth
above and Tenant's failure to do so shall constitute a breach of this Lease.
3.6.2 If Tenant is not in default at the termination of this
Lease, Landlord shall return said security deposit to Tenant within two (2)
weeks after termination of this Lease, less any amounts required to restore the
Premises to good condition and repair, reasonable wear and tear excepted,
including damage resulting from the removal by Tenant of its trade fixtures or
equipment.
3.6.3 Landlord's obligation with respect to any security
deposit is that of a debtor and not as a trustee, consequently, such sums may be
commingled with rental receipts or dissipated and no interest shall accrue
thereon.
3.6.4 In the event of the sale of the real property of which
the Premises constitute a part, Landlord or its agents shall pay over to
Landlord's successor in interest the sums held as security or advance rent and
notify Tenant in writing setting forth the particularity of such transfer,
including the successor's name and address. Upon such written notification,
Tenant shall have no further claim against Landlord with respect to any such
security deposit and hereby waives all rights against Landlord in such regard.
3.6.5 In the event of foreclosure by the holder of any
mortgage or deed of trust encumbering the Premises, Landlord shall continue to
be liable for any security deposit and any such mortgagee shall have no
liability or responsibility therefor.
ARTICLE 4
Use
4.1 The Premises shall be used and occupied by Tenant for any purpose
permitted by applicable zoning. The Premises are to be used for no other
purposes without first obtaining the consent of Landlord.
4.2 Except for those obligations and responsibilities of the Landlord
which are expressly set forth elsewhere herein, Tenant, at Tenant's expense,
shall promptly comply with all laws, ordinances, zoning restrictions, rules,
regulations, orders and requirements of any duly constituted public authorities
now or hereafter affecting the use, safety, cleanliness and occupation of the
Premises.
4.3 Tenant shall not do, bring or keep anything in or about the
Premises that will cause a cancellation of any insurance covering the Premises
or the Building.
4.4 Tenant shall not use the Premises in any manner that will
constitute waste, nuisance or unreasonable annoyance to owners or occupants of
nearby properties (or disturb the quiet enjoyment thereof). Tenant shall not use
the Premises for sleeping, cooking, washing clothes, or the preparation,
manufacture, or mixing of anything that might emit any odor or objectionable
noises or lights onto nearby properties, nor shall any animals or birds be
brought in or kept in or about the Premises.
4
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4.5 Tenant shall comply with all nondiscriminatory and reasonable rules
and regulations (the "Rules and Regulations") from time to time adopted by
Landlord with respect to the Property.
4.6 Tenant shall not do anything on the Premises that will cause damage
to the Building. Neither the floor or any other portion of the Premises shall be
overloaded. No machinery, apparatus, or other appliance shall be used or
operated in or on the Premises that will in any manner injure, vibrate or shake
the Premises.
ARTICLE 5
Alterations and Additions
5.1 Tenant shall not make any alterations, improvements or additions to
the Premises without obtaining Landlord's prior written consent, which shall not
be unreasonably withheld, except in the case of non-structural alterations,
improvements or additions which do not exceed the combined aggregate amount of
Five Thousand Dollars ($5,000.00), in which case the consent of Landlord shall
not be required. Any such improvements, excepting movable furniture and trade
fixtures shall become part of the realty and belong to Landlord. All alterations
and improvements shall be in conformity with the laws of all applicable duly
constituted public authorities. As a further condition to giving such consent,
Landlord may require Tenant to provide Landlord, at Tenant's sole cost and
expense, a lien and completion bond in an amount equal to one hundred fifty
percent (150%) of the estimated cost of such improvements, to ensure Landlord
against any liability for mechanics' and materialmen's liens and to insure
completion of the work.
5.2 Prior to commencing any work relating to any alterations,
improvements or additions approved by Landlord, Tenant shall notify Landlord in
writing of the expected date of commencement. Landlord shall have the right at
any time thereafter to post and maintain on the Premises such notices as
Landlord reasonably deems necessary to protect Landlord and the Property from
mechanics' liens, materialmen's liens or any other liens. Tenant shall pay, when
due, all claims for labor or materials furnished to or for Tenant for use in
improving the Premises. Tenant shall not permit any mechanics' or materialmen's
liens to be levied against the Property arising out of work performed, materials
furnished, or obligations to have been performed on the Premises by or at the
request of Tenant. Tenant hereby indemnifies and holds Landlord harmless against
loss, damage, attorneys' fees and all other expenses on account of claims of
lien of laborers or materialmen or others for work performed or materials or
supplies furnished for Tenant or its contractors, agents or employees.
5.3 Tenant may install trade fixtures, machinery or other trade
equipment in conformance with the ordinances of all applicable duly constituted
public authorities. Tenant may remove any of such trade fixtures or machinery
upon the termination of this Lease, provided that Tenant is not in default under
the terms of this Lease.
5.4 In the event that Tenant installs improvements, machinery or trade
fixtures, Tenant shall return the Premises on termination of this Lease to the
same condition as existed at the date of entry, reasonable wear and tear
excepted, including the removal of improvements approved by Landlord in Section
5.1, if Landlord's approval was conditioned upon Tenant's removal of said
improvements. Tenant shall, in any event, repair any damage resulting from the
removal of machinery or trade fixtures of Tenant.
ARTICLE 6
Utilities and Services
6.1 Tenant shall make all arrangements for and pay for all water,
sewer, gas, heat, light, power, telephone service and any other service or
utility provided to the Premises.
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6.2 In the event that any utilities are furnished by Landlord, Tenant
shall pay to Landlord its pro rata share of the cost thereof in the manner set
forth in Section 11.3. Tenant's pro rata share shall be based upon that
proportion of the utility costs which the gross floor area of the Premises bears
to the total number of leasable square feet serviced by such meter and any
extraordinary use which may be made by Tenant.
6.3 Landlord represents and warrants to Tenant that as of the
Commencement Date Landlord will have procured the installation to the Premises
of telephone, gas, electric, sewer and water service. Following performance of
Landlord's procurement duty described in the preceding sentence, Landlord shall
not be liable for any failure or interruption of any utility service being
furnished to the Premises, and no such failure or interruption shall entitle
Tenant to terminate this Lease.
ARTICLE 7
Indemnification
7.1 By Tenant
7.1.1 Tenant from and after the Commencement Date shall
indemnify, be liable for, and hold Landlord harmless from any loss by reason of
injury to person or property, from whatever cause, all or in part connected with
the condition or use of the Premises, including without limitation, any
liability for injury to the person or property of Tenant, its agents, officers,
employees, or invitees, but excepting any loss or injury resulting from the
negligent affirmative acts or intentional misconduct of Landlord or its agents.
Tenant shall, at Tenant's expense, resist and defend any such action, suit, or
proceeding or cause the same to be resisted or defended by counsel designated by
Tenant and approved by Landlord. Tenant's obligation hereunder shall survive the
termination of this Lease if the incident requiring such defense occurred during
the lease term.
7.1.2 Tenant, as a material part of the consideration rendered
to Landlord in entering into this Lease, hereby waives all claims against
Landlord for damages to goods, wares, machinery and trade fixtures in, upon and
about the Premises and for injury to Tenant, its agents, employees, invitees, or
any third person in or about the Premises from any cause at any time, excepting
therefrom damage or injury caused by the intentional misconduct of Landlord or
its agents and, to the extent not covered by insurance, negligent affirmative
acts of Landlord.
7.2 By Landlord. Landlord from and after the Commencement Date shall
indemnify, be liable for, and hold Tenant harmless from any loss by reason of
injury to person or property of Tenant, resulting from the intentional
misconduct or affirmative negligent acts of Landlord or its agents. The
preceding sentence shall only entitle Tenant to be indemnified against actual
loss and shall not, under any circumstances, entitle Tenant to compensation for
any claim based upon consequential or speculative damages, including without
limitation, lost profits.
ARTICLE 8
Insurance
8.1 Landlord shall maintain, at Tenant's expense, a policy or policies
of insurance protecting Landlord against the following:
8.1.1 Fire and other perils normally included within the
classification of fire and extended coverage, (including without limitation,
plate glass) together with insurance against vandalism and malicious mischief,
to the extent of the full insurable value of the Property, exclusive of trade
fixtures, equipment and improvements insured by Tenant, with agreed value, full
replacement and other endorsements which Landlord may elect to maintain and
which may be reasonably required by the first mortgagee or beneficiary of a deed
of trust encumbering real property of which the Premises constitute a part
("Mortgagee").
6
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8.1.2 Rent loss insurance to the extent of at least eighty
percent (80%) of the gross rentals from the Premises.
8.1.3 Public liability and property damage insurance with
respect to common areas in amounts (i) not less than five hundred thousand
dollars ($500,000) for injury or death to any one person in any one accident or
occurrence, (ii) not less than one million dollars ($1,000,000) for injury or
death to more than one person in any one accident or occurrence, and, (iii) not
less than two hundred thousand dollars ($200,000) per occurrence for damage to
property.
8.2 Tenant shall pay to Landlord in the manner set forth in Section
11.3, its pro rata share of the cost of insurance required in Section 8.1.
Tenant's pro rata share of such cost shall be that proportion of the annual
premiums for insurance which the gross floor area of the Premises bears to the
gross floor area covered by such insurance.
8.3 Tenant shall maintain in force a policy or policies of insurance
protecting Landlord and Tenant against each of the following:
8.3.1 Commercial general liability insurance with respect to
the Premises insuring against bodily injury or death and property damage in
amounts (i) not less than one million dollars ($1,000,000) in the aggregate and
(ii) not less than one million dollars ($1,000,000) per occurrence. Landlord
shall be included as additional insured. The amount of such public liability
insurance shall be increased from time to time as Landlord may reasonably
determine; provided that any such increase shall be predicated upon the
insurance requirements of the Master Lease and/or any Mortgagee pursuant to a
mortgage encumbering real property of which the Premises constitute a part
and/or in keeping with the customary insurance requirements of landlords
operating and/or leasing commercial/industrial buildings similar to the Building
in the geographic area in which the Building is located. All such bodily injury
and property damage insurance shall specifically insure the performance by
Tenant of the indemnity agreement as to personal injury or property damage
contained in Article 7.
8.3.2 Insurance covering alterations, additions or
improvements permitted under Article 5, trade fixtures and personal property
from time to time in or upon the Premises in an amount not less than eighty
percent (80%) of their full replacement cost from time to time during the term
of this Lease, providing protection against any peril included within the
classification "fire and extended coverage," for the repair or replacement of
the property damaged or destroyed unless this Lease shall terminate pursuant to
Article 18 hereof.
8.3.3 All policies of insurance to be provided by Tenant shall
be issued by insurance companies, with general policy holder's rating of not
less than A and a financial rating of not less than Class A- as rated in the
most current available "Best's" Insurance Reports, and qualified to do business
in the State of California. Such policies shall be issued in the names of
Landlord and Tenant and, if requested by Landlord, the Mortgagee. The policies
provided by Tenant shall be for the mutual and joint benefit and protection of
Landlord, Tenant and the Mortgagee, and executed copies of such policies of
insurance or certificates thereof shall be delivered to the Landlord within ten
(10) days after the Commencement Date and, thereafter, within thirty (30) days
prior to the expiration of the term of each such policy. Upon the expiration or
termination of any such policy, renewal or additional policies shall be procured
and maintained by the Tenant to provide the required coverage. All policies of
insurance delivered to Landlord must contain a provision that the company
writing said policy will provide to Landlord with twenty (20) days notice in
writing in advance of any cancellation or lapse or the effective date of any
reduction in the amounts of insurance. All public liability, property damage and
other casualty policies shall be written as primary policies, not contributing
with and not in excess of coverage which Landlord may carry.
8.3.4 Notwithstanding anything to the contrary, Tenant's
obligation to carry the insurance described in this Article may be brought
within the coverage of a so-called blanket policy or policies of insurance
carried and maintained by the Tenant, provided that (i) Landlord and the
Mortgagee shall be named as an additional insured thereunder as their interests
may appear, (ii) the
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coverage afforded Landlord will not be reduced or diminished by reason of the
use of such blanket policy of insurance, and (iii) the requirements set forth
herein are otherwise satisfied. Tenant agrees to permit Landlord at all
reasonable time to inspect the policies of insurance of Tenant covering the
Premises for policies which are not required to be delivered to Landlord.
8.4 Landlord and Tenant hereby mutually release each other from
liability and waive all right to recover against each other for any loss from
perils insured against under their respective fire insurance policies, including
any extended coverage and special form endorsements to said policies; provided,
however, this Section shall be inapplicable if it would have the effect, but
only to the extent that it would have the effect, or invalidating any insurance
coverage of Landlord or Tenant. The parties shall obtain, if available, from
their respective insurance companies, a waiver of any right of subrogation which
said insurance company may have against the Landlord or the Tenant, as the case
may be.
ARTICLE 9
Care of the Premises
9.1 Except with respect to those matters which are expressly the
responsibility and/or obligation of Landlord as set forth elsewhere herein,
Tenant shall (with the exception of losses covered by insurance required by the
terms of this Lease to be obtained by Landlord), at its expense keep the
Premises and exterior and interior portions of windows, doors, and all other
glass or plate glass fixtures in a neat, clean, sanitary and safe condition, and
shall keep the Premises free from trash, rubbish and dirt. Tenant shall make all
repairs or replacements thereon or thereto, whether ordinary or extraordinary.
If Tenant fails to keep the Premises neat, clean or in reasonable repair,
Landlord may, at Landlord's option, enter the Premises in order to clean or
replace same and Tenant shall immediately pay to Landlord the cost thereof,
together with interest at the rate of ten percent (10%) per annum from date cost
was incurred, or paid by Landlord, whichever is later.
9.2 Tenant shall, at its sole cost, keep and maintain all utilities,
fixtures and mechanical equipment used by Tenant in good order, condition and
repair. Said items shall include, but are not limited to, all plumbing or sewage
facilities in the Premises, doors, locks and closing devices, windows, including
glass, lights, electric systems and equipment, heating and air conditioning
systems and equipment and, all other appliances and equipment of every kind.
Landlord shall enter into a maintenance agreement for the maintenance of any
heating and/or air conditioning units servicing the Premises with a reputable
maintenance service company. Tenant shall pay to Landlord in the manner set
forth in Section 11.3, the cost of any such maintenance agreement.
9.3 Landlord shall keep in good condition and repair the roof,
including replacement thereof, and structural components of the Building
(foundations, structural support columns, exterior walls and roof structure),
but the cost thereof shall be borne and paid by Tenant in accordance with the
manner set forth in Section 11.3, excepting therefrom any and all costs
necessary for the maintenance of the structural integrity of the Premises the
cost of which shall be borne by Landlord. Landlord shall have no obligation to
make any such repairs until Landlord has received written notice from Tenant
with respect to the need for such repairs. Landlord shall not be deemed to be in
default with respect with its obligation to repair unless and until Landlord has
(i) received said written notice and (ii) failed to make such repairs within a
reasonable period following the receipt of said notice. Landlord shall, after
receiving written notice, exercise due diligence in making such repairs. Tenant
hereby waives any provisions of law permitting Tenant to make repairs at
Landlord's expense. Landlord shall enforce any construction warranties for the
benefit of Tenant to the extent that they are available but in no event less
than (i) one (1) year from the Commencement Date on material and workmanship of
the original construction of the Premises and (ii) (2) years from the
Commencement Date on the roof.
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ARTICLE 10
Taxes
10.1 Tenant shall pay prior to delinquency all taxes, assessments,
license fees, and other public charges levied, assessed or imposed or which
become payable during the term of this Lease upon any trade fixtures,
furnishings, equipment and all other personal property of Tenant installed or
located in the Premises. Whenever possible, Tenant shall cause said trade
fixtures, furnishings, equipment and personal property to be separately
assessed. If, however, any or all of said items shall be assessed and taxed with
the real property, Tenant shall pay to Landlord such taxes as are attributable
to Tenant's trade fixtures, furnishings, equipment and personal property within
fifteen (15) days after receipt of an invoice from Landlord advising Tenant of
the taxes applicable to Tenant's property.
10.2 Tenant shall also pay in the manner set forth in Section 11.3 any
and all real estate taxes, as defined in Section 10.3, assessed or imposed, or
which become a lien upon or become chargeable against or payable in connection
with the Property, including Tenant's equitable proportion of such charges which
are attributable to common areas. In the event that the Premises and common
areas are not separately assessed, Tenant shall pay an equitable proportion of
the real estate taxes and assessments for all the land and improvements included
within the tax parcel(s) assessed, such proportion shall be determined by
Landlord from the respective valuations assigned in the Assessor's worksheets
and such other information as is reasonably available to Landlord, including
Tenant's proportionate share of square feet in the Building and any special
improvements constructed for the benefit of Tenant. Real estate taxes for the
last year of the term of this Lease shall be prorated between Landlord and
Tenant as of the expiration date of the term. With respect to any assessments
which may be levied against or upon the Property, or which under the laws then
in force may be evidenced by improvement or other bonds and may be paid in
annual installments, only the amount of such annual installment, with
appropriate proration for any partial year, and interest thereon, shall be
included within a computation of taxes and assessments levied against the
Property.
10.3 For purposes of this Lease, "taxes" shall also include each of the
following:
10.3.1 Any form of assessment, license fee, license tax,
business license tax, commercial rental tax, levy, charge, penalty, or tax,
imposed by any authority having the direct power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
drainage or other improvement or special district thereof, as against any legal
or equitable interest of Landlord in the Premises or the real property of which
the Premises constitute a part;
10.3.2 Any assessment, tax, fee, levy or charge in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included with the definition of real property tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election and that
assessments, taxes, fees, levies and charges may be imposed by governmental
agencies for such services as fire protection, street, sidewalk and road
maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants. It is the intention of
Tenant and Landlord that all such new and increased assessments, taxes, fees,
levies and charges and all similar assessments, taxes, fees, levies and charges
be included within the definition of real property tax for purposes of this
Lease;
10.3.3 Any tax allocable to or measured by the area of the
Premises or the rental payable hereunder, including without limitation, any
gross income tax or excise tax levied by the State, any political subdivision
thereof, city, or federal government, with respect to the receipt of such
rental, or upon or with respect to the possession, leasing, operating,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof;
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10.3.4 Any tax upon this transaction or any document to which
Tenant is a party, creating or transferring an interest or an estate in the
Premises;
10.3.5 "Real estate taxes" shall not include Landlord's
federal or state income, franchise, inheritance or estate taxes.
ARTICLE 11
Common Areas
11.1 Common areas shall include all areas within the Property outside
the exterior boundaries of the buildings situated thereon, including, but not
limited to, streets, driveways, parking areas (with parking spaces as described
on the approved site plan set forth in Exhibit A), truckways, delivery passages,
loading doors, sidewalks, ramps, open and closed courts and malls, landscaped
and planted areas, exterior stairways, bus stops, retaining and decorative walls
and planters, and other areas provided by Landlord for the common use of
Landlord and Tenant, its employees and invitees.
11.2 Landlord shall maintain said common areas in a neat, clean and
orderly condition, properly lighted and landscaped as Landlord, in its sole
discretion, shall determine. Tenant shall pay to Landlord in the manner set
forth in Section 11.3 all expenses incurred by Landlord in connection with the
maintenance, upkeep and repair of common areas. It is understood and agreed that
the phrase "expenses in connection with the maintenance of common areas" or
other similar phrases shall include, but shall not be limited to, all sums
expended in connection with said common areas for all general maintenance,
repairs, pest control, resurfacing, painting, restriping, cleaning, and;
maintenance and repair of sidewalks, curbs and; sprinkler systems, planting,
water, and other utilities; directional signs and other markers and bumpers;
maintenance and repair of any fire protection systems, automatic sprinkler
systems, lighting systems, storm drainage systems and any other utility systems;
personnel to implement such service and to police the common areas; police and
fire protection services; depreciation and maintenance on operating machinery
and equipment (if owned) and rental paid for such machinery and equipment (if
rented); rental for electric and service rooms based upon the average rate in
the Building; any parking charges, surcharges or any other costs levied or
assessed by local, state or federal government agencies in connection with the
use of parking facilities; and, property management costs. Expenses in
connection with the maintenance of common areas shall not include (i) any
allowance for depreciation of common area improvements, (ii) the cost of capital
improvements (defined as capital improvements under generally accepted
accounting principles, consistently applied), (iii) costs incurred by Landlord
to repair damage to the Premises or the Property, to the extent that Landlord
receives insurance proceeds, (iv) marketing costs, including leasing
commissions, attorney's fees, space planning costs and other costs incurred in
connection with lease, sublease and/or assignment negotiations and transactions
with present or prospective tenants, (v) tax penalties incurred as a result of
Landlord's failure to make payments and/or file tax returns when due, and (vi)
costs arising from Landlord's charitable or political contributions. Landlord
may perform any or all of said services and/or cause any or all of said services
to be provided by an independent contractor or contractors. The monthly property
management costs, as set forth in this Section, shall be fixed at $2,000.00 for
such services during the initial term of this Lease as set forth in Section 2.1
hereof and thereafter, from time to time, during any extensions of the term at
rates which are then being charged by unaffiliated parties for property
management services in the geographic area in which the Premises are located
with respect to commercial/industrial buildings and/or projects of a similar
type and quality as the Premises. Other than with respect to the provision of
property management services which subject shall be governed by the preceding
sentence, upon the request of Tenant (which shall not occur more frequently than
once in each twelve month period of the term of this Lease), Landlord shall
obtain at least three bids from parties unaffiliated with Landlord with respect
to the provision of services and/or products to the Premises which are included
within common area maintenance expenses, and if Landlord desires to continue to
perform such services and/or furnish such products after receiving such bids,
Landlord shall perform such services and/or furnish such products at rates not
in excess of the lowest of such bids received by Landlord.
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11.3 Landlord has previously provided Tenant with a written estimate of
Tenant's share of the cost of common area utilities, insurance provided by
Landlord, roof repairs, taxes, and expenses in connection with maintenance of
common areas for the first twelve months of the term of this Lease, a copy of
which is attached hereto as Exhibit D. Subject to the provisions of Sections 9.3
and 11.2 hereof, Tenant shall pay such estimated amount to Landlord in equal
monthly installments, in advance. Within ninety (90) days after the end of each
calendar year, Landlord shall furnish to Tenant a statement showing in
reasonable detail the costs incurred by Landlord for the operation and
maintenance of the Property during such year, and Tenant shall pay to Landlord
Tenant's proportionate share of the cost incurred in excess of the payments made
by Tenant within ten (10) days of receipt of such statement. In the event that
the payments made by Tenant for the operation and maintenance of the Property
exceed Tenant's share of the cost of same, such amount shall be credited by
Landlord to the rent or other charges next due and owing, provided that, if the
Lease term has expired, Landlord shall accompany said statement with the amount
due Tenant. Within thirty (30) calendar days after Tenant receives Landlord's
annual statement described above, Tenant may elect to have such statement
audited by notifying Landlord in writing of such election. Any such audit shall
be paid for by Tenant, unless such audit reveals that Landlord erred by more
than five percent (5%) with respect to common area maintenance expenses which
Landlord collected from Tenant, in which case the audit shall be paid for by
Landlord (but only if any variance disclosed by such audit is favorable to
Tenant-i.e., that Landlord overcharged Tenant as opposed to undercharged
Tenant). Landlord shall have a reasonable opportunity to confirm the results of
any audit by Tenant which discloses a discrepancy with Landlord's own
accountants. Any discrepancies which such audit reveals (after confirmation
thereof by Landlord) shall be adjusted by the parties within ten (10) calendar
days thereafter by the payment of additional sums by Tenant if same are
determined to be owing and by a credit to the rent or other charges next due and
owing hereunder if Landlord is determined to have overcharged Tenant.
11.4 Tenant shall have for its use and benefit the non-exclusive right
in common with Landlord and future owners, other tenants, and their agents,
employees, customers, licensees and subtenants to use said common areas from
time to time existing during the entire term of this Lease, or any extension
thereof, for ingress and egress, roadway, automobile parking and sidewalks.
Tenant's use of common areas shall be subject to and in accordance with such
Rules and Regulations as may be adopted by Landlord in accordance with Section
4.5. The cost of repairs for any damage done to the common areas by Tenant, or
Tenant's agents or employees, will be paid for by Tenant in addition to the
common area charges.
11.5 Landlord may, but is not obligated to, construct certain
improvements off the Property for the benefit and non-exclusive common use of
owners and Tenants within the Gillespie Field Business Park (the "Amenity
Areas"). In such event, if Tenant desires to use said areas, Tenant shall pay
Landlord, in the manner set forth in Section 11.3, an agreed upon sum to be
determined. Accordingly, participation by Tenant shall be voluntary and Tenant
shall not be required to participate in the maintenance expenses and costs of
the Amenity Areas unless Tenant so elects.
11.6 Notwithstanding any other provision set forth in this Article 11
to the contrary, Landlord hereby agrees with Tenant that under no circumstances
will the common area maintenance expenses which Tenant is responsible for
hereunder exceed, in the aggregate, $162,168 during the first twelve months of
the term of this Lease.
In the event common area maintenance expenses are less than
$162,168, in the aggregate, during the first twelve months of the term of this
Lease, the common area maintenance expenses which Tenant is responsible for in
the second twelve months of the term of this Lease (and for each succeeding
twelve-month period during the term of this Lease) shall be limited to the
actual aggregate common area maintenance expenses passed through by Landlord to
Tenant which are attributable to the immediately preceding twelve months of the
term of this Lease, plus actual annual increases in common area maintenance
expenses attributable to the succeeding twelve months of the term of this Lease.
The preceding sentence is demonstrated by the following example: Assume actual
common area maintenance expenses of $150,000 in the first twelve months of the
term of this Lease. Tenant would pay $150,000 for common area maintenance
expenses during the first twelve
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months of this Lease. Assume actual increases in common area maintenance
expenses of $10,000 in the second twelve months of the term of this Lease
($160,000 actual common area maintenance expenses during the second twelve
months of the Lease less $150,000 actual common area maintenance expenses during
the first twelve months of the Lease equals an actual increase of $10,000).
Tenant would pay $160,000 for common area maintenance expenses during the second
twelve months of this Lease. Similarly, if actual common area maintenance
expenses increased by another $10,000 in the third twelve months of the term of
this Lease, Tenant would pay $170,000 for common area maintenance expenses
during the third twelve months of this Lease ($160,000 actual common area
maintenance expenses during the second twelve months of the term of this Lease,
plus $10,000 increase from the second twelve months of the term of this Lease to
the third twelve months of the term of this Lease). The common area maintenance
expenses for each succeeding twelve month period would be calculated in the same
manner.
In the event common area maintenance expenses are more than $162,168,
in the aggregate, during the first twelve months of the term of this Lease, the
common area maintenance expenses which Tenant is responsible for in the first
twelve months of the term of this Lease shall be limited to $162,168. The common
area maintenance expenses which Tenant is responsible for in the second twelve
months of the term of this Lease (and for each succeeding twelve-month period
during the term of this Lease) shall be limited to the actual aggregate common
area maintenance expenses passed through by Landlord to Tenant which are
attributable to the immediately preceding twelve months of the term of this
Lease, plus actual annual increases in common area maintenance expenses
attributable to the succeeding twelve months of the term of this Lease. The
preceding sentence is demonstrated by the following example: Assume actual
common area maintenance expenses of $180,000 in the first twelve months of the
term of this Lease. Tenant would pay $162,168 for common area maintenance
expenses during the first twelve months of this Lease. Assume actual increases
in common area maintenance expenses of $10,000 in the second twelve months of
the term of this Lease ($190,000 actual common area maintenance expenses during
the second twelve months of the Lease less $180,000 actual common area
maintenance expenses during the first twelve months of the Lease equals an
actual increase of $10,000). Tenant would pay $172,168 for common area
maintenance expenses during the second twelve months of this Lease. Similarly,
if actual common area maintenance expenses increased by another $10,000 in the
third twelve months of the term of this Lease, Tenant would pay $182,168 for
common area maintenance expenses during the third twelve months of this Lease
($172,168 actual common area maintenance expenses during the second twelve
months of the term of this Lease, plus $10,000 increase from the second twelve
months of the term of this Lease to the third twelve months of the term of this
Lease). The common area maintenance expenses for each succeeding twelve month
period would be calculated in the same manner.
ARTICLE 12
Signs and Advertising
12.1 Tenant shall not conduct or permit any sale by auction on the
Premises.
12.2 Tenant may affix and maintain upon the exterior of the building
only such signs, advertising placards, names, insignias, trademarks and other
descriptive material as shall have first received the written approval of
Landlord as to size, type, color, location, copy, nature and display qualities
(which approval shall not be unreasonably withheld) and complied with any and
all terms, provisions and/or other requirements of the Master Lease). Tenant
shall at all times maintain its signs in a neat and orderly condition. If
Tenant, after five (5) days written notice, shall fail to properly maintain or
repair any exterior sign, Landlord may do so and the cost thereof shall be
payable by Tenant to Landlord upon demand as additional rent.
12.3 Tenant shall not display, store or sell any merchandise outside
the defined exterior walls and permanent doorways of the Premises, without
Landlord's prior written consent. Tenant shall not, without Landlord's consent,
install any exterior lighting, amplifiers or similar devices or
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use in, upon or about the Premises any advertising media which may be heard or
seen outside the Premises, such as flashing lights, search lights, loudspeakers,
phonographs or radio broadcasts.
12.4 Tenant shall not, without Landlord's written consent, solicit
business in the common areas, nor distribute any handbills or other advertising
matter in the common areas.
12.5 Any sign that Tenant places, constructs, or maintains shall comply
with all laws, and Tenant shall obtain any approval required by such laws,
including without limitation, the sign ordinances and/or other signage
requirements of the City of El Cajon, California. Landlord makes no
representation with respect to Tenant's ability to obtain such approval.
ARTICLE 13
Entry by Landlord
13.1 Tenant shall permit Landlord and Landlord's agent to enter the
Premises at all reasonable times, upon giving Tenant a 24 hour notice, except in
the event of an emergency in which case the 24 hour notice is not required; (i)
for the purpose of inspecting the same, (ii) for the purpose of maintenance,
repairs, alterations, or additions to any portion of the Building, including the
erection and maintenance of such scaffolding, canopies, fences, and props as may
be required, or (iii) for the purpose of posting notices of non-responsibility
for alterations, additions, or repairs.
13.2 Landlord may, during reasonable business hours within one
hundred-eighty (180) days prior to the expiration of this Lease, enter the
Premises for the purpose of allowing prospective tenants to view the Premises.
13.3 Landlord shall be permitted to enter the Premises for any of the
purposes stated herein upon reasonable notice and in a manner designed to avoid,
to the extent possible, interference with Tenant's business operation, without
any liability to Tenant for any loss of occupation of quiet enjoyment of the
Premises resulting therefrom.
ARTICLE 14
Assignment and Subletting
14.1 Except as expressly set forth below in this Article 14, Tenant
shall not either voluntarily or by operation of law, assign, sell, encumber,
pledge or otherwise transfer all or any part of Tenant's leasehold estate
hereunder, or permit the Premises to be occupied by anyone other than Tenant or
Tenant's employees, or sublet the Premises or any portion thereof, without
Landlord's prior written consent in each instance, which consent shall not be
unreasonably withheld. Landlord's consent shall be based upon a determination
that the same quality of business, service, management, and financial soundness
of ownership shall exist after such assignment or subletting and, provided
further, that each and every covenant, condition or obligation imposed upon
Tenant by this Lease and each and every right, remedy or benefit afforded
Landlord by this Lease is not thereby impaired or diminished. Consent by
Landlord to one or more assignments of this Lease or to one or more sublettings
of the Premises shall not operate to exhaust Landlord's rights under this
Article. If Tenant is a corporation, partnership (general or limited), limited
liability company, business trust, incorporated or unincorporated association or
any other type of business entity which does not have at least one class of
securities which is subject to the registration, disclosure and reporting
requirements of the Securities Exchange Act of 1934, the transfer, assignment,
conveyance, hypothecation or grant of any security interest, lien, pledge or
other encumbrance upon or with respect to, or the obtaining of any ownership or
management interest in any such entity by any party which is not presently (on
the date this Lease is executed) an owner or party having management control
thereof, in each and all of the foregoing cases, with respect to at least 50
percent, in the aggregate, of the ownership and/or equity interests in such
entity (or with respect to an interest of any quantity or quality which permits
management control of such entity), or the liquidation of such entity, same
shall constitute an assignment for purposes of this Article 14 and shall require
the prior
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consent and approval of Landlord. Notwithstanding the preceding sentence, an
assignment, sale, encumbrance, pledge or other transfer of the interests
described in the preceding sentence, or the leasehold estate created by this
Lease, to a party which controls, is controlled by, or is under common control
with, Tenant, shall constitute an assignment for purposes of this Article 14 but
shall not require the prior consent or approval of Landlord; provided that such
party is of equal or greater creditworthiness to that of Tenant. Further, Tenant
may sublease up to 30,000 square feet of the Premises without the approval or
consent of Landlord being required.
14.2 If Tenant desires at any time to assign this Lease or to sublet
the Premises or any portion thereof, it shall first notify Landlord of its
desire to do so and shall submit in writing to Landlord (i) the name of the
proposed Subtenant or assignee; (ii) the nature of the proposed Subtenant's or
assignee's business to be carried on in the Premises; (iii) the terms and
provisions of the proposed sublease or assignment; and (iv) such reasonable
financial information as Landlord may request concerning the proposed Subtenant
or assignee. Tenant agrees to reimburse Landlord for Landlord's reasonable costs
and attorneys' fees incurred in conjunction with the processing and
documentation of any such requested assignment, subletting, transfer, change or
ownership or hypothecation of this Lease, not to exceed $500. Tenant shall
comply with the requirements of this Section 14.2 irrespective of whether or not
Landlord's consent or approval is required under this Article 14.
14.3 No subletting, even with the consent of Landlord, shall relieve
Tenant of its obligation to pay the rent and perform all the other obligations
to be performed by Tenant hereunder. The acceptance of rent by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision of
this Lease or to be a consent to any assignment or subletting.
ARTICLE 15
Abandonment
15.1 ***This Section intentionally left blank***
ARTICLE 16
Breach by Tenant
16.1 The occurrence of any of the following shall constitute a breach
and material default of this Lease by Tenant:
16.1.1 The failure of Tenant to pay or cause to be paid when
due any rent, monies, or charges required by this Lease to be paid by Tenant
when such failure continues for a period of ten (10) days after written notice
thereof from Landlord to Tenant and Guarantor;
16.1.2 The failure of Tenant to do or cause to be done any
act, other than payment of rent, monies or charges, required by this Lease to be
done by Tenant when such failure continues for a period of thirty (30) days
after written notice thereof from Landlord to Tenant and Guarantor for acts
which are able to be performed within thirty (30) days. For acts requiring more
than thirty (30) days to perform, Tenant must commence such act within thirty
(30) days and pursue the same diligently to completion, but in no event longer
than ninety (90) days after written notice from Landlord to Tenant and
Guarantor.
16.1.3 Tenant causing, permitting, or suffering, without the
prior written consent of Landlord, any act when this Lease requires Landlord's
prior written consent or prohibits such act, when same continues without cure
for a period of thirty (30) days after written notice thereof from Landlord to
Tenant and Guarantor; or
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16.1.4 To the extent permitted by applicable law, any act of
bankruptcy caused, suffered or permitted by Tenant. For purposes of this Lease,
"act of bankruptcy" shall include any of the following:
16.1.4.1 Any general assignment or general
arrangement for the benefit of creditors;
16.1.4.2 The filing of any petition by or against
Tenant to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy, unless such petition is
dismissed within ninety (90) days;
16.1.4.3 The appointment of a Trustee or receiver to
take possession of substantially all of Tenant's assets located in the Premises
or of Tenant's interest in this Lease; or,
16.1.4.4 The attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease.
16.2 In the event that Landlord issues a three-day notice, notice of
abandonment or comparable document by reason of Tenant's breach, and Tenant
cures such default, Tenant agrees to pay to Landlord, the reasonable cost of
preparation and delivery of same.
16.3 The acceptance by Landlord of rent due hereunder after breach by
Tenant will not constitute a waiver of such breach, unless a writing to that
effect has been delivered to Tenant.
ARTICLE 17
Remedies Upon Breach
17.1 In the event of any breach by Tenant, in addition to other rights
or remedies of Landlord at law or in equity, Landlord shall have the following
remedies:
17.1.1 Landlord may recover from Tenant the rent as it becomes
due and any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom. Landlord may sue monthly, annually or after such equal or unequal
periods as Landlord desires for amounts due under this Section 17.1.1. The right
to collect rent as it becomes due shall terminate upon the termination by
Landlord of Tenant's right to possession. Tenant's right to possession shall not
be terminated unless and until Landlord delivers to Tenant written notice
thereof;
17.1.2 Landlord, either as an alternative or subsequent to
exercising the remedies set forth in Section 17.1.1, may terminate Tenant's
right to possession of the Premises by and upon delivery to Tenant of written
notice of termination. Landlord may then immediately reenter the Premises and
take possession thereof pursuant to legal proceedings and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant. No notice
of termination shall be necessary in the event that Tenant has abandoned the
Premises. In the event that Landlord elects to terminate Tenant's right of
possession, Landlord may recover the following:
17.1.2.1 The worth at the time of the award of the
unpaid rent which had been earned at the time of termination. "Worth at the time
of award" shall be computed by allowing interest at ten percent (10%) per annum
from the first day the breach occurs;
17.1.2.2 The worth at the time of award of the amount
by which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Tenant proves
could have been reasonably avoided. "Worth at
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the time of award" shall be determined by allowing interest at the rate of ten
percent (10%) per annum from the first day a breach occurs;
17.1.2.3 The worth at the time of award of the amount
by which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Tenant proves could be
reasonably avoided. "Worth at the time of award" shall be computed by
discounting such amount at the discount rate at the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%);
17.1.2.4 Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under the Lease or which in the ordinary course of things would
be likely to result therefrom including, but not limited to, expenses of
reletting, attorneys' fees, costs of alterations and repairs, recording fees,
filing fees and any other expenses customarily resulting from obtaining
possession of leased premises and releasing.
ARTICLE 18
Damage or Destruction
18.1 In the event that the Premises or the building in which the
Premises are located is partially or completely damaged or destroyed or declared
unsafe or unfit for occupancy by any authorized public authority for any reason
other than Tenant's act, use or occupation, which declaration requires repairs
to either the Premises or the building in which the Premises are located, the
rights and obligations of Tenant and Landlord shall be as follows:
18.1.1 If the damage is covered under insurance carried by
Landlord or Tenant, Landlord shall proceed with diligence to repair such damage
as soon as is reasonably possible but in any event within six (6) months of the
date of the casualty event and this Lease shall continue in full force and
effect;
18.1.2 In the event that such damage is not covered by
insurance carried by Landlord or Tenant, Landlord shall repair such damage,
provided that, such damage or destruction does not exceed twenty percent (20%)
of the then replacement value of the Improvements, exclusive of trade fixtures,
equipment or machinery;
18.1.3 Notwithstanding anything contained hereinabove, (i) if
the Premises are damaged or destroyed to any extent during the last year of the
initial term of this Lease as set forth in Section 2.1 hereof (unless Tenant has
exercised Tenant's option to extend the term hereof), or during the last year of
any extension option in which Tenant has no further option(s) to extend the term
of this Lease any further, (ii) if the uninsured portion of such damage exceeds
twenty percent (20%) of the then replacement value of the Improvements, or (iii)
if over twenty percent (20%) of the building in which the Premises are located
shall be damaged or destroyed at any time, Landlord may, at Landlord's option,
cancel and terminate this Lease by delivery of written notice to Tenant to so
terminate. Said written notice shall be made within thirty (30) days after the
date of occurrence of such damage or destruction and shall be effective as of
the date of such notice. If notice is not given within thirty (30) days,
Landlord shall be deemed to have elected to restore the damage or destruction
and shall repair such damage as soon as reasonably possible.
18.2 If Landlord elects or is required to make repairs, Tenant shall be
entitled to a reduction in rent during the time in which the repairs are being
made to the extent to which Tenant's use of the Premises is impaired.
18.3 Landlord's obligation to restore shall not include the restoration
or replacement of Tenant's trade fixtures, equipment, machinery or any
improvements or alterations made by Tenant to the Premises. Tenant shall restore
and replace the same in the event that Landlord is obligated or elects to repair
any damage or destruction of the Premises.
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18.4 Tenant waives the provisions of Civil Code Section 1932(2) and
Civil Code Section 1933(4) with respect to the destruction of the Premises.
ARTICLE 19
Condemnation
19.1 If the Premises or any portion thereof are taken under the power
of eminent domain, or sold by Landlord under the threat of the exercise of such
power, this Lease shall terminate as to the part so taken as of the date that
the condemning authority takes possession of the Premises. If more than
twenty-five percent (25%) of the Premises is taken or sold under such threat,
either Landlord or Tenant may terminate this Lease as of the date that the
condemning authority takes possession by delivery of written notice of such
election within twenty (20) days after such party has been notified of the
taking or, in the absence thereof, within twenty (20) days after the condemning
authority shall have taken possession.
19.2 If this Lease is not terminated by Landlord or Tenant, it shall
remain in full force and effect as to the portion of the Premises remaining,
provided that, the rent shall be reduced by that proportion which the floor area
of the Premises taken bears to the gross floor area of the Premises immediately
prior to any taking. In such event, Landlord shall, at Landlord's expense,
restore the Premises to a complete unit of like quality and character except as
to size, as existed prior to the date on which the condemning authority took
possession. All awards for the taking of any part of the Premises or proceeds
from the sale made under the threat of the exercise of the power of eminent
domain shall be the property of Landlord, whether made as compensation for
diminution of value of the leasehold estate, for the taking of the fee, or as
severance damage; provided that, Tenant shall be entitled to any award for loss
of or damage to Tenant's trade fixtures and removable personal property,
expenses of relocation and/or such other loss as the trier of fact may award,
excluding any and all value attributable to Tenant's interest under and by
reason of the Lease.
19.3 Each party waives the provisions of Code of Civil Procedure
Section 1265.130 allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial taking of the Premises.
ARTICLE 20
Surrender of Lease
20.1 The voluntary or other surrender of its interest in this Lease by
Tenant or a mutual cancellation of this Lease shall not work a merger, and
shall, at the election of Landlord, either terminate all or any existing
subleases or subtenancies or operate as an assignment to Landlord of any or all
of such subleases or subtenancies. Landlord shall exercise its election within
thirty (30) days of any such surrender or cancellation.
ARTICLE 21
Attorneys' Fees
21.1 If either party institutes or is made a party to any action or
proceeding to enforce or interpret this Lease, the prevailing party in such
action or proceeding shall be entitled to recover all costs and reasonable
attorneys' fees incurred in connection with such action or proceeding, or any
appeal or enforcement of such action or proceeding.
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ARTICLE 22
Sale of the Premises by Landlord
22.1 Notwithstanding any provisions of this Lease to the contrary,
Landlord may assign, in whole or in part, Landlord's interest in this Lease and
may sell all or part of the real estate of which the Premises are a part. In the
event of any sale or exchange of the Premises by Landlord and assignment by
Landlord of this Lease, Landlord shall be and is hereby entirely freed and
relieved of all liability under any and all covenants and obligations contained
in or derived from this Lease or arising out of any act, occurrence or omission
relating to the Premises which occurs after the consummation of such sale,
exchange, or assignment.
ARTICLE 23
Quiet Enjoyment
23.1 If Tenant is not in breach under the covenants made in this Lease,
Landlord covenants that Tenant shall have peaceful and quiet enjoyment of the
Premises without hindrance on the part of Landlord. Landlord will defend Tenant
in the peaceful and quiet enjoyment of the Premises against claims of all
persons claiming through or under any party other than Tenant.
ARTICLE 24
Estoppel Certificates - Financial Statements
24.1 Tenant shall at any time during the term of this Lease, within
fifteen (15) days of written notice from Landlord, execute and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect or, if modified, stating the nature of such modification.
Tenant's statement shall include other details requested by Landlord, such as
the date to which rent and other charges are paid, Tenant's knowledge concerning
any uncured defaults with respect to Landlord's obligations under this Lease,
and the nature of such defaults if they are claimed. Any such statement may be
relied upon conclusively by any purchaser or lender having an interest in the
Premises. Tenant's failure to deliver such statements within such time shall be
conclusive upon the Tenant that this Lease is in full force and effect, except
as and to the extent any modification has been represented by Landlord, and that
there are no uncured defaults in Landlord's performance, and that not more than
one month's rent has been paid in advance.
24.2 Within ten (10) days after written request from Landlord, Tenant
shall deliver to Landlord such financial statements as Landlord reasonably
requires to verify the financial condition of Tenant or any guarantor of Tenant.
In addition, Tenant shall deliver to any lender designated by Landlord, any
financial statements required by such lender to facilitate the financing or
refinancing of the Property. Tenant represents and warrants to Landlord that
each such financial statement is a true and accurate statement as of the date of
such statement. All financial statements shall be confidential and shall be used
only for the purposes set forth in this Lease. Tenant shall not be obligated to
provide such financial statements more frequently than once a year.
ARTICLE 25
Subordination and Attornment
25.1 This Lease and Tenant's rights under this Lease are subject and
subordinate to any Mortgage, ground lease, including, without limitation, the
Master Lease, and to all renewals, modifications, consolidations, replacements,
or extensions thereof, now or hereafter affecting the Premises. The provisions
of this Section shall be self-operative, and no further instrument of
subordination shall be required. In confirmation of such subordination, however,
Tenant shall promptly execute and deliver any instruments that Landlord, the
holder of any Mortgage, or the landlord of any ground lease including, without
limitation, the Master Lease, may reasonably request
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to evidence such subordination. If Tenant fails to execute and deliver any such
instruments, Tenant irrevocably constitutes and appoints Landlord as Tenant's
special attorney-in-fact to execute and deliver such instruments.
25.2 If the holder of any Mortgage, or the landlord of any ground lease
affecting the Premises including, without limitation, the Master Lease, shall
hereafter succeed to the rights of Landlord under this Lease, Tenant shall
attorn to and recognize such successor as Tenant's Landlord under this Lease,
and shall promptly execute and deliver any instruments that may be necessary to
evidence such attornment, and Tenant hereby irrevocably appoints Landlord as
Tenant's special attorney-in-fact to execute and deliver such instruments on
behalf of Tenant should Tenant refuse or fail to do so. Upon such attornment,
this Lease shall continue in effect as a direct lease between such successor
Landlord and Tenant upon and subject to all of the provisions of this Lease. The
obligations and agreements of Tenant under and by reason of this Section 25.2 to
attorn to any such successor shall be conditioned upon Tenant's right to
continue to occupy the Premises during the term of this Lease, including any
extensions thereof, without disturbance thereof by any such successor, provided,
and for only so long as, Tenant is not in default under and by reason of this
Lease, which right of continued occupancy without disturbance thereof shall be
confirmed in writing to Tenant by any such successor.
ARTICLE 26
Holding Over
26.1 If Tenant should remain in possession of the Premises after the
expiration of the term of this Lease without executing a new lease or after
Landlord has declared a forfeiture by reason of a default by Tenant, such
holding over shall be construed as a tenancy from month-to-month, subject to all
the conditions, provisions and obligations of this Lease insofar as they are
applicable to a month-to-month tenancy.
ARTICLE 27
Liability of Successors
27.1 The covenants and conditions herein contained shall, subject to
the provisions as to assignment and subletting, apply to and bind the heirs,
successors, executors, administrators, and permitted assigns of all the parties
hereto and all of the parties hereto shall be jointly and severally liable for
the covenants contained herein.
ARTICLE 28
Easements
28.1 Landlord reserves the right, from time to time, to grant such
easements, rights and dedications that Landlord deems necessary or desirable,
and to cause the recordation of parcel maps and restrictions, so long as such
easements, rights, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Tenant. Tenant shall sign any
documents or instruments to accomplish the foregoing upon request of Landlord,
and failure to do so shall constitute a material breach of this Lease. Tenant
irrevocably appoints Landlord as Tenant's special attorney-in-fact to execute
and deliver such documents or instructions on behalf of Tenant should Tenant
refuse or fail to do so.
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ARTICLE 29
Master Lease
29.1 This Lease is a sublease under and shall be subject and
subordinate to that certain Industrial Ground Lease Agreement (Airports) with
respect to the Property to be executed by and between The County of San Diego, a
political subdivision of the State of California, as ground lessor, and
Landlord, as ground lessee, affecting the Property (the "Master Lease"). The
Master Lease will be evidenced of record by a Memorandum of Lease, to be
recorded in the Official Records of San Diego County, California, at such time
as the Master Lease is executed. Landlord acknowledges that nothing in the
Master Lease shall restrict Tenant's intended use of the Premises as set forth
in Article 4 above. Tenant understands, acknowledges and agrees that currently
Landlord possesses an option to enter into a ground lease with respect to the
Property under and by reason of that certain Development Agreement and Option to
Lease, dated as of May 20, 1997 (the "Development Agreement") by, between and
among The County of San Diego and predecessors in interest to Landlord, such
option (with respect to the Property) having been assigned, transferred and
conveyed to Landlord. Landlord represents and warrants to Tenant that Landlord
possesses an exclusive option to enter into a ground lease with respect to the
Property (to the exclusion of all other parties) and that Landlord will exercise
its option to enter into a ground lease with respect to the Property on or
before the date set forth in the Development Agreement for the expiration
thereof. Further, Landlord represents and warrants to Tenant that the Building
will be constructed in compliance with all material requirements of the Master
Lease.
29.2 For purposes of Sections 29.3 through 29.5 only, the following
definitions shall apply:
a) "Airport" shall mean Gillespie Field Airport located in El
Cajon, California;
b) "Sublease" shall mean this Lease;
c) "Subleased Premises" shall mean the Premises;
d) "Subtenant" shall mean Tenant;
e) "Sublandlord" shall mean Landlord;
f) "County" shall mean the County of San Diego; and
g) all other undefined capitalized terms shall have the meanings
assigned to them in the Master Lease.
29.3 Indemnification. Subtenant shall indemnify and save harmless
County, its officers, agents, and employees from and against any and all claims,
demands, liabilities, or losses of any kind or nature which County, its
officers, agents, or employees may sustain or incur, or which may be imposed
upon them or any of them for injury to, or death of, persons or damage to
property, as a result of, arising out of, or in any manner connected with this
Sublease or with occupancy and use of the Subleased Premises by Subtenant, its
officers, agents, employees, licensees, patrons or visitors except as
attributable to an act or omission of County. Subtenant further agrees to pay
any and all costs and expenses, including, but not limited to, court costs and
reasonable attorneys' fees, incurred by County on account of any such claims,
demands, or liabilities.
29.4 Provisions Constituting Sublease. The Sublease is subject to all
of the terms and conditions of the Master Lease including any and all exhibits
thereto and the Gillespie Field - Cuyamaca West Industrial Park Development
Standards and Performance Standards. Subtenant shall assume and perform the
obligations of Sublandlord and Tenant in said Master Lease, to the extent said
terms and conditions are applicable to the Subleased Premises. Subtenant shall
not commit or permit to be committed on the Subleased Premises any act or
omission which shall violate any term or condition of the Master Lease. In the
event of the termination of Sublandlord's interest as tenant under the Master
Lease for any reason, then this Sublease shall terminate coincidentally
therewith without any liability of Sublandlord and County to Subtenant.
Notwithstanding the foregoing, Section 21.2.3 of the Master Lease includes
provisions for a nondisturbance agreement from County if Sublandlord defaults
under the Master Lease. Such nondisturbance agreement
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requires County to recognize Subtenant if Sublandlord defaults under the Master
Lease, provided Subtenant is not in default under the Sublease and Subtenant has
agreed to attorn to County as provided in this Section 29.4.
29.5 Federal Aviation Administration Requirements
29.5.1 In the event there is any conflict between the
provisions in this Clause and the other provisions in this Sublease, the
provisions in this Clause shall take precedence.
29.5.2 Airport Development. County reserves the right to
further develop or improve the landing area of the Airport as it sees fit,
regardless of the desires or view of Subtenant, and without interference or
hindrance to Subtenant or its subtenants.
29.5.3 Airport Maintenance and Repair. County reserves the
right, but shall not be obligated to Subtenant, to maintain and keep in repair
the landing area of the Airport and all publicly-owned facilities of the
Airport, together with the right to reasonably direct and control all activities
of Subtenant in this regard.
29.5.4 Airport Operations. Subtenant agrees to comply with the
provisions and requirements of any existing or future agreement between County
and United States, relative to the development, operation or maintenance of the
Airport.
29.5.5 Right of Flight. There is hereby reserved to County,
its successors and assigns, for the use and benefit of the public, a right of
flight for the passage of aircraft in the airspace above the surface of the
Subleased Premises, together with the right to cause in said airspace such noise
as may be inherent in the operation of aircraft, now known or hereafter used for
navigation of or flight in the air, using said airspace or landing at, taking
off from or operating on the Airport.
29.5.6 Height Limitations. Subtenant by accepting this
Sublease, expressly agrees for itself, its successors and assigns that it will
not erect nor permit the growth, construction or maintenance of any tree or
structure to a height greater than 35 feet above the existing grade of the
Subleased Premises (unless permitted by a specific plan approved by the City of
El Cajon, in which case said height limit maybe increased to a height not to
exceed 40 feet above the existing grade of the Subleased Premises). In the event
the aforesaid covenant is breached, County reserves the right to enter upon the
Subleased Premises and to remove the offending structure or object and to cut
the offending tree, all of which shall be at the expense of Subtenant. Subtenant
shall reimburse County for all costs and expenses incurred, together with 10
percent interest. Sublandlord represents and warrants to Subtenant that the
Subleased Premises will be constructed in accordance with the height limitations
set forth in the Master Lease.
29.5.7 Interference with Aircraft. Subtenant, by accepting
this Sublease agrees for itself, its successors and assigns that it will not
make use of the Subleased Premises in any manner which might interfere with the
landing and taking off of aircraft from the Airport or otherwise constitute an
airport hazard. In the event the aforesaid covenant is breached, County reserves
the right to enter upon the Subleased Premises and cause the abatement of such
interference at the expense of Subtenant.
29.5.8 U.S. Supremacy. This Sublease and all the provisions
hereof shall be subject to whatever right the United States Government now has
or in the future may have or acquire affecting the control, operation,
regulation and taking over of said Airport or the exclusive or non-exclusive use
of the Airport by the United States during the time of war or national
emergency.
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ARTICLE 30
Quitclaim Deed
30.1 Tenant shall execute and deliver to Landlord on the expiration
date or earlier termination of this Lease, promptly on Landlord's request, a
quitclaim deed to the Premises, in recordable form, designating Landlord as
transferee.
ARTICLE 31
Hazardous Materials
31.1 Definitions
(a) Hazardous Materials Laws. "Hazardous Materials Laws" means
any and all federal, state or local laws, ordinances, rules, decrees, orders,
regulations or court decisions relating to hazardous substances, hazardous
materials, hazardous waste, toxic substances, environmental conditions on, under
or about the Premises, or soil and ground water conditions, including, but not
limited to, California Labor Code section 6382, California Health and Safety
Code section 25249.5, et seq., any amendments to and any regulations promulgated
pursuant to the foregoing, and any similar federal, state or local laws,
ordinances, rules, decrees, orders or regulations.
(b) Hazardous Materials. "Hazardous Materials" means any
chemical, compound, substance or other material, including, without limitation,
gasoline, diesel, aviation fuels, lubricating oils, solvents and chemicals,
that: (i) is defined as a hazardous substance, hazardous material, hazardous
waste or toxic substance under any Hazardous Material Law; (ii) is controlled or
governed by any Hazardous Materials Law, or gives rise to any reporting, notice
or publication requirements thereunder, or gives rise to any liability,
responsibility or duty on the part of Tenant or County with respect to any third
person thereunder; or (iii) is a flammable or explosive material, asbestos,
radioactive material, nuclear medicine material, drug, vaccine, bacterial,
virus, hazardous waste, toxic substance, or related injurious or potentially
injurious material (by itself or in combination with other materials).
31.2 Tenant's Obligations
31.2.1 Compliance with Laws. Tenant shall strictly comply
with, and shall maintain the Premises in compliance with, all Hazardous
Materials Laws. Landlord represents and warrants to Tenant that as of the date
hereof, to the best of Landlord's knowledge without investigation, the Premises
and the Property are not in violation of any Hazardous Materials Laws. Tenant
shall obtain and maintain in full force and effect all permits, licenses and
other governmental approvals required for Tenant's operations on the Premises
under any Hazardous Materials Laws and shall comply with all terms and
conditions thereof. At Landlord's request, Tenant shall deliver copies of, or
allow Landlord to inspect, all such permits, licenses and approvals. Tenant
shall perform any monitoring, investigation, clean-up, removal, detoxification,
preparation of closure or other required plans and any other remedial work
(collectively, "Remedial Work") required as a result of any release or discharge
of Hazardous Materials affecting the Premises or any violation of Hazardous
Materials Laws caused by Tenant or any subtenant of Tenant or their respective
agents, contractors, employees, licensees or invitees (but not by Landlord, its
agents, contractors, employees, licensees or invitees). Landlord shall have the
right to intervene in any governmental action or proceeding involving any
Remedial Work, and to approve performance of the work, in order to protect
Landlord interests. Tenant shall be solely responsible for paying all fines,
damages and penalties imposed by any governmental agency resulting from Tenant's
violation of any Hazardous Materials Laws.
31.2.2 Compliance with Insurance Requirements. Tenant shall
comply with the requirements of Tenant's insurers regarding Hazardous Materials
and with such insurers' recommendations based upon prudent industry practices
regarding management of Hazardous Materials.
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31.2.3 Notice; Reporting. Tenant shall notify Landlord in
writing immediately after any of the following: (a) Tenant has knowledge, or has
reasonable cause to believe, that any Hazardous Material has been released or
discharged under or about the Premises, whether or not the Hazardous Material is
in quantities that would otherwise be reportable to a public agency; (b) Tenant
receives any order of a governmental agency requiring any Remedial Work pursuant
to any Hazardous Materials Laws; (c) Tenant receives any warning, notice of
inspection, notice of violation or alleged violation, or Tenant receives notice
or knowledge of any proceeding, investigation of enforcement action, pursuant to
any Hazardous Materials Laws; or (d) Tenant receives notice or knowledge of any
claims made or threatened by any third party against Tenant or the Premises
relating to any loss or injury resulting from Hazardous Materials. Tenant shall
deliver to Landlord copies of all test results, reports and business management
plans required to be filed with any government agency pursuant to any Hazardous
Materials Laws.
31.2.4 Entry and Inspection; Cure. Landlord and its agents,
employees and contractors, shall have the right to enter the Premises at all
reasonable times to inspect the Premises and Tenant's compliance with the terms
and conditions of this Article 31, or to conduct investigations and tests. No
prior notice to Tenant shall be required in the event of any emergency, or if
Landlord has reasonable cause to believe that violations by Tenant of this
Article 31 have occurred, or if Tenant consents at the time of entry. In all
other cases, Landlord shall give at least 24 hours' prior notice to Tenant.
Landlord shall have the right, but not the obligation, to remedy any violation
by Tenant of the provisions of this Article 31, or to perform any Remedial Work
necessitated as a result of any discharge by Tenant of Hazardous Materials on
the Premises. Tenant shall pay, upon demand, all costs incurred by Landlord in
remedying such violations or performing all Remedial Work necessitated by the
acts or omissions of Tenant and/or its agents or employees, plus interest
thereon at the rate of 10 percent per annum from the date of demand until the
date paid by the Tenant.
31.2.5 Termination/Expiration. Upon termination or expiration
of this Lease, Tenant shall, at Tenant's cost, remove any equipment,
improvements or storage facilities utilized in connection with any Hazardous
Materials and shall clean up, detoxify, repair and otherwise restore the
Premises to a condition free of Hazardous Materials, to the extent such
condition is caused by Tenant or any Subtenant of Tenant or their respective
agents, contractors, employees, licensees or invitees.
31.2.6 Indemnification. Tenant shall indemnify, protect,
defend and hold Landlord (and its employees and agents) harmless from and
against any and all claims, costs, expenses, suits, judgments, actions,
investigations, proceedings and liabilities arising out of or in connection with
any breach of any provision of this Lease directly or indirectly arising out of
the use, generation, storage, release, disposal or transportation of Hazardous
Materials by Tenant or any subtenant, or their respective agents, contractors,
employees, licensees, or invitees upon the Premises (but not by Landlord, its
agents, contractors, employees, licensees or invitees), on, under or about the
Premises during the term of this Lease, including, but not limited to, all
foreseeable and unforeseeable consequential damages and the cost of any Remedial
Work. Neither the consent by Landlord to the use, generation, storage, release,
disposal or transportation of Hazardous Materials, nor strict compliance with
all Hazardous Materials Laws, shall excuse Tenant from Tenant's indemnification
obligations pursuant to this Subparagraph 31.2.6. The foregoing indemnity shall
be in addition to and not a limitation of the indemnification provisions of
Article 7 of this Lease. Tenant's obligations pursuant to this Subparagraph
31.2.6 shall survive the termination or expiration of the Lease. Upon expiration
or termination of the Lease, Tenant's obligations pursuant to this Subparagraph
31.2.6 shall cease upon the provision to Landlord of an environmental assessment
report(s) satisfactory to Landlord from an environmental consulting firm
acceptable to Landlord; provided, however, that Tenant shall have completed any
remediation of the Premises and/or the Property if required by said report or
any governmental authority having jurisdiction to regulate environmental aspects
of the Premises and/or the Property.
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31.2.7 Default. The release or discharge of any Hazardous
Material or violation of any Hazardous Materials Law by Tenant or any subtenant
of Tenant shall be a material default by Tenant under the Lease. In addition to
or in lieu of the remedies available under the Lease as a result of such
default, Landlord shall have the right, without terminating the Lease, to
require Tenant to suspend its operations and activities on the Premises until
Landlord is satisfied that appropriate Remedial Work has been or is being
adequately performed; Landlord's election of this remedy shall not constitute a
waiver of Landlord's right thereafter to declare a default and pursue other
remedies set forth in the Lease.
ARTICLE 32
Interpretation
32.1 Whenever the singular number is used in this Lease, the same shall
include the plural, and the masculine gender shall include the feminine and
neuter genders, and the word "person" shall include corporation, firm,
partnership (limited, general or otherwise), limited liability company, business
trust or association, when required by the context.
32.2 The headings or title to the paragraphs of this Lease are for
convenience only and do not in any way define, limit or construe the contents of
such paragraphs.
32.3 This instrument contains all of the agreements and conditions made
between the parties with respect to the hiring of the Premises and may not be
modified orally or in any other manner other than by a written instrument signed
by all the parties to this Lease.
32.4 The laws of the State of California shall govern the validity,
performance and enforcement of this Lease.
32.5 If any provision of this Lease is determined to be void by any
court of competent jurisdiction, such determination shall not affect any other
provisions of this Lease and such other provisions shall remain in full force
and effect. If any provision of this Lease is capable of two constructions, one
which would render the provision void and one which would render the provision
valid, the provision shall be interpreted in the manner which would render it
valid.
32.6 Upon written request of Landlord, Tenant agrees to execute any
lease amendments not materially altering the terms of this Lease, if required by
a Mortgagee incident to the financing of the real property of which the Premises
constitute a part unless Tenant acting reasonably and in good faith. objects to
such amendment(s) in which case Tenant shall provide such objections in writing
to Landlord. A material alteration shall include but not be limited to any
change affecting the consideration to be paid by Tenant or modifying the term of
this Lease.
32.7 Except as may otherwise be expressly stated, each payment required
to be made by Tenant shall be in addition to and not in substitution for other
payments to be made by Tenant.
ARTICLE 33
Time of Essence
33.1 Time is of the essence in this Lease.
ARTICLE 34
Force Majeure
34.1 Any prevention, delay or stoppage due to strikes, lockouts, labor
disputes, acts of God, inability to obtain labor or materials or reasonable
substitutes thereof, governmental restrictions, regulations, or controls, enemy
or hostile governmental action, civil commotion, fire or
24
<PAGE>
other casualty, and other causes beyond the reasonable control of the party
obligated to perform, shall excuse the performance by such party for a period
equal to that resulting from such prevention, delay or stoppage, except those
obligations of Tenant to make payment for rental and other charges pursuant to
the terms of this Lease and the required financial obligations of Landlord with
respect to construction of the Building and as otherwise required by the terms
of this Lease. Notwithstanding the foregoing, the provisions of this Section
34.1 shall not apply to Article 2 with respect to Landlord's obligations to
commence construction on or before a certain date, but shall apply to Article 2
with respect to Landlord's obligations to complete construction on or before a
certain date.
ARTICLE 35
Notices
35.1 All notices to be given by one party to the other under this Lease
shall be in writing, mailed or delivered to the other party at the following
address:
To Landlord: Gillespie Field Partners, LLC
3838 Camino Del Rio North Suite 300
San Diego, California 92108
Attention: Frank J. Sciacca, Manager
with copy to: Harrigan, Ruff, Sbardellati & Moore
101 West Broadway, Suite 1600
San Diego, California 92101
Attention: F. Gregory Pyke, Esq.
Prior to the Commencement Date:
To Tenant: Sparks Exhibits, Ltd.
2828 Charter Road
Philadelphia, Pennsylvania 19054
Attention: President
To Guarantor: Sparks Exhibits Corp.
2828 Charter Road
Philadelphia, Pennsylvania 19054
Attention: President
with copy to: Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Attention: Jeffrey A. Chine, Esq.
Any notice to be provided to Tenant hereunder shall also be provided to
Guarantor by Landlord.
Following the Commencement Date:
To Tenant: Sparks Exhibits, Ltd.
2025 Gillespie Way
El Cajon, California 92020
Attention: President
25
<PAGE>
To Guarantor: Sparks Exhibits Corp.
2828 Charter Road
Philadelphia, Pennsylvania 19054
Attention: President
with copy to: Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Attention: Jeffrey A. Chine, Esq.
Any notice to be provided to Tenant hereunder shall also be provided to
Guarantor by Landlord.
35.2 Mailed notices shall be sent by United States Postal Service,
certified or registered mail, postage prepaid and shall be deemed to have been
given on the date of posting in the United States Postal Service.
35.3 Either party may, with proper notice , at any time designate a
different address to which notices shall be sent.
ARTICLE 36
Brokers
36.1 Tenant represents that it has had no dealings with any real estate
broker or agent in connection with the negotiation and/or execution of this
Lease except as follows: IPC Commercial Real Estate and Brent Bohlken (Tenant's
broker). Landlord shall pay a commission to Tenant's broker pursuant to separate
agreement. Tenant shall indemnify and defend Landlord against all liabilities,
costs, expenses and charges (including without limitation attorneys' fees and
disbursements) arising from any claims that may be made against Landlord by any
real estate broker, agent, finder, or other person, alleging to have acted on
behalf of Tenant other than as provided in this Article 36.
ARTICLE 37
Option To Extend
37.1 Tenant shall have the option to extend the term of this lease for
two (2), two (2) year periods subject to the following provisions:
37.1.1 All option(s) to extend the term of this Lease are
subject to the timely payment by Tenant, of all of the monetary amounts due to
Landlord under and by reason of this Lease. In the event that Tenant defaults in
the payment of any monetary sum(s) to Landlord more than three (3) times during
the initial term of this Lease, or more than once during the period of any
extension of the term thereafter, all option(s) to extend shall automatically
terminate thereafter and Landlord shall be under no obligation to permit Tenant
to extend the term of this Lease thereafter.
37.1.2 Tenant shall exercise each option by delivery of
written notice to Landlord not less than One Hundred Eighty (180) days prior to
the expiration of the original or extended term of this Lease. If said notice is
not delivered within said time period, any remaining option shall terminate.
37.1.3 The rent payable by Tenant during the option period
shall be 90% of the fair market rent of the Premises at the commencement date of
such option period. In no event, however, shall the rent for the option period
be less than the rent paid by Tenant during the last year immediately preceding
the option being exercised. If Landlord and Tenant cannot agree on the fair
26
<PAGE>
market rent of the Premises for the extension period within forty-five (45) days
after the Tenant has notified Landlord of Tenant's exercise of the option,
Landlord and Tenant shall each select, within thirty (30) days of such
notification, an appraiser who must be a qualified MAI appraiser with at least
five (5) years experience appraising commercial properties within the geographic
area where the Premises is located to determine said fair market rent. If one
party fails to so designate an appraiser within the time required, the
determination of fair market rent of the one appraiser who has been designated
by the other party within the time required shall be binding on both parties.
The appraisers shall submit their determinations of fair market rent to both
parties within thirty (30) days after their selection. If the difference between
the two determinations is ten percent (10%) or less of the higher appraisal,
then the average between the determinations shall be the fair market rent of the
Premises. If said difference is greater than ten percent (10%), then the two
appraisers shall within twenty (20) days of the date the second determination is
submitted to the parties designate a third appraiser who must also be a
qualified MAI appraiser meeting the same requirements set forth above. The sole
responsibility of the third appraiser will be to determine which of the
determinations made by the first two appraisers is most accurate. The third
appraiser shall have no right to propose a middle ground or any modification of
either of the determinations made by the first two appraisers. The third
appraiser's choice shall be submitted to the parties within thirty (30) days
after his or her selection. Such determination shall bind both of the parties
and shall establish the fair market rent of the Premises. Each party shall pay
equal shares of the fees and expenses of the third appraiser. Fair market rent
for the purposes of this Lease shall mean the then prevailing rent for Premises
comparable in size to the demised Premises, leased on terms comparable to the
terms contained in this Lease. It is the intent of the parties that the basis
for determining comparables at the time of the renewal would include the then
value of any and all improvements which were installed in the Premises,
irrespective of which party paid for such improvements.
ARTICLE 38
First Right of Negotiation on Expansion Development
38.1 Landlord hereby grants to Tenant the first right to negotiate (the
"First Right of Negotiation") with Landlord to lease expansion space with
respect to additional buildings and/or improvements to be constructed by
Landlord on Lot 13 which is located contiguous to the Premises and/or certain
other buildings and/or improvements which Landlord may select to offer to Tenant
to be constructed from time to time at the Gillespie Field Business Park, of
which the Premises is a part. Tenant understands, acknowledges and agrees that
while individual principals of Landlord may have direct and/or indirect
interests in part or all of the real property which comprises the Gillespie
Field Business Park, Landlord presently has an interest in only the Premises,
Lot 13 adjacent thereto (as mentioned above) and Lots 1 and 2 of the Lot 15
Resubdivision of Cuyamaca West Unit No. 2 (collectively, the "Additional
Landlord Lots") and the First Right of Negotiation set forth herein pertains
only to Lot 13 and the Additional Landlord Lots (if selected by Landlord to be
offered to Tenant) and there is no obligation on the part of Landlord and/or its
principals or affiliates to make any real property other than Lot 13 and the
Landlord Lots (if selected by Landlord to be offered to Tenant) available to
Tenant.
38.2 The First Right of Negotiation set forth in this Article 38 shall
apply during the term of this Lease, as same may be extended from time to time
by any extensions of the term, provided that the First Right of Negotiation is
subject to the timely payment by Tenant, of all of the monetary amounts due to
Landlord under and by reason of this Lease. In the event that Tenant defaults in
the payment of any monetary sum(s) to Landlord more than three (3) times during
the initial term of this Lease, or more than once during the period of any
extension of the term thereafter, the First Right of Negotiation set forth in
this Article 38 shall automatically terminate thereafter and Landlord shall be
under no obligation to offer Lot 13 or the Additional Landlord Lots to Tenant.
38.3 Landlord shall notify Tenant in writing in the form and manner for
the transmittal of notices provided elsewhere in this Lease at such time as
Landlord has buildings and/or improvements available for lease with respect to
Lot 13 and with respect to Landlord-selected buildings and/or improvements on
the Additional Landlord Lots. If Landlord and Tenant are unable
27
<PAGE>
to agree upon all terms and provisions of a lease of such buildings and
improvements within 30 calendar days of Tenant's receipt of such written
notification, then Landlord shall be free to offer to lease such buildings and
improvements to other parties and Tenant shall have waived all of its rights
with respect to the First Right of Negotiation with respect to such buildings
and improvements as to which Tenant shall have received such written
notification and Landlord and Tenant shall have no further responsibility or
obligation to one another with respect to such buildings and improvements.
Tenant agrees to execute all appropriate documentation that Landlord may deem
necessary in order to release, remise and forever quitclaim Tenant's rights
under this Article 38, or with respect to specific buildings and improvements.
ARTICLE 39
Rent Abatement and Reduction
39.1 In consideration of the terms and conditions of the Lease agreed
to by the Tenant, Landlord agrees to the following modifications to the Base
Monthly Rental during the first year of the Lease:
39.1.2 The Base Monthly Rental for months one (1) through
three (3) of the initial year of the Lease shall be Thirty Thousand Seven
Hundred and Eighty-two Dollars ($30,782) per month.
39.1.3 The Base Monthly Rental for months four (4) through
twelve (12) of the initial year of the Lease shall be abated. The Base Monthly
Rental commencing with month thirteen (13) of the Lease term and continuing
throughout the remainder of the initial 84 months of the Lease term shall be the
full Base Monthly Rental set forth in Section 3.1 of the Lease.
39.1.4 The Tenant shall, at all times, be responsible for
payment of the full estimated common area expenses provided for elsewhere
herein, including during the periods of reduced and abated Base Monthly Rental.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year set forth at the beginning hereof.
LANDLORD: TENANT:
GILLESPIE FIELD PARTNERS, LLC, SPARKS EXHIBITS, LTD.,
a California limited liability company a California corporation
By: /s/ Frank J. Sciacca By:
---------------------------- ----------------------------
Frank J. Sciacca, Manager [Signature]
CEO Sparks Exhibits Corp.
----------------------------
[Print Name and Title]
By:
----------------------------
[Signature]
Secretary
----------------------------
[Print Name and Title]
28
<PAGE>
CONTINUING GUARANTY OF LEASE
In connection with the execution of that certain Lease Agreement-Net.
Dated the same date as this guaranty between Gillespie Field Partners, LCC, a
California limited liability company, as Landlord, and Sparks Exhibits, LTD., a
California corporation, as Tenant (the "Lease") the undersigned agree as
follows:
1. Guaranty. Guarantor hereby unconditionally guarantees the full, prompt
and complete payment by Tenant, its successors and assigns, of all rental and
all other sums to become due to Landlord under the Lease in the manner and at
the times specified in the Lease, and the full performance by Tenant, its
successors and assigns, of its obligations under the Lease.
2. Liability of Guarantor. The obligations of Guarantor are not limited
to any particular period of time but shall be an absolute continuing and
unlimited guaranty of payment and performance. This guaranty shall continue
until all indebtedness and obligations of Tenant to Landlord arising under and
by reason of the Lease, have been fully and completely paid or otherwise
released, discharged or forgiven by Landlord, and Guarantor shall not be
released of any obligation or liability so long as there is any claim of
Landlord against Tenant arising out of the Lease. The absolute and unconditional
liability of Guarantor shall not be limited or affected by the release or
discharge of Tenant or the impairment, limitation or modification of the
liability of Tenant or the estate of Tenant in bankruptcy, or of any remedy for
the enforcement of Tenant's liability under the Lease resulting from the
operation of any provisions of the federal bankruptcy laws, state insolvency
laws or other statues or juridical decisions.
3. Independent Liability of Guarantor. Guarantor agrees that Guarantor
may be joined In any legal action against Tenant arising out of or connected
with the obligations of Tenant under the Lease and recovery may be had against
Guarantor in any such action, or Landlord may proceed against the Guarantor
simultaneously with Tenant to enforce the obligations of guarantor under this
guaranty without first asserting, prosecuting or exhausting any remedy or claim
or taking any other actions whatsoever solely against Tenant or its successors
or assigns.
4. Changes in Lease. Guarantor authorizes Landlord without notice or
demand or consent of Guarantor and without in any way releasing or discharging,
exonerating or otherwise affecting their liability or the enforcement of this
guaranty from time to time: (i) extend the time for performance or otherwise
modify, alter or change the Lease and any and all of its provisions and may
extend the time for payment of the rent and all other sums to become due under
the Lease; (ii) permit or consent to such subletting by Tenant of all or any
part of the Premises, or Tenant's interest under the Lease, as Landlord in its
sole discretion shall decide; (iii) take and hold security from Tenant or others
for the payment of this guaranty or the indebtedness guaranteed and exchange,
enforce, waive or release all or any portion of such security; and (iv) apply
such security and direct the order of manner of sale thereof as Landlord in its
sole discretion may determine, without accounting to Guarantor.
5. Guarantor's Waiver. Guarantor expressly waives the following:
5.1.1 all rights to require Landlord to first proceed solely
against Tenant or to separately pursue any other remedy in law or in equity with
respect to the obligations of Tenant and Guarantor to landlord;
5.1.2 all rights to require Landlord to proceed against or
exhaust any security given to Landlord by Tenant or Guarantor for the
performance of Tenant's obligations under the Lease, whether such security
exists now or is acquired by Landlord, and whether known or unknown to
Guarantor;
5.1.3 all presentments, demands for performance, notice of
nonperformance, protests, notices of protests, notices of dishonor, notices of
acceptance of this guaranty, and all notices of any further advances or
extensions of credit by Landlord to Tenant or the creation of any other
indebtedness or liability of Tenant to Landlord.
29
<PAGE>
6. General.
-------
6.1 Attorney's Fees and Costs. If either party institutes or is
made a party to any action or proceeding to enforce or interpret the
Lease or this guaranty, the prevailing party in such action or proceeding
shall be entitled to recover all costs and attorneys' fees incurred in
connection with such action or proceeding or any appeal or enforcement of
such action or proceeding.
6.2 Government Law, Jurisdiction and Severability. This
guaranty is entered into and requires performance at San Diego,
California. The validity, interpretation, enforcement or performance of
this guaranty shall be governed by and construed in accordance with the
laws of the State of California as applied to contracts made and t be
performed entirely in the State of California. All proceedings, whether
juridical or nonjudicial, with respect to this guaranty shall be
commenced only in the State of California and venue for such proceedings
shall only be in the San Diego Judicial District, County of San Diego,
State of California. If any provision of this guaranty is invalid or
contravenes California law, such provision shall be deemed not to be a
part of this guaranty and shall not affect the validity or enforceability
of the remaining provisions.
6.3 Waiver. Any waiver by Landlord of any breech or default of
any one or more of the terms or covenants or conditions of the Lease or
this guaranty shall not be a waiver of any subsequent or other breach or
default of the dame or any other term, covenant or condition of the Lease
or this guaranty. Any such waiver or any failure of Landlord to require
or exact full and complete compliance with any of the terms or covenants
of the Lease or this guaranty shall not be construed as changing the
terms thereof and shall not release, discharge, limit or otherwise affect
Guarantor's obligations under this guaranty. This guaranty and the
obligations of Guarantor shall not be changed or altered in any way
whatsoever other than by written agreement of Landlord and Guarantor.
6.4 Notice. All notices , requests, demands and other
communications under this guaranty shall be in writing and shall be
deemed to have been duly given on the date of service, if personally
served on Guarantor, or seventy-two (72) hours after mailing, if mailed
to Guarantor by first-class mail, postage prepaid, and properly addressed
to Guarantor at Guarantor's address set forth in the signature page of
this guaranty, or any other address as the Guarantor may designate by
written notice to Landlord.
6.5 Successors and Assigns. This guaranty shall inure to the
benefit of and be binding upon the parties and their legal
representatives, successors and assigns.
6.6 Financial Statements. Guarantor hereby represents and
warrants that the most recent financial statements of Guarantor
heretofore delivered to Landlord are true and correct in all respects,
fairly present the financial condition of Guarantor as of the date hereof
and for the period covered thereby, and no material adverse change has
occurred I the financial condition or prospects of Guarantor since the
date thereof. Guarantor hereby agrees to deliver to Landlord confidential
abbreviated financial statements of Guarantor upon reasonable notice and
as reasonably requested by Landlord. Each such financial statement shall
be certified by Guarantor as true and correct in all respects.
6.7 Authority of Tenant. Landlord need not inquire into the
power of Tenant or the authority of its officers or agents acting or
purporting to act on its behalf.
Executed this 29th day of June, 1998 at Philadelphia, Pennsylvania.
Guarantor:
Sparks Exhibits Corp., a Pennsylvania corporation
By: /c/ Robert B. Ginsburg, CEO
30
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<NAME> MARLTON TECHNOLOGIES, INC.
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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