UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24395
BEBE STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2450490
(STATE OR JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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380 VALLEY DRIVE
BRISBANE, CALIFORNIA 94005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE: (415) 715-3900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
COMMON STOCK, PAR VALUE OF $0.001 PER SHARE, 23,944,064 SHARES OUTSTANDING
AS OF JANUARY 20,1999.
BEBE STORES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
December 31, 1998 (unaudited), June 30, 1998 and
December 31, 1997 (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited)
Three months ended December 31, 1998 and 1997 and
Six months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Three months ended December 31, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEBE STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF AS OF
DECEMBER 31, AS OF JUNE 30, DECEMBER 31,
1998 1998 1997
---- ---- ----
(Unaudited) (Unaudited)
ASSETS:
Current assets:
Cash and equivalents $55,166,161 $36,651,617 $22,112,142
Receivables (net of allowance of $94,273,
$51,785 and $88,970) 202,856 256,567 114,561
Inventories, net 14,148,061 14,405,213 9,964,480
Deferred income taxes 842,835 842,835 674,447
Prepaid and other 283,213 134,760 56,966
-------- ------- ------
Total current assets 70,643,126 52,290,992 32,922,596
Equipment and improvements, net 11,554,916 9,213,358 8,367,425
Deferred income taxes 1,811,126 1,811,126 1,527,595
Other assets 1,351,883 893,252 744,981
---------- ------- -------
Total other assets 3,163,009 2,704,378 2,272,576
---------- --------- ---------
Total assets $85,361,051 $64,208,728 $43,562,597
------------ ----------- -----------
------------ ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $8,856,084 $6,921,981 $5,369,305
Accrued liabilities 11,062,805 8,470,623 8,883,553
Current portion of long-term debt 105,410 104,286 127,835
Income taxes payable 1,859,643 890,258 1,536,198
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Total current liabilities 21,883,942 16,387,148 15,916,871
Long-term debt 17,213 82,218 125,598
Deferred rent 2,500,494 2,475,883 2,473,276
---------- --------- ---------
Total liabilities 24,401,649 18,945,249 18,515,745
Commitments and contingencies 0 0 0
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par
value per share: no shares issued and outstanding
Common stock-authorized 40,000,000 shares at $0.001 par
value per share; issued and outstanding 23,944,064 shares 23,944 23,890 22,640
Additional paid-in capital 17,359,090 17,078,200 5,205,610
Deferred compensation (1,628,964) (2,061,227) (2,305,579)
Retained earnings 45,205,332 30,222,616 22,124,181
---------- ---------- ----------
Total shareholders' equity 60,959,402 45,263,479 25,046,852
----------- ---------- ----------
Total liabilities and shareholders' equity $85,361,051 $64,208,728 $43,562,597
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See accompanying notes to financial statements.
BEBE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 30, SIX MONTHS ENDED DECEMBER 30,
------------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $59,491,380 $43,558,084 $101,043,712 $74,775,621
Cost of sales, including buying and occupancy 27,215,360 21,145,190 47,016,054 36,709,630
---------- ---------- ---------- ----------
Gross profit 32,276,020 22,412,894 54,027,658 38,065,991
Selling, general and administrative expenses 16,306,630 13,182,460 29,507,167 22,565,225
---------- ---------- ---------- ----------
Income from operations 15,969,390 9,230,434 24,520,491 15,500,766
Other expense (income):
Interest expense 2,419 2,999 4,768 7,801
Interest income (556,038) (190,880) (1,043,801) (343,143)
Other (288) 44,062 1,003 23,319
----- ------- ----- ------
Earnings before income taxes 16,523,297 9,374,253 25,558,521 15,812,789
Provision for income taxes 6,871,365 3,851,495 10,575,805 6,492,434
---------- ---------- ---------- ---------
Net earnings $9,651,932 $5,522,758 $14,982,716 $9,320,355
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Basic earnings per share $0.40 $0.24 $0.63 $0.41
Diluted earnings per share $0.38 $0.23 $0.59 $0.39
Basic weighted average shares outstanding 23,894,384 22,639,997 23,895,289 22,639,997
Diluted weighted average shares outstanding 25,508,278 23,661,667 25,449,588 23,608,149
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See accompanying notes to financial statements.
BEBE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
DECEMBER 31,
-------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $14,982,716 $9,320,355
Adjustments to reconcile net earnings to cash provided
(used) by operating activities:
Non-cash compensation expense 240,851 434,421
Depreciation and amortization 1,384,896 1,039,189
Tax benefit from options exercised 106,620
Net loss on disposal of property 142,506 119,307
Store closing reserve (34,989) 626,618
Deferred income taxes (619,199)
Deferred rent (32,497) (215,777)
Changes in operating assets and liabilities:
Receivables 55,350 (51,105)
Inventories 257,153 (502,782)
Other assets (502,890) 6,970
Prepaid expenses (148,453) 29,934
Accounts payable 1,934,102 304,675
Accrued liabilities 2,592,183 2,953,372
Income taxes payable 969,385 1,005,843
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Net cash provided by operating activities 21,946,933 14,451,821
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and improvements (4,188,303) (1,834,889)
Proceeds from sales of equipment 9,700 1,040
Proceeds from tenant allowance 446,000 290,240
Proceeds from sale of marketable securities 77,883
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Net cash used by investing activities (3,732,603) (1,465,726)
Cash flows from financing activities:
Borrowings from (repayments to) shareholder (1,639) 538
Repayments on capital leases & other (38,237) (38,261)
Repayments of investment note (25,645) (28,150)
Issuance of common stock 365,736
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Net cash used by financing activities 300,215 (65,873)
Net increase in cash 18,514,545 12,920,222
CASH:
Beginning of year 36,651,616 9,191,919
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End of year $55,166,161 $22,112,141
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 4,768 $ 7,801
------------ ------------
Cash paid for income taxes $ 9,499,800 $ 6,143,790
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See accompanying notes to financial statements.
BEBE STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS
The accompanying Condensed Consolidated Balance Sheets of bebe stores, inc. (the "Company") as of December 31, 1998 (the "current period") and December 31, 1997 (the "prior period") and the interim Condensed Consolidated Statements of Operations and Cash Flows for the three months and six months ended December 31, 1998 and December 31, 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Consolidated Balance Sheet at June 30, 1998 was derived from audited financial statements. The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.
Certain notes and other information have been condensed or omitted from the interim condensed Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the Company's Fiscal 1998 Annual Report on Form 10-K.
EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of EPS on a basic and diluted basis. The Company's granting of certain stock options resulted in potential dilution of basic EPS. The following table summarizes the difference between basic weighted average shares outstanding and diluted weighted average shares outstanding used to compute diluted EPS.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Basic weighted average number of
Shares outstanding 23,894,384 22,639,997 23,895,289 22,639,997
Incremental shares from assumed
Issuance of stock options 1,613,894 1,021,680 1,554,299 968,152
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Diluted weighted average number of
Shares outstanding 25,508,278 23,661,677 25,449,588 23,608,149
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---------- ---------- ---------- ----------
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The number of incremental shares from the assumed issuance of stock options is calculated applying the treasury stock method.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risks That May Affect Results" in this section.
The Company's fiscal year ends on June 30 of each calendar year.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net sales for the periods indicated:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: 1998 1997 1998 1997
---- ---- ---- ----
Net sales................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy (1)........ 45.7 48.5 46.5 49.1
---- ---- ---- ----
Gross profit............................................. 54.3 51.5 53.5 50.9
Selling, general and administrative expenses (2)......... 27.5 30.3 29.2 30.2
---- ---- ---- ----
Income from operations................................... 26.8 21.2 24.3 20.7
Interest and other expenses (income), net................ (1.0) (0.3) (1.0) (0.4)
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Earnings before income taxes............................. 27.8 21.5 25.3 21.1
Provision (benefit) for income taxes..................... 11.6 8.8 10.5 8.7
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Net earnings............................................. 16.2% 12.7% 14.8% 12.4%
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(1) Cost of sales includes the cost of merchandise, store occupancy costs and buying costs.
(2) Selling, general and administrative expenses primarily consist of non-occupancy store costs, corporate overhead and advertising costs.
NET SALES. Net sales increased to $59.5 million during the three months ended December 31, 1998 from $43.6 million in the same period of the prior year, an increase of $15.9 million, or 36.5%. Of this increase, $10.8 million was attributable to the 27.7% increase in comparable store sales, and $5.1 million was attributable to on-line sales and stores not included in the comparable store sales base. For the six months ended December 31, 1998, net sales increased to $101.0 million from $74.8 million in the same six-month period of the prior year, an increase of $26.2 million, or 35.0%. Of this increase, $18.7 million was attributable to the 27.4% increase in comparable store sales for the six-month period, and $7.5 million was attributable to on-line sales and stores not included in the comparable store sales base. The increase in comparable store sales was attributable to a broader product line offering, strong consumer acceptance of the product line and improvements in the operational aspects of the Company's business. While the Company is experiencing comparable store sales growth increases to date that are consistent with those experienced in the quarter ended December 31, 1998, the Company believes that such increases may be lower in the future. The Company operated 91 stores at December 31, 1998 compared to 85 stores at December 31, 1997. The Company also sells product through its on-line store which can be found at www.bebe.com. Sales generated by the on-line store were significantly less than sales generated by any one store during the quarter.
GROSS PROFIT. Gross profit, which includes the cost of merchandise, buying and occupancy, increased to $32.3 million during the three months ended December 31, 1998 from $22.4 million for the same three-month period of the prior year, an increase of $9.9 million, or 44.2%. As a percentage of net sales, gross profit increased to 54.3% for the three-month period ended December 31, 1998 from 51.5% in the same three-month period of the prior year. For the six months ended December 31, 1998, gross profit increased to $54.0 million from $38.1 million for the same six-month period of the prior year, an increase of $15.9 million, or 41.7%. As a percentage of net sales, gross profit increased to 53.5% for the six-month period from 50.9% in the same six-month period of the prior year. The increase in gross profit as a percentage of net sales resulted from higher initial markups and lower markdowns associated with higher sell-through rates, as well as reduced occupancy costs as a percentage of net sales resulting from higher average store sales. The Company believes that the gross margins attained during this most recent quarter are not sustainable and that gross margins in the current and future periods will likely be lower than those experienced in the quarter ended December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses, which primarily consist of non-occupancy store costs, corporate overhead and advertising costs, increased to $16.3 million during the three months ended December 31, 1998 from $13.2 million in the same period of the prior year, an increase of $3.1 million, or 23.5%. As a percentage of net sales, these expenses decreased to 27.5% during the three-month period from 30.3% in the same period of the prior year. For the six months ended December 31, 1998, expenses increased to $29.5 million from $22.6 million in the same six-month period of the
prior year, an increase of $6.9 million, or 30.5%. As a percentage of net sales, these expenses decreased to 29.2% during the six-month period from 30.2% in the same period of the prior year. This decrease as a percentage of net sales was largely a result of decreased compensation costs.
INTEREST AND OTHER EXPENSE (INCOME), NET. The Company generated $554,000 of interest and other income (net of other expenses) during the three months ended December 31, 1998 as compared to $144,000 in the same three-month period of the prior year. For the six months ended December 31, 1998, the Company generated $1.0 million of interest and other income (net of other expenses) as compared to $312,000 in the same six-month period of the prior year. The Company had no significant borrowings under its line of credit during the period ended December 31, 1998. The increase of interest and other income is a result of higher cash balances generated from operating results and proceeds from the Company's initial public offering of stock in June 1998.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective tax rate for the three months ended December 31, 1998 was 41.6%. The rate for the six months ended December 31, 1998 was 41.4% and for the three months ended September 30, 1998 was 41.0%.
LIQUIDITY AND CAPITAL RESOURCES
During the three fiscal years ended June 30, 1998, bebe has satisfied its cash requirements principally through cash flow from operations, borrowings under its revolving lines of credit and term loans. Primary uses of cash have been to purchase merchandise inventory, to fund the construction of new stores and to remodel and renovate stores.
The Company's working capital requirements vary widely throughout the year and generally peak in the first and second fiscal quarters. At December 31, 1998, the Company had approximately $55.2 million of cash and cash equivalents on hand of which $11.9 million was derived from the Company's initial public offering in June 1998. In addition, the Company had a revolving line of credit, under which it could borrow or issue letters of credit up to a combined total of $5.0 million. As of December 31, 1998, there were no borrowings under the line of credit, and letters of credit outstanding totaled $1.5 million.
Net cash provided by operating activities for the six months ended December 31, 1998 was $21.9 million. Cash provided by operating activities for the period was primarily generated by income from operations and changes in working capital.
Net cash used by investing activities for the six-month period was $3.7 million. The primary use of these funds was for the opening of new stores and the implementation of new computer systems within the stores and the corporate office.
The Company expects to make substantial capital expenditures in connection with the opening and expansion of stores, the implementation of new systems to support store and corporate office functions and the expansion or relocation of its corporate offices and distribution center. The Company estimates that capital expenditures will be between $9.0 million and $11.0 million in fiscal 1999, of which $4.2 million had been spent during the six months ended December 31, 1998. The Company expects to open approximately 10 additional stores in the remainder of fiscal 1999 and approximately 15 stores in fiscal 2000. The Company opened four new stores during the three months ended December 31, 1998.
Net cash provided by financing activities was $300,000 for the six months ended December 31, 1998. The Company believes that its cash on hand, together with its cash flow from operation, will be sufficient to meet its capital and operating requirements through fiscal 1999. The Company's future capital requirements, however, will depend on numerous factors, including without limitation, the size and number of new and expanded stores, investment costs for management information systems, potential acquisitions and/or joint ventures, and future results of operations.
SEASONALITY OF BUSINESS AND QUARTERLY RESULTS
The Company's business varies with general seasonal trends that are characteristic of the retail and apparel industries. As a result, net of the impact of new store openings, the Company generates a disproportionate amount of its annual net sales in the first half of its fiscal year (which includes the fall and holiday selling seasons) compared to the second half of its fiscal year. If for any reason the Company's sales were below seasonal norms during the first half of its fiscal year, the Company's annual operating results would be affected
adversely. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of results that may be achieved for a full fiscal year.
INFLATION
The Company does not believe that inflation has had a material effect on the results of operations in the recent past. There can be no assurance that the Company's business will not be affected by inflation in the future.
YEAR 2000 DATE CONVERSION
The Company has created a Year 2000 task force that is implementing a six-phase plan with the objective of ensuring that its management information systems will record, store, process, calculate and present calendar dates falling on or after (and if applicable, spans of time including) January 1, 2000 in the same manner, and with the same functionality as it has in years prior to 2000 (collectively, "Year 2000 Compliant"). As part of this six-phase plan, the Company has completed a comprehensive review of its information systems and is involved in a program to update computer systems and applications in preparation for the year 2000. The Company currently believes that this six-phase plan will be completed by July 31, 1999; however, the Company has intentionally planned its completion date well in advance of January 1, 2000 to allow adequate time to further test and modify all mission critical applications should such further work be necessary.
Total expenditures related to identification, testing, conversion, contingency, replacement and upgrading system applications are expected to range from $400,000 to $600,000 during fiscal 1999 and 2000. As of December 31, 1998, the Company's expenditures were below the expectations for such six-month period. In certain cases, the conversions to applications that are year 2000 compliant will be made in conjunction with planned business system upgrades or enhancements. In the most reasonably likely worst case scenario, the Company's store operating and back end inventory management systems could fail. The consequence of such failure could include the inability to record sales transactions in the Company's stores and a breakdown in the supply chain. Such occurrence would likely result in a loss of revenue; it is not possible to quantify the possible range of such loss. This would necessitate reverting to a number of manual systems for recording sales, ordering product and replenishing the Company's stores.
The Company is attempting to contact vendors and others on whom it relies to assure that their systems will be converted before January 1, 2000. However, there can be no assurance that the systems of other companies on which the Company's systems rely will be year 2000 compliant by December 31, 1999. Any such failure to convert by another company may have an adverse effect on the Company's systems. In the most reasonably likely worst case scenario, one or more significant supplier could be unable to continue to adequately supply the Company after 1999. The Company's fallback position would be to seek an alternative source of supply. However, there can be no assurance that such alternative sources of supply would be available on reasonable terms or at all. Such a contingency plan will be in place by the end of fiscal year 1999. It is not practical for management to estimate the range of financial loss, if any, which could result from the negative effect that a disruption in supply would have on the Company's business. Furthermore, no assurance can be given that any or all of the Company's systems are or will be year 2000 compliant, or that the ultimate costs required to address the year 2000 issue or the impact of any failure to achieve substantial year 2000 compliance will not have a material adverse effect on the Company's financial condition.
RISKS THAT MAY AFFECT RESULTS
FASHION AND APPAREL INDUSTRY RISKS. The apparel industry is subject to rapidly evolving fashion trends, shifting consumer demands and intense competition. The Company believes that its future success will be dependent, in part, on its ability to anticipate, identify and capitalize upon emerging fashion trends, including products, styles, fabrics and colors, and to distinguish itself within the women's apparel market. If, for any reason, the Company misinterprets the current fashion trends or consumer tastes shift and the Company fails to respond, consumer demand for bebe products and the Company's profitability and brand image could be significantly impaired. Additionally, there can be no assurance that competitors of the Company will not carry similar designs, thus undermining bebe's distinctive image and potentially having an adverse effect on the Company's financial condition and results of operations.
MANAGEMENT OF INVENTORY. Success in the apparel industry is dependent on a
company's ability to manage its inventory of merchandise in proportion to the
demand for such merchandise. If bebe miscalculates the consumer demand for its
products it may be faced with significant excess inventory and excess fabric for
some
products and missed opportunities for others. Weak sales and resulting markdowns and/or write-offs could cause the Company's profitability to be significantly impaired and may have a material adverse effect on the Company's financial condition and results of operations.
RISKS OF GROWTH STRATEGY. The Company's continued growth is dependent, to a significant degree, on its ability to identify sites and open and operate new stores on a profitable basis. bebe opened 24 stores in fiscal 1995, 18 stores in fiscal 1996, 10 stores in fiscal 1997, seven stores in fiscal 1998 and five stores in the six-month period ended December 31, 1998. The Company expects to open approximately 10 additional stores in the remainder of fiscal 1999 and an additional 15 stores in fiscal 2000. Such expansion may include the opening in selected markets of flagship stores that will be larger and more expensive to operate than existing stores. If the Company does not generate sufficient revenues from these flagship stores to cover their higher costs, the Company's financial results could be negatively affected. The success of this expansion plan is dependent upon a number of factors, including the availability of desirable locations, the successful negotiation of acceptable leases for such locations, the ability to manage the expansion of the store base, the ability to source inventory adequate to meet the needs of new stores, the ability to operate stores profitably once opened, the development of adequate management information systems to support expanded activity, the ability to recruit and retain new employees, the availability of capital, and general economic and business conditions affecting consumer confidence and spending. There can be no assurance that the Company will be able to achieve its planned expansion on a timely and profitable basis, if at all. In addition, a majority of the Company's new store openings in the remainder of fiscal 1999 and fiscal 2000 will be in existing markets. There can be no assurance that these openings will not result in reduced net sales volumes and profitability in existing stores in those markets.
FUTURE RESULTS OF OPERATIONS. Although the Company has been profitable on an annual basis for each of the past five fiscal years, profitability rates have varied widely from quarter-to-quarter and from year-to-year. In particular, in fiscal 1996, the Company experienced a significant financial downturn due to, among other things, a significant disruption in supply of the Company's key fabrication, difficulty in obtaining a replacement fabrication, certain related fashion misjudgments, failure to obtain product deliveries in a timely manner, rapid expansion of the Company's store base, and lack of sufficient controls and personnel to support such expanded activity. There can be no assurance that the Company will remain profitable in the future. Future results of operations will depend on, among other things, the number and timing of new store openings and the Company's ability to identify and capitalize upon changing fashion trends, hire and retain qualified management and other personnel, maintain appropriate inventory levels, obtain needed raw materials, identify and negotiate favorable leases for successful store locations, reduce shrinkage and control operating costs. Future results of operations will also depend on factors outside of the Company's control, such as general economic conditions, availability of third party sourcing and raw materials, and actions of competitors.
The Company believes that the rate of comparable store sales growth achieved in recent periods is not sustainable and expects that such growth, if any, in the current and future periods will be more moderate. Furthermore, during these recent periods of relatively high comparable store sales growth, the Company has experienced favorable merchandise margins due to strong sell-through rates and attendant low markdown rates coupled with favorable occupancy expense leverage. As comparable store sales growth moderates, the Company anticipates a decline in merchandise margins and, accordingly, a reduction in gross margins.
RELIANCE ON MANAGEMENT INFORMATION SYSTEMS. In the past, the Company's investments in information systems have focused on its core store, merchandise and financial accounting systems. Currently, the Company's focus is on upgrading its capabilities and systems associated with its production, merchandise allocation and distribution functions, which have not kept pace with the Company's growth. The Company intends to make significant investments to improve existing management information systems and implement new systems in these areas and to implement them during fiscal 1999 and beyond. There can be no assurance that these enhancements will be successfully implemented. Failure to implement and integrate such systems could have a material adverse effect on the Company's business, financial condition and results of operations.
NEW MANAGEMENT TEAM; DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the efforts of its key employees, particularly Manny Mashouf, the founder, Chairman, President and Chief Executive Officer. In addition, most of the Company's officers and other key personnel have joined the Company since the middle of fiscal 1996 and, therefore, have relatively little experience with the Company. None of the Company's executive officers is bound by an employment agreement, and the relationships of such officers with the Company are, therefore, at will. With the exception of Mr. Mashouf, the Company does not have "key person" life insurance policies on any of its employees. The loss of the services of Mr. Mashouf or any of its key
officers or employees could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, the Company will need to hire experienced executive personnel to support the planned improvements and expansions of its business; however, there can be no assurance that the Company will be successful in hiring such personnel in a time frame necessary to manage and support its expansion plans.
The Company's success also depends to a significant degree on its ability to attract and retain experienced employees. There is substantial competition for experienced personnel, which the Company expects to continue. Many of the companies with which bebe competes for experienced personnel have greater financial resources than the Company. In the past, the Company has experienced significant turnover of its retail store personnel. The Company's failure to attract, motivate and retain qualified personnel could have a material adverse effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON INDEPENDENT MANUFACTURING FACILITIES AND RAW MATERIAL SUPPLIERS. The Company does not own any production facilities and therefore is dependent on third parties for the manufacturing of its products. Company merchandise designed by the bebe in-house design team is manufactured by independent manufacturers with raw materials purchased from independent mills and other suppliers. The Company places all of its orders for production of merchandise and raw materials by purchase order and does not have any long-term contracts with any manufacturer or supplier. The Company competes with other companies for production facilities and raw materials. In the past, particularly in fiscal 1996, the Company had difficulty obtaining needed quantities of raw materials on a timely basis because of competition with other apparel vendors for raw materials. Such failure to obtain sufficient quantities of raw materials has had an adverse effect on the Company's financial condition in the past and may in the future. Furthermore, the Company has received in the past, and may receive in the future, shipments of products from manufacturers that fail to conform to the Company's quality control standards. In such event, unless the Company is able to obtain replacement products in a timely manner, the Company may lose sales. The Company's failure to maintain favorable relationships with these production facilities and to obtain an adequate supply of quality raw materials on commercially reasonable terms could have a material adverse effect on the Company's business, financial condition and results of operations.
The violation of labor or other laws by an independent manufacturer of the Company, or the divergence of an independent manufacturer's labor practices from those generally accepted as ethical in the United States, could have a material adverse effect on the Company's business, financial condition, results of operations and brand image. While the Company recently adopted a policy to monitor the operations of its independent manufacturers by having an independent firm inspect these manufacturing sites, the Company cannot control the actions of such manufacturers, and there can be no assurance that these manufacturers will conduct their businesses using ethical labor practices.
DEPENDENCE ON THIRD PARTY APPAREL MANUFACTURERS. A significant portion of the Company's merchandise is developed in conjunction with third party apparel manufacturers and, in some cases, selected directly from these manufacturers' lines. The Company does not have long-term contracts with any third party apparel manufacturers and purchases all of the merchandise from such manufacturers by purchase order. Furthermore, the Company has received in the past, and may receive in the future, shipments of products from manufacturers that fail to conform to the Company's quality control standards. In such event, unless the Company is able to obtain replacement products in a timely manner, the Company may lose sales. There can be no assurance that third party manufacturers will not supply similar products to the Company's competitors, will not cease supplying products to the Company completely or will supply products that satisfy the Company's quality control standards.
RISK OF FOREIGN SOURCING. The Company purchases its raw materials from mills and other suppliers, a significant portion of which is purchased from suppliers outside the United States, primarily in Japan. A significant portion of the manufacturing of its merchandise is sourced outside the United States, primarily in Europe and Asia.
The Company is subject to the risks associated with doing business abroad. These risks include adverse fluctuations in currency exchange rates (particularly those of the U.S. dollar against certain foreign currencies), changes in import duties or quotas, the imposition of taxes or other charges on imports, the impact of foreign government regulation, political unrest, disruption or delays of shipments and changes in economic conditions in countries in which the Company's suppliers are located. The occurrence of any one or more of the foregoing could adversely affect the Company's business, financial condition and results of operations.
The Company's import operations are subject to constraints imposed by bilateral textile agreements between the United States and a number of foreign countries. These agreements, which have been negotiated bilaterally either under the framework established by the Arrangement Regarding International Trade in Textiles, known as the Multifiber Agreement, or other applicable treaties, impose quotas on the amounts and types of merchandise which may be imported into the United States from these countries. These agreements also allow the United States to impose restraints at any time on the importation of categories of merchandise that, under the terms of the agreements, are not currently subject to specified limits. The Company's imported products are also subject to United States customs duties which comprise a material portion of the cost of the merchandise. A substantial increase in customs duties would have an adverse effect on the Company's business, financial condition and results of operations. The United States and the countries in which the Company's products are produced or sold may, from time to time, impose new quotas, duties, tariffs, or other restrictions, or adversely adjust prevailing quota, duty, or tariff levels, any of which could have a material adverse effect on the Company's business, financial condition and results of operations.
In addition, a significant portion of the Company's foreign-supplied products is produced by manufacturing facilities in China. There have been a number of recent trade disputes between China and the United States during which the United States has threatened to impose punitive tariffs and duties on products imported from China and to withdraw China's "most favored nation" trade status. The loss of the most favored nation status for China, changes in current tariff or duty structures or the adoption by the United States of other trade polices or sanctions adverse to China could have a material adverse effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON INTELLECTUAL PROPERTY. The Company believes that its trademarks and other proprietary rights are important to its success and has registered "bebe" and "bebe moda" in the United States and certain foreign jurisdictions. There can be no assurance that actions taken by the Company to establish and protect its trademarks and other proprietary rights will prevent imitation of its products or infringement of its intellectual property rights by others. In addition there can be no assurance that others will not resist or seek to block the sale of the Company's products as violative of their trademark and proprietary rights. In certain states other entities may have rights to names that contain the word "bebe," which could limit the ability of the Company to expand in such states.
The Company is seeking to register its trademarks in targeted international markets that it believes represent large potential markets for the Company's products. In some of these markets, local companies currently have registered competing marks, and/or regulatory obstacles exist that may prevent the Company from obtaining a trademark for the bebe name or related names. In such countries, the Company may be unable to use the bebe name unless it purchases the right or obtains a license to use the bebe name. There can be no assurance that the Company will be able to register trademarks in such international markets, purchase the right or obtain a license to use the bebe name on commercially reasonable terms, if at all. Failure to obtain either trademark, ownership or license rights would limit the Company's ability to expand into certain international markets or enter such markets with the bebe name, and to capitalize on the value of its brand.
The Company is currently evaluating its opportunities to expand its product offering and extend its geographic reach through licensing or joint venture arrangements. The Company has limited experience with any such arrangements, and there can be no assurance that such arrangements will be successful. Furthermore, while the Company intends to maintain the integrity of the presentation of bebe merchandise through the terms of any such agreement, there can be no assurance that any licensee or joint venture partner will comply with such standards. Any deviation from these standards of these contracts may have a material adverse effect on the Company's brand image.
SEASONALITY AND QUARTERLY FLUCTUATIONS. The Company has experienced historically, and expects to continue to experience, quarterly fluctuations in its sales volumes and levels of profitability. Net of the impact of new store openings, the Company tends to generate larger sales and, to an even greater extent, profitability levels in the first and second quarters (which include the fall and holiday selling seasons) of its fiscal year. If for any reason sales were below seasonal norms during the first and second quarters of its fiscal year, as they were in fiscal 1996, the Company's quarterly and annual results of operations would be adversely affected. bebe's quarterly financial performance may also fluctuate widely as a result of a number of other factors such as the number and timing of new store openings, acceptance of product offerings, timing of product deliveries, actions by competitors and effectiveness of advertising campaigns. Due to these factors, the results of interim periods are not necessarily indicative of the results for the year.
COMPETITION. The retail and apparel industries are highly competitive and are characterized by low barriers to entry, and the Company expects competition in its markets to increase. The primary competitive factors in the Company's markets include brand name recognition, product styling, product presentation, product pricing, store ambiance, customer service and convenience. The Company competes with traditional department stores, specialty store retailers, off-price retailers and direct marketers for, among other things, raw materials, market share, retail space, finished goods, sourcing and personnel. Many of these competitors are larger and have substantially greater financial, distribution and marketing resources than the Company. Any failure to compete would have a material adverse effect on the Company's business, financial condition and results of operations.
SENSITIVITY TO ECONOMIC CONDITIONS AND CONSUMER SPENDING. The retail and apparel industries historically have been subject to substantial cyclical variation. A recession in the general economy or a decline in consumer spending in the apparel industry could have a material adverse effect on the Company's financial performance. Purchases of apparel and related merchandise tend to decline during recessionary periods and may decline at other times. There can be no assurance that a prolonged economic downturn would not have a material adverse impact on the Company or that the Company's customers would continue to make purchases during a recession.
CONTROL BY PRINCIPAL SHAREHOLDER. As of December 31, 1998, Manny Mashouf, the Chairman, President and Chief Executive Officer of the Company beneficially owned approximately 86.7% of the outstanding shares of the Company's Common Stock and as a result, acting alone, can control the election of directors of the Company and the outcome of all issues submitted to the shareholders of the Company. These factors may make it more difficult for a third party to acquire shares, may discourage acquisition bids for the Company and could limit the price that certain investors might be willing to pay for shares of Common Stock. Such concentration of stock ownership may have the effect of delaying, deferring or preventing a change in control of the Company.
POTENTIAL ANTI-TAKEOVER EFFECTS. The Board of Directors has authority to issue up to 1,000,000 shares of Preferred Stock of the Company, $0.001 par value per share, and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares without any vote or action by the shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company, thereby delaying, deferring or preventing a change in control of the Company. Furthermore, such Preferred Stock may have other rights, including economic rights, senior to the Common Stock, and as a result, the issuance of such Preferred Stock could have a material adverse effect on the market value of the Common Stock. The Company has no present plan to issue shares of Preferred Stock.
DEPENDENCE ON SINGLE FACILITY. The Company currently operates a corporate office and distribution center in Brisbane, California. Any serious disruption at this facility whether due to fire, earthquake or otherwise would have a material adverse effect on the Company's operations and could have a material adverse effect on the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE. Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000.
The Company has created a Year 2000 Task Force, which is implementing a 6-phase plan with the objective of ensuring that its management information systems will be year 2000 compliant. The Company believes that this 6-phase plan will be completed by July 31, 1999. There can be no assurance that this 6-phase plan will be successful or that year 2000 compliant issues will not arise with respect to products furnished by third party manufactures or suppliers that may result in unforeseen costs or delays to the Company and therefore have a material adverse effect on the Company.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the Company's initial public offering on June 17, 1998, there has been no public market for the Company's Common Stock. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market at or above the initial public offering price. The stock market has from time to time experienced extreme price and volume volatility. In addition, the market price of the Company's Common Stock, like that of the stock of other retail and apparel companies, may be highly volatile due to certain risks inherent in the apparel industry. Factors such as quarter-to-quarter variations in the Company's net sales and
earnings and changes in financial estimates by equity research analysts or other events or factors could cause the market price of the Common Stock to fluctuate significantly. Further, due to the volatility of the stock market and the prices of stocks of retail and apparel companies generally, the price of the Common Stock could fluctuate for reasons unrelated to the operating performance of the Company.
ABSENCE OF DIVIDENDS. The Company intends to retain any future earnings for use in its business and, therefore, does not anticipate paying any cash dividends on Common Stock in the foreseeable future. Future dividend policy will depend on the Company's earnings, capital requirements and financial condition as well as any restrictions imposed by existing credit agreements and other factors considered relevant by the Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE. The Company has outstanding an aggregate of 23,944,064 shares of Common Stock. Of these shares, 21,012,997 shares of Common Stock held by the existing shareholders are "restricted securities," as that term is defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 promulgated under the Securities Act.
As of December 31, 1998, options to purchase 1,948,108 shares of Common Stock were outstanding and exercisable, subject to certain vesting and repurchase restrictions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.6 Standard Industrial/Commercial Single Tenant Lease-Net dated November
30, 1998 between the Registrant and Far Western Land and Investment
Company, Inc., as amended (lease for 400 Valley Drive in Brisbane,
California).
10.7* Retail Store License Agreement between the Registrant and Sakal Duty
Free Ltd., a duly registered Israeli private company, and Sakal Sports
Ltd., a duly registered Israeli private company.
27.1 Financial Data Schedule
|
(b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the quarter for which this report is filed.
* Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b), 200.83 and 230.406.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated February 16, 1999
bebe stores, inc.
/s/ Blair W. Lambert ----------------------------------------- Blair W. Lambert, V.P. of Finance and Chief Financial Officer |
Exhibit 10.6
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, November 30, 1998, is made by and between Far Western Land and Investment Company, Inc., a California Corporation ("LESSOR") and bebe stores, inc., a California Corporation ("LESSEE"), (collectively, the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 400 Valley Drive, located in the County of San Mateo, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT", if the property is located within a Project) all that real property including that approximate 34,725 square foot ("PREMISES"). (See also Paragraph 2).
1.3 TERM: Seven years and three months ("ORIGINAL TERM") commencing February 1, 1999 ("COMMENCEMENT DATE") and ending April 30, 2006 ("EXPIRATION DATE"). (See also Paragraph 3).
1.4 EARLY POSSESSION: Upon full execution of lease, payment of first month's rent and security deposit and supplying a Certificate of Insurance to Landlord ("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3).
1.5 BASE RENT: $17,500.00 per month ("BASE RENT"), payable on the first
(1st) day of each month commencing March, 1999. (See also Paragraph 4).
/X/ If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $17,500.00 as Base Rent for the period February 1999.
1.7 SECURITY DEPOSIT: $21,703.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5).
1.8 AGREED USE: Offices, storage and distribution of fabric and other legal related uses. (See also Paragraph 6).
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8).
1.10 REAL ESTATE BROKERS: (See also Paragraph 15).
(a) REPRESENTATION: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes):
/x/ Lee & Associates represents Lessor exclusively ("LESSOR'S BROKER");
/x/ West Bay Commercial represents Lessee exclusively ("LESSEE'S BROKER"); or / / ______________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by ________________________ ("GUARANTOR"). (See also Paragraph 37).
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 55 and Exhibit A (Improvement Plans), all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee within thirty (30) days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Start Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within: (i) one year as to the surface of the roof and the structural portions of the roof, foundations and bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense WITH THE EXCEPTION OF THOSE ITEMS IDENTIFIED IN PARAGRAPH 55. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided, however, that if such Capital Expenditure is required during the last two years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse
Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease.
2.4 ACKNOWLEDGMENTS. Lessee acknowledges that: (a) it has been advised
by Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use; (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises; and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that:
(a) Broker has made no representations, promises or warranties concerning
Lessee's ability to honor the Lease or suitability to occupy the Premises; and
(b) it is Lessor's sole responsibility to investigate the financial capability
and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including, but not limited to, the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing within ten (10) days after the end of such sixty (60) day period, cancel this Lease, in which event the Parties shall be discharged from all
obligations hereunder. If such written notice is not received by Lessor within said ten (10) day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within four (4) months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a
material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commerically reasonable level based on said change in financial conditions. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. SECURITY DEPOSIT TO BE RETURNED TO LESSEE AFTER THE END OF FIRST YEAR (APRIL 30, 2000), UNLESS LESSEE IS THEN IN DEFAULT UNDER LEASE.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage OR waste. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice,
registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and
against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations" as defined in Paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within SIXTY (60) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within ten (10) days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within ten
(10) days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in Paragraph 30 below) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, fire protection system, fixtures, ceilings, floors, windows, doors, plate glass, skylights, landscaping, driveways, signs, sidewalks and parkways located in OR on, the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity. SEE ADDENDUM PARAGRAPH 54.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment (iii) fire
extinguishing systems, including fire alarm and/or smoke detection, AND
(iv) landscaping and irrigation systems.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor,
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. SEE ADDENDUM PARAGRAPH 55.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished to Lessee at or for use on the Premises, which
claims are or may be secured by any mechanic's or materialmen's lien against the
Premises or any interest therein. Lessee shall give Lessor not less than ten
(10) days' notice prior to the commencement of any work in, on or about the
Premises, and Lessor shall have the right to post notices of non-responsibility.
If Lessee shall contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend and protect itself, Lessor and the
Premises against the same and shall pay and satisfy any such adverse judgment
that may be rendered thereon before the enforcement thereof.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal as
hereinafter provided, all Alterations and Utility Installations made by Lessee
shall be the property of Lessee, but considered a part of the Premises. Unless
otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations
and Utility Installations shall, at the expiration or termination of this Lease,
become the property of Lessor and be surrendered by Lessee with the Premises.
LESSEE AND LESSOR AGREE THAT COMPUTER, COMPUTER NETWORK, TELEPHONE AND
WORKSTATIONS AND RELATED EQUIPMENT SHALL REMAIN AT ALL TIMES THE PROPERTY OF
LESSEE AND CAN BE REMOVED FROM THE PREMISES AT ANY TIME.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the INITIAL term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of THE INITIAL TERM OF this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods
commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an 'insured contract' for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake) including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, Lessee shall be liable for such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. SAID INSURANCE SHALL NOT COST LESSEE MORE THAN $500.00 PER YEAR.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.
(b) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor and LESSEE makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide," or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited
by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures,
which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefore. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such UNINSURED damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall
be effective sixty (60) days following the date of such notice. In the event
Lessor elects to terminate this Lease, Lessee shall have the right within ten
(10) days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within thirty (30) days after making such
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not make the required
commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of
(i) the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period
and provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee falls to exercise such
option and provide such funds or assurance during such period, then this Lease
shall terminate on the date specified in the termination notice and Lessee's
option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within FORTY-FIVE (45) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than FORTY-FIVE (45) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. "COMMENCE" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, WITH THE EXCEPTION OF a change in the ownership of the Premises DURING INITIAL TERM OF LEASE.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real Property
Taxes, and require that such taxes be paid in advance to Lessor by Lessee,
either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance
with the payment of the Base Rent. If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of taxes divided by the number of months remaining before
the month in which said installment becomes delinquent. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payments shall be adjusted as required to provide the funds needed to pay the
applicable taxes. If the amount collected by Lessor is insufficient to pay such
Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such
additional sums as are necessary to pay such obligations. All monies paid to
Lessor under this Paragraph may be intermingled with other monies of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the performance
of its obligations under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, at the option of Lessor, be treated
as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of
Lessee's interest in this Lease or in the Premises without Lessor's prior
written consent WHICH WILL NOT BE UNREASONABLY WITHHELD.
(b) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(c) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease;
(ii) release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 as consideration for Lessor's considering and processing said request.
Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.
(b) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent WHICH WILL NOT BE UNREASONABLY WITHHELD.
(c) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts (SEE PARAGRAPH 7.1(b)),
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy Statement, (v) a requested subordination, (vi) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of TWENTY (20) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1(e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or given to Lessor was materially false.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within TWENTY (20) days after written notice, Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. IN THE EVENT OF A BREACH, LESSOR SHALL GIVE NOTICE OF SUCH BREACH TO LESSEE. IF THE BREACH IS NOT CURED WITHIN TWENTY (20) DAYS LESSOR MAY, WITH OR WITHOUT FURTHER NOTICE OR DEMAND, EXERCISE ANY RIGHT OR REMEDY WHICH THE LESSOR MAY HAVE BY REASON OF SUCH BREACH, WITHOUT LIMITATION.
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) 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 Lessee proves could have been reasonably avoided; (iii) 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 Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.
(d) IF LESSEE'S BREACH IS SUCH THAT MORE THAN THIRTY (30) DAYS ARE REASONABLY REQUIRED FOR ITS CURE, THEN IT SHALL NOT BE DEEMED A BREACH IF LESSEE COMMENCES SUCH CURE WITHIN SAID THIRTY (30) DAY PERIOD AND DILIGENTLY PROSECUTES SUCH CURE TO COMPLETION. THIS SECTION 13.2(d) SHALL NOT APPLY TO THE PAYMENTS OF RENTS, WHICH SHALL ONLY BE DEEMED CURED IF PAID CURRENT WITHIN TWENTY DAYS OF WRITTEN NOTICE TO LESSEE.
13.3 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within SEVEN (7) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor (IN ADDITION TO THE OVERDUE RENT) a one-time late charge equal to SEVEN PERCENT (7%) of each such overdue amount. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.4 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to non-scheduled payments. The interest ("INTEREST") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.
13.5 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION"), this Lease shall terminate as to the part taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the Premises, or more than twenty-five percent (25%) of the land area portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such ten day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's
performance, and (iii) if Lessor is the Requesting Party, not more than one month's Rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including, but not limited to, Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each
represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and Attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions
shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lessor's Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disclosure Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including, but not limited to, architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including, but not limited to, consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request.
37. GUARANTOR.
Intentionally omitted
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor
shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, 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 Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within thirty (30) days after request, deliver to the other Party satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.
Executed at: Chico, California Executed at: Brisbane, California
on: 12-11-98 on: 12-11-98
----------------------------------- -----------------------------------
By LESSOR: By LESSEE:
Far Western Land and Investment bebe stores, inc., a California
Company, Inc., a California Corporation
Corporation
By: /s/ Geoffrey A. Farrar By: /s/ Manny Mashouf
----------------------------------- ------------------------------------
Name Printed: Geoffrey A. Farrar Name Printed: Manny Mashouf
Title: President Title: CEO
By: By: /s/ Blair W. Lambert
----------------------------------- ------------------------------------
Name Printed: Name Printed: Blair W. Lambert
------------------------- --------------------------
Title: Title: CFO
-------------------------------- --------------------------------
Address: P.O. Box 1701 Address: 380 Valley Drive
Chico, California 95927 Brisbane, California
94005
Telephone: (530) 893-1277 Telephone: (415) 715-3900
Facsimile: (530) 891-6238 Facsimile: (415) 715-3939
Federal ID No. Federal ID No.
------------------------- ------------------------
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NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017, (213) 687-8777, Fax No. (213) 687-8616
ADDENDUM NO. 1
This is an Amendment No. 1 ("Amendment") dated November 30, 1998, by and between Far Western Land and Investment Company, Inc., a California Corporation ("Landlord") and bebe stores, inc., a California Corporation ("Tenant") to the Lease dated November 30, 1998 for the space located at 400 Valley Drive, Brisbane, California. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to amend the Lease as follows:
50. RENT SCHEDULE:
Tenant shall pay to Landlord on the first day of each month, without offset or deduction, except as may be otherwise provided for in this Lease, the base monthly rent as follows:
February 1, 1999 to April 30, 1999: $17,500.00 per month May 1, 1999 to April 30, 2000: $21,703.13
Beginning May 1, 2000 and each year thereafter during initial lease term, rent shall increase annually by the increase in the Consumer Price Index ("CPI") - All Urban Consumers: San Francisco - Oakland - San Jose with a 2% minimum and 3 1/2% maximum.
51. OPTION TO EXTEND:
Provided no Event of Default has occurred and is then continuing under the Lease, either at the time the option is exercised or at the time the extension of the term takes effect, Tenant shall have an option to extend the Lease term for an additional five (5) year period ("Extended Term") commencing May 1, 2006. Tenant shall give notice of its exercise of the option to extend the term, by giving written notice to Landlord no later than one hundred twenty (120) days prior to the end of the Lease term (April 30, 2006). This option shall be at then fair market rental value for the Premises. The fair market rental shall also include increases during the extended Lease term whether the increase is fixed or tied to the annual change or a percentage thereof of the Consumer Price Index ("CPI") - All Urban Consumers: San Francisco - Oakland - San Jose. Upon Tenant's request, Landlord shall, within 30 days after receipt of Tenant's request, advise Tenant as to the fair market rental value of the Premises. If Tenant disputes Landlord's determination, within 30 days after Tenant notifies Landlord of such dispute, each party shall appoint a licensed real estate appraiser (or real estate agent) having at least five (5) years' experience in commercial real estate in San Mateo County, California, and if, within 30 days after their appointment, such representatives cannot reach agreement, said representatives shall jointly select a third licensed, independent real estate appraiser or real estate agent having similar or higher qualifications to themselves, and such third party shall, within 30 days thereafter, determine the fair market rental value of the Premises, which determination (i) shall be final and binding on all parties. Each party
shall bear the fees and expenses of its own representative, and the fees and expenses of the third party shall be shared equally by Landlord and Tenant.
52. NET CHARGES:
Notwithstanding any other term of this Lease, Tenant shall pay in addition to all rent and related charges to be paid by Tenant under this Lease, to Landlord on a monthly basis an amount equal to $0.075 p.s.f. for the net charges which include real estate taxes, insurance and roof, parking and truck yard, HVAC repair/replacement.
Tenant's net charges shall be adjusted annually for increases in taxes and insurance and any service contracts that Landlord carries instead of Tenant.
53. TENANT IMPROVEMENTS:
A. Landlord shall provide Twenty Thousand and No/100 Dollars ($20,000.00) to Tenant to be used by Tenant to pay for Tenant Improvements. Landlord shall build exterior ADA ramp from parking lot to front of office, repair parking and truck yard area, landscape upgrade, and will split (50/50) with Tenant, the reasonable cost of a new front entry to office.
B. Tenant shall be responsible for all Tenant Improvements to Building constructed with or during the term of this Lease, including any required building upgrades except those Tenant Improvements that are Landlord's responsibility listed above. All Tenant Improvements shall be built in accordance to approved plans meeting all applicable City, Local, State, and Federal Laws and Codes and shall be built in a good and workmanlike manner.
C. Tenant, upon Landlord's request, shall be responsible to remove any additional office space built by Tenant unless Tenant exercises its option as set forth in Paragraph 51.
D. Landlord reserves the right to file a notice of non-responsibility regarding any Tenant Improvement work it Premises.
E. The final approved tenant improvement plans for the building signed by both Landlord and Tenant shall be included with the Lease as Exhibit A. Landlord and Tenant agree that such plans will reflect an increase of existing office space to approximately 10,000 to 12,000 square feet.
54. TENANT OBLIGATIONS:
Notwithstanding the terms of Paragraphs 7.1 or 52, Tenant shall not be responsible to repair, maintain or replace warehouse walls (interiors and exterior), exterior office wall, foundations, parking lot and truck yard, exterior plumbing to the Premises, boilers, pressure vessels, and fences. Tenant shall be solely responsible for the first $1,000.00 per year during the lease term for the repair and maintenance of the roof. Landlord shall be
responsible for the costs of repair and maintenance of the roof in excess of $1,000.00 per year.
55. LANDLORD'S OBLIGATION:
Landlord obligations as outlined in Paragraph 7.2 of the lease shall be modified to the extent that Landlord is responsible to maintain and/or replace warehouse walls (interior and exterior), exterior office wall, foundations, parking lot and truck yard, exterior plumbing from the street and grounds to the building. Landlord shall be responsible for the maintenance and repair of the roof, after Tenant's payment of the first $1,000.00 in roof maintenance and repair expense annually, as provided in Paragraph 54.
Exhibit 10.7
RETAIL STORE LICENSE AGREEMENT
BETWEEN
BEBE STORES, INC.,
A CALIFORNIA CORPORATION
AND
SAKAL DUTY FREE LTD., A DULY REGISTERED ISRAELI PRIVATE COMPANY,
AND
SAKAL SPORTS LTD., A DULY REGISTERED ISRAELI PRIVATE COMPANY
TABLE OF CONTENTS
PAGE
Section 1. Term.............................................................................................2
1.1 Initial Term................................................................................2
1.2 Renewal Term................................................................................2
Section 2. License..........................................................................................3
2.1 Grant and Territory.........................................................................3
2.2 No Sublicenses..............................................................................3
2.3 Use of Licensed Rights......................................................................3
2.4 Relationship of Parties.....................................................................3
Section 3. Approval of Stores...............................................................................4
3.1 Retail Stores...............................................................................4
3.2 Store Location..............................................................................4
3.3 Store Design and Construction...............................................................4
3.4 Store Ownership.............................................................................4
3.5 Store Leases/Termination of Agreement/Lease Continuation....................................4
3.6 Termination of Lease/Closure of Store.......................................................5
3.7 Risk........................................................................................5
3.8 Inspection Prior to Opening.................................................................5
3.9 Photographs of Store Upon Opening...........................................................5
Section 4. Operation of Stores..............................................................................7
4.1 Quality Standards...........................................................................7
4.2 Signs, Packaging, Etc.......................................................................7
4.3 Sequential Invoicing........................................................................7
4.4 Internal Transactions.......................................................................7
4.5 Seconds.....................................................................................7
Section 5. Advertising......................................................................................7
5.1 Contract Year Marketing Plan................................................................7
5.2 Prior Approval..............................................................................7
Minimum Advertising Expenditures. ..................................................................8
Section 6. Insurance........................................................................................8
Section 7. Additional Covenants of Licensee.................................................................9
7.1 Staffing and Notice of Internal Changes.....................................................9
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PAGE
7.2 Financial Standing..........................................................................9
7.3 Customer Relations..........................................................................9
7.4 Scope of Obligations........................................................................9
7.5 Change in Form of Business.................................................................10
7.6 Current Ownership..........................................................................10
7.7 Notice of Proceedings......................................................................10
7.8 Records....................................................................................10
7.9 Audits.....................................................................................11
7.10 Financial Statements.......................................................................11
7.11 Periodic Reports...........................................................................11
7.12 Product Purchase Terms.....................................................................12
7.13 Minimum Product Sales......................................................................12
Section 8. Ownership of the Licensed Rights................................................................12
8.1 Ownership..................................................................................12
8.2 Property...................................................................................12
8.3 No Use of Name.............................................................................12
8.4 Registration...............................................................................12
8.5 No Challenge...............................................................................13
8.6 Infringement Suits.........................................................................13
8.7 Quitclaim of Rights........................................................................13
8.8 Copyrights.................................................................................14
8.9 Power of Attorney..........................................................................14
8.10 Confidential Information...................................................................13
8.11 Disclaimer of Validity.....................................................................14
8.12 Survival...................................................................................15
Section 9. Termination.....................................................................................15
9.1 Termination For Cause......................................................................15
9.2 Grounds For Termination For Cause..........................................................15
9.3 Bankruptcy, Insolvency or Dissolution......................................................16
9.4 Termination Option/No Cure Possible/Additional Causes......................................16
9.5 Substantial Change in Ownership, Management or Control of
Licensee or Commission of Crime............................................................16
9.6 Liability After Termination................................................................17
9.7 Effects of Termination.....................................................................17
9.8 Inventory: Right to Purchase...............................................................18
9.9 Remaining Products.........................................................................18
Section 10. Indemnification and Limitation on Liability....................................................19
10.1 Indemnification............................................................................19
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PAGE
10.2 Defense Counsel............................................................................19
10.3 No Representation or Warranty By bebe......................................................19
10.4 Limitation of Liability....................................................................19
Section 11. General........................................................................................20
11.1 Approval Procedures........................................................................20
11.2 Equitable Relief...........................................................................20
11.3 Assignments, Successors and Assigns.................................................................20
11.4 Notices.............................................................................................20
11.5 Number and Gender; Headings................................................................21
11.6 Severability...............................................................................21
11.7 Amendment and Modification.................................................................21
11.8 Governing Law and Choice of Forum..........................................................22
11.9 Taxes......................................................................................22
11.10 Entire Agreement...........................................................................22
11.11 Government Approvals and Remittances.......................................................22
11.12 Joint and Several Liability; Affiliates....................................................22
11.13 Authority to Make Agreement................................................................23
11.14 No Waiver..................................................................................23
11.15 Remedies Not Exclusive.....................................................................23
11.16 Official Language of Agreement.............................................................23
11.17 Definitions................................................................................24
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RETAIL STORE LICENSE AGREEMENT
THIS RETAIL STORE LICENSE AGREEMENT ("Agreement") is made and entered into effective as of November 1, 1998, between bebe stores, inc., a California corporation having its principal place of business at 380 Valley Drive, Brisbane, California 94005 ("bebe"), and Sakal Duty Free Ltd., a duly registered Israeli private company, and Sakal Sports Ltd., a duly registered Israeli private company, each having their principal place of business at lev Magor Building, 6 Hamachtesh Street, Holon Industrial Area, 58810 Israel (individually and collectively, "Licensee").
RECITALS
1. A glossary of terms used with initial capital letters and other terms defined for purposes of this Agreement is set forth in Exhibit "A" at the end of this Agreement.
2. bebe is the owner the Marks and the Marks represent the substantial goodwill created by bebe through the sale of high quality products and by distributing its products only through retail outlets that conform to bebe's strict standards for appearance, image, customer service and overall high quality.
3. Licensee has represented to bebe that it is experienced in the operation of high quality retail apparel stores that feature high quality store design and fixtures and in the retail sale of high quality designer clothing and related accessories.
4. Licensee desires to secure the right and license to use the Marks solely in connection with the establishment and operation of a store or stores for retail sale of the products of bebe and bebe is willing to grant Licensee a license on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the recitals, premises and mutual covenants contained in this Agreement, the parties agree as follows:
SECTION 1. TERM
1.1 INITIAL TERM. The term of this Agreement shall commence on August 1, 1998 and shall continue until July 31, 2003, unless sooner terminated in accordance with this Agreement ("Initial Term").
1.2 RENEWAL TERM. Licensee shall have the option to renew this
Agreement for a three (3) year term through July 31, 2006 ("Renewal Term"), if
Licensee:
(a) requests renewal in writing at least one hundred
eighty (180) days but not more than two hundred seventy (270) days
before the expiration of the Initial Term;
(b) at the time it requests renewal and as of the expiration of the Initial Term, is in compliance with all the terms of any and all agreements between Licensee and bebe;
(c) Licensee shall have renewed or have the right to renew the lease for its existing Store(s) for a term equal to or greater than the Renewal Term;
(d) Licensee shall have opened at least [* * *] and shall have done any renovation required to bring the existing Stores in compliance with Section 3 of this Agreement; and
(e) Licensee shall have complied with the minimum Product sales set forth in Section 7.13.
The terms of the renewal, other than new Store requirements which are set forth in Section 3.1, shall be negotiated between bebe and Licensee six months prior to the expiration of the Initial Term. If bebe and Licensee do not reach an agreement in writing by three (3) months prior to the expiration of the Initial Term, then the Agreement will expire without renewal. If Licensee breaches the Agreement in any respect, then its option to renew the Agreement will automatically lapse. Neither party has an obligation to renew this Agreement at the end of the Renewal Term and Licensee expressly waives any rights it may have under state, federal or other law to be compensated in any way, including for goodwill, if the Agreement terminates either at the end of the Initial Term or the Renewal Term.
* * * Confidential Treatment Requested.
SECTION 2. LICENSE
2.1 GRANT AND TERRITORY. For the Term and subject to the other terms and conditions of this Agreement, bebe hereby grants to Licensee a limited, exclusive, nontransferable right and license to use the Licensed Rights solely on or in connection with the promotion and Retail Sale of the Products and the operation of the Stores in the Territory. The Licensed Rights may not be used in connection with the design, manufacture, advertisement, promotion or distribution at wholesale of any of the Products or in connection with any other product or service. Licensee does not have the right to use any variation of the Marks that now exist or hereafter are developed by bebe, Licensee or any other person without the prior written consent of bebe.
2.2 NO SUBLICENSES. This Agreement does not confer upon Licensee a right to sublicense or grant any concession in respect to any of the rights or licenses granted to Licensee under this Agreement. Such rights may be granted at bebe's sole discretion and only in writing from bebe to Licensee.
2.3 USE OF LICENSED RIGHTS. Licensee acknowledges that it may be difficult for bebe to obtain registered title to all of its Licensed Rights in the Territory and that the rights and licenses granted under this Agreement only exist to the extent that bebe owns such Licensed Rights. Licensee shall not use the Licensed Rights in any manner that conflicts with the rights of any third party. If Licensee's use of the Licensed Rights infringes the rights of any third party or weakens or impairs bebe's rights in the Licensed Rights, as determined solely by bebe, then Licensee shall immediately terminate or modify such use in accordance with bebe's instructions, and Licensee shall have no right of damages, offset or termination in connection with this Agreement.
2.4 RELATIONSHIP OF PARTIES. The relationship between bebe and Licensee is that of licensor and Licensee of intellectual property rights. In its capacity as Licensee, Licensee shall be acting only as an independent contractor, and not as a partner, co-venturer, agent, employee or representative of bebe. Accordingly, Licensee shall have no authority, either express or implied, to make any commitment or representation on behalf of bebe or incur any debt or obligation on behalf of bebe. To the extent that Licensee purchases any Products from bebe, it will do so for its own account and for resale in the Territory, and not under consignment or representation. The parties acknowledge that Licensee is not a commercial agent of bebe and further acknowledge this Agreement does not constitute a franchise under United States federal or state law or under any law of the Territory or any sovereignty within the Territory and does not create a fiduciary relationship between the parties.
SECTION 3. APPROVAL OF STORES
3.1 RETAIL STORES. Licensee shall open at least [* * *] Before establishing any Store, Licensee shall submit to Bebe for approval any and all information reasonably requested by bebe, using the RETAIL STORE LOCATION APPROVAL FORM (Exhibit "B") and/or the IN-STORE SHOP LOCATION APPROVAL FORM (Exhibit "C"), and shall comply with all of the other obligations set forth in this Section 3.
3.2 STORE LOCATION. The Stores must be located in areas in the Territory that are consistent with the reputation for high quality associated with the Licensed Rights and the Products. The Stores may be independently located or may form a corner or in-store shop, but in all cases the choice of location requires the written prior approval of bebe.
3.3 STORE DESIGN AND CONSTRUCTION. The Stores must be designed, constructed and furnished in all respects in accordance with any plans, standards and specifications required by bebe. In particular, all fittings, fixtures, furnishings, signs, equipment and methods of exterior and interior design must conform to bebe's specifications, including the manner of use of the Marks and other Licensed Rights. Licensee shall submit the original design construction plans as well as any changes that Licensee wishes to make to any approved Store design to bebe in advance for written approval, using (1) the RETAIL STORE LOCATION APPROVAL FORM (Exhibit "B") and/or the IN-STORE SHOP LOCATION APPROVAL FORM (Exhibit "C") and (2) the RETAIL STORE MATERIAL AND FIXTURE LAYOUT APPROVAL FORM (Exhibit "D") and/or the IN-STORE SHOP MATERIAL AND FIXTURE LAYOUT APPROVAL FORM (Exhibit "E"). If any regulation, ordinance or law prevents Licensee from complying with any signage specification, Licensee shall submit a photograph or drawing of the proposed sign that complies with such regulation, ordinance or law to bebe for its prior written approval.
3.4 STORE OWNERSHIP. Unless expressly permitted otherwise by bebe, the business conducted at any Store shall be entirely owned by Licensee.
3.5 STORE LEASES/TERMINATION OF AGREEMENT/LEASE CONTINUATION. The Store premises may be leased by Licensee provided that the terms of any lease contract are acceptable to bebe. Each lease must contain a provision, satisfactory to bebe, granting bebe, at no expense to bebe, the option, but not the obligation, at its sole
* * * Confidential Treatment Requested.
discretion, to assume the lease if this Agreement expires or terminates for any reason prior to the expiration of the lease.
3.6 TERMINATION OF LEASE/CLOSURE OF STORE. In the event a lease for a Store terminates, with or without fault of Licensee, or if a Store is destroyed, condemned or otherwise rendered unusable, or if the landlord for said premises requires a Store to be moved within a mall or shopping center, bebe may in its sole discretion withhold permission for relocation of the Store, and if such permission is withheld, the rights granted o Licensee under this Agreement shall terminate as to that Store.
3.7 RISK. BEBE'S APPROVAL OF A LOCATION FOR A STORE DOES NOT CONSTITUTE A WARRANTY OR GUARANTY THAT A STORE OPERATED AT THAT LOCATION WILL BE SUCCESSFUL. Licensee assumes all risks associated with the selection of the location, and the operation and profitability, or lack thereof, of any Store.
3.8 INSPECTION PRIOR TO OPENING. Licensee shall notify bebe at least twenty (20) days in advance of the proposed opening date of each Store. bebe shall have the right to inspect the Store at any time prior to its opening. No Store shall commence operation until any deficiencies noted by bebe are remedied to the complete satisfaction of bebe.
3.9 PHOTOGRAPHS OF STORE UPON OPENING. Within ten (10) days after the opening of each Store, Licensee shall deliver to bebe two (2) sets of photographs of the Store, each set consisting of one (1) 8 inch x 10 inch photograph that shows the interior and one (1) 8 inch x 10 inch photograph that shows the exterior, of the Store.
SECTION 4. OPERATION OF STORES
4.1 QUALITY STANDARDS. Licensee acknowledges that bebe has made a substantial investment in developing and manufacturing Products of high quality and design and developing and fostering an image and reputation of high quality, design, prestige and integrity under its Marks and that the consuming public and industry now associate the Marks with products of consistently high quality and design. Licensee further acknowledges that the terms and conditions of this Agreement are reasonable and necessary to assure that the Store premises are maintained and the Stores are operated in a manner that is consistent with bebe's image and reputation. Licensee shall comply with the standards of operations and merchandising established by bebe from time to time. bebe may change, review, amend or extend such standards, in its sole discretion, upon reasonable notice to Licensee. Without limitation to the foregoing, Licensee agrees to the following:
(a) to stock at each of the Stores the minimum variety of the Products in commercial quantities of styles and sizes specified by bebe after consultation with Licensee from time to time, but not less than those quantities sufficient to meet the demands of customers of the Stores;
(b) to follow and adhere to the standards, requirements, systems, training, procedures and forms dictated by bebe;
(c) not to sell at the Stores, without the prior written approval of bebe, products not purchased from bebe or its other licensees or products bearing any trademark other than the bebe Marks;
(d) not to use or associate the Marks or other Licensed Rights with any other name, corporate name, store name, trademarks, character or personality;
(e) to maintain the interior and exterior of the Stores and the surrounding premises in safe, good, clean and attractive condition, equal to the standards of the stores operated by bebe in the United States of America;
(f) that all products offered for sale by Licensee in the Stores must bear tags, labels or other items incorporating the Marks;
(g) to comply with all applicable laws, regulations, ordinances, zoning codes, orders and the like as they pertain to the construction, appearance, and operation of the Stores;
(h) to notify bebe immediately of any orders or regulations directed at, or affecting, the Stores, the reasons therefor, and the responsive actions taken and/or planned to be taken by Licensee in connection therewith;
(i) to operate the Stores continuously on such days and during such minimum hours as are required by the commercial district or other development within which each Store is located, or, if there are no such requirements, on such days and during such minimum hours as are customary for similar businesses in the community within which that Store is located;
(j) not to conduct any liquidation sales, going-out-of business sales, auctions or other sales that are not in the ordinary course of business or
that do not conform to the marketing standards of bebe, without the prior written consent of bebe; and
(k) not to permit any lien or other encumbrance to be placed on the Stores or their inventory, without prior approval by bebe.
4.2 SIGNS, PACKAGING, ETC. Licensee shall submit to Bebe for prior written approval all interior and exterior display signs, hangers, price tags, shopping bags, gift boxes, stationery, forms of invoices and receipts, and similar items using the LICENSED RIGHTS APPROVAL FORM (Exhibit "F").
4.3 SEQUENTIAL INVOICING. All sales of the Products at the Stores shall be documented on sequentially numbered sales slips.
4.4 INTERNAL TRANSACTIONS. All transactions between Licensee's wholesale manufacturing business, if any, and the Stores shall be arm's length transactions recorded on the books and records in the same manner as sales to other parties. Upon request, Licensee shall forward to bebe copies of all documents incidental to such transactions including orders, invoices and packing slips.
4.5 SECONDS. Licensee shall not sell any damaged, imperfect, substandard quality or defective goods ("Seconds") under the Marks without the prior written approval of bebe. All Seconds approved for sale shall be marked "B Grade," "Seconds" or "Irregular" and all Seconds not approved shall be destroyed.
SECTION 5. ADVERTISING
5.1 CONTRACT YEAR MARKETING PLAN. Licensee shall prepare a marketing plan for each Contract Year, including planned sales presentations, fashion shows, special events and special promotions and other advertising, with a budget and specifying the media, the date and the time of publication of each planned advertisement or promotional event, which shall be suitable for the Territory and be based upon bebe's marketing program. Licensee shall submit such plan to bebe by no later than thirty (30) days following the date of the Agreement, and thereafter by no later than 30 days prior to the first day of each Contract Year of the Agreement. Licensee shall support any marketing program for the Stores that bebe may develop.
5.2 PRIOR APPROVAL. Licensee shall submit to bebe, for its prior approval, samples of all advertising and other promotional plans and materials, including media placement and scheduling, that Licensee desires to use to promote the Stores or the Marks that have not been prepared or previously approved by bebe,
including without limitation, press releases and interviews for publication in any media. All requests for approval shall be submitted on an ADVERTISING APPROVAL FORM in the form of Exhibit "G" hereto, as modified by bebe from time to time.
5.3 MINIMUM ADVERTISING EXPENDITURES. During the first Contract Year, Licensee shall spend on advertising, public relations for the bebe Marks and brand name promotion a minimum of [* * *] of Licensee's purchases of Products ("Minimum Advertising Expenditure"). During each subsequent Contract Year, the Minimum Advertising Expenditure shall be [* * *] of Licensee's purchases of Products. [* * *] Not later than thirty (30) days after the end of each calendar quarter, Licensee shall submit a report (using bebe's Advertising Expenditure Form, as modified from time to time, in the form of Exhibit "M") showing Licensee's actual advertising expenditures during the preceding calendar quarter, together with advertising tear sheets for such quarter. If Licensee's actual advertising expenditures during any Contract Year are less than the Minimum Advertising Expenditure, then, at the option of bebe, Licensee shall either pay bebe the difference or shall expend the difference on advertising during the current Contract Year in such manner as is directed by bebe.
SECTION 6. INSURANCE
Upon execution of this Agreement and throughout the Term, Licensee, at its sole cost and expense, shall obtain and maintain in full force and effect policies of insurance insuring against those risks customarily insured under broad form comprehensive general liability policies, including without limitation, product liability, completed operations, advertising injury, and contractual liability for Licensee's obligations under this Agreement, substantially in the forms attached hereto as Exhibit "N". Such policies of insurance shall have endorsements or coverage with combined single limits of not less than Three Million Dollars ($3,000,000) plus defense costs and shall name bebe as an additional insured thereunder. Such insurance policy shall provide that it cannot be canceled, modified or not renewed without thirty (30) days' prior written notice to bebe, the "other insurance" clause, if any, will be deleted from such policy, the insurance under such policy shall be primary, and any other insurance in force shall be neither primary nor contributing. The policy shall provide that the insurer waives its right of subrogation in favor of bebe. Within thirty (30) days of the date of execution of this Agreement, Licensee shall furnish to bebe current certificates of insurance issued by the insurer and showing bebe as an additional insured. During the Term, Licensee may not engage in the sale or promotion of any Product or the operation of Stores unless the required insurance coverage is in full force and effect.
* * * Confidential Treatment Requested.
SECTION 7. ADDITIONAL COVENANTS OF LICENSEE
7.1 STAFFING AND NOTICE OF INTERNAL CHANGES. In granting the license to Licensee, bebe is relying upon the personal skills, judgment, abilities and attributes of the persons named in Exhibit "H" as principals of Licensee and upon their personal involvement in the business. Licensee represents and agrees that these named individuals are and will continue to be dedicated to the full time executive management and operation of Licensee's business. Licensee shall employ at each Store: (1) an individual or individuals with suitable qualifications and experience in the high quality retail apparel industry to manage the business and operations of the Store; (2) a merchandiser or merchandisers, I.E., a person or persons responsible for creating and maintaining visual displays, training sales personnel with respect to the sale and promotion of the Products, and monitoring the Store to ensure that the merchandising standards and programs of bebe are maintained, and (3) a staff of trained employees sufficient to operate each of the Stores in accordance with this Agreement and bebe's specifications.
Licensee shall immediately notify bebe of (i) any change in
the activities of Licensee; (ii) the termination of employment for any reason of
a store manager or merchandiser; and (iii) any transaction affecting ownership
or control of Licensee, including without limitation, any transaction affecting
(a) beneficial or record ownership of its capital stock, if a corporation, (b)
the respective interests of its partners, if a partnership, or (c) ownership of
any part of the business, if a sole proprietorship.
7.2 FINANCIAL STANDING. Licensee shall maintain reasonable financial stability and credit standing.
7.3 CUSTOMER RELATIONS. Licensee shall maintain good customer relations in accordance with prudent and reasonable business practices.
7.4 SCOPE OF OBLIGATIONS. Licensee shall not permit or suffer any action to be taken by or through any principal or spouse, directly or indirectly, which would be a violation of this Agreement if carried out by Licensee. Licensee shall not permit or suffer any substantial change in ownership, management or control. A substantial change in ownership, management or control of Licensee shall be deemed to have occurred if more than twenty percent (20%) (by vote or value) of the equity securities of Licensee are transferred to any person who did not own equity securities of Licensee at the time of execution of this Agreement or if any person who owned or controlled more than twenty percent (20%) (by vote or value) of the equity securities of Licensee at the time of execution of this Agreement reduces to twenty
percent (20%) or less any such ownership or control. For purposes of the foregoing, a person shall not be deemed to own or control an equity security if such person has sold, assigned, conveyed, donated or made a gift of, pledged, hypothecated or transferred (voluntarily or by operation of law), any interest in the equity security in question, or agreed to do any of the foregoing. A substantial change in ownership, management or control of Licensee also shall be deemed to have occurred if for any reason any of the individuals identified as principals at the time of execution of this Agreement are not involved in the day to day management of Licensee or do not personally manage and control Licensee's relationship with bebe and its activities under this Agreement. The foregoing is not intended to be an exhaustive list of what constitutes a substantial change in ownership, management or control of Licensee. Notwithstanding the foregoing, Licensee shall be permitted to enter into a written partnership agreement for the ownership, management or control of any of the Stores with the prior written approval of bebe, which approval shall not be unreasonably withheld so long as Licensee maintains fifty-one (51%) or such other voting rights required under the partnership agreement to control all activities of the partnership with respect to the Store. As a condition to such approval, any proposed partner of Licensee shall execute and deliver to bebe a written affirmance of, and joinder in, the obligations of Licensee and all terms hereunder in form acceptable to bebe.
7.5 CHANGE IN FORM OF BUSINESS. Licensee may change its form of business (for example, from partnership to corporation) only after obtaining the prior written approval of bebe. No such change shall release Licensee, any principal of Licensee or any other person from any liability or obligation under this Agreement.
7.6 CURRENT OWNERSHIP. Licensee warrants and represents that Exhibit "I" sets forth completely and accurately all ownership and control of all equity ownership of Licensee as of the date of this Agreement and that Exhibit "H" identifies all of the principals of Licensee.
7.7 NOTICE OF PROCEEDINGS. Licensee shall notify bebe in writing within five (5) days of the commencement or threat of any action, suit, proceeding or investigation or the issuance of any order, writ, injunction, award, judgment or decree before or of any court, tribunal, arbitration panel, agency or governmental instrumentality that may adversely affect the Products or the operations or financial condition of Licensee.
7.8 RECORDS. Licensee shall maintain in reasonable detail and, where applicable, in accordance with international generally accepted accounting principles, consistently applied, separate books of account and records with respect to the sale of all Products at each of the Stores; records of advertising and promotional campaigns
with respect to the Products; records of all inventory of the Products; orders, inquiries, complaints, requests for service and other correspondence with respect to the Products; employment records with respect to persons who carry out activities of Licensee pursuant to this Agreement; and records of other services, activities and transactions of Licensee with respect to the Products. These records shall be retained and shall be open for inspection, copying, extracting and audit by bebe or its employees, agents or representatives during normal business hours during the Term and for at least three years following termination or expiration of this Agreement. Licensee shall inform bebe of any relocation of the books and records in writing. Licensee shall not relocate the books and records outside the Territory without bebe's prior written consent.
7.9 AUDITS. bebe and its employees, agents, representatives or independent auditors certified under Israeli law shall have the right, at reasonable times and without undue disruption of Licensee's normal business, to conduct audits with respect to the books, records, and all other documents and material in the possession or under the control of Licensee relating to this Agreement. bebe shall bear the cost of all audits and shall provide a copy of any written audit report to Licensee. If any such audit, however, discloses that Licensee has violated any provision of this Agreement or that payments due to bebe under this Agreement exceed the amount of payments actually made to bebe by an amount greater than three percent (3%) of the payments made, Licensee shall immediately pay the cost of the audit and each unpaid payment discovered in the audit plus interest at a rate of ten percent (10%) per annum calculated from the date such payment was actually due until the date such payment is, in fact, actually paid.
7.10 FINANCIAL STATEMENTS. No later than ninety (90) days after the close of Licensee's fiscal year, Licensee shall provide to bebe in English annual financial statements of Licensee, which shall be audited or unaudited on a review basis, prepared by an independent certified accountant of Licensee's choice and acceptable to bebe, which statements shall include an income statement and a balance sheet of Licensee prepared in accordance with generally accepted accounting principles, consistently applied. If unaudited, an officer of Licensee shall certify under penalty of perjury that the financial statements are true and correct, and have been prepared in accordance with generally accepted accounting principles, consistently applied.
7.11 PERIODIC REPORTS. Licensee shall submit to bebe the following reports, at the intervals indicated:
(a) thirty (30) days after the end of each month the bebe MONTHLY RETAIL STORE REPORT (Exhibit "J"), for each Store;
(b) each April 1, and at such other times as bebe may reasonably request, a list of the addresses of all of the Stores as well as photographs of each Store that accurately show its current condition;
(c) any other information relating to the operation of the Stores and the sale of the Products that bebe may reasonably request from time to time, including, without limitation, photographs of the Stores and daily sales reports.
7.12 PRODUCT PURCHASE TERMS. Licensee shall purchase Products from bebe in accordance with the terms set forth on Exhibit "M" hereto.
7.13 MINIMUM PRODUCT SALES. Licensee shall sell monthly from each Store a minimum of [* * *].
SECTION 8. OWNERSHIP OF THE LICENSED RIGHTS
8.1 OWNERSHIP. Licensee acknowledges that (i) the Licensed Rights are owned solely and exclusively by bebe, (ii) nothing contained in this Agreement shall give to Licensee any right, title or interest in the Licensed Rights, other than the express license granted in Section 2.1 of this Agreement, and (iii) Licensee's use of the Licensed Rights shall inure only to the benefit of bebe.
8.2 PROPERTY. Licensee shall not use any Licensed Rights except for the purpose of fulfilling its duties under this Agreement and in a manner authorized in writing by bebe.
8.3 NO USE OF NAME. Licensee shall not use any of the Licensed Rights as a store name, trade name, service mark, corporate name, business name, trade style, fictitious business name or d.b.a. Any authorized or unauthorized use shall inure solely to the benefit of bebe, and authorized or unauthorized use by Licensee shall not confer on Licensee any right, title or interest in the Licensed Rights except as granted in Section 2.1 of this Agreement.
8.4 REGISTRATION. Licensee shall not seek or obtain any registration of the Marks (including any colorable imitations, translations or transliterations thereof) in any name or participate directly or indirectly in such registration anywhere in the world without bebe's prior written consent. If Licensee has obtained or obtains in the future, in any country, possession or territory in the world, any right, title or interest in the Marks (including any colorable imitations, translations or transliterations thereof), or in any marks which are confusingly similar to the Marks (including any colorable imitations, translations or transliterations thereof)
* * * Confidential Treatment Requested.
or in any other trademark or service mark owned by bebe, Licensee has so acted or will act as an agent and for the benefit of bebe for the limited purpose of obtaining such registrations and assigning them to bebe. Licensee shall execute any and all instruments deemed by bebe, or its respective attorneys or representatives, to be necessary to transfer such right, title or interest to bebe. If the laws of the Territory require or permit the registration of any Marks, Licensee shall assist bebe in obtaining such registration in a timely and effective manner; provided, however, that the failure to obtain such registrations shall not affect the validity of this Agreement.
8.5 NO CHALLENGE. During the Term, Licensee shall not, directly or indirectly, take any action challenging, questioning or opposing the validity of the Marks or any other trademarks or service marks owned by bebe.
8.6 INFRINGEMENT SUITS. Licensee shall be vigilant in detecting any possible infringements, claims or actions in derogation of any Licensed Rights by any third parties and shall inform bebe promptly of any such infringement, claim or action; provided, however, that bebe shall have the sole right to determine whether any action shall be taken on account of such infringement, claim or action and Licensee shall not take any action on account of such infringement, claim or action without the prior written consent of bebe. If bebe initiates any legal proceedings on account of any such infringement, claim or action, Licensee shall cooperate with and assist bebe to the extent reasonably necessary to protect the Licensed Rights, including without limitation, being joined as a necessary or desirable party to such proceedings and, sharing pro rata, with bebe, and other licensees and distributors of bebe, if any, benefiting from the proceeding, in the expenses of such proceeding, including attorneys' fees and legal expenses. The damages or other recovery received from such proceedings shall be shared in proportion to the expenses borne by the parties. Licensee shall have no claim against bebe for damages if bebe determines, in its sole discretion, that it is not in the best interest of bebe and Licensee to initiate any legal proceedings on account of any such infringement, claim or action, or if bebe settles or resolves any such proceedings which may be initiated.
8.7 QUITCLAIM OF RIGHTS. Licensee acknowledges the exclusive right, title and interest of bebe in and to the Licensed Rights and hereby quitclaims to bebe any right, title or interest it has or may acquire with respect to the Licensed Rights, including without limitation any right, title or interest it may acquire through the unauthorized use of the Licensed Rights as a trade name, service mark, business name, trade style, fictitious business name or d.b.a. or the use of the bebe trade name and service mark as a Store name.
8.8 COPYRIGHTS. If Licensee, alone or with others, develops any written material pertaining to the Products or bebe which may be copyrighted, it hereby assigns all right to obtain such copyrights to bebe. Such material shall be deemed "made for hire" under U.S. copyright law, thereby vesting ownership in bebe.
8.9 POWER OF ATTORNEY. Licensee hereby irrevocably appoints bebe as its attorney-in-fact for the limited purpose of executing any and all documents and performing any and all other acts necessary to give effect and legality to the provisions of Section 8 of this Agreement.
8.10 CONFIDENTIAL INFORMATION. Before or during the Term, each party may or will be made aware of Confidential Information of the other party relating to the Products, the Licensed Rights, the license and arrangement created under this Agreement, present or anticipated products, processes, know-how, customers, sales, business affairs, contractual arrangements, identities of employees, agents or representatives or similar information. Information shall be considered Confidential Information if the delivering party so informs the receiving party or if the receiving party knew or reasonably should have known that the information was confidential. Information shall not be considered confidential if the information is in the public domain or if a party can demonstrate that it acquired the information from another source without the source or such party breaching a confidentiality agreement or other confidentiality obligation. During and after the Term, each party shall maintain in strict confidence and shall not disclose, except to its employees who must have access to it in order to exercise its rights and license under this Agreement, or as expressly permitted by any written agreement between Licensee and bebe, or as required by law, any Confidential Information. Each party shall take every reasonable precaution to protect the confidentiality of the Confidential Information, consistent with the higher of the standard of care that such party exercises with respect to its own confidential information or the standard of care that an ordinarily prudent business would exercise to protect its own confidential information.
8.11 DISCLAIMER OF VALIDITY. bebe makes no representation or warranty as to the validity or enforceability of the Licensed Rights nor as to whether the Marks infringe upon or interfere with any property rights of third parties. bebe is not certain if it will be successful in obtaining or maintaining registration of the Marks in the Territory. Licensee acknowledges that applications for registration of the Marks are pending. Licensee and bebe shall cooperate with each other in order to prosecute bebe's applications. If it is determined at any time that bebe does not have the right to use the Licensed Rights, or any portion thereof, within the Territory, Licensee shall immediately refrain from using the Licensed Rights and selling the Products in the
Territory and shall have no claims against bebe for damages caused by such cessation or termination or otherwise caused.
8.12 SURVIVAL. Notwithstanding anything in this Agreement to the contrary, this Section 8 shall survive termination or expiration of this Agreement.
SECTION 9. TERMINATION
9.1 TERMINATION FOR CAUSE. In the event Licensee breaches this Agreement, bebe may give written notice of the nature of the breach to Licensee and Licensee shall have ten calendar days to cure the breach. If Licensee does not cure the breach within the ten calendar days then bebe may terminate this Agreement effective upon written notice to Licensee. Failure of bebe to give such written notice will not in any event constitute a waiver of such breach. Upon the giving of a notice of breach for the third time during the Term, for any reason, Licensee shall no longer have the right to cure any violation, and termination shall be effective upon the giving of said third notice.
9.2 GROUNDS FOR TERMINATION FOR CAUSE. Set forth below is a nonexhaustive list of breaches by Licensee that would entitle bebe to terminate this Agreement and the rights and licenses granted to Licensee if the breaches were not cured during the applicable cure period:
9.2.1 Failure of Licensee to maintain or operate the Stores in accordance with this Agreement;
9.2.2 Commission by Licensee of a material violation of any applicable laws in the Territory in connection with the ownership or operation of the Store or the retail sale of the Products;
9.2.3 The making by Licensee of any warranties or representations on behalf of bebe that have not been specifically authorized in writing by bebe;
9.2.4 Sales by Licensee of products in the Stores other than products purchased from bebe or its other licensees or of the Products other than under the Marks, or the use of the Marks in any manner that violates this Agreement;
9.2.5 Sales by Licensee of Products other than through Stores unless expressly authorized under a separate license or distribution agreement with bebe; or
9.2.6 Abandonment by Licensee of its business or the activities required under this Agreement.
9.3 BANKRUPTCY, INSOLVENCY OR DISSOLUTION. In the event of insolvency, bankruptcy or dissolution of Licensee, bebe shall have the option to terminate immediately this Agreement, without giving Licensee an opportunity to cure, with the termination effective upon written notice to Licensee. The license and rights granted herein are personal to Licensee. No assignee for the benefit of creditors, receiver, debtor in possession, trustee in bankruptcy, sheriff or any other officer of court charged with taking over custody of Licensee's assets or business, shall have any right to continue performance to exploit or in any way use the Marks or the Licensed Rights if this Agreement is terminated, except as may be required by law.
9.4 TERMINATION OPTION/NO CURE POSSIBLE/ADDITIONAL CAUSES. bebe may terminate this Agreement immediately, WITHOUT ANY RIGHT TO CURE BY LICENSEE, upon the occurrence of any one or more of the following:
9.4.1 Licensee opens a Store that was not approved by bebe in
advance in writing;
9.4.2 Licensee uses or authorizes the use of signs,
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construction materials, advertising or packaging materials that are not approved by bebe in advance in writing or that bebe has disapproved;
9.4.3 Licensee sells or ships the Products to customers
outside the Territory;
9.4.4 Licensee sells products not bearing the Marks in the
Stores;
9.4.5 Licensee reports materially incorrect or false
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financial information, including sales information;
9.4.6 Licensee fails to open and operate at all times during the Term the number of Stores required by Section 3.1.
9.4.7 Licensee fails meet the minimum sales per square foot per Store set forth in Section 7.13.
9.5 SUBSTANTIAL CHANGE IN OWNERSHIP, MANAGEMENT OR CONTROL OF LICENSEE OR COMMISSION OF CRIME. In the event that any substantial change in the
ownership, management or control of Licensee occurs or in the event that Licensee or any of its principals commits any crime, act of dishonesty, fraud or other act that may substantially affect the business reputation of Licensee, any of its principals or bebe, then bebe shall have the option to terminate immediately this Agreement effective upon written notice.
9.6 LIABILITY AFTER TERMINATION. Termination of this Agreement for any reason shall not, unless otherwise expressly provided in this Agreement, affect:
9.6.1 Obligations accrued prior to the effective date of
termination; or
9.6.2 Any obligations which, either expressly or from the
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context of this Agreement, are intended to survive termination of this Agreement.
9.7 EFFECTS OF TERMINATION. Upon any termination of this Agreement:
9.7.1 Any indebtedness of Licensee to bebe shall become immediately due and payable and bebe may retain as security or apply as payment against any such indebtedness any Products of Licensee in the possession of bebe.
9.7.2 bebe shall not be liable to Licensee, either for compensation or for damages of any kind, whether on account of loss by Licensee or any other person, of present or prospective profits on present or prospective sales, investments or goodwill, and Licensee hereby waives any rights which may be granted to it by sovereign entities or any political subdivision in the Territory or otherwise which are not granted to it by this Agreement.
9.7.3 Within three (3) days after the expiration or termination of this Agreement for any reason, Licensee shall remove and, within fourteen (14) days after expiration or termination of this Agreement, shall deliver to bebe, all exterior and interior Store signs and displays bearing the Marks and Licensed Rights as well as all other Store promotional materials, including mailers, flyers, brochures, shopping bags, tags, business cards and letterhead, bearing, the Marks or the Licensed Rights.
9.7.4 Each party shall continue to maintain in confidence any and all Confidential Information. Within fourteen (14) days after such expiration or termination, Licensee will return to the bebe, at Licensee's expense, all exterior and interiors signs and displays bearing the Marks or other Licensed Rights, all packaging, labels, tags, promotional or advertising materials or other materials and documents
relating to the Products, Licensed Rights or any Confidential Information or, at the election of bebe, destroy or otherwise dispose of such material as bebe may direct.
9.7.5 Within five (5) days after the expiration or termination, Licensee shall notify in writing all telephone companies, business directories, chambers of commerce and appropriate governmental agencies of the expiration or termination of this Agreement and terminate any listing making reference to any of the Licensed Rights or the licensing arrangement and shall provide copies of such notices to bebe. If Licensee fails to notify such entities, Licensee authorizes Bebe to do so as its agent for this limited purpose.
9.8 INVENTORY: RIGHT TO PURCHASE. Upon expiration or termination of this Agreement for any reason, Licensee shall immediately notify bebe of the Products remaining in Licensee's possession or under its control and unsold on the date of termination or expiration (the "Remaining Inventory"). bebe shall have the option (but not the obligation), upon notice to Licensee within thirty (30) days after receipt of Licensee's inventory of the Products, to repurchase all or any part of the Remaining Inventory at a price equal to the price paid by Licensee for the Products plus freight and duties (unless Licensee can obtain duty reimbursement). Licensee shall deliver products purchased by bebe within fifteen (15) days after receipt of the notice of bebe's intention to purchase the inventory. Payment shall be due upon delivery, provided, however, that bebe may deduct from the purchase price for such Products any mount owed to it by Licensee.
9.9 REMAINING PRODUCTS. Products not sold by Licensee in accordance with this Section 9 shall be destroyed or may be sold only after the Marks and features embodying Licensed Rights have been removed therefrom (which removal may be inspected by bebe, its agents and/or representatives) prior to sale, unless the parties agree otherwise in writing.
(a) IF AGREEMENT EXPIRED. In the event this Agreement has expired in accordance with its terms, as to any Products not purchased by bebe, Licensee may sell such Products on a non-exclusive basis in accordance with this Agreement; provided, however, Licensee shall have only ninety (90) days after the date of expiration to sell and ship such Products.
(b) IF AGREEMENT TERMINATED. If the rights granted to Licensee under this Agreement have been terminated for any reason or cause specified in Section 9.4 of this Agreement, Licensee may not sell any Products bearing the Marks.
SECTION 10. INDEMNIFICATION AND LIMITATION ON LIABILITY
10.1 INDEMNIFICATION. Licensee shall indemnify, hold bebe and its officers, directors, shareholders, employees, agents, independent contractors, representatives, and affiliates, harmless, and defend bebe and its officers, directors, shareholders, employees, agents, independent contractors, representatives, and affiliates, from and against any loss, damage, liability, or expense, including attorneys' fees and disbursements, whether or not Licensee's conduct was tortious and limited to the extent bebe's conduct contributed to the claim, arising in connection with:
10.1.1 Any activities of Licensee or its employees, agents, representatives or affiliates, under or in connection with this Agreement.
10.1.2 Any breach by Licensee of this Agreement;
10.1.3 Claims or demands for injury to property or persons, including payments made under any workers' compensation or under any other plan for employees' disability or death benefits, made by any person in connection with the advertising, promotion, distribution, sale or use of Products or the operation of the Stores by Licensee or by its employees, agents, representatives or affiliates or Licensee's customers or invitees; or
10.1.4 Claims or demands of any customer of Licensee arising out of the operation of the Store or any sale or use of the Products.
10.2 DEFENSE COUNSEL. Licensee shall defend bebe, with counsel acceptable to bebe, with respect to each and every claim for which bebe is indemnified by Licensee under this Agreement. Licensee shall pay for the services of such counsel upon counsel's presentation of legal bills or requests for retainer.
10.3 NO REPRESENTATION OR WARRANTY BY BEBE. Licensee acknowledges that bebe has made no representation or warranty except as expressly provided in this Agreement.
10.4 LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES, INCLUDING ANY BREACH OR ALLEGED BREACH OF THIS AGREEMENT BY BEBE OR ANY OTHER PERSON AND THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY REMEDY INTENDED TO BENEFIT LICENSEE, SHALL BEBE OR ANY OF ITS OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS, REPRESENTATIVES, OR AFFILIATES, HAVE ANY LIABILITY OR
OBLIGATION TO ANY CUSTOMER OF LICENSEE, OR TO LICENSEE OR TO ANY OF ITS OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS, REPRESENTATIVES, AUTHORIZED RETAILERS OR AFFILIATES, FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES, LOST PROFITS, ANTICIPATED INCOME OR PROFITS, OR OTHER SIMILAR DAMAGES.
SECTION 11. GENERAL
11.1 APPROVAL PROCEDURES. The approval of bebe or the exercise of its discretion as to any request or proposal made by Licensee under any section of this Agreement shall be at the absolute and sole subjective discretion of bebe. A submission for approval shall be deemed DISAPPROVED unless bebe delivers a notice of approval within twenty (20) business days. bebe has no obligation to approve, review or consider any item that does not strictly comply with the required submission procedures. bebe shall designate the procedure that was not followed. Approval by bebe shall not be construed as a determination that the approved matter complies with all applicable regulations and laws.
11.2 EQUITABLE RELIEF. Licensee acknowledges that there will be no adequate remedy at law for its failure to comply with certain terms of this Agreement, including its obligation to cease the manufacture, sale, advertisement, promotion or distribution of the Products upon expiration or termination, its obligations with respect to the Licensed Rights and the obligation to maintain the confidentiality of Confidential Information. Accordingly, if Licensee fails to comply with the terms of this Agreement, bebe shall have the right to have any breach of this Agreement remedied by equitable relief by way of a temporary restraining order, preliminary injunction, permanent injunction, and such other alternative relief as may be appropriate without the necessity of bebe posting any bond or proving any damages.
11.3 ASSIGNMENTS, SUCCESSORS AND ASSIGNS. bebe shall be entitled to assign any or all of its rights or delegate any or all of its duties under this Agreement. Licensee shall not assign (by operation of law or otherwise) any of its rights or delegate any of its duties under this Agreement without the prior written consent of bebe. All representations, warranties, covenants and agreements of the parties shall bind their respective successors and assignees and shall inure to the benefit of their respective successors and permitted assignees.
11.4 NOTICES. Any notice, request, demand, or other communication required or permitted under this Agreement, shall be deemed to be properly given by the sender and received by the addressee (i) if personally delivered; (ii) three (3) days
after deposit in the mails if mailed by certified or registered air mail, postage prepaid; (iii) twenty-four (24) hours after being sent by facsimile with confirmation sent as provided in (ii) above; or (iv) twenty-four (24) hours after being sent by commercial overnight mail, addressed as follows, and in the case of facsimile transmission, to the appropriate facsimile number shown below:
To bebe: bebe stores, inc.
380 Valley Drive
Brisbane, California 94005
Phone No.: 415-695-0185
Facsimile No.: 415-695-0387
Attention: Vice President -
Licensing
To Licensee: Sakal Duty Free Ltd.
and Sakal Sports Ltd.
lev Magor Building
6 Hamachetesh Street
Holon Industrial Area, 58810 Israel
Phone No.: 972-3-5599840
Facsimile No.: 972-3-5599846
Attention: Haim Sakal
|
or to such other address or facsimile number as from time to time may be given in the manner permitted above.
11.5 NUMBER AND GENDER; HEADINGS. Each number and gender used in this Agreement shall be deemed to include each other number and gender as the context may require. The headings and captions contained in this Agreement shall not constitute a part thereof and shall not be used in its construction or interpretation.
11.6 SEVERABILITY. If any provision of this Agreement is found by any court of competent jurisdiction to be invalid or unenforceable, such provision shall be deemed to be modified to the minimum extent necessary to cause it to be valid and enforceable and the invalidity or unenforceability of such provision prior to such modification shall not affect the other provisions of this Agreement and all provisions not affected by the invalidity or unenforceability shall remain in full force and effect.
11.7 AMENDMENT AND MODIFICATION. This Agreement may be amended or modified only by a writing executed by all parties.
11.8 GOVERNING LAW AND CHOICE OF FORUM. This Agreement shall be construed and governed in accordance with the internal laws of the State of California. The parties agree that this Agreement is executed and delivered in the State of California. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.
In order to expedite the resolution of legal disputes, bebe may, at its sole option, elect to have this Agreement construed in accordance with the laws and regulations of the Territory or any portion thereof. All disputes arising in connection with this Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules, whose decision shall be binding on the parties. Such arbitration shall be conducted in the English language. bebe shall have the right to select, in its sole discretion, the place of arbitration within California or within the Territory.
11.9 TAXES. Licensee shall be responsible for collection, remittance and payment of any and all taxes, charges, withholding obligations, levies, assessments or other fees of any kind imposed by any governmental authority with respect to the manufacture, sale, importation or other disposition of the Products (other than taxes on the income or gross receipts of bebe). Licensee shall provide certified proof of payment to bebe within ten (10) days of payment thereof.
11.10 ENTIRE AGREEMENT. This Agreement covers all contracts and agreements between the parties relating to the subject matter of this Agreement. All other contracts and agreements between the parties which relate thereto are hereby terminated.
11.11 GOVERNMENT APPROVALS AND REMITTANCES. In the event that any approval with respect to this Agreement or any registration thereof will be required, initially or at any time during the Term, in order to give the Agreement legal effect, Licensee agrees immediately to take whatever steps may be necessary in this respect; and any charges incurred in connection therewith shall be borne by Licensee.
11.12 JOINT AND SEVERAL LIABILITY; AFFILIATES. Each Licensee shall be jointly and severally liable for all duties, obligations, covenants and restrictions of Licensee under this Agreement. In the event that any affiliate of Licensee participates in any respect in the enjoyment of rights or the performance of any duties of Licensee hereunder, such affiliate shall be fully obligated under this Agreement to the same extent as Licensee.
11.13 AUTHORITY TO MAKE AGREEMENT. Each party warrants and represents that it has the power to enter into this Agreement and perform in accordance with the provisions hereof and that the execution and performance of the Agreement has been duly and validly authorized in accordance with all applicable laws and governing instruments.
11.14 NO WAIVER. No waiver of any breach of any of the provisions of this Agreement shall be construed to be a waiver of any succeeding breach of the same or any other provision.
11.15 REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, except as expressly provided in this Agreement or any Exhibit thereto, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise. The election of any one or more remedies shall not constitute a waiver of the right to pursue other available remedies.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE
REMEDIES OF LICENSEE SHALL BE LIMITED AS PROVIDED IN
SECTION 10.4.
11.16 OFFICIAL LANGUAGE OF AGREEMENT. The parties understand and agree that this document has been prepared only in the English language and that the English language is the official language of this Agreement. It is specifically understood and agreed that no party to this Agreement will assert or allege that it did not understand each and every term and condition of this Agreement, and each party further acknowledges that prior to entering into this Agreement, it could have sought interpretation of the Agreement in the native language of the persons signing the Agreement on such party's behalf, but chose not to do so.
11.17 DEFINITIONS. The definitions set forth in Exhibit "A" are incorporated herein and made a part of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
"bebe":
bebe stores, inc., a California corporation
By: /s/ Manny Mashouf
------------------------------------
Manny Mashouf
President and Chief Executive Officer
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"Licensee":
Sakal Duty Free Ltd., a duly registered Israeli private company
By: /s/ Solly Sakal
------------------------------------
Name: Solly Sakal
-----------------------------------
Title: CEO & Chairman of the Sakal Group
------------------------------------
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Sakal Sports Ltd., a duly registered Israeli private company
By: /s/ Haim Sakal
------------------------------------
Name: Haim Sakal
-----------------------------------
Title: CEO
------------------------------------
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LIST OF EXHIBITS
Exhibit "A" Glossary Exhibit "B" Retail Store Location Approval Form Exhibit "C" In-Store Shop Location Approval Form Exhibit "D" Retail Store Material and Fixture Layout Approval Form Exhibit "E" In-Store Shop Material and Fixture Layout Approval Form Exhibit "F" Licensed Rights Approval Form Exhibit "G" Advertising Approval Form Exhibit "H" Principals of Licensee Exhibit "I" Ownership of Licensee Exhibit "J" Monthly Retail Store Report Exhibit "K" Products Exhibit "L" Territory Exhibit "M" Product Purchase Terms Exhibit "N" Insurance Policies |
EXHIBIT "A"
GLOSSARY OF TERMS
"Advertising" means any communication through any medium directed to the trade or public, including trade and public directory listings, store window displays, posters, point of sale materials and billboards.
"Confidential Information" has the meaning ascribed to it in
Section 8.10.
"Contract Year" means each twelve (12) month period during the Term beginning on August 1 and ending on July 31.
"Licensed Rights" means collectively the Marks.
"Marks" means BEBE as depicted in Application No. 120631 filed for International Class 35 with the Israeli Trademark Office on June 28, 1998; however, that the appearance and/or style of the Marks may vary from time to time as specified by bebe in its sole discretion without affecting this Agreement.
"Products" means solely the products of bebe specified on Exhibit "K" attached hereto and incorporated herein by reference. bebe shall determine, in its sole discretion, whether a particular product or article falls within the definition of Products and bebe reserves the right, in its sole discretion, to eliminate any design as a Product at any time. bebe also reserves the right to add new designs as Products.
"Renewal Term" has the meaning ascribed to it in Section 1.2.
"Retail Sale" means a sale made at retail price to a consumer.
"Seconds" has the meaning ascribed to it in Section 4.5.
"Store" or "Stores" means [* * *] square foot stores, including in-store shops, owned and operated entirely by Licensee (or sublicensees approved by bebe) that (a) carry the Products exclusively for sale to the general public, (b) bear as their store name, exclusively, the "bebe" service mark, and (c) conform to the requirements of bebe.
EXHIBIT "A" -- Page 1
* * * Confidential Treatment Requested.
"Term" means the Initial Term together with the Renewal Term, if applicable.
"Territory" means solely the geographic area designated specifically on Exhibit "L" attached hereto and incorporated herein by reference, as amended from time to time pursuant to this Agreement.
"Trade Secrets" means information including a formula, pattern, compilation, program, device, method, technique or process, that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
EXHIBIT "A" -- Page 2
EXHIBIT "B"
RETAIL STORE LOCATION APPROVAL FORM
NEW STORE / /
BEBE (CHECK ONE)
REMODEL / /
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DATE: ___________________
NAME OF LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________ PROPOSED OPENING DATE: _____________________ SQUARE FTG.: _________________ |
WHO OWNS THE STORE? (CIRCLE ONE) LICENSEE DISTRIBUTOR SUB-LICENSEE
IF THERE ARE MULTIPLE OWNERS OF THE STORE, LIST THE OWNERS BY PERCENTAGE OF OWNERSHIP, AND WHO HAS THE CONTROLLING INTEREST.
1) __________________________________ 3) ________________________________
2) __________________________________ 4) ________________________________
A) PHOTO OF STORE LOCATION, AND A LAYOUT OF ADJACENT VENDORS.
B) DEMOGRAPHIC INFORMATION, INCLUDING A MAP OF THE AREA WHERE THE STORE WILL BE LOCATED
C) RETAIL SALES PROJECTIONS FOR THE FIRST THREE YEARS
APPROVED / / DISAPPROVED / /
ALL INTERNAL AND EXTERNAL PLANS (INCLUDING FIXTURE LAYOUT) MUST BE APPROVED PRIOR TO BEGINNING STORE CONSTRUCTION. PLEASE BE AWARE THAT NO STORE MAY BE OPENED UNTIL HAS GIVEN FINAL WRITTEN APPROVAL.
COMMENTS: ___________________________________________________________________
EXHIBIT "C"
IN-STORE SHOP LOCATION APPROVAL FORM
BEBE
DATE: ________________________
NAME OF LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________ PROPOSED OPENING DATE: _____________________ SQUARE FTG.: _________________ |
A) PHOTO OF STORE LOCATION, AND A LAYOUT OF ADJACENT VENDORS.
B) MAP OF AREA WITH STORE INDICATED AND DEMOGRAPHICS.
C) RETAIL SALES PROJECTIONS FOR THE FIRST THREE YEARS
APPROVED / / DISAPPROVED / /
PLEASE BE AWARE NO STORE CAN BE OPENED UNTIL STORE LOCATION, FIXTURE PLANS AND ELEVATION PLANS SHOWING POSTER REPRESENTATION AND STORE SIGNAGE HAVE BEEN APPROVED BY .
COMMENTS: ___________________________________________________________________
EXHIBIT "D"
RETAIL STORE MATERIAL AND FIXTURE
LAYOUT APPROVAL FORM
NEW STORE / /
BEBE (CHECK ONE)
REMODEL / /
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DATE: ___________________
NAME OF
LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________
AVERAGE SQUARE FTG.: _______________________
NEW MATERIALS SUBMITTED: (CHECK ONE) YES ______________ NO ______________
A) FLOOR PLANS SHOWING FIXTURE LAYOUT.
B) EXTERIOR STORE FRONT ELEVATION PLANS WITH ALL MATERIALS SPECIFIED.
C) INTERIOR ELEVATIONS SHOWING ALL SIGNAGE, POSTER LOCATIONS, STOCKROOM LOCATIONS, MIRRORS AND ALL MATERIALS SPECIFIED.
D) SAMPLE AND MATERIAL BOARD INCLUDING FLOORING, WALL TREATMENTS, HARDWARE, METAL FINISHES AND PAINT COLOR.
MATERIAL SAMPLES ONLY NEED TO BE SUBMITTED FOR THE FIRST STORE, OR
WHEN MAKING CHANGES IN STORE DESIGN
APPROVED / / DISAPPROVED / /
ALL CHANGES IN STORE DESIGN, MATERIALS OR FIXTURE DIMENSIONS MUST BE RE-SUBMITTED TO PRIOR TO BEGINNING STORE CONSTRUCTION.
COMMENTS: ___________________________________________________________________
EXHIBIT "E"
IN-STORE SHOP MATERIAL AND FIXTURE
LAYOUT APPROVAL FORM
NEW STORE / /
BEBE (CHECK ONE)
REMODEL / /
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DATE: ___________________
NAME OF
LICENSEE/DISTRIBUTOR: ______________________ NAME OF STORE: ______________
AVERAGE SQUARE FTG.: _______________________
NEW MATERIALS SUBMITTED: (CHECK ONE) YES ______________ NO ______________
A) INTERIOR AND EXTERIOR (IF APPLICABLE) ELEVATION PLANS SHOWING SHOP LAYOUT, INTERIOR WALLS, SHOP SIGNAGE, AND POSTER REPRESENTATION.
B) MATERIAL SAMPLE INCLUDING FIXTURE WOOD SAMPLE, HARDWARE, PAINT COLOR, WALL TEXTURE, METAL FINISHED AND ALL FLOOR SAMPLES.
MATERIAL SAMPLES ONLY NEED TO BE SUBMITTED FOR THE FIRST SHOP, OR
WHEN MAKING CHANGES IN STORE DESIGN
APPROVED / / DISAPPROVED / /
ALL CHANGES IN SHOP DESIGN, MATERIALS OR FIXTURE DIMENSIONS MUST BE RE-SUBMITTED TO PRIOR TO BEGINNING SHOP CONSTRUCTION.
COMMENTS: ___________________________________________________________________
EXHIBIT "F"
LICENSED RIGHTS APPROVAL FORM
BEBE
NAME OF LICENSEE _________________________________________________________
LICENSED PRODUCT(S) _________________________________________________________
DESCRIPTION OF USE __________________________________________________________
/ / CONCEPT DESIGN / / COLOR INDICATION / /FINISHED ART / / PRODUCTION SAMPLE
/ / FINAL SAMPLE
/ / APPROVED _________________ / / DISAPPROVED ___________________
COMMENTS / SUGGESTIONS: ____________________________________________________
IF SUBMISSION IS A LABEL OR HANGTAG, NAME AND ADDRESS OF SUPPLIER:
ATTACH A SAMPLE OF USE IN THIS SPACE OR AFFIX TO A SEPARATE PAGE
EXHIBIT "G"
ADVERTISING APPROVAL FORM
BEBE ADVERTISING APPROVAL FORM
-------------------------
(SUBMISSIONS MAY BE APPROVED ONLY IN WRITING AND ONLY IF ALL
CHANGES ARE MADE).
NAME OF LICENSEE _________________________________________________
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LICENSED PRODUCT(S) _________________________________________________
/ / FULL PAGE AD / / BILLBOARD / / OTHER ______________________________
NAME OF PUBLICATION: ________________________________________________________
COUNTRY: ____________________________ ISSUE DATE: ________________________
AD POSITION (AS DETAILED AS POSSIBLE): ______________________________________
/ / LEFT HAND PAGE / / RIGHT HAND PAGE / / FULL PAGE SPREAD
PLEASE FOLLOW THE APPLICABLE INSTRUCTIONS:
/ / ________________________
/ / ________________________
SPECIAL INSTRUCTIONS: _______________________________________________________
______________________ ________________________ ___________________
APPROVED APPROVED WITH CHANGES DISAPPROVED
------------------------------------------------------------------------------
------------------------------------------------------------------------------
PUBLICATION SUBMISSION
------------------------------------------------------------------------------
------------------------------------------------------------------------------
NAME OF PUBLICATION:
|
(A COPY OF THE MAGAZINE OR NEWSPAPER MUST BE INCLUDED)
FREQUENCY (CHECK ONE): / / DAILY / / WEEKLY / / MONTHLY / / OTHER ________
COMMENTS/SUGGESTIONS: _______________________________________________________
EXHIBIT "H"
PRINCIPALS OF LICENSEE
NAME TITLE
---- -----
MR. SOLLY SAKAL - SHARE HOLDER & CHAIRMAN OF THE GROUP
MR. MEIR SAKAL VP OF THE GROUP
MRS. SARY SAKAL EXECUTIVE VICE PRESIDENT/SAKAL SPORTS LTD
MR. HAIM SAKAL CEO
MR. KOBY SAKAL VP MARKETING / SAKAL GROUP
MR. RONY SILBERMAN - CFO
MR. JACOB RIEF DIRECTOR
MR. EHUD PELED DIRECTOR & VP OF RETAIL
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EXHIBIT "I"
OWNERSHIP OF LICENSEE
PERCENTAGE
EQUITY HOLDER EQUITY
------------- ------
Solly Sakal 66%
Mein Sakal 33%
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EXHIBIT "I"
EXHIBIT "J"
MONTHLY RETAIL STORE REPORT
BEBE
LICENSEE/DISTRIBUTOR:
STORE NAME:
CITY:
COUNTRY:
DATE SUBMITTED:
MONTH REPORTED:
PLEASE LIST REASONS FOR INCREASE OR DECREASE FROM LAST YEAR:
EXHIBIT "K"
PRODUCTS
Women's apparel and accessories.
EXHIBIT "K"
EXHIBIT "L"
TERRITORY
Israel
EXHIBIT "L"
EXHIBIT "M"
PRODUCT PURCHASE TERMS
1. Licensee's Cost: U.S. [* * *] net of any
taxes [* * *].
2. Payment Terms: For the first order, 100% of
the payment is due on placing the order. For
each order thereafter, 100% of the payment
is due 30 days after Licensee receives the
Products.
3. Shipping: One shipment per month, FOB Brisbane, California.
Licensee at its sole cost and expense shall assign
freight forwarder and pay all duties.
4. Method of
Payment: In U.S. dollars by confirmed wire transfer.
Licensee shall establish a standby letter of
credit for $75,000 to cover the amounts due under
orders. bebe shall be entitled to draw on such
letter of credit if Licensee has not paid in full
within 30 days of Licensee's receipt of the
Products.
5. Product
Selection: A representative from Licensee shall visit
bebe's corporate headquarters on a date to
be mutually determined each month to make
Product selections. Licensee shall pay all
its own costs and expenses relating to
such visits.
Alternatively, bebe shall send Licensee
photographs or line sheets and fabric
swatches (when available) of offered
Products monthly, and Licensee shall make
its Product selections therefrom.
6. Labels: bebe shall ship Products bearing labels for its
domestic Products. Licensee shall provide at its
sole expense all labeling required in the
Territory which shall be approved in advance by
bebe.
7. Returns: Licensee may return for full credit irregular
Products which exceed 5% of an order.
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The Product purchase terms during the Renewal Term (if any) shall be negotiated between the parties pursuant to Section 1.2 of the Agreement.
* * * Confidential Treatment Requested.
EXHIBIT "M"
EXHIBIT "N"
INSURANCE POLICIES
EXHIBIT "N"
| ARTICLE 5 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | JUN 30 1999 |
| PERIOD END | DEC 31 1998 |
| CASH | 55,166,161 |
| SECURITIES | 0 |
| RECEIVABLES | 297,129 |
| ALLOWANCES | 94,273 |
| INVENTORY | 14,148,061 |
| CURRENT ASSETS | 70,643,126 |
| PP&E | 19,880,205 |
| DEPRECIATION | 8,325,289 |
| TOTAL ASSETS | 85,361,051 |
| CURRENT LIABILITIES | 21,883,942 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 23,944 |
| OTHER SE | 60,935,458 |
| TOTAL LIABILITY AND EQUITY | 85,361,051 |
| SALES | 101,043,712 |
| TOTAL REVENUES | 101,043,712 |
| CGS | 47,016,054 |
| TOTAL COSTS | 29,507,167 |
| OTHER EXPENSES | 1,003 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 4,768 |
| INCOME PRETAX | 25,558,521 |
| INCOME TAX | 10,575,805 |
| INCOME CONTINUING | 14,982,716 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 14,982,716 |
| EPS PRIMARY | 0.63 |
| EPS DILUTED | 0.59 |