(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 27, 2003
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
TRACTOR SUPPLY COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3139732
-------------------------------------- -------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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320 PLUS PARK BOULEVARD, NASHVILLE, TENNESSEE 37217
(Address of Principal Executive Offices, including zip code)
(615) 366-4600
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing price of the Common Stock on The Nasdaq National Market on June 28, 2003, the last business day of the registrant's most recently completed second fiscal quarter, was $722,623,749. For purposes of this response, the registrant has assumed that its directors, executive officers, and beneficial owners of 5% or more of its Common Stock are the affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.
Class Outstanding at January 31, 2004
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Common Stock, $.008 par value 37,879,955
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TRACTOR SUPPLY COMPANY
INDEX
FORM 10-K
REPORT
ITEM NO. PAGE
-------- ----
Forward-Looking Statements ................................................................................ii
PART I
1. Business...............................................................................................1
2. Properties.............................................................................................7
3. Legal Proceedings......................................................................................7
4. Submission of Matters to a Vote of Security-Holders....................................................7
PART II
5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Repurchases of
Equity Securities .....................................................................................9
6. Selected Financial Data...............................................................................10
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................12
7A. Quantitative and Qualitative Disclosures About Market Risk............................................22
8. Financial Statements and Supplementary Data ..........................................................23
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................42
9A. Controls and Procedures...............................................................................42
PART III
10. Directors and Executive Officers of the Registrant....................................................42
11. Executive Compensation................................................................................42
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters...............................................................................................42
13. Certain Relationships and Related Transactions .......................................................43
14. Principal Accountant Fees and Services................................................................43
PART IV
15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K ....................................43
i
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 15, 2004 are incorporated by reference into
Part III of this Form 10-K.
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Form 10-K and statements included or incorporated by reference in this Form 10-K include certain historical and forward-looking information. The forward-looking statements included are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"). All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including their amount and nature), business strategy, expansion and growth of the Company's business operations and other such matters are forward-looking statements. To take advantage of the safe harbor provided by the Act, the Company is identifying certain factors that could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by or on behalf of the Company.
All phases of the Company's operations are subject to influences outside its control. Any one, or a combination, of these factors could materially affect the results of the Company's operations. These factors include general economic cycles affecting consumer spending, weather factors, operating factors affecting customer satisfaction, consumer debt levels, pricing and other competitive factors, the ability to attract, train and retain highly qualified employees, the ability to identify suitable locations and negotiate favorable lease agreements on new and relocated stores, the timing and acceptance of new products in the stores, the mix of goods sold, the continued availability of favorable credit sources, capital market conditions in general, and the seasonality of the Company's business. Forward-looking statements made by or on behalf of the Company are based on a knowledge of its business and the environment in which it operates, but because of the factors listed above, as well as other unanticipated factors, actual results could differ materially from those reflected by any forward-looking statements. Consequently, the forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
PART I
ITEM 1. BUSINESS
OVERVIEW
Tractor Supply Company, a Delaware corporation (the "Company"), was founded in 1938 as a catalog mail order tractor parts supplier. In 1982, the Company was purchased by a group of investors, including a member of the Company's current management team who is a significant stockholder. In 1994, the Company made its initial public offering. Today, the Company is the largest operator of retail farm and ranch stores in the United States. The Company is focused on supplying the lifestyle needs of recreational farmers and ranchers and serving the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) equine, pet and animal products, including items necessary for their health, care, growth and containment; (2) maintenance products for agricultural and rural use; (3) hardware and tool products; (4) seasonal products, including lawn and garden power equipment; (5) truck, trailer and towing products; and (6) work clothing for the entire family. The Company's stores typically range in size from 12,500 to 18,000 square feet of inside selling space and utilize outside selling space. The Company operated 463 retail farm and ranch stores in 30 states as of December 27, 2003.
Tractor Supply Company has one reportable industry segment - the operation of farm and ranch retail stores.
SEASONALITY AND WEATHER
The Company's business is highly seasonal. Historically, the Company's sales and profits have been the highest in the second and fourth fiscal quarters of each year due to the sale of seasonal products. The Company typically operates at a net loss in the first fiscal quarter of each year. Unseasonable weather, excessive rain, drought, and early or late frosts may also affect the Company's sales. The Company believes, however, that the impact of adverse weather conditions is somewhat mitigated by the geographic dispersion of its stores.
The Company experiences a buildup of inventory and accounts payable during its first fiscal quarter each year for purchases of seasonal product in anticipation of the April through June spring selling season and again during its third fiscal quarter in anticipation of the October through December winter selling season.
BUSINESS STRATEGY
The Company believes its sales and earnings growth has resulted from the focused execution of its business strategy, which includes the following key components:
MARKET NICHE
The Company has identified a specialized market niche: supplying the lifestyle needs of recreational farmers and ranchers and serving the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. By focusing its product mix on these core customers, the Company believes it has differentiated itself from general merchandise, home center and other specialty retailers.
CUSTOMER SERVICE
The Company is committed to providing superior customer service and offers its customers a high level of in-store service through motivated, well-trained store employees. The Company believes the ability of its store employees to provide friendly, responsive, technical assistance is valued by its customers and helps to promote strong customer loyalty and repeat shopping. As such, the Company seeks to provide store employees with decision-making authority and training to enable them to meet customer needs.
The Company endeavors to staff its stores with courteous, highly motivated employees and devotes considerable resources to training its store employees, often in cooperation with its vendors. The
Company's training programs include (i) a full management training program which covers all aspects of the Company's operations, (ii) product knowledge modules produced in conjunction with key vendors, (iii) frequent management skills training classes, (iv) semi-annual store managers meetings with vendor product presentations, (v) vendor sponsored in-store training programs and (vi) ongoing product information updates from the Company's management headquarters. The Company seeks to hire and train store employees with farming and ranching backgrounds, with particular emphasis on general maintenance, equine and welding.
The Company's refund policy permits full refund within 30 days of date of purchase and accompanied by a receipt. However, the Company also has a "satisfaction guaranteed" policy, such that if customers are not satisfied, store employees are authorized, at their discretion, to offer to repair or exchange the product, or to offer store credits or refunds, irrespective of when the product was purchased. The Company believes that by providing these services it improves customer satisfaction, builds customer loyalty and generates repeat business.
The Company offers proprietary, third party credit cards for individual retail and business customers. In addition, the Company accepts Visa, MasterCard and Discover credit cards.
STORE ENVIRONMENT
The Company's stores are designed and managed to make shopping an enjoyable experience and maximize sales and operating efficiencies. Stores utilize several layouts, designed to provide an open environment, optimal product placement, and visual display locations. In addition, these layouts allow for departmental space to be easily reallocated and visual displays to be easily changed for seasonal products and promotions. Display and product placement information is sent to stores monthly to ensure quality and uniformity among the stores. Informative signs are located throughout each store to assist customers with purchasing decisions and merchandise location. The uniformity of the store layouts and visual displays affords the customer a feeling of familiarity and enhances the shopping experience. To further enhance the shopping experience, all store employees wear highly visible red smocks and nametags, and customer service desks and check out counters are conveniently located.
MERCHANDISING
The Company seeks to offer a differentiated assortment of products for farmers, ranchers and rural homeowners. Its broad product assortment is tailored to meet the regional and geographic needs of each market, as well as the physical store size. The Company's full line of product offerings is supported by a strong in-stock inventory position with an average of 12,500 to 14,500 unique products per store.
Stores carry a wide selection of high quality, nationally recognized, name brand merchandise. The Company also markets private-label merchandise under the Tractor Supply Company brand, as well as control brands, including Huskee (outdoor power equipment), Traveller (truck/automotive products), Retriever and Paws `n Claws (pet foods), Dumor and Producers Pride (livestock feed), C.E. Schmidt (apparel) and Royal Wing (bird foods). The Company believes that the availability of top quality private label products at great prices provides a superior value for its customers, a strategic advantage for the Company, and positions the Company as a destination store.
The following chart indicates the average percentages of sales represented by each of the Company's major product categories during fiscal 2003, 2002 and 2001.
Percent of Total Sales
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Product Category 2003 2002 2001
---------------- ---- ---- ----
Equine, Pet and Animal.................... 32% 31% 30%
Seasonal Products......................... 22 22 22
Hardware and Tools........................ 18 18 17
Truck/Trailer/Tow/Lube.................... 12 12 13
Clothing and Footwear..................... 9 9 9
Agriculture Products...................... 7 8 9
---- ---- ----
100% 100% 100%
=== === ===
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PURCHASING AND DISTRIBUTION
The Company offers an extensive selection of farm and ranch maintenance and other specialty products. The Company's business is not dependent upon any one vendor or particular group of vendors. The Company purchases its products from approximately 890 vendor, and no one vendor accounted for more than 10% of purchases during any single year. The Company has no material long-term contractual commitments with any of its vendors, has not experienced difficulty in obtaining satisfactory alternative sources of supply for its products and believes that adequate sources of supply exist at substantially similar costs for substantially all of its products.
The Company maintains a dedicated supply chain management team to focus exclusively on all replenishment and forecasting functions. This centralized direction permits the buying team to focus more strategic attention toward vendor line reviews, assortment planning and testing of more new products and programs. Through the combined efforts of these teams, the Company expects to continually improve overall inventory productivity and in-stock position.
Over 97% of the Company's purchase orders are transmitted through an electronic data interchanges ("EDI") system, and approximately 79% of merchandise vendor invoices are transmitted through EDI. The Company is working to expand the number of vendors who transmit invoices to the Company and increase the amount of sales history transmitted from the Company, all through EDI. The Company's supply chain process is centrally managed.
The Company operates a 500,000 square foot distribution center in Pendleton, Indiana and a 320,000 square foot distribution center in Waco, Texas, and leases a new 300,000 square foot distribution center in Braselton, Georgia, and a 144,000 square foot distribution center in Omaha, Nebraska. The new facility in Braselton, Georgia is strategically located in the Southeast to optimize transportation efficiencies with surrounding vendors and stores. This new location replaces the 57,000 square foot Rural Hall, North Carolina facility. In fiscal 2003, the Company received approximately 65% of its merchandise through these distribution facilities, with the balance delivered directly to the stores. The Company's transportation activity is managed by UPS Supply Chain Solutions ("UPS"), which supports the distribution centers. Additionally, UPS provides inbound transportation services for approximately 300 vendors. The Company is continuously evaluating its long-term strategic plan with respect to its distribution centers and transportation operations and currently plans to add an additional distribution center in the Northeast and expand the Pendleton facility by approximately 200,000 square feet to further strengthen transportation efficiencies in 2004.
MARKETING
The Company utilizes an "everyday low prices" strategy to consistently offer its products at competitive prices. The Company regularly monitors prices at competing stores and adjusts its prices as necessary. The Company believes that by avoiding a "sale" oriented marketing strategy, it is attracting customers on a regular basis rather than only in response to sales.
To generate store traffic and position itself as a destination store, the Company promotes broad selections of merchandise, primarily advertised at the regular everyday low price, with color circulars. The Company also runs periodic special events promoted through local flyers, circulars and radio advertising. The Company enhances its print marketing and advertising programs through the expanded use of national and local cable network television. Due to the geographic dispersion of the Company's stores, the use of national cable network advertising is generally more cost-effective and additionally serves to promote the Company in advance of entering a new market.
The Company's vendors realize the value of the Company being a destination store. Due to the relatively small size of its stores, increased traffic in the store ensures increased exposure to most products. As such, the Company's vendors are committed to helping the Company promote its brand and position itself as a destination store. Vendors provide assistance with product presentation and rack design, brochures, point of purchase materials for customers' education and product education for employees.
COMPETITION
The Company operates in a highly competitive market. The principal competitive factors include location of stores, price and quality of merchandise, in-stock consistency, merchandise assortment and presentation, and customer service. The Company believes it has successfully differentiated itself from general merchandise, home center (i.e. "big box") retailers and other specialty and discount retailers by focusing on its specialized market niche (i.e. the rural lifestyle and maintenance needs of recreational farmers and ranchers, as well as tradesmen and small businesses). However, the Company does face select competition from these entities, as well as competition from independently owned retail farm and ranch stores, several privately-held regional farm store chains and farm cooperatives. Some of these competitors are units of large national or regional chains that have substantially greater financial and other resources than the Company.
MANAGEMENT AND EMPLOYEES
As of December 27, 2003, the Company employed approximately 3,700 full-time and approximately 2,700 part-time employees. The Company also employs additional part-time employees during peak periods. As of such date, approximately 40 employees of the Company's Omaha, Nebraska distribution center were covered by a collective bargaining agreement which expires in July 2005.
Management believes its district managers, store managers and other distribution and support personnel have contributed significantly to the Company's performance. The Company utilizes an internal advisory board comprised of store managers. This group brings a grassroots perspective to operational initiatives and generates chain-wide endorsement of proposed "best-practice" solutions. The Company has implemented numerous best practice teams (comprised of employees in operations and from the store support center) to evaluate key operations of the Company and recommend process changes that will both improve efficiency and strengthen controls. Management encourages the participation of all employees in decision-making, regularly solicits input and suggestions from employees and responds to the suggestions expressed by employees.
All employees participate in one of various incentive programs, which provide the opportunity to receive additional compensation based upon the Company's success and profitability. The Company also provides employees the opportunity to participate in an employee stock purchase plan and a 401(k) retirement plan (the Company participates in the 401(k) plan through a cash match). Additionally, the Company shares in the cost of health insurance provided to its employees, and employees receive a discount on merchandise purchased at the Company's stores.
Management also encourages a "promote from within" environment when internal resources permit. The Company maintains internal leadership development programs designed to mentor high-track employees for continued progress at a fast pace. Two of the five members of the Company's senior management, most of the Company's district managers and a significant portion of the Company's store managers were promoted to their positions from within the Company. All executive officers have at least 17 years of business experience and one executive officer has over 24 years of
experience with the Company. District managers and store managers have an average length of service with the Company of approximately 4.5 years. Management believes internal promotions coupled with the hiring of individuals with previous retail experience will provide the management structure necessary to support expected store growth. Management believes it has satisfactory relationships with its employees.
MANAGEMENT INFORMATION AND CONTROL SYSTEMS
The Company has invested considerable resources in sophisticated management information and control systems to ensure superior customer service, support the purchase and distribution of merchandise and improve operating efficiencies. The management information and control systems include a point-of-sale system (with communications via a frame relay network to the Company's primary systems), a supply chain management and replenishment system, a vendor purchase order control system and a merchandise presentation system. These systems are fully integrated and track merchandise from order through sale. All data from these systems are fully integrated with the Company's financial systems.
The Company utilizes a cross-functional committee comprised of members of management from key departments within the Company. This diverse group of Company leaders aligns the activities and deliverables of the Information Technology team with the overall Company mission and goal of improving the level of service provided to the Company's customers and creating efficiencies within the Company's operations and supply chain. The committee evaluates requests for information technology resources and prioritizes projects to ensure greatest benefit to the Company.
The Company continues to evaluate and improve the functionality of its systems to maximize their effectiveness. Such efforts will include an ongoing evaluation of the optimal software configuration (including system enhancements and upgrades) as well as the adequacy of the underlying hardware components. These efforts are directed toward constantly improving the overall business processes and achieving the most efficient and effective use of the system to manage the Company's operations.
GROWTH STRATEGY
The Company's current and long-term growth strategy is built on a combination of
(1) expanded geographic market presence, achieved through the opening of new
retail stores and (2) enhanced financial performance through same-store sales
increases, achieved through aggressive merchandising programs with an "everyday
low prices" philosophy, supported by strong customer service.
The Company has experienced considerable growth in recent years, including the addition of 18 stores in fiscal 2001, 113 in fiscal 2002 and 31 in fiscal 2003. This recent growth has increased the Company's market presence in the Southwest, primarily in Texas;, the Southeast, primarily in Florida; in the central northern part of the United States, primarily in Ohio, Michigan and Indiana; and in the Northeast, primarily in New York and Pennsylvania. The Company operated 463 stores in 30 states as of December 27, 2003 and has plans to open 52 stores in fiscal 2004. The Company plans to open 60 to 65 new stores in fiscal 2005 and additional stores thereafter. The Company believes it has developed a sophisticated proven method for selecting store sites and has identified over 800 potential additional markets for new stores in the United States. In addition, the Company continues to identify opportunities to relocate existing stores.
The Company's strategy is generally to lease its new stores. At December 27, 2003, 393 of the Company's 463 stores are leased. Assuming that new stores are leased, the estimated cash required to open a new store is approximately $900,000 to $1,100,000, the majority of which is for initial acquisition of inventory and capital expenditures (principally leasehold improvements and fixtures and equipment), and the balance of which is for pre-opening expenses.
The Company plans to relocate a total of 18 to 20 stores in both fiscal 2004 and 2005 and an average of three or four additional stores each year over the next several years. Store relocations are typically undertaken to move small, older stores to full-size formats in prime retail areas. The Company has relocated 35 stores since 2001. We recognize certain properties have declined in physical appearance and, in certain markets, the retail and traffic flows are shifting.
Through relocations, we are able to keep much of our existing loyal customer base but expand the overall reach to new customers, thereby growing the business. The cash required to complete a store relocation typically ranges from $300,000 to $600,000, depending on whether the Company is responsible for any renovation or remodeling costs.
ADDITIONAL INFORMATION
The Company files reports with the Securities and Exchange Commission ("SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports as required. The public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer and the SEC maintains an Internet site at WWW.SEC.GOV that contains the reports, proxy and information statements, and other information filed electronically.
The Company makes available free of charge through its Internet website, WWW.MYTSCSTORE.COM, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on the website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.
The Company maintains a code of ethics that is applicable to all employees, including the Company's Chief Executive Officer, Chief Financial Officer and Controller. This code, which requires continued observance of high ethical standards such as honesty, integrity and compliance with the law in the conduct of the Company's business, is available for public access on the Company's Internet website (WWW.MYTSCSTORE.COM).
ITEM 2. PROPERTIES
At December 27, 2003, the Company operated 463 stores in 30 states. The Company leases more than 84% of its stores, four of its five distribution facilities and its management headquarters. The store leases typically have initial terms of between 10 and 15 years, with one to three renewal periods of five years each, exercisable at the Company's option. None of the store leases is individually material to the Company's operations.
In January 2004, the Company purchased the land and building related to its distribution center in Pendleton, Indiana. The facility was originally built to the Company's specifications and has been leased since 1999. Also in 2004, the Company entered into a lease agreement that will relocate the three store support center locations in Nashville, Tennessee to one new location. The Company expects to incur incremental after tax costs of approximately $2.0 million primarily due to the abandonment of the current leases.
As of December 27, 2003, the Company operated 463 stores in 30 states as follows:
Number Number
State of Stores State of Stores
----- --------- ----- ---------
Texas 67 Missouri 7
Ohio 60 North Dakota 7
Michigan 45 Nebraska 7
Tennessee 32 West Virginia 7
Indiana 31 Georgia 7
Florida 29 Arkansas 6
Pennsylvania 24 Oklahoma 6
North Carolina 19 Minnesota 5
New York 19 South Dakota 5
Kentucky 17 Alabama 4
Virginia 16 Maryland 3
Illinois 10 Delaware 1
Iowa 9 Mississippi 1
Kansas 9 Montana 1
South Carolina 8 Wisconsin 1
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ITEM 3. LEGAL PROCEEDINGS
The company is involved in various litigation arising in the ordinary course of business. After consultation with legal counsel, management expects these matters will be resolved without material adverse effect on the Company's consolidated financial position or results of operations. Any estimated loss has been adequately provided for in accrued liabilities to the extent probable and reasonably estimable. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in circumstances relating to these proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted to a vote of the Company's security-holders during the fourth quarter of the Company's fiscal year ended December 27, 2003.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Stockholders to be held on April 15, 2004.
The following is a list of the names and ages of all executive officers of the registrant, indicating all positions and offices with the registrant held by each such person and each person's principal occupations and employment during at least the past five years:
Name Position Age
---- -------- ---
Joseph H. Scarlett, Jr.......... Chairman of the Board, Chief Executive Officer and Director 61
James F. Wright ................ President, Chief Operating Officer and Director 54
Gerald W. Brase ................ Senior Vice President-Merchandising 50
Calvin B. Massmann.............. Senior Vice President-Chief Financial Officer and Treasurer 60
Stanley L. Ruta................. Senior Vice President-Store Operations 52
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Joseph H. Scarlett, Jr. has served as Chairman of the Board and Chief Executive Officer of the Company since 1993, having previously served as President and Chief Operating Officer of the Company from 1987 to 1993. Mr. Scarlett has served as a director of the Company since 1982.
James F. Wright has served as President and Chief Operating Officer of the Company since October 2000. Mr. Wright previously served as President and Chief Executive Officer of Tire Kingdom, a tire and automotive services retailer, from May 1997 to June 2000. Mr. Wright has served as a director of the Company since 2002.
Gerald W. Brase has served as Senior Vice President-Merchandising of the Company since September 1997.
Calvin B. Massmann has served as Senior Vice President-Chief Financial Officer and Treasurer since January 2000. Mr. Massmann previously served as an independent business consultant during 1998 and 1999.
Stanley L. Ruta has served as Senior Vice President-Store Operations since June 2000, after having served as Vice President-Store Operations of the Company since 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock began trading on The Nasdaq National Market on February 18, 1994 under the symbol "TSCO".
The table below sets forth the high and low sales prices of the Company's Common Stock as reported by The Nasdaq National Market (as adjusted for 2:1 stock splits effective August 21, 2003 and August 19, 2002) for each fiscal quarter of the periods indicated:
2003 2002
-------------------- -------------------
HIGH LOW HIGH LOW
------- -------- ------- -------
First Quarter $ 22.03 $ 14.69 $ 11.65 $ 8.18
Second Quarter $ 26.60 $ 16.14 $ 18.31 $ 11.40
Third Quarter $ 38.10 $ 23.03 $ 18.05 $ 12.70
Fourth Quarter $ 44.87 $ 31.35 $ 22.75 $ 14.05
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As of January 31, 2004, the approximate number of record holders of the Company's Common Stock was 150 (excluding individual participants in nominee security position listings), and the estimated number of beneficial holders of the Company's Common Stock was 18,000.
The Company has not declared any cash dividends on its Common Stock during the two most recent fiscal years. The Company currently intends to retain all earnings for future operation and expansion of its business and, therefore, does not anticipate that any dividends will be declared on the Common Stock in the foreseeable future. Any future declaration of dividends will be subject to the discretion of the Company's Board of Directors and subject to the Company's results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors. The Company is also restricted from paying cash dividends by the terms of its credit agreement, which is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.
There were no stock repurchases by the Company in the fourth quarter of fiscal 2003.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL AND OPERATING HIGHLIGHTS
The Company's fiscal year includes 52 or 53 weeks and typically ends on the last Saturday of the calendar year. References to fiscal year mean the year in which that fiscal year began. Fiscal years ended December 27, 2003, December 28, 2002, December 29, 2001 and December 30, 2000, contain 52 weeks, while the fiscal year ended January 1, 2000 contains 53 weeks. The following table provides summary historical financial information for the periods ended and as of the dates indicated (in thousands, except per share and operating data):
2003 2002 2001 2000 1999*
----------- ----------- ---------- ---------- ----------
OPERATING RESULTS:
Net sales ......................................... $ 1,472,885 $ 1,209,990 $ 849,799 $ 759,037 $ 688,082
Gross margin ...................................... 448,900 342,187 228,344 200,407 181,251
Selling, general and administrative expenses ...... 332,215 260,290 178,243 156,535 139,725
Depreciation and amortization ..................... 19,758 16,457 11,254 9,889 7,311
----------- ----------- ---------- ---------- ----------
Income from operations ............................ 96,927 65,440 38,847 33,983 34,215
Interest expense, net ............................. 3,444 4,707 4,494 6,387 4,104
Unusual item: gain on life insurance .............. -- -- 2,173 -- --
----------- ----------- ---------- ---------- ----------
Income before income taxes and cumulative effect
of accounting change ............................ 93,483 60,733 36,526 27,596 30,111
Income tax provision .............................. 35,094 21,963 10,752 11,206 12,237
----------- ----------- ---------- ---------- ----------
Net income before cumulative effect of accounting
change .......................................... 58,389 38,770 25,774 16,390 17,874
Cumulative effect of accounting change, net of
income taxes (a) ................................ (1,888) -- -- -- --
----------- ----------- ---------- ---------- ----------
Net income ........................................ $ 56,501 $ 38,770 $ 25,774 $ 16,390 $ 17,874
=========== =========== ========== ========== ==========
Net income per share-basic, before cumulative
effect of change in accounting principle (b) .... $ 1.57 $ 1.07 $ 0.73 $ 0.47 $ 0.51
Cumulative effect of accounting change, net of
income taxes .................................... (0.05) -- -- -- --
----------- ----------- ---------- ---------- ----------
Net income per share-basic, after cumulative effect
of change in accounting principle ............... $ 1.52 $ 1.07 $ 0.73 $ 0.47 $ 0.51
=========== =========== ========== ========== ==========
Net income per share-assuming dilution before
cumulative effect of change in accounting
principle (b) ................................... $ 1.45 $ 0.99 $ 0.71 $ 0.47 $ 0.51
Cumulative effect of accounting change, net of
income taxes .................................... (0.05) -- -- -- --
----------- ----------- ---------- ---------- ----------
Net income per share-assuming dilution, after
cumulative effect of change in accounting
principle........................................ $ 1.40 $ 0.99 $ 0.71 $ 0.47 $ 0.51
=========== =========== ========== ========== ==========
Dividends per share ............................... -- -- -- -- --
OPERATING DATA (PERCENT TO SALES):
Gross margin ...................................... 30.5% 28.3% 26.9% 26.4% 26.3%
Selling, general and administrative expenses ...... 22.6% 21.5% 21.0% 20.6% 20.3%
Income from operations ............................ 6.6% 5.4% 4.6% 4.5% 5.0%
Net income before cumulative effect of change in
accounting principle ............................ 3.9% 3.2% 3.0% 2.2% 2.6%
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2003 2002 2001 2000 1999*
--------- --------- --------- --------- ---------
PRO-FORMA AMOUNTS, ASSUMING THE CHANGE IN
ACCOUNTING PRINCIPLE IS APPLIED RETROACTIVELY (C):
Gross margin ....................................... $ 448,900 $ 373,895 $ 247,364 $ 216,282 $ 193,320
Selling, general and administrative expenses ....... 332,215 293,689 197,330 172,665 152,623
Income from operations ............................. 96,927 63,750 38,780 33,728 33,386
Net income ......................................... 58,389 37,690 25,732 16,239 17,382
Net income per share - basic ....................... $ 1.57 $ 1.04 $ 0.73 $ 0.46 $ 0.50
Net income per share - assuming dilution ........... $ 1.45 $ 0.96 $ 0.71 $ 0.46 $ 0.49
PRO-FORMA OPERATING DATA ASSUMING THE CHANGE IN
ACCOUNTING PRINCIPLE IS APPLIED RETROACTIVELY
(PERCENT TO SALES): (C):
Gross margin ....................................... 30.5% 30.9% 29.1% 28.5% 28.1%
Selling, general and administrative expenses ....... 22.6% 24.3% 23.2% 22.7% 22.2%
Income from operations ............................. 6.6% 5.3% 4.6% 4.4% 4.9%
Net income ......................................... 3.9% 3.1% 3.0% 2.1% 2.5%
NUMBER OF STORES:
Beginning of year .................................. 433 323 305 273 243
New stores opened .................................. 31 113 18 35 31
Closed stores ...................................... (1) (3) -- (3) (1)
--------- --------- --------- --------- ---------
End of year ........................................ 463 433 323 305 273
========= ========= ========= ========= =========
Number of relocated stores during year ............. 18 16 1 1 1
Number of remodeled stores (d) ..................... 3 8 4 -- --
Same-store sales increase (e) ...................... 7.0% 9.6% 3.8% 0.4% 4.4%
Average sales per store (000's) .................... $ 3,255 $ 3,045 $ 2,699 $ 2,603 $ 2,682
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital .................................... $ 177,499 $ 140,440 $ 122,309 $ 133,731 $ 117,306
Total assets ....................................... 536,209 458,919 338,482 332,296 302,630
Long-term debt, less current portion (g) ........... 21,210 35,705 23,157 62,950 54,683
Stockholders' equity ............................... 295,384 227,848 181,296 155,036 138,305
|
* 53-week fiscal year
(a) The Company adopted Emerging Issues Task Force No. 02-16 ("EITF 02-16") which changed its method of accounting for consideration received from vendors whereby such consideration is considered a reduction of inventory cost as opposed to a reduction of selling, general and administrative costs. As a result, the Company recorded a non-cash charge of $1.9 million, net of income tax, in the first quarter of fiscal 2003 for the cumulative effect of the change on fiscal years prior to fiscal 2003.
(b) Basic net income per share is calculated based on the weighted average number of common shares outstanding applied to net income. Diluted net income per share is calculated using the treasury stock method for options and warrants. All share and per share data have been adjusted for stock splits.
(c) The pro-forma results provide a summary of gross margin, selling, general and administrative expenses and net income as if the adoption of EITF 02-16 had occurred prior to January 1, 2000. See Note 2 to Consolidated Financial Statements for further information.
(d) Reflects remodelings costing more than $150,000.
(e) Same-store sales increases are calculated on an annual basis, excluding relocations, using all stores open at least one year.
(f) Average sales per store are calculated based on the weighted average number of days open in the applicable period.
(g) Long-term debt includes borrowings under the Company's principal revolving credit agreement, term loan agreement and amounts outstanding under its capital lease obligations, excluding the current portions of each.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is the largest operator of retail farm and ranch stores in the United States, focused on supplying the lifestyle needs of recreational farmers and ranchers and serving the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) equine, pet and animal products, including items necessary for their health, care, growth and containment; (2) maintenance products for agricultural and rural use; (3) hardware and tool products; (4) seasonal products, including lawn and garden power equipment; (5) truck, trailer and towing products; and (6) work clothing for the entire family. The Company's stores typically range in size from 12,500 to 18,000 square feet of inside selling space and utilize outside selling space. The Company operated 463 retail farm and ranch stores in 30 states as of December 27, 2003.
The fiscal year of the Company includes 52 or 53 weeks and ends on the last Saturday of the calendar year. References to fiscal year mean the year in which that fiscal year began. Each of the fiscal years ended December 27, 2003, December 28, 2002 and December 29, 2001 contain 52 weeks.
The Company's current and long-term growth strategy is to (1) expand geographic market presence, achieved by opening new retail stores and (2) enhance financial performance through same-store sales increases, achieved through aggressive merchandising programs with an "everyday low prices" philosophy, supported by strong customer service.
The Company has experienced considerable growth in recent years, including the addition of 18 stores in fiscal 2001, 113 in fiscal 2002, and 31 in fiscal 2003. The significant growth in 2002 is due primarily to the acquisition of real property and lease rights from Quality Stores, Inc. (See Note 16 of Notes to the Consolidated Financial Statements contained in this report for further discussion regarding this purchase.) This growth has increased the Company's market presence in the Southeast, primarily in Florida; in the central northern part of the United States, primarily in Ohio and Michigan; and in the Northeast, primarily in New York and Pennsylvania. The Company operated 463 stores in 30 states as of December 27, 2003, and plans to open 52 stores in fiscal 2004. The Company plans to open 60 to 65 new stores in fiscal 2005 and additional stores thereafter. The Company has identified over 800 potential additional locations for new stores in the United States. In addition, the Company continues to identify opportunities to relocate existing stores.
Additionally, the Company has placed significant emphasis on its merchandising programs, evaluating the sales and profitability of its products through detailed line reviews, review of vendor performance measures and modification of the overall product offerings. These efforts, coupled with a strong marketing program and in-depth product knowledge training of store employees, have enhanced sales, improved gross margins and generated improved overall financial performance.
SEASONALITY AND WEATHER
The Company's business is highly seasonal. Historically, the Company's sales and profits have been the highest in the second and fourth fiscal quarters of each year due to the sale of seasonal products. The Company typically operates at a net loss in the first fiscal quarter of each year. Unseasonable weather, excessive rain, drought, and early or late frosts may also affect the Company's sales. The Company believes, however, that the impact of adverse weather conditions is somewhat mitigated by the geographic dispersion of its stores.
The Company experiences a buildup of inventory and accounts payable during its first fiscal quarter each year for purchases of seasonal product in anticipation of the April through June spring selling season and again during its third fiscal quarter in anticipation of the October through December winter selling season.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of the Company's financial position and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company's significant accounting policies, including areas of critical management judgments and estimates, have primary impact on the following financial statement areas:
- Inventory valuation - Self insurance
- Sales returns
The Company's critical accounting policies are subject to judgments and uncertainties, which affect the application of such policies. (See Note 1 to the Notes to the Consolidated Financial Statements contained in this report for a discussion of the Company's critical accounting policies.) The Company's financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.
CHANGE IN ACCOUNTING PRINCIPLE
Emerging Issue Task Force Issue No. 02-16 ("EITF 02-16"), "Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor" provides guidance for the accounting treatment and income statement classification for consideration given by a vendor to a retailer in connection with the sale of the vendor's products or for the promotion of sales of the vendor's products. The EITF concluded that such consideration received from vendors should be reflected as a decrease in prices paid for inventory and recognized in cost of sales as the related inventory is sold. Prior to adopting this pronouncement, the Company classified all vendor-provided marketing support funds as a reduction in selling, general and administrative expenses.
The effect of applying EITF 02-16 on prior-period financial statements would have resulted in a change to previously reported net income, thus, the Company has reported the adoption of EITF 02-16 as a cumulative effect adjustment. Accordingly, in the first quarter of fiscal 2003, the Company recorded a cumulative effect of accounting change of $3.1 million ($1.9 million net of income taxes) for the impact of this adoption on prior fiscal years.
The following pro forma financial information for the fiscal year ended December 28, 2002 reflects the impact of EITF 02-16 as if it had been adopted prior to fiscal 2002 (in thousands, except per share amounts):
AS REPORTED PRO-FORMA
------------------------- -------------------------
% OF % OF
SALES SALES
----- -----
Net sales $ 1,209,990 100.0% $ 1,209,990 100.0%
Cost of merchandise sold 867,803 71.7 836,095 69.1
------------ ------ ------------ ------
Gross margin 342,187 28.3 373,895 30.9
Selling, general and administrative expense 260,290 21.5 293,689 24.2
Depreciation and amortization 16,457 1.4 16,457 1.4
------------ ------ ------------ ------
Income from operations 65,440 5.4 63,749 5.3
Interest expense, net 4,707 0.4 4,707 0.4
------------ ------ ------------ ------
Income before income taxes 60,733 5.0 59,042 4.9
Income tax provision 21,963 1.8 21,352 1.8
------------ ------ ------------ ------
Net income $ 38,770 3.2% $ 37,690 3.1%
============ ====== ============ ======
Net income per share:
Basic $ 1.07 $ 1.04
Diluted $ 0.99 $ 0.96
Weighted average shares outstanding:
Basic 36,111 36,111
Diluted 39,277 39,277
|
QUARTERLY FINANCIAL DATA
The Company's unaudited quarterly operating results for each fiscal quarter of 2003 and 2002 are shown below (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
2003 QUARTER QUARTER QUARTER QUARTER TOTAL
---- --------- --------- --------- --------- -----------
Net sales $ 273,760 $ 449,391 $ 361,204 $ 388,530 $ 1,472,885
Gross margin 80,797 136,292 109,233 122,578 448,900
Income from operations 4,205 44,186 19,993 28,543 96,927
Net income before cumulative effect of accounting
change 2,013 27,387 12,129 16,860 58,389
Net income including cumulative effect of accounting
change $ 125 $ 27,387 $ 12,129 $ 16,860 $ 56,501
Net income per share, before cumulative effect
of accounting change:
Basic $ 0.06 $ 0.74 $ 0.33 $ 0.45 $ 1.57
Diluted $ 0.05 $ 0.69 $ 0.30 $ 0.41 $ 1.45
Net income per share, including cumulative effect
of accounting change:
Basic $ 0.01 $ 0.74 $ 0.33 $ 0.45 $ 1.52
Diluted $ 0.01 $ 0.69 $ 0.30 $ 0.41 $ 1.40
FIRST SECOND THIRD FOURTH
2002 QUARTER QUARTER QUARTER QUARTER TOTAL
---- --------- --------- --------- --------- -----------
Net sales $ 193,810 $ 392,048 $ 296,215 $ 327,917 $ 1,209,990
Gross margin 51,979 108,391 84,019 97,798 342,187
Income (loss) from operations (5,401) 29,125 13,312 28,404 65,440
Net income (loss) $ (4,010) $ 17,346 $ 7,801 $ 17,633 $ 38,770
Net income (loss) per share-basic $ (0.11) $ 0.48 $ 0.22 $ 0.49 $ 1.07
Net income (loss) per share-diluted $ (0.11) $ 0.44 $ 0.20 $ 0.44 $ 0.99
|
The following quarterly pro forma financial information for the fiscal year ended December 28, 2002 reflects the impact of EITF 02-16 as if it had been adopted prior to fiscal 2002 (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
2002 QUARTER QUARTER QUARTER QUARTER TOTAL
---- --------- --------- --------- --------- -----------
Net sales $ 193,810 $ 392,048 $ 296,215 $ 327,917 $ 1,209,990
Gross margin 56,464 119,566 94,885 102,980 373,895
Income (loss) from operations (5,382) 30,499 17,946 20,686 63,749
Net income (loss) $ (3,998) $ 18,223 $ 10,759 $ 12,706 $ 37,690
Net income (loss) per share-basic $ (0.11) $ 0.51 $ 0.30 $ 0.35 $ 1.04
Net income (loss) per share-diluted $ (0.11) $ 0.47 $ 0.27 $ 0.32 $ 0.96
|
As a result of two two-for-one stock splits, stockholders of record as of August 4, 2003 and August 2, 2002 received one additional share of stock. The par value of the Company's common stock remained $0.008. All share and per share data included in the consolidated financial statements and notes thereto has been restated to give effect to the stock splits.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in the Company's Consolidated Statements of Income expressed as a percentage of net sales. The table reflects actual and pro-forma information. The pro-forma information reflects the impact of EITF 02-16 as if it had been adopted prior to fiscal 2001:
(PRO-FORMA)
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 69.5 71.7 73.1 69.5 69.1 70.9
------ ------ ------ ------ ------ ------
Gross margin 30.5 28.3 26.9 30.5 30.9 29.1
Selling, general and administrative expenses 22.6 21.5 21.0 22.6 24.2 23.2
Depreciation and amortization 1.3 1.4 1.3 1.3 1.4 1.3
------ ------ ------ ------ ------ ------
Income from operations 6.6 5.4 4.6 6.6 5.3 4.6
Interest expense, net 0.2 0.4 0.5 0.2 0.4 0.5
Unusual item - gain on life insurance -- -- 0.2 -- -- 0.2
------ ------ ------ ------ ------ ------
Income before income taxes 6.4 5.0 4.3 6.4 4.9 4.3
Income tax provision 2.4 1.8 1.3 2.4 1.8 1.3
------ ------ ------ ------ ------ ------
Net income before cumulative effect of
accounting change 4.0 3.2 3.0 4.0 3.1 3.0
Cumulative effect of accounting change 0.1 -- -- -- -- --
------ ------ ------ ------ ------ ------
Net income 3.9% 3.2% 3.0% 4.0% 3.1% 3.0%
====== ====== ====== ====== ====== ======
|
FISCAL 2003 COMPARED TO FISCAL 2002
Net sales increased 21.7% to $1,472.9 million in fiscal 2003 from $1,210.0 million in fiscal 2002. This increase resulted from the opening of new stores as well as a same-store sales improvement of 7.0%. The Company's favorable performance versus prior year was driven primarily by market share gains in certain markets, continued improvement in merchandising programs and improved in-store execution. In fiscal 2003, the Company opened 31 new stores (compared to 113 in the prior year), closed one store (compared to three in the prior year) and relocated 18 stores (compared to 16 in the prior year). The Company substantially expanded its store base during 2002 due to its purchase of property and lease rights from Quality Stores, Inc. (See Note 16 of Notes to the Consolidated Financial Statements contained in this report for further discussion regarding this purchase.)
As a percent of sales, gross margin increased 220 basis points from 28.3% for fiscal 2002 to 30.5% for fiscal 2003. Assuming the provisions of EITF 02-16 had been applied prior to 2002, fiscal 2003 gross margin would have decreased 40 basis points from 30.9% in fiscal 2002. The majority of this decline is attributable to a return to a more normal level of vendor funding in fiscal 2003. Specifically, vendors provided additional funds in fiscal 2002 in connection with the opening of 87 new stores as a result of the purchase of certain properties and lease rights from Quality Stores, Inc.
As a percent of sales, selling, general and administrative ("SG&A") expenses were 22.6% and 21.5% for fiscal 2003 and 2002, respectively. Assuming the provisions of EITF 02-16 had been applied prior to fiscal 2002 and exclusive of non-recurring expansion costs of $10.7 million experienced in fiscal 2002 (these costs include pre-opening transition and training costs related to the 87 new stores, costs for store relocations and three store closings as a result of the purchase of the aforementioned properties and lease rights from Quality Stores, Inc.) fiscal 2003 SG&A expenses as a percent of sales decreased 80 basis points from 23.4% for fiscal 2002. This decrease is primarily a result of controlled spending and greater leverage from increased sales.
Depreciation and amortization expense increased 20.1% in fiscal 2003 over the prior year due mainly to costs associated with new and relocated stores, as well as remodeled existing stores.
Net interest expense decreased 26.8% in fiscal 2003 over the prior year. This decrease reflects stronger cash flow and less cash requirements for store openings, which resulted in reduced average long-term borrowings under the Company's revolving credit agreement.
The Company's effective tax rate increased to 37.5% for fiscal 2003 compared with 36.2% for fiscal 2002. This increase is due to increased income in states with higher tax rates.
As a result of the foregoing factors, net income for fiscal 2003 increased to $56.5 million, or $1.40 per diluted share, compared to net income of $37.7 million, or $0.99 per diluted share, in the prior year. Exclusive of the cumulative effect of the accounting change, net income for fiscal 2003 was $58.4 million or $1.45 per diluted share. This increase is primarily a result of increased leverage from increased sales at both new and existing stores. Additionally, certain store expansion costs incurred in the Company's significant expansion in 2002, which was primarily the result of the purchase of property and lease rights from Quality Stores, Inc. in the first quarter of 2002, were non-recurring. The expansion increased the size of the Company by over 25% and was completed in a very compressed timeframe. As such, the Company incurred significant incremental costs to achieve the state of readiness required to enable all stores to open within the desired time frame and such costs are not considered by management to be indicative of normal pre-opening or recurring expenses. Management believes that disclosing the effect of the significant 2002 store expansion improves the investor's ability to reasonably evaluate the Company's longer-term business trends.
The following pro-forma information isolates the effect of adoption of EITF 02-16 and the expansion costs related to the 2002 store expansion (in thousands, except per share amounts):
2003 2002
-------------------- ---------------------
% of % of
Sales Sales
----- -----
Net income - as reported $ 56,501 3.9% $ 38,770 3.2%
Change in accounting for vendor funding
had EITF 02-16 been adopted prior to
2002, net of income taxes 1,888 0.1 (1,080) (0.1)
Non-recurring store expansion costs,
net of income taxes -- -- 6,666 0.6
-------- ----- -------- -----
Pro-forma net income assuming the change in
accounting for vendor funding occurred
prior to 2002 and exclusive of
non-recurring store expansion costs $ 58,389 4.0% $ 44,356 3.7%
======== ===== ======== =====
2003 2002
------------------------------ ------------------------------
(PRO-FORMA) (PRO-FORMA)
INCOME SHARES (DILUTED) INCOME SHARES (DILUTED)
-------- ------ --------- ------- ------ ---------
Net income - as reported $ 56,501 40,271 $ 1.40 $ 38,770 39,277 $ 0.99
Change in accounting for vendor funding had
EITF 02-16 been adopted prior to fiscal 2002,
net of income taxes 1,888 40,271 0.05 (1,080) 39,277 (0.03)
Non-recurring store expansion costs, net of
income taxes -- 40,271 -- 6,666 39,277 0.17
-------- ------- -------- --------
Pro-forma net income assuming the change in
accounting for vendor funding had occurred
prior to 2002 and exclusive of non-recurring
store expansion costs $ 58,389 40,271 $ 1.45 $ 44,356 39,277 $ 1.13
======== ======= ======== ========
|
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales increased 42.4% to $1,210.0 million in fiscal 2002 from $849.8 million in fiscal 2001. This increase resulted from the opening of new stores as well as a same-store sales improvement of 9.6%. The significant improvement in same-store sales in fiscal 2002 is due primarily to new merchandising programs, special promotions, market share gains in certain markets and improved in-store execution. In fiscal 2002, the Company opened 113 new stores (compared to 18 in the prior year), closed three stores (compared to none in the prior year) and relocated 16 stores (compared to one in the prior year).
As a percent of sales, gross margin increased to 28.3% in fiscal 2002 from 26.9% in fiscal 2001. This gross margin improvement was primarily due to improved product costs (including a $1.4 million favorable LIFO experience), changes in the sales mix, increased volume rebates and improved leveraging of freight costs.
As a percent of sales, selling, general and administrative (SG&A) expenses increased to 21.5% for fiscal 2002 from 21.0% for fiscal 2001. The increase includes incremental pre-tax costs of $10.7 million for pre-opening transition and training costs related to the Company's significant store expansion, costs for store relocations and three store closings. Exclusive of the incremental expansion costs, SG&A expense, as a percent of sales, decreased 0.4 percentage point to 20.6% for fiscal 2002. On an absolute basis, SG&A expenses increased 46.0% to $260.3 million. These increases primarily reflect the incremental expansion costs and the remaining incremental costs associated with the new stores opened in fiscal 2002, as well as higher variable store operating costs associated with the same-store sales increase and higher incentive compensation accruals.
Depreciation and amortization expense increased 46.2% over the prior year due mainly to costs associated with new and relocated stores, as well as remodeled existing stores.
Net interest expense increased 4.7% in fiscal 2002 from fiscal 2001 resulting from increased borrowings under the Company's revolving credit agreement to fund significant new store expansion.
The Company's effective tax rate decreased to 36.2% for fiscal 2002 compared with 38.6% for fiscal 2001 (exclusive of a non-taxable $2.2 million gain from the proceeds of life insurance and a $2.5 million reduction of previously accrued income taxes, both of which occurred during 2001). The Company reevaluated its tax exposure during the quarter ended December 29, 2001, and, as a result of the favorable resolution of certain tax issues, along with the closing of open tax years, the Company reduced previously accrued income tax liabilities by $2.5 million. The effective tax rate decreased primarily due to reductions in state income taxes.
Net income increased 50.4% to $38.8 million in fiscal 2002 from $25.8 million in fiscal 2001 and net income per share (assuming dilution) for fiscal 2002 increased 39.4% to $0.99 per share from $0.71 per share for fiscal 2001. As a percentage of sales, net income increased 0.2 percentage point to 3.2% of sales for fiscal 2002 from 3.0% of sales for fiscal 2001.
The following chart presents earnings per share, reflecting the effect of certain significant matters:
2002 2001
-------------------------------- ---------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- -------- -------- -------- --------
BASIC EARNINGS PER SHARE:
-------------------------
Net income-as reported $ 38,770 36,112 $ 1.07 $ 25,774 35,296 $ 0.73
Non-recurring store expansion costs, net of
income taxes 6,666 36,112 0.19 -- -- --
Unusual item: insurance proceeds -- -- -- (2,173) 35,296 (0.06)
Adjustment of deferred taxes -- -- -- (2,500) 35,296 (0.07)
-------- -------- -------- -------
$ 45,436 36,112 $ 1.26 $ 21,101 35,296 $ 0.60
======== ======== ======== =======
DILUTED EARNINGS PER SHARE:
---------------------------
Net income-as reported $ 38,770 39,277 $ 0.99 $ 25,774 36,162 $ 0.71
Non-recurring store expansion costs, net of
income taxes 6,666 39,277 0.17 -- -- --
Unusual item: insurance proceeds -- -- -- (2,173) 36,162 (0.06)
Adjustment of deferred taxes -- -- -- (2,500) 36,162 (0.07)
-------- -------- -------- -------
$ 45,436 39,277 $ 1.16 $ 21,101 36,162 $ 0.58
======== ======== ======== =======
|
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash requirements are for expansion, remodeling and relocation programs, including inventory purchases and capital expenditures. The Company's primary ongoing sources of liquidity are funds provided from operations, commitments available under its revolving credit agreement and normal trade credit. The Company's inventory and accounts payable levels typically build in the first and third fiscal quarters in anticipation of the spring and winter selling seasons, respectively.
At December 27, 2003, the Company had working capital of $177.5 million, a $37.0 million increase from December 28, 2002. This increase is primarily attributable to the changes in the following components of current assets and current liabilities (in millions):
2003 2002 VARIANCE
-------- ------- --------
Current assets
Cash and cash equivalents $ 20.0 $ 13.8 $ 6.2
Inventories 324.5 289.3 35.2
Prepaid expenses and other current assets 27.7 17.6 10.1
Other, net 11.1 11.6 (0.5)
-------- ------- --------
383.3 332.3 51.0
-------- ------- --------
Current liabilities
Accounts payable $ 131.6 $ 114.9 $ 16.7
Accrued expenses 73.9 66.3 7.6
Current maturities of long term debt -- 5.5 (5.5)
Other, net 0.3 5.1 (4.8)
-------- ------- --------
205.8 191.8 14.0
-------- ------- --------
Working capital $ 177.5 $ 140.5 $ 37.0
======== ======= ========
|
The increases in cash and cash equivalents, prepaid expenses, and accrued expenses is generally due to the increase in the number of stores in operation and resulting increases in sales, growth in operations, and timing of payments.
The increase in inventories and related increase in trade credit resulted primarily from additional inventory for new stores and a slight increase in average inventory per store due to increased sales expectations. Trade credit arises from the Company's vendors granting extended payment terms for inventory purchases. Payment terms vary from 30 days to 180 days depending on the inventory product.
The decrease in current maturities of long term debt is due to the maturity of the Company's Loan Agreement and Term Note in November 2003. (See Note 5 of Notes to the Consolidated Financial Statements contained in this report for further discussion regarding this maturity.)
In August 2002, the Company entered into a replacement unsecured senior revolving credit facility (the "Credit Agreement") with Bank of America, N.A., as agent for a lender group, expanding the maximum available borrowings to $155 million and extending the maturity to February 2006. The balance of funds available under the Credit Agreement may be utilized for borrowings, including up to $50 million for letters of credit. The Credit Agreement bears interest at either the bank's base rate (4.0% at December 27, 2003) or the London Inter-Bank Offer Rate ("LIBOR") (1.14% at December 27, 2003) plus an additional amount ranging from 0.75% to 1.5% per annum, adjusted quarterly based on Company performance (0.75% at December 27, 2003). The Company is also required to pay, quarterly in arrears, a commitment fee ranging from 0.20% to 0.35% (0.20% at December 27, 2003) per annum, adjusted quarterly based on Company performance, on the average daily unused portion of the Credit Agreement. There are no compensating balance requirements associated with the Credit Agreement. The Company expects to continue borrowing amounts under the Credit Agreement from time to time to fund its growth and expansion programs and as a source of seasonal working capital.
The Credit Agreement contains certain restrictions regarding additional indebtedness; capital expenditures; business operations; guarantees; investments; mergers; consolidations and sales of assets; transactions with subsidiaries or affiliates; and liens. In addition, the Company must comply with certain quarterly restrictions (based on a rolling four-quarters basis) regarding net worth, leverage ratio, fixed charge coverage and current ratio requirements. The Company was in compliance with all covenants at December 27, 2003.
On January 28, 2004, the Credit Agreement was amended to extend the maturity date to February 28, 2007. Additionally, the amendment included changes to certain financial covenants, primarily to permit greater flexibility for capital expenditures in accordance with the Company's growth plans.
Operations provided net cash of $62.1 million in fiscal 2003, $46.7 million in fiscal 2002, and $47.1 million in fiscal 2001. The $15.4 million increase in fiscal 2003 over fiscal 2002 is primarily due to changes in the following operating activities (in millions):
2003 2002 VARIANCE
-------- -------- --------
Net income $ 56.5 $ 38.8 $ 17.7
Depreciation and amortization 19.8 16.5 3.3
Deferred income taxes 7.6 (3.9) 11.5
Inventories and accounts payable (21.6) (33.4) 11.8
Prepaid expenses and other current assets (10.9) -- (10.9)
Accrued expenses 7.6 23.4 (15.8)
Other, net 3.1 5.3 (2.2)
-------- -------- --------
Net cash provided by operations $ 62.1 $ 46.7 $ 15.4
======== ======== ========
|
The increase in net cash provided by operations in fiscal 2003 compared with fiscal 2002 is primarily due to the increase in the number of stores in operation. In addition to the 31 stores opened in 2003, it was also the first full year of operations for the 113 stores opened in 2002. As a result of this aggressive expansion, the Company experienced a dramatic increase in all working capital components. Strong sales performance generated increased cash flows and inventory requirements thereby driving proportionate increases in operating expenses.
The $0.4 million decrease in net cash provided by operations in fiscal 2002 from fiscal 2001 is primarily due to changes in the following operating activities (in millions):
2002 2001 VARIANCE
-------- -------- --------
Net income $ 38.8 $ 25.8 $ 13.0
Depreciation and amortization 16.5 11.3 5.2
Inventories and accounts payable (33.4) 11.2 (44.6)
Prepaid expenses and other current assets 0.3 (6.1) 6.4
Accrued expenses 23.4 9.0 14.4
Other, net 1.1 (4.1) 5.2
-------- -------- --------
Net cash provided by operations $ 46.7 $ 47.1 $ (0.4)
======== ======== ========
|
The decrease in net cash provided by operations in fiscal 2002 compared with fiscal 2001 is primarily due to the addition of 113 new stores during fiscal 2002 compared with 18 new stores in fiscal 2001. The significant expansion, coupled with strong sales performance, increased the need for inventories beyond typical vendor leveraging, and increased related operating expenses in support of the growing operations.
Investing activities used $41.6 million, $62.6 million, and $10.7 million in fiscal 2003, 2002 and 2001, respectively. The majority of this cash requirement relates to the Company's capital expenditures.
The Company's significant store expansion, coupled with required investment in infrastructure costs, required the following capital expenditures (in thousands):
2003 2002 2001
-------- -------- --------
New and relocated stores and stores not yet opened $ 17,130 $ 60,728 $ 4,578
Existing stores 9,829 4,193 6,069
Distribution center capacity 17,217 417 103
Information technology 3,320 1,055 2,607
Corporate and other 626 151 212
-------- -------- --------
$ 48,122 $ 66,544 $ 13,569
======== ======== ========
|
The Company's long-term growth strategy anticipates continued geographic market expansion and further concentration within existing markets. These additional stores will require continuing investment in distribution capacity, information technology and people. The Company currently estimates that capital expenditures will be approximately $86.0 million in fiscal 2004, as follows (in thousands):
New and relocated stores and stores not yet opened $ 25,000
Existing stores 11,000
Distribution center capacity 38,000
Information technology 8,000
Corporate and other 4,000
--------
$ 86,000
========
|
Financing activities used $14.3 million, provided $20.8 million, and used $36.6 million in fiscal 2003, 2002 and 2001, respectively, largely as a result of borrowing requirements created by operations, partially offset by proceeds received from the exercise of stock options.
The Company believes that its cash flow from operations, borrowings available under the Credit Agreement, and normal trade credit will be sufficient to fund the Company's operations and its capital expenditure needs, including store openings and renovations, over the next several years.
The following table reflects the Company's future obligations and commitments as of December 27, 2003 (in thousands):
PAYMENT DUE BY PERIOD
-------------------------------------------------------------------
TOTAL
CONTRACTUAL LESS THAN 1 MORE THAN 5
OBLIGATIONS YEAR 1-3 YEARS 4-5 YEARS YEARS
----------- ----------- ----------- ----------- -----------
Long term debt (1) $ 19,403 $ -- $ 19,403 $ -- $ --
Operating leases 405,322 52,341 91,417 76,389 185,175
Capital leases (2) 5,100 496 660 394 3,550
----------- ----------- ----------- ----------- -----------
$ 429,825 $ 52,837 $ 111,480 $ 76,783 $ 188,725
=========== =========== =========== =========== ===========
|
(1) Long term debt balances represent principal maturities, excluding interest.
At December 27, 2003, this entire amount relates to the Company's Credit
Agreement.
(2) Capital lease obligations include related interest.
The Company has outstanding standby letters of credit of $8.1 million as of December 27, 2003.
OFF-BALANCE SHEET ARRANGEMENTS
The extent of the Company's off-balance sheet arrangements are operating leases and outstanding letters of credit. The balances for these arrangements are discussed above. Leasing buildings and equipment for retail stores and offices rather than acquiring these significant assets allows the Company to utilize financial capital to operate the business rather than maintain assets. Letters of credit allow the Company to purchase inventory in a timely manner.
SUBSEQUENT EVENTS
In January 2004, the Company purchased the land and building related to its distribution center in Pendleton, Indiana for $15.3 million. The facility was originally built to the Company's specifications and had been leased since 1999.
In January 2004, the Company entered into an eight-year lease agreement that will consolidate multiple headquarter facilities within one location. The Company expects to incur incremental after-tax costs of approximately $2.0 million primarily due to the abandonment of the current leases.
The Credit Agreement was amended in January 2004 to extend the maturity date to February 28, 2007. Additionally, the amendment included changes to certain financial covenants, primarily to provide flexibility for capital expenditures. The Company is in compliance with all covenants at December 27, 2003.
RELATED PARTY TRANSACTIONS
Related party transactions consist of the sale of property in 2003. (See Note 12 of the Notes to the Consolidated Financial Statements contained in this report for a description of this transaction.)
LITIGATION
The Company is involved in various litigation arising in the ordinary course of business. After consultation with legal counsel, management expects these matters will be resolved without material adverse effect on the Company's consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in circumstances relating to these proceedings.
ENVIRONMENTAL MATTERS
In connection with a contaminated leased store property vacated by the Company upon relocation in 2002, the Company has agreed to indemnify the property owner with respect to an environmental liability associated with the use of the property, as defined in the related lease agreement. During fiscal 2003, the Company has not paid or accrued material amounts related to this property. The Company does not expect the expense of these activities to
exceed $0.1 million; however, because of the uncertainties associated with environmental assessment and remediation activities, the Company's future expenses to remediate the currently identified site could be higher than amounts accrued. Future expenditures for environmental remediation may be affected in the near-term by identification of additional contaminated sites, the level and type of contamination found, and the extent and nature of cleanup activities required.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities ("VIE"), an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46"). The Interpretation provides guidance for determining whether an entity is a variable interest entity and evaluation for consolidation based on a company's variable interests. The Interpretation is effective (1) immediately for VIEs created after January 31, 2003 and (2) in the first interim period ending after March 15, 2004 for VIEs created prior to February 1, 2003. The Company has no variable interest entities and the adoption of FIN 46 is expected to have no impact on the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company entered into an interest rate swap agreement as a means of managing its interest rate exposure. This agreement, which matured in November 2003, had the effect of converting certain of the Company's variable rate obligations to fixed rate obligations. Net amounts paid or received are reflected as an adjustment to interest expense.
The Company complies with SFAS Nos. 133, 137, and 138 (collectively "SFAS 133") pertaining to the accounting for derivatives and hedging activities. SFAS 133 requires the Company to recognize all derivative instruments in the balance sheet at fair value. SFAS 133 impacted the accounting for the Company's interest rate swap agreement, which was designated as a cash flow hedge.
The Company is exposed to changes in interest rates primarily from its variable-rate unsecured senior revolving credit agreement. The agreement bears interest at either the bank's base rate (4.00% and 4.25% at December 27, 2003 and December 28, 2002, respectively) or LIBOR (1.14% and 1.42% at December 27, 2003 and December 28, 2002, respectively) plus an additional amount ranging from 0.75% to 1.50% per annum, adjusted quarterly, based on Company performance (0.75% and 1.00% at December 27, 2003 and December 28, 2002, respectively). The Company is also required to pay, quarterly in arrears, a commitment fee ranging from 0.20% to 0.35% based on the daily average unused portion of the credit line. (See Note 4 of Notes to the Consolidated Financial Statements contained in this report for further discussion regarding this credit agreement.) A hypothetical 100 basis point adverse move (increase) in interest rates along the entire interest rate yield curve would result in approximately $330,000 of additional annual interest expense and would not impact the fair market value of the long-term debt.
Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe its sales or results of operations have been materially affected by inflation. The Company has been successful, in many cases, in reducing or mitigating the effects of inflation principally by taking advantage of vendor incentive programs, economies of scale from increased volume of purchases and selective buying from the most competitive vendors without sacrificing quality.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
PAGE
Report of Independent Auditors............................................... 24
Consolidated Statements of Income for the years ended December 27, 2003,
December 28, 2002 and December 29, 2001................................ 25
Consolidated Balance Sheets as of December 27, 2003 and December 28, 2002.... 26
Consolidated Statements of Stockholders' Equity for the years ended
December 27, 2003, December 28, 2002 and December 29, 2001............. 27
Consolidated Statements of Cash Flows for the years ended December 27, 2003,
December 28, 2002 and December 29, 2001................................ 28
Notes to Consolidated Financial Statements................................... 29
23
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REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
TRACTOR SUPPLY COMPANY
We have audited the accompanying consolidated balance sheets of Tractor Supply Company as of December 27, 2003 and December 28, 2002, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 27, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tractor Supply Company at December 27, 2003 and December 28, 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 27, 2003, in conformity with accounting principles generally accepted in the United States.
As discussed in Note 2 to the financial statements, in fiscal 2003 the Company changed its method of accounting for certain consideration received from vendors.
/s/ Ernst & Young LLP
Nashville, Tennessee
January 19, 2004, except for
Note 19, as to which the date
is January 28, 2004
|
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
2003 2002 2001
----------- ----------- -----------
Net sales ................................................. $ 1,472,885 $ 1,209,990 $ 849,799
Cost of merchandise sold .................................. 1,023,985 867,803 621,455
----------- ----------- -----------
Gross margin ............................................ 448,900 342,187 228,344
Selling, general and administrative expenses .............. 332,215 260,290 178,243
Depreciation and amortization ............................. 19,758 16,457 11,254
----------- ----------- -----------
Income from operations .................................. 96,927 65,440 38,847
Interest expense, net ..................................... 3,444 4,707 4,494
Unusual item: gain on life insurance ................... -- -- 2,173
----------- ----------- -----------
Income before income taxes and cumulative effect of
change in accounting principle ........................ 93,483 60,733 36,526
Income tax expense ........................................ 35,094 21,963 10,752
----------- ----------- -----------
Income before cumulative effect of change in
accounting principle .................................. 58,389 38,770 25,774
Cumulative effect on prior years of change in
accounting principle, net of income taxes (Note 2) ...... (1,888) -- --
----------- ----------- -----------
Net income ................................................ $ 56,501 $ 38,770 $ 25,774
=========== =========== ===========
Net income per share - basic, before cumulative effect of
change in accounting principle .......................... $ 1.57 $ 1.07 $ 0.73
Cumulative effect of accounting change, net of income taxes (0.05) -- --
----------- ----------- -----------
Net income per share - basic .............................. $ 1.52 $ 1.07 $ 0.73
=========== =========== ===========
Net income per share - assuming dilution before cumulative
effect of change in accounting principle ................ $ 1.45 $ 0.99 $ 0.71
Cumulative effect of accounting change, net of income taxes (0.05) -- --
----------- ----------- -----------
Net income per share - assuming dilution .................. $ 1.40 $ 0.99 $ 0.71
=========== =========== ===========
Pro-forma amounts assuming the change in accounting
principle is applied retroactively:
Net income .............................................. $ 58,389 $ 37,690 $ 25,732
=========== =========== ===========
Net income per share - basic ............................ $ 1.57 $ 1.04 $ 0.73
=========== =========== ===========
Net income per share - assuming dilution ................ $ 1.45 $ 0.96 $ 0.71
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
25
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TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DEC. 27, DEC. 28,
2003 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 19,980 $ 13,773
Accounts receivable, net ................................................... -- 102
Inventories ................................................................ 324,518 289,253
Prepaid expenses and other current assets .................................. 27,725 17,579
Assets held for sale ....................................................... 3,636 3,779
Deferred income taxes ...................................................... 7,467 7,784
--------- ---------
Total current assets ................................................... 383,326 332,270
--------- ---------
Property and Equipment:
Land ....................................................................... 14,307 12,569
Buildings and improvements ................................................. 124,968 100,843
Furniture, fixtures and equipment .......................................... 89,633 75,815
Construction in progress ................................................... 3,563 4,271
232,471 193,498
Accumulated depreciation and amortization .................................. (83,880) (69,953)
Property and equipment, net ................................................ 148,591 123,545
Other assets ................................................................. 4,292 3,104
--------- ---------
Total assets ........................................................... $ 536,209 $ 458,919
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 131,564 $ 114,851
Accrued employee compensation .............................................. 12,716 14,892
Other accrued expenses ..................................................... 61,208 51,410
Current maturities of long-term debt ....................................... -- 5,537
Current portion of capital lease obligations ............................... 339 340
Income taxes currently payable ............................................. -- 3,101
Other current liabilities .................................................. -- 1,699
--------- ---------
Total current liabilities .............................................. 205,827 191,830
--------- ---------
Revolving credit loan ........................................................ 19,403 33,542
Capital lease obligations, less current maturities ........................... 1,807 2,163
Deferred income taxes ........................................................ 8,879 1,584
Other long-term liabilities .................................................. 4,909 1,952
--------- ---------
Total liabilities ...................................................... 240,825 231,071
--------- ---------
Stockholders' equity:
Preferred Stock, 40,000 shares authorized; $1.00 par value; no shares issued -- --
Common stock, 100,000,000 shares authorized; $.008 par value; 37,390,469 and
36,465,908 shares issued and outstanding in 2003 and 2002, respectively .. 299 292
Additional paid-in capital ................................................. 62,083 52,028
Retained earnings .......................................................... 233,002 176,501
Accumulated other comprehensive loss, net .................................. -- (973)
--------- ---------
Total stockholders' equity ............................................. 295,384 227,848
--------- ---------
Total liabilities and stockholders' equity ............................. $ 536,209 $ 458,919
========= =========
The accompanying notes are in integral part of these financial statements.
26
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TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
---------- ----------- ---------- ------------- ------------
Stockholders' equity at December 30, 2000 . $ 282 $ 42,797 $ 111,957 $ -- $ 155,036
Issuance of common stock under employee
stock purchase plan (138,860 shares) ... 380 380
Exercise of stock options (265,756 shares) 2 1,234 1,236
Tax benefit on disqualifying disposition of
stock options .......................... 292 292
Unrealized loss on interest rate swap
agreement, net of income tax benefit of
$902.................................... (1,422) (1,422)
Net income ................................ 25,774 25,774
---------- ----------- ---------- ------------- ------------
Stockholders' equity at December 29, 2001 . 284 44,703 137,731 (1,422) 181,296
Issuance of common stock under employee
stock purchase plan (71,374 shares) .... 639 639
Exercise of stock options (819,810 shares) 8 4,188 4,196
Tax benefit on disqualifying disposition of
stock options .......................... 2,498 2,498
Unrealized gain on interest rate swap
agreement, net of income tax expense of
$299.................................... 449 449
Net income ................................ 38,770 38,770
Stockholders' equity at December 28, 2002 . 292 52,028 176,501 (973) 227,848
---------- ----------- ---------- ------------- ------------
Issuance of common stock under employee
stock purchase plan (52,900 shares) .... 935 935
Exercise of stock options (871,661 shares) 7 4,832 4,839
Tax benefit on disqualifying disposition of
stock options .......................... 4,288 4,288
Unrealized gain on interest rate swap
agreement, net of income tax expense of
$603.................................... 973 973
Net income ................................ 56,501 56,501
---------- ----------- ---------- ------------- ------------
Stockholders' equity at December 27, 2003 . $ 299 $ 62,083 $ 233,002 $ -- $ 295,384
========== =========== ========== ============= ============
The accompanying notes are in integral part of these financial statements.
27
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TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
2003 2002 2001
--------- --------- ---------
Cash flows from operating activities:
Net income ............................................... $ 56,501 $ 38,770 $ 25,774
Tax benefit of stock options exercised ................... 4,288 2,498 292
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle ..... 1,888 -- --
Depreciation and amortization ........................... 19,758 16,457 11,254
Gain on disposition of property and equipment ........... (2,847) (1,081) (60)
Asset impairment related to closed stores and relocations 423 558 --
Gain on proceeds from life insurance .................... -- -- (2,173)
Deferred income taxes ................................... 7,122 (3,932) (4,765)
Change in assets and liabilities:
Accounts receivable .................................. 102 2,109 592
Inventories .......................................... (38,318) (67,274) 556
Prepaid expenses and other current assets ............ (10,945) 343 (6,095)
Accounts payable ..................................... 16,713 33,877 10,680
Accrued expenses ..................................... 7,622 23,359 9,014
Income taxes currently payable ....................... (1,446) (10) 1,468
Other ................................................ 1,187 983 560
--------- --------- ---------
Net cash provided by operating activities ............ 62,048 46,657 47,097
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures .................................... (48,122) (66,544) (13,569)
Proceeds from sale of property and equipment ............ 6,539 3,924 1,376
Liquidation of life insurance policies .................. -- -- 1,499
--------- --------- ---------
Net cash used in investing activities ................ (41,583) (62,620) (10,694)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving credit agreement ............. 536,285 539,915 274,674
Repayments under revolving credit agreement ............. (550,424) (521,490) (309,564)
Repayment of long term debt ............................. (5,537) (2,142) (5,597)
Principal payments under capital lease obligations ...... (356) (309) (279)
Net proceeds from life insurance death benefit .......... -- -- 2,529
Net proceeds from issuance of common stock .............. 5,774 4,835 1,616
--------- --------- ---------
Net cash provided by (used in) financing activities .. (14,258) 20,809 (36,621)
--------- --------- ---------
Net increase (decrease) in cash ........................... 6,207 4,846 (218)
Cash and cash equivalents at beginning of year ............ 13,773 8,927 9,145
--------- --------- ---------
Cash and cash equivalents at end of year .................. $ 19,980 $ 13,773 $ 8,927
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ................................................ $ 3,043 $ 3,789 $ 4,338
Income taxes ............................................ 31,840 23,774 13,770
The accompanying notes are an integral part of these financial statements.
28
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
The Company is the largest operator of retail farm and ranch stores in the United States. The Company is focused on supplying the lifestyle needs of recreational farmers and ranchers and serving the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities. The Company operated 463 retail farm and ranch stores in 30 states as of December 27, 2003.
FISCAL YEAR
The Company's fiscal year includes 52 or 53 weeks and ends on the last Saturday of the calendar year. References to fiscal year mean the year in which that fiscal year began. Each of the fiscal years ended December 27, 2003, December 28, 2002 and December 29, 2001 contain 52 weeks.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated.
MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States inherently requires estimates and assumptions by management that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. Actual results could differ from those estimates.
Significant estimates and assumptions by management primarily impact the following key financial statement areas:
INVENTORY VALUATION
The Company identifies potentially excess and slow-moving inventory by evaluating turn rates and overall inventory levels. Excess quantities are identified through the application of benchmark turn targets and historical sales experience. Further, exposure to inadequate realization of carrying value is identified through analysis of gross margin achievement and markdown experience, in combination with all merchandising initiatives. The estimated reserve is based on management's current knowledge with respect to inventory levels, sales trends and historical experience relating to the sale of the excess and/or slow-moving inventory. Management does not believe the Company's merchandise inventories are subject to significant risk of obsolescence in the near-term, and management has the ability to adjust purchasing practices based on anticipated sales trends and general economic conditions. However, changes in consumer purchasing patterns could result in the need for additional reserves.
The Company estimates its expected shrinkage of inventory between physical inventory counts by assessing the chain-wide average shrinkage experience rate, applied to the related periods' sales volumes. Such assessments are updated on a regular basis for the most recent individual store experiences.
The Company receives funding from its vendors for promotion of the Company's brand as well as the sale of their products. Vendor funding is accounted for as a discount on the purchase price of inventories and is recognized in cost of sales as inventory is sold. The amount of expected funding is estimated based upon initial guaranteed commitments, as well as anticipated purchase levels with applicable vendors. The estimated purchase volume is based on management's current knowledge with respect to inventory levels, sales trends and expected customer demand, as well as
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
planned new store openings. Although management believes it has the ability to reasonably estimate its purchase volume, it is possible that actual results could significantly differ from the estimated amounts.
SALES RETURNS
The Company generally honors customer refunds within 30 days of the original purchase, with the supporting receipt. The Company estimates its reserve for likely customer returns based on the average refund experience in relation to sales for the related period. Due to the seasonality of the Company's sales, the refund experience can vary, depending on the fiscal quarter of measurement.
SELF-INSURANCE
The Company is self-insured for certain losses relating to workers' compensation, medical and general liability claims. However, the Company has stop-loss limits and umbrella insurance coverage for certain risk exposures subject to specified limits. Self-insurance claims filed and claims incurred but not reported are accrued based upon management's estimates of the aggregate liability for uninsured claims incurred using actuarial assumptions followed in the insurance industry and historical experience. Although management believes it has the ability to adequately record estimated losses related to claims, it is possible that actual results could significantly differ from recorded self-insurance liabilities.
REVENUE RECOGNITION
The Company recognizes revenue when sales transactions occur and customers take possession of the merchandise. A provision for anticipated merchandise returns is provided in the period during which the related sales are recorded.
STORE PRE-OPENING COSTS
Non-capital expenditures incurred in connection with start-up activities are expensed as incurred.
STORE CLOSING COSTS
Beginning in fiscal 2003, the Company recognizes store closing costs in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Prior to the adoption of SFAS 146, the Company recognized store-closing costs (primarily remaining lease obligations and disposals of property and equipment) at the time the plan for the related store closing or relocation was finalized. The adoption of SFAS 146 did not materially impact the Company's financial position, cash flows, or results of operations.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments, with a maturity of three months or less when purchased, to be cash equivalents. The majority of payments due from banks for customer credit card transactions process within 24-48 hours and are accordingly classified as cash and cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, short-term trade receivables and payables and long-term debt instruments, including capital leases. The carrying values of cash and cash equivalents, trade receivables and trade payables equal current fair value. The terms of the Company's revolving credit agreement (the "Credit Agreement") and term loan agreement include variable interest rates, which approximate current market rates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company complies with Statement of Financial Accounting Standard ("SFAS") Nos. 133, 137, and 138 (collectively "SFAS 133") pertaining to the accounting for derivatives and hedging activities. SFAS 133 requires the Company to recognize all derivative instruments in the balance sheet at fair value. SFAS 133 impacted the accounting for the Company's interest rate swap agreement, which was designated as a cash flow hedge.
INVENTORIES
The value of the Company's inventories was determined using the lower of last-in, first-out (LIFO) cost or market. Inventories are not in excess of market value. Quarterly inventory determinations under LIFO are based on assumptions as to projected inventory levels at the end of the fiscal year, sales for the year and the rate of inflation/deflation for the year. If the first-in, first-out (FIFO) method of accounting for inventory had been used, inventories would have been approximately $5,267,000 higher than reported at December 28, 2002. At December 27, 2003 LIFO and FIFO inventory values were the same.
FREIGHT COSTS
The Company incurs various types of transportation and delivery costs in connection with inventory purchases and distribution. Such costs are included as a component of the overall cost of merchandise.
WAREHOUSING AND DISTRIBUTION COSTS
Costs incurred at the Company's distribution centers for receiving, warehousing and preparing product for delivery are expensed as incurred. These costs are included in selling, general and administrative expenses in the accompanying statements of income.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Improvements to leased premises are amortized using the straight-line method over the life of the lease or the useful life of the improvement, whichever is shorter. The following estimated useful lives are generally applied:
Life
--------------
Buildings 30 - 35 years
Leasehold improvements 5 - 15 years
Furniture, fixtures and equipment 5 - 10 years
Computer software 3 - 5 years
|
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment when circumstances indicate the carrying amount of the asset may not be recoverable. Impairment is recognized on assets classified as held and used when the sum of undiscounted estimated future cash flows expected to result from the use of the asset is less than the carrying value. Impairment on long-lived assets to be disposed of is recognized by writing down the related assets to their fair value (less costs to sell, as appropriate), when the criteria have been met for the asset to be classified as held for sale or disposal (Note 3).
ADVERTISING COSTS
Advertising costs consist of expenses incurred in connection with newspaper circulars, television and radio, as well as direct mail, newspaper advertisements and other promotions. Gross advertising expenses for fiscal 2003, 2002 and 2001 were approximately $38,235,000, $33,761,000 and $24,539,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be recovered or settled.
STOCK-BASED COMPENSATION PLANS
As permitted by SFAS 123, "Accounting for Stock-Based Compensation," the Company has elected to account for its stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Under APB No. 25, compensation expense would be recorded if the current market price of the underlying stock on the date of grant exceeded the exercise price.
Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date (derived through use of Black-Scholes methodology) for awards under the plans consistent with the method prescribed by SFAS 123, the Company's pro forma net income and net income per share for fiscal 2003, 2002 and 2001 would have been as follows (in thousands, except per share amounts):
2003 2002 2001
-------- -------- --------
Net income - as reported $ 56,501 $ 38,770 $ 25,774
Pro forma compensation expense, net of
income taxes (3,742) (1,836) (922)
-------- -------- --------
Net income - pro-forma $ 52,759 $ 36,934 $ 24,852
======== ======== ========
Net income per share - basic:
As reported $ 1.52 $ 1.07 $ 0.73
Pro forma $ 1.42 $ 1.02 $ 0.70
Net income per share - diluted:
As reported $ 1.40 $ 0.99 $ 0.71
Pro forma $ 1.31 $ 0.94 $ 0.69
|
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
2003 2002 2001
-------- -------- --------
Expected volatility 44.2% 43.8% 43.8%
Risk-free interest rate 3.7% 5.0% 5.1%
Average expected life (years) 7.0 6.9 7.5
Dividend yield 0.0% 0.0% 0.0%
Weighted average fair value $ 10.13 $ 4.87 $ 0.93
|
NET INCOME PER SHARE
The Company presents both basic and diluted earning per share ("EPS") on the face of the income statement. As provided by SFAS 128, "Earnings per Share", basic EPS is calculated as income available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted EPS is calculated using the treasury stock method for options and warrants. All earnings per share data included in the consolidated financial
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements and notes thereto have been restated to give effect to the August 21, 2003 and the August 19, 2002 two-for-one stock splits (Note 9).
RECLASSIFICATIONS
Certain amounts in previously issued financial statements were reclassified to conform to the fiscal 2003 presentation.
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE:
Emerging Issues Task Force Issue No. 02-16 ("EITF 02-16") provides guidance for the accounting treatment and income statement classification for consideration given by a vendor to a retailer in connection with the sale of the vendor's products or for the promotion of sales of the vendor's products. The EITF concluded that such consideration received from vendors should be reflected as a decrease in prices paid for inventory and recognized in cost of sales as the related inventories are sold, unless specific criteria are met qualifying the consideration for treatment as reimbursement of specific, identifiable incremental costs. Prior to adopting this pronouncement, the Company classified all vendor-provided marketing support funds as a reduction in selling, general and administrative expenses.
The effect of applying the consensus of EITF 02-16 on prior-period financial statements would have resulted in a change to previously reported net income. Thus, the Company has reported the adoption of EITF 02-16 as a cumulative effect adjustment in accordance with APB Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements" and as permitted by EITF 02-16. During the first quarter of fiscal 2003, the Company recognized a charge against net income of $3,053,000 ($1,888,000 net of income taxes), that resulted from the cumulative effect on prior years.
NOTE 3 - ASSETS HELD FOR SALE:
Assets held for sale consists of certain buildings and properties that the Company either acquired through the significant asset purchase as described in Note 16 or that the Company vacated upon relocation of a store.
The Company applies the provisions of SFAS 144, "Accounting for the Impairment of Disposal of Long Lived Assets," to assets held for sale. SFAS 144 requires assets held for sale to be valued on an asset-by-asset basis at the lower of carrying amount or fair value less costs to sell. In applying these provisions, recent appraisals, valuations, offers and bids are considered. The Company recorded an impairment charge of $423,000 and $558,000 in 2003 and 2002, respectively, to adjust the carrying value of certain property and equipment related to vacated stores to fair value, less costs to sell. This charge is included in selling, general and administrative expenses. In addition, in December 2002, the Company decided to retain an asset previously classified as an asset held for sale as the Company believes the geographic location of the property is favorable. The asset (approximately $1.7 million) was reclassified from assets held for sale to property and equipment.
The buildings and properties held for sale are separately presented as assets held for sale in the accompanying consolidated balance sheets. The assets are classified as current, as the Company believes they will be sold within the next twelve months and have met all the criteria for classification as held for sale pursuant to SFAS 144.
NOTE 4 - CREDIT AGREEMENT:
In November 2000, the Company entered into a three-year unsecured senior revolving credit agreement with Bank of America, N.A., as agent for a lender group, whereby the Company was permitted to borrow up to $125 million. In October 2001, the Company extended this credit agreement by one year, thus extending the maturity to November 2004.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2002, the Company entered into a replacement credit agreement with Bank of America, N.A. as agent for a lender group (the "Credit Agreement"), expanding the maximum available borrowing from $125 million to $155 million, extending the maturity to February 2006 and increasing the number of participating banks from seven to ten. Of the total $155 million commitment at December 27, 2003, $8.1 million has been utilized for the issuance of letters of credit relating to insurance policies and import merchandise. The outstanding borrowings under the Credit Agreement totaled $19.4 million at December 27, 2003 and $33.5 million at December 28, 2002. The balance of funds available under the Credit Agreement may be utilized for borrowings and up to $41.9 million for additional letters of credit. The Credit Agreement bears interest at either the bank's base rate (4.0% at December 27, 2003) or the London Inter-Bank Offer Rate ("LIBOR") (1.14% at December 27, 2003) plus an additional amount ranging from 0.75% to 1.5% per annum, adjusted quarterly based on Company performance (0.75% at December 27, 2003). The Company is also required to pay, quarterly in arrears, a commitment fee ranging from 0.20% to 0.35% per annum (0.20% at December 27, 2003), adjusted quarterly based on Company performance, on the average daily unused portion of the credit line. There are no compensating balance requirements associated with the Credit Agreement.
The Credit Agreement contains certain restrictions regarding additional indebtedness; capital expenditures; business operations; guarantees; investments; mergers; consolidations and sales of assets; transactions with subsidiaries or affiliates; and liens. In addition, the Company must comply with certain quarterly restrictions (based on a rolling four-quarters basis) regarding net worth, leverage ratio, fixed charge coverage and current ratio requirements. The Company was in compliance with all covenants at December 27, 2003. (See Note 19).
The Company had letters of credit outstanding totaling $8.1 and $3.9 million at December 27, 2003 and December 28, 2002, respectively. These letters of credit were issued primarily for the purchase of inventory.
NOTE 5 - OTHER LONG-TERM DEBT:
In June 1998, the Company entered into a new loan agreement (the "Loan Agreement") and term note (the "Term Note") pursuant to which the Company borrowed $15 million. There are no compensating balance requirements associated with the Loan Agreement. The Loan Agreement is unsecured.
In August 2002, in connection with the replacement of the Credit Agreement, the Company amended the Loan Agreement and Term Note. The terms of the Loan Agreement and Term Note were amended to provide that the existing indebtedness would bear interest under the same provisions as that in the Credit Agreement and the restrictive covenants would be modified to be the same as those in the Credit Agreement (Note 4). The maturity dates of the Loan Agreement and Term Note were not amended and the Loan Agreement and the Term note matured in November 2003.
Under the Loan Agreement and Term Note, the Company had $5.5 million outstanding at December 28, 2002.
NOTE 6 - LEASES:
The Company leases the majority of its office space and most of its retail store locations, transportation equipment and other equipment under various noncancelable operating leases. The leases have varying terms and expire at various dates through 2029 and 2018 for capital leases and operating leases, respectively. The store leases typically have initial terms of between 10 and 15 years, with one to three renewal periods of five years each, exercisable at the Company's option. Generally, most of the leases require the Company to pay taxes, insurance and maintenance costs.
Total rent expense for fiscal 2003, 2002, and 2001 was approximately $60,129,000, $51,952,000, and $36,733,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum payments, by year and in the aggregate, under leases with initial or remaining terms of one year or more consist of the following (in thousands):
CAPITAL OPERATING
LEASES LEASES
-------- ---------
2004............................................ $ 496 $ 52,341
2005............................................ 463 47,974
2006............................................ 197 43,443
2007............................................ 197 39,546
2008............................................ 197 36,843
Thereafter ..................................... 3,550 185,175
-------- --------
Total minimum lease payments ................... 5,100 $405,322
Amount representing interest ................... (2,954) ========
--------
Present values of net minimum lease payments ... 2,146
Less: current portion .......................... (339)
--------
Long-term capital lease obligations ............ $ 1,807
========
Assets under capital leases were as follows in thousands:
2003 2002
-------- --------
Building and improvements........................... $ 3,756 $ 3,756
Less: accumulated depreciation...................... (2,212) (2,051)
-------- --------
$ 1,544 $ 1,705
======== ========
|
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS:
During fiscal 2000, the Company entered into an interest rate swap agreement as a means of managing its interest rate exposure. This agreement, which matured in November 2003, had the effect of converting certain of the Company's variable rate obligations to fixed rate obligations.
The Company complies with SFAS 133 and recognized the fair value of the interest rate swap in its consolidated balance sheet. The Company regularly adjusted the carrying value of the interest rate swap to reflect its current fair value. The related gain or loss on the swap was deferred in stockholders' equity (as a component of comprehensive income) to the extent that the swap was an effective hedge. The deferred gain or loss was recognized in income in the period in which the related interest rate payments being hedged were recognized as an expense. However, to the extent that the change in value of an interest rate swap contract did not perfectly offset the change in the interest rate payments being hedged, the ineffective portion was immediately recognized as an expense. Net amounts paid or received were reflected as adjustments to interest expense.
NOTE 8 - INCOME TAXES:
The provision for income taxes before cumulative effect of change in accounting principle consists of the following (in thousands):
2003 2002 2001
-------- -------- --------
Current tax expense:
Federal $ 25,548 $ 23,536 $ 13,159
State 2,424 2,359 2,358
-------- -------- --------
Total current 27,972 25,895 15,517
-------- -------- --------
Deferred tax expense (benefit):
Federal 6,675 (3,188) (4,154)
State 447 (744) (611)
-------- -------- --------
Total deferred 7,122 (3,932) (4,765)
-------- -------- --------
Total provision $ 35,094 $ 21,963 $ 10,752
======== ======== ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
2003 2002
-------- --------
Current tax assets:
Inventory valuation ............................. $ 2,161 $ 4,174
Interest rate swap .............................. -- 603
Accrued employee benefit costs .................. 3,445 3,051
Other ........................................... 1,957 3,538
-------- --------
7,563 11,366
-------- --------
Current tax liabilities:
Inventory basis difference ...................... -- (3,504)
Other ........................................... (96) (78)
-------- --------
(96) (3,582)
-------- --------
Net current tax asset ............................ $ 7,467 $ 7,784
======== ========
Non-current tax assets:
Capital lease obligation basis difference ....... $ 1,013 $ 1,181
Rent expenses in excess of cash payments required 3,367 2,824
Other ........................................... 68 606
-------- --------
4,448 4,611
-------- --------
Non-current tax liabilities:
Depreciation .................................... (12,591) (5,330)
Capital lease assets basis difference ........... (656) (731)
Other ........................................... (80) (134)
-------- --------
(13,327) (6,195)
-------- --------
Net non-current tax liability..................... $ (8,879) $ (1,584)
======== ========
|
Management has evaluated the need for a valuation allowance for all or a portion of the deferred tax assets and believes that all of the deferred tax assets will more likely than not be realized through the future earnings of the Company.
A reconciliation of the provision for income taxes to the amounts computed at the federal statutory rate is as follows (in thousands):
2003 2002 2001
-------- -------- --------
Tax provision at statutory rate .................. $ 32,719 $ 21,257 $ 12,784
Tax effect of:
State income taxes, net of federal tax benefit .. 1,867 634 1,369
Permanent differences ........................... 359 56 274
Life insurance proceeds ......................... -- -- (926)
Previously accrued income taxes ................. -- -- (2,500)
Amortization of negative goodwill ............... -- (61) (63)
Other ........................................... 149 77 (186)
-------- -------- --------
$ 35,094 $ 21,963 $ 10,752
======== ======== ========
|
The Company reevaluated its tax exposure during the quarter ended December 29, 2001 and, as a result of the favorable resolution of certain tax issues, along with the closing of open tax years, the Company reduced previously accrued income tax liabilities by $2.5 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CAPITAL STOCK:
The authorized capital stock of the Company consists of common stock and preferred stock. The Company is authorized to issue 100,000,000 shares of Common Stock. The Company is also authorized to issue 40,000 shares of Preferred Stock, with such designations, rights and preferences as may be determined from time to time by the Board of Directors.
As a result of two two-for-one stock splits, stockholders of record as of August 4, 2003 and August 2, 2002 received one additional share of stock. The par value of the Company's common stock remains $0.008. All share and per share data included in the consolidated financial statements and notes thereto has been restated to give effect to the stock splits.
NOTE 10 - COMPREHENSIVE INCOME:
Comprehensive income includes the change in the fair value of the Company's interest rate swap agreement (which expired in November 2003), that qualifies for hedge accounting. Comprehensive income for each fiscal year is as follows (in thousands):
2003 2002 2001
-------- -------- --------
Net income - as reported $ 56,501 $ 38,770 $ 25,774
Unrealized gain on interest rate swap agreement,
net of income taxes 973 449 (1,422)*
-------- -------- --------
Comprehensive income $ 57,474 $ 39,219 $ 24,352
======== ======== ========
* reflects cumulative effect upon initial adoption
|
NOTE 11 - NET INCOME PER SHARE:
Net income per share is calculated as follows (in thousands, except per share amounts):
2003
---------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ------- --------
BASIC NET INCOME PER SHARE:
Net income, before cumulative effect of accounting change $ 58,389 37,076 $ 1.57
Cumulative effect of accounting change, net of income taxes (1,888) 37,076 (0.05)
--------- --------
Net income $ 56,501 37,076 $ 1.52
========= ========
DILUTED NET INCOME PER SHARE:
Net income, before cumulative effect of accounting change $ 53,389 40,271 $ 1.45
Cumulative effect of accounting change, net of income taxes (1,888) 40,271 (0.05)
--------- --------
Net income $ 56,501 40,271 $ 1.40
========= ========
2002
---------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ------- --------
BASIC NET INCOME PER SHARE:
Net income, before cumulative effect of accounting change $ 38,770 36,112 $ 1.07
Dilutive stock options outstanding 3,165 ========
--------- -------
DILUTED NET INCOME PER SHARE: $ 38,770 39,277 $ 0.99
========= ======= ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2001
---------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ------- --------
BASIC NET INCOME PER SHARE:
Net income, before cumulative effect of accounting change $ 25,774 35,296 $ 0.73
Dilutive stock options outstanding -- 866 ========
--------- -------
DILUTED NET INCOME PER SHARE: $ 25,774 36,162 $ 0.71
========= ======= ========
|
Anti-dilutive stock options excluded from the above calculations totaled 1,218,656 in 2001. There were no anti-dilutive stock options excluded from the calculations for fiscal 2002 or 2003.
NOTE 12 - RELATED PARTY TRANSACTIONS:
In 2003, the Company sold certain recreational property acquired in 1982 to the Company's Chief Executive Officer. The Company obtained independent appraisals of the property and utilized an independent agent and bidding process. The property was sold for $2,650,000 and the related gain of $2,100,000 was recognized in 2003 and included in selling, general and administrative expenses in the accompanying statement of income.
NOTE 13 - RETIREMENT BENEFIT PLANS:
The Company has a defined contribution benefit plan, the Tractor Supply Company
401(k) Retirement Savings Plan (the "Plan"), which provides retirement and other
benefits for the Company's employees. Employees become eligible for
participation at age 21 and upon completion of 12 consecutive months of
employment and 1,000 or more hours of service. The Company matches (in cash)
100% of the employee's elective contributions up to 3% of the employee's
compensation plus 50% of the employee's elective contributions from 3% to 6% of
the employee's compensation. In no event shall the total Company match made on
behalf of the employee exceed 4.5% of the employee's compensation. All current
employer contributions are immediately 100% vested. Company contributions to the
Plan during fiscal 2003, 2002 and 2001, were approximately $1,724,000 (net of
applied forfeitures of $54,000), $1,397,000 (net of applied forfeitures of
$48,000), and $1,022,000 (net of applied forfeitures of $98,000), respectively.
In fiscal 2002, the Company began offering, through a deferred compensation program, the opportunity for certain qualifying employees to elect a deferral of up to 40% of their annual base salary and up to 100% of their annual incentive under their respective incentive programs. To be eligible for the salary deferral, each participant must contribute the maximum amount of salary to the Plan subject to the Company's match. Under the deferred compensation program, the participants' salary deferral is matched by the Company, 100% on the first 3% of base salary contributed and 50% on the next 3% of base salary contributed. Each participant's account earns simple annual interest at the prime rate as in effect on January 1 each year. Each participant is fully vested in all amounts credited to their deferred compensation account. Payments under the program, which are made in cash and paid in ten annual installments or in a single lump sum payment at the election of the participant, are made within 30 days following the earlier of the participant's (i) death, (ii) retirement, (iii) total and permanent disability, (iv) termination of employment with the Company or (v) some other date designated by the participant at the time of the initial deferral. The Company's contributions, including accrued interest, were $104,000 and $93,000 for fiscal 2003 and 2002, respectively.
NOTE 14 - STOCK-BASED COMPENSATION PLANS:
FIXED STOCK OPTION PLANS
The Company has stock option plans for officers, directors (including non-employee directors) and key employees which reserve 8,000,000 shares of common stock for future issuance. According to the terms of the plans, the per share exercise price of options granted shall not be less than the fair market value of the stock on the date of grant
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and such options will expire no later than ten years from the date of grant. In the case of a stockholder owning more than 10% of the outstanding voting stock of the Company, the exercise price of an incentive stock option may not be less than 110% of the fair market value of the stock on the date of grant and such options will expire no later than five years from the date of grant. Also, the aggregate fair market value of the stock with respect to which incentive stock options are exercisable on a tax deferred basis for the first time by an individual in any calendar year may not exceed $100,000. Options granted prior to fiscal 2002 generally vest one-third each year beginning on the third anniversary date of the grant and expire after ten years, provided, however, that options granted to non-employee directors vest one-third each year beginning on the first anniversary of the grant. All options granted after fiscal 2001 vest one-third each year beginning on the first anniversary of the grant.
Plan activity is summarized as follows:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------ ----------------
Outstanding at December 30, 2000 3,347,332 $ 4.59
Exercised (265,756) $ 4.65
Granted 1,584,000 $ 3.35
Canceled (478,732) $ 4.51
---------
Outstanding at December 29, 2001 4,186,844 $ 4.13
Exercised (819,810) $ 5.12
Granted 1,245,600 $ 9.11
Canceled (72,000) $ 5.76
---------
Outstanding at December 28, 2002 4,540,634 $ 5.29
Exercised (871,661) $ 5.59
Granted 724,600 $ 20.26
Canceled (336,788) $ 6.72
---------
Outstanding at December 27, 2003 4,056,785 $ 7.80
=========
|
The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
YEAR EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
---- --------------- ----------- ----------- --------- ----------- ----------
1995 $ 5.53 500 1.09 $ 5.53 500 $ 5.53
1996 $ 5.34 14,332 2.08 $ 5.34 14,332 $ 5.34
1997 $ 4.44 - $ 5.00 27,056 3.46 $ 4.60 27,056 $ 4.60
1998 $ 3.61 670 4.07 $ 3.61 670 $ 3.61
1999 $ 6.45 - $ 6.69 232,080 5.07 $ 6.46 157,887 $ 6.47
2000 $ 3.73 - $ 3.79 685,100 6.09 $ 3.74 247,033 $ 3.74
2000 $ 2.24 155,330 6.85 $ 2.24 51,777 $ 2.24
2001 $ 3.36 1,298,000 7.08 $ 3.36 17,333 $ 3.36
2002 $ 8.91 - $ 9.80 946,417 7.02 $ 9.10 315,472 $ 9.10
2002 $ 14.22 14,000 8.56 $14.22 4,667 $14.22
2003 $ 19.14 - $ 25.11 673,300 9.08 $20.02 -- --
2003 $ 38.98 10,000 9.80 $38.98 -- --
--------- --------
4,056,785 7.07 $ 7.80 836,727 $ 6.29
========= ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASSOCIATE STOCK PURCHASE PLAN
The Company provides an Associate Stock Purchase Plan (the "ASPP") whereby eligible employees of the Company have the opportunity to purchase, through payroll deductions, shares of common stock of the Company at a 15% discount. Pursuant to the terms of the ASPP, the Company issued 52,900, 71,374 and 138,860 shares of common stock in fiscal 2003, 2002 and 2001, respectively.
NOTE 15 - GAIN ON PROCEEDS FROM LIFE INSURANCE:
In April 2001, a former executive of the Company, on whom the Company carried a life insurance policy, passed away. As a result of the related coverage, the Company realized a $2.2 million gain on the life insurance proceeds.
NOTE 16 - SIGNIFICANT ASSET PURCHASE:
On December 31, 2001, the Company, through a joint venture with Great American Group, Gordon Brothers Retail Partners, LLC and DJM Asset Management LLC, was the successful bidder at a liquidation bankruptcy auction for the buildings, improvements, fixtures and lease rights of certain retail stores formerly operated by Quality Stores, Inc., a debtor and debtor in possession under Chapter 11 of the United States Bankruptcy Code. The Company's share of the bid totaled $34.0 million and was funded entirely through the Credit Agreement. The Company acquired the buildings for 24 retail stores, assumed the building lease rights for 76 additional retail stores and acquired the related equipment, furniture and fixtures in the transaction.
The Company intends to sell three excess buildings acquired in the purchase and is actively marketing these locations. The assigned value for these three locations is included as assets held for sale in the accompanying consolidated balance sheet at December 27, 2003 (Note 3).
NOTE 17 - CONTINGENCIES:
LITIGATION
The Company is involved in various litigation arising in the ordinary course of business. After consultation with legal counsel, management expects these matters will be resolved without material adverse effect on the Company's consolidated financial position or results of operations. Any estimated loss has been adequately provided in accrued liabilities to the extent probable and reasonably estimable. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in circumstances relating to these proceedings.
ENVIRONMENTAL MATTERS
In connection with a contaminated leased store property vacated by the Company upon relocation in 2002, the Company has agreed to indemnify the property owner with respect to an environmental liability associated with the use of the property, as defined in the related lease agreement. During fiscal 2003, the Company has not paid or accrued material amounts related to this property. The Company does not expect the expense of these activities to exceed $0.1 million; however, because of the uncertainties associated with environmental assessment and remediation activities, the Company's future expenses to remediate the currently identified site could be higher than amounts accrued. Future expenditures for environmental remediation may be affected in the near-term by identification of additional contaminated sites, the level and type of contamination found, and the extent and nature of cleanup activities required.
NOTE 18 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities ("VIE"), an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46"). The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interpretation provides guidance for determining whether an entity is a variable interest entity and evaluation for consolidation based on a company's variable interests. The Interpretation is effective (1) immediately for VIEs created after January 31, 2003 and (2) in the first interim period ending after March 15, 2004 for VIEs created prior to February 1, 2003. The Company has no variable interest entities and the adoption of FIN 46 had no impact on the Company's financial position or results of operations.
NOTE 19 - SUBSEQUENT EVENTS:
In January 2004, the Company purchased the land and building related to its distribution center in Pendleton, Indiana for $15.3 million. The facility was originally built to the Company's specifications and has been leased since 1999.
On January 28, 2004, the Credit Agreement was amended to extend the maturity date to February 28, 2007. Additionally, the amendment included changes to certain financial covenants, primarily to provide flexibility for capital expenditures. The Company is in compliance with its debt covenants at December 27, 2003.
In January 2004, the Company entered into a lease agreement that will consolidate multiple headquarter facilities within one new location. The Company expects to incur incremental after tax costs of approximately $2.0 million (unaudited) primarily due to abandonment of the current leases.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the date of the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 10a-14 and 15d-14 under the Securities Exchange Act of 1934) are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, as of December 27, 2003, and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
CHANGES IN INTERNAL CONTROLS
There were no material changes in the Company's internal control over financial reporting during the fourth quarter of 2003. There have been no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect internal controls over financial reporting subsequent to the date of the evaluation referred to above.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Item 1: Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on pages 4 through 8 and 20, respectively, of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 15, 2004 is incorporated herein by reference.
The information set forth under the caption "Executive Officers of the Registrant" in Part I of this Form 10-K is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Board of Directors and Committees of the Board - Compensation of Directors", "Compensation Committee Interlocks and Insider Participation", "Executive Compensation", "Compensation Committee's Report on Executive Compensation", "Summary Compensation", "Option Grants in Last Fiscal Year", "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values", and "Stock Performance Chart" on pages 8 through 19 of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 15, 2004 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 20 and 21 of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 15, 2004 is incorporated herein by reference.
Following is a summary of the Company's equity compensation plans as of December 27, 2003, under which equity securities are authorized for issuance, aggregated as follows:
Number of Securities Weighted Average
to Be Issued Upon Exercise Price of Number of Securities
Exercise of Outstanding Outstanding Options, Remaining Available for
Plan Category Options, Warrants, and Rights Warrants and Rights Future Issuance
------------- ----------------------------- ------------------- ---------------
Equity compensation plans
-------------------------
approved by security holders:
-----------------------------
2000 Stock Incentive Plan 2,161,912 $10.41 1,729,600
Employee Stock Purchase Plan1 3,467,758
Equity compensation plans
-------------------------
not approved by security
------------------------
holders:
--------
1994 Stock Option Plan2 1,894,873 $ 4.84 227,390
Total 4,056,785 $ 7.80 5,424,748
|
1 Represents shares available as of January 1, 2004.
2 The 1994 Stock Option Plan was adopted by the Company prior to its initial
public offering and expired in February 2004.
The information set forth under the caption "Stock-Based Compensation Plans" in the "Notes to Consolidated Financial Statements" contained in this Report, provides further information with respect to the material features of each plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Related-Party Transactions with Tractor Supply Company" on page 9 of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 15, 2004 is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption "Item 2 - Ratification of Reappointment of Independent Auditors" on page 22 of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 15, 2004, is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
See Consolidated Financial Statements under Item 8 on page 23 through 41 of this Report.
(a) (2) FINANCIAL STATEMENT SCHEDULES
None
Financial statement schedules have been omitted because they are not applicable or because the required information is otherwise furnished.
(a) (3) EXHIBITS
The exhibits listed in the Index to Exhibits, which appears on pages 46 through 52 of this Form 10-K, are incorporated herein by reference or filed as part of this Form 10-K.
(b) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K, dated October 2, 2003, issuing a press release announcing its sales for the third quarter and nine months ended September 27, 2003. Notwithstanding the foregoing, information furnished under items 9 and 12 of our Current Reports on Form 8-K, including the related exhibits, is not incorporated by reference in this annual report.
The Company filed a report on Form 8-K, dated October 16, 2003, issuing a press release announcing its financial results for the third quarter and nine months ended September 27, 2003. Notwithstanding the foregoing, information furnished under items 9 and 12 of our Current Reports on Form 8-K, including the related exhibits, is not incorporated by reference in this annual report.
The Company filed a report on Form 8-K, dated October 22, 2003, issuing a press release to provide presentation materials furnished to a group of investors. Notwithstanding the foregoing, information furnished under items 9 and 12 of our Current Reports on Form 8-K, including the related exhibits, is not incorporated by reference in this annual report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRACTOR SUPPLY COMPANY
Date: March 8, 2004 By: /s/ Calvin B. Massmann
----------------------
Calvin B. Massmann
Senior Vice President - Chief
Financial Officer and Treasurer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Joseph H. Scarlett, Jr. Chairman of the Board, March 8, 2004 ------------------------ Chief Executive Officer and Director Joseph H. Scarlett, Jr. (Principal Executive Officer) /s/ Calvin B. Massmann Senior Vice President - Chief Financial March 8, 2004 ------------------------ Officer and Treasurer Calvin B. Massmann (Principal Financial Officer) /s/ James F. Wright President, Chief Operating Officer March 8, 2004 ------------------------ and Director James F. Wright /s/ S.P. Braud Director March 8, 2004 ------------------------ S.P. Braud /s/ Cynthia T. Jamison Director March 8, 2004 ------------------------ Cynthia T. Jamison /s/Gerard E. Jones Director March 8, 2004 ------------------------ Gerard E. Jones /s/ Thomas O. Flood Director March 8, 2004 ------------------------ Thomas O. Flood /s/ Joseph D. Maxwell Director March 8, 2004 ------------------------ Joseph D. Maxwell /s/ Edna K. Morris Director March 8, 2004 ------------------------ Edna K. Morris /s/ Sam K. Reed Director March 8, 2004 ------------------------ Sam K. Reed /s/ Joseph M. Rodgers Director March 8, 2004 ------------------------ Joseph M. Rodgers |
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Restated Certificate of Incorporation, as amended, of the Company,
filed with the Delaware Secretary of State on February 14, 1994 (filed
as Exhibit 4.1 to Registrant's Registration Statement on Form S-8,
Registration No. 333-102768, filed with the Commission on January 28,
2003. and incorporated herein by reference).
3.2 Certificate of Amendment of the Restated Certificate of Incorporation,
as amended, of the Company, filed with the Delaware Secretary of State
on April 28, 1995 1994 (filed as Exhibit 4.2 to Registrant's
Registration Statement on Form S-8, Registration No. 333-102768, filed
with the Commission on January 28, 2003. and incorporated herein by
reference).
3.3 Certificate of Amendment of the Restated Certificate of Incorporation,
as amended, of the Company, filed with the Delaware Secretary of State
on May 13, 1994 (filed as Exhibit 4.3 to Registrant's Registration
Statement on Form S-8, Registration No. 333-102768, filed with the
Commission on January 28, 2003. and incorporated herein by reference).
3.4 Amended and Restated By-laws of the Company as currently in effect
(filed as Exhibit 3.7 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on December
17, 1993, and incorporated herein by reference).
4.1 Form of Specimen Certificate representing the Company's Common Stock,
par value $.008 per share (filed as Exhibit 4.2 to Amendment No. 1 to
Registrant's Registration Statement on Form S-1, Registration No.
33-73028, filed with the Commission on January 31, 1994, and
incorporated herein by reference).
10.1 Indenture of Lease, dated as of January 1, 1986, between the Company
and Joseph H. Scarlett, Jr. and Dorothy F. Scarlett (relating to
Omaha, Nebraska store) (filed as Exhibit 10.14 to Registrant's
Registration Statement on Form S-1, Registration No. 33-73028, filed
with the Commission on December 17, 1993, and incorporated herein by
reference).
10.2 Indenture of Lease, dated as of January 1, 1986, between the Company
and Joseph D. Maxwell and Juliann K. Maxwell (relating to Nashville,
Tennessee store) (filed as Exhibit 10.18 to Registrant's Registration
Statement on Form S-1, Registration No. 33-73028, filed with the
Commission on December 17, 1993, and incorporated herein by
reference).
10.3 Tractor Supply Company 1994 Stock Option Plan (filed as Exhibit 10.28
to Registrant's Registration Statement on Form S-1, Registration No.
33-73028, filed with the Commission on December 17, 1993, and
incorporated herein by reference).
10.4 Amendment to the Tractor Supply Company 1994 Stock Option Plan (filed
as Exhibit 4.6 to Registrant's Registration Statement on Form S-8,
Registration No. 333-10699, filed with the Commission on June 14,
1999, and incorporated herein by reference).
10.5 Second Amendment to the Tractor Supply Company 1994 Stock Option Plan
(filed as Exhibit 10.44 to Registrant's Annual Report on Form 10-K,
filed with the Commission on March 24, 2000, Commission File No.
000-23314, and incorporated herein by reference).
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
10.6 Certificate of Insurance relating to the Medical Expense Reimbursement
Plan of the Company (filed as Exhibit 10.33 to Registrant's
Registration Statement on Form S-1, Registration No. 33-73028, filed
with the Commission on December 17, 1993, and incorporated herein by
reference).
10.7 Summary Plan Description of the Executive Life Insurance Plan of the
Company (filed as Exhibit 10.34 to Registrant's Registration Statement
on Form S-1, Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.8 Tractor Supply Company 1996 Associate Stock Purchase Plan (filed as
Exhibit 4.4 to Registrant's Registration Statement on Form S-8,
Registration No. 333-10699, filed with the Commission on August 23,
1996, and incorporated herein by reference).
10.9 Indemnification Agreement, dated January 27, 1994, between the Company
and Thomas O. Flood (filed as Exhibit 10.38 to Amendment No. 1 to
Registrant's Registration Statement on Form S-1, Registration No.
33-73028, filed with the Commission on January 31, 1994, and
incorporated herein by reference).
10.10 Tractor Supply Company Restated 401(k) Retirement Plan (filed as
Exhibit 4.1 to Registrant's Registration Statement on Form S-3,
Registration No. 333-35317, filed with the Commission on September 10,
1997, and incorporated herein by reference).
10.11 Second Amendment to Tractor Supply Company Restated 401(k) Retirement
Plan (filed as Exhibit 10.57 to Registrant's Annual Report on Form
10-K, filed with the Commission on March 23, 2001, Commission File No.
000-23314, and incorporated herein by reference).
10.12 Trust Agreement (filed as Exhibit 4.2 to Registrant's Registration
Statement on Form S-3, Registration No. 333-35317, filed with the
Commission on September 10, 1997, and incorporated herein by
reference).
10.13 Split-Dollar Agreement, dated January 27, 1998, between the Company
and Joseph H. Scarlett, Jr., Tara Anne Scarlett and Andrew Sinclair
Scarlett (filed as Exhibit 10.45 to Registrant's Annual Report on Form
10-K, filed with the Commission on March 17, 1999, Commission File No.
000-23314, and incorporated herein by reference).
10.14 Split-Dollar Agreement, dated January 2, 1998, between the Company and
Thomas O. Flood and Terry Mainiero, as Trustee of the Flood 1997
Irrevocable Trust under Agreement dated November 10, 1997 (filed as
Exhibit 10.46 to Registrant's Annual Report on Form 10-K, filed with
the Commission on March 17, 1999, Commission File No. 000-23314, and
incorporated herein by reference).
10.15 Noncompetition Agreement, dated as of August 31, 1999, between the
Company and Thomas O. Flood (filed as Exhibit 10.48 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on October
29, 1999, Commission File No. 000-23314, and incorporated herein by
reference).
10.16 Agreement, effective August 1, 1999 between the Company and General
Drivers & Helpers Union, Local #554 (filed as Exhibit 10.45 to
Registrant's Annual Report on
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
Form 10-K, filed with the Commission on March 24, 2000, Commission No.
000-23314, and incorporated herein by reference).
10.17 Tractor Supply Company 2000 Stock Incentive Plan (filed as Exhibit 4.5
to Registrant's Registration Statement on Form S-8, Registration No.
333-102768, filed with the Commission on January 28, 2003 and
incorporated herein by reference).
10.18 Revolving Note, dated as of November 3, 2000 between Tractor Supply
Company and Bank of America, N.A (filed as Exhibit 10.47 to
Registrant's Annual Report on Form 10-K, filed with the Commission on
March 23, 2001, Commission File No. 000-23314, and incorporated herein
by reference).
10.19 Revolving Note, dated as of November 3, 2000 between Tractor Supply
Company and Firstar Bank, N. A. (filed as Exhibit 10.48 to
Registrant's Annual Report on Form 10-K, filed with the Commission on
March 23, 2001, Commission File No. 000-23314, and incorporated herein
by reference).
10.20 Revolving Note, dated as of November 3, 2000 between Tractor Supply
Company and SouthTrust Bank (filed as Exhibit 10.49 to Registrant's
Annual Report on Form 10-K, filed with the Commission on March 23,
2001, Commission File No. 000-23314, and incorporated herein by
reference).
10.21 Revolving Note, dated as of November 3, 2000 between Tractor Supply
Company and AmSouth Bank (filed as Exhibit 10.50 to Registrant's
Annual Report on Form 10-K, filed with the Commission on March 23,
2001, Commission File No. 000-23314, and incorporated herein by
reference).
10.22 Revolving Note, dated as of November 3, 2000 between Tractor Supply
Company and SunTrust Bank, Nashville, N.A. (filed as Exhibit 10.51 to
Registrant's Annual Report on Form 10-K, filed with the Commission on
March 23, 2001, Commission File No. 000-23314, and incorporated herein
by reference).
10.23 Revolving Note, dated as of November 3, 2000 between Tractor Supply
Company and Compass Bank (filed as Exhibit 10.52 to Registrant's
Annual Report on Form 10-K, filed with the Commission on March 23,
2001, Commission File No. 000-23314, and incorporated herein by
reference).
10.24 Revolving Note, dated as of December 30, 2000 between Tractor Supply
Company and Fifth Third Bank (filed as Exhibit 10.53 to Registrant's
Annual Report on Form 10-K, filed with the Commission on March 23,
2001, Commission File No. 000-23314, and incorporated herein by
reference).
10.25 Amended and Restated Loan Agreement, dated as of November 3, 2000,
between the Company and SunTrust Bank, Nashville, N.A. (filed as
Exhibit 10.54 to Registrant's Annual Report on Form 10-K, filed with
the Commission on March 23, 2001, Commission File No. 000-23314, and
incorporated herein by reference).
10.26 Amended and Restated Term Note, dated as of November 3, 2000, issued
by the Company to SunTrust Bank, Nashville, N.A. in the aggregate
amount of $9,999,945 (filed as Exhibit 10.55 to Registrant's Annual
Report on Form 10-K, filed with the
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
Commission on March 23, 2001, Commission File No. 000-23314, and
incorporated herein by reference).
10.27 First Amendment to Lease Agreement, dated as of December 18, 2000,
between Tractor Supply Company and GOF Partners (filed as Exhibit
10.56 to Registrant's Annual Report on Form 10-K, filed with the
Commission on March 23, 2001, Commission File No. 000-23314, and
incorporated herein by reference).
10.28 Transportation Management Services Agreement between UPS Logistics
Group, Inc. and Tractor Supply Company dated May 10, 2001 (filed as
Exhibit 10.58 to Registrant's Quarterly Report on Form 10-Q, filed
with the Commission on August 14, 2001 Commission File No. 000-23314,
and incorporated herein by reference).
10.29 Tractor Supply Company Executive Deferred Compensation Plan, dated
November 11, 2001 (filed as Exhibit 10.58 to Registrant's Quarterly
Report on Form 10-Q, filed with the Commission on May 13, 2002,
Commission File No. 000-23314, and incorporated herein by reference).
10.30 Letter Agreement between Tractor Supply Company and the Joint Venture
formed by Great American Group, Gordon Brothers Retail Partners, LLC
and DJM Asset Management, dated December 14, 2001 (filed as Exhibit
10.59 to Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on May 13, 2002, Commission File No. 000-23314, and
incorporated herein by reference).
10.31 Amended Letter Agreement between the members of the joint venture
comprised of Tractor Supply Company, Great American Group, Gordon
Brothers Retail Partners, LLC and DJM Asset Management, dated January
8, 2002 (filed as Exhibit 10.60 to Registrant's Quarterly Report on
Form 10-Q, filed with the Commission on May 13, 2002, Commission File
No. 000-23314, and incorporated herein by reference).
10.32 Agency Agreement between Quality Stores, Inc. and Tractor Supply
Company et al., dated December 31, 2001 (filed as Exhibit 10.61 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on May 13, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.33 Amendment No. 1 to the Agency Agreement between Quality Stores, Inc.
and Tractor Supply Company et al., dated January 4, 2002 (filed as
Exhibit 10.62 to Registrant's Quarterly Report on Form 10-Q, filed
with the Commission on May 13, 2002, Commission File No. 000-23314,
and incorporated herein by reference).
10.34 Amendment No. 2 to the Agency Agreement between Quality Stores, Inc.
and Tractor Supply Company et al., dated January 30, 2002 (filed as
Exhibit 10.63 to Registrant's Quarterly Report on Form 10-Q, filed
with the Commission on May 13, 2002, Commission File No. 000-23314,
and incorporated herein by reference).
10.35 Amendment No. 3 to the Agency Agreement between Quality Stores, Inc.
and Tractor Supply company et al., dated January 31, 2002 (filed as
Exhibit 10.64 to Registrant's Quarterly Report on Form 10-Q, filed
with the Commission on May 13, 2002, Commission File No. 000-23314,
and incorporated herein by reference).
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
10.36 Revolving Credit Agreement, dated as of August 15, 2002 by and among
Tractor Supply Company, the banks party thereto and Bank of America,
N.A., as Administrative Agent (filed as Exhibit 10.65 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
10.37 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and Bank of America, N.A. (filed as Exhibit 10.66 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.38 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and U.S. Bank, N. A. (filed as Exhibit 10.67 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
10.39 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and SouthTrust Bank (filed as Exhibit 10.68 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
10.40 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and AmSouth Bank (filed as Exhibit 10.69 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
10.41 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and SunTrust Bank, Nashville, N.A. (filed as Exhibit 10.70 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.42 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and Compass Bank (filed as Exhibit 10.71 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
10.43 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and Fifth Third Bank (filed as Exhibit 10.72 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
10.44 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and Branch Banking & Trust Company (filed as Exhibit 10.73 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.45 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and Regions Bank (filed as Exhibit 10.74 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
10.46 Revolving Note, dated as of August 15, 2002 between Tractor Supply
Company and National City Bank (filed as Exhibit 10.75 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on November
12, 2002, Commission File No. 000-23314, and incorporated herein by
reference).
10.47 Change in Control Agreement, dated August 1, 2002, between Tractor
Supply Company and Joseph H. Scarlett, Jr. (filed as Exhibit 10.76 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.48 Change in Control Agreement, dated August 1, 2002, between Tractor
Supply Company and James F. Wright (filed as Exhibit 10.77 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.49 Change in Control Agreement, dated August 1, 2002, between Tractor
Supply Company and Gerald W. Brase (filed as Exhibit 10.78 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.50 Change in Control Agreement, dated August 1, 2002, between Tractor
Supply Company and Calvin B. Massmann (filed as Exhibit 10.79 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.51 Change in Control Agreement, dated August 1, 2002, between Tractor
Supply Company and Stanley L. Ruta (filed as Exhibit 10.80 to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on November 12, 2002, Commission File No. 000-23314, and incorporated
herein by reference).
10.52* Lease Agreement dated September 26, 2003 between Tractor Supply
Company and Duke Realty Limited.
10.53* First Amendment, dated December 22, 2003 to the Tractor Supply Company
401(k) Retirement Savings Plan.
10.54* Lease Agreement dated January 22, 2004 between Tractor Supply Company
and The Prudential Insurance Company of America.
10.55* First Amendment to Revolving Credit Agreement, dated as of January 28,
2004 by and among Tractor Supply Company, the banks party thereto, and
Bank of America, N.A., as Administrative Agent.
23.1* Consent of Ernst & Young LLP.
31.1* Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
32.1* Certification of Chief Executive Officer and Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act of 2002.
-----------
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* Filed herewith
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DIRECTORS
JOSEPH H. SCARLETT, JR. S.P. BRAUD (1)* (3) EDNA K. MORRIS (2) (4)
CHAIRMAN OF THE BOARD RETIRED CHIEF FINANCIAL OFFICER MEMBER, BOARD OF TRUSTEES
AND CHIEF EXECUTIVE OFFICER SERVICE MERCHANDISE CULINARY INSTITUTE OF AMERICA, AND
TRACTOR SUPPLY COMPANY COMPANY, INC., AND FORMER PRESIDENT
VICE-PRESIDENT AND DIRECTOR BRAUD RED LOBSTER
JAMES F. WRIGHT DESIGN/BUILD, INC.
PRESIDENT AND SAM K. REED (3) (4)*
CHIEF OPERATING OFFICER CYNTHIA T. JAMISON (1) (2)* RETIRED VICE CHAIRMAN
TRACTOR SUPPLY COMPANY PARTNER AND DIRECTOR
TATUM CFO PARTNERS, LLP KELLOGG COMPANY
THOMAS O. FLOOD
RETIRED SENIOR VICE PRESIDENT GERARD E. JONES (3)* (4) JOSEPH M. RODGERS (1) (2)
TRACTOR SUPPLY COMPANY PARTNER CHAIRMAN OF THE BOARD
CORPORATE GOVERNANCE ADVISORS, LLC THE JMR GROUP, AND
JOSEPH D. MAXWELL FORMER U.S AMBASSADOR
RETIRED VICE PRESIDENT TO FRANCE
TRACTOR SUPPLY COMPANY (1) AUDIT COMMITTEE
(2) COMPENSATION COMMITTEE (4) CORPORATE GOVERNANCE COMMITTEE
(3) NOMINATING COMMITTEE * COMMITTEE CHAIRPERSON
---------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS
JOSEPH H. SCARLETT, JR. JAMES F. WRIGHT CALVIN B. MASSMANN
CHAIRMAN OF THE BOARD AND PRESIDENT AND SENIOR VICE PRESIDENT-
CHIEF EXECUTIVE OFFICER CHIEF OPERATING OFFICER CHIEF FINANCIAL OFFICER
AND TREASURER
GERALD W. BRASE STANLEY L. RUTA
SENIOR VICE PRESIDENT - SENIOR VICE PRESIDENT - STORE
MERCHANDISING OPERATIONS
---------------------------------------------------------------------------------------------------------------------
SHAREHOLER INFORMATION
CORPORATE ADDRESS INDEPENDENT AUDITORS NUMBER OF STOCKHOLDERS
TRACTOR SUPPLY COMPANY ERNST & YOUNG LLP AS OF JANUARY 31, 2004, THERE WERE
320 PLUS PARK BLVD. SUNTRUST FINANCIAL CENTER APPROXIMATELY 150 STOCKHOLDERS OF
NASHVILLE, TN SUITE 1100 RECORD. THIS NUMBER EXCLUDES AN
37217 615.366.4600 424 CHURCH ST. ESTIMATED 18,000 INDIVIDUAL
NASHVILLE, TN 37219-3302 STOCKHOLDERS HOLDING STOCK UNDER
INTERNET ADDRESS NOMINEE SECURITY POSITION LISTINGS.
WWW.MYTSCSTORE.COM
STOCK EXCHANGE LISTING ANNUAL MEETING
TRANSFER AGENT & REGISTRAR THE NASDAQ NATIONAL MARKET APRIL 15, 2004 AT 10:00 A.M.
EQUISERVE TRUST COMPANY, N.A. TICKER SYMBOL: TSCO TRACTOR SUPPLY COMPANY
POST OFFICE BOX 219045 STORE SUPPORT CENTER
KANSAS CITY, MO 64121-4299 320 PLUS PARK BLVD.
NASHVILLE, TN 37217
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53
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ATLANTA SPACE LEASE
This Industrial Building Lease is made and entered into as of the 26 day of September, 2003, by and between the Landlord and Tenant, named below.
SECTION 1. BASIC TERMS
This SECTION 1 contains the Basic Terms of this Lease between Landlord and Tenant, named below. Other Sections of the Lease referred to in this SECTION 1 explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.
1.1 DATE OF LEASE: September 26, 2003.
1.2 LANDLORD: Duke Realty Limited Partnership, an Indiana limited partnership.
1.3 TENANT: Tractor Supply Company, a Delaware corporation.
1.4 PREMISES: Suite 100 of the Building, containing approximately 260,578 rentable square feet, approximately 9,902 square feet of which is office space, the Office Parking, the Trailer Parking, the Additional Trailer Parking, and the Signs, all as hereinafter defined. In addition, commencing as of November 1, 2005, the Premises shall include an additional 51,600 rentable square feet contiguous to the existing Premises (the "Expansion Space"). The Premises is depicted on the Site Plan attached hereto as EXHIBIT B-3.
1.5 PROPERTY: That certain real property depicted on EXHIBIT A attached hereto, and having a street address of 920 Highway 124, Braselton, Georgia.
1.6 LEASE TERM: The initial lease term (the "Initial Term") shall be for the period of time commencing as of the date (the "Commencement Date") that Substantial Completion (as hereinafter defined) of the Tenant Improvements (as hereinafter defined) occurs, and ending on the last day of January, 2014 unless sooner terminated as provided in this Lease (the "Expiration Date"), and subject to extension as set forth in SECTION 2.2 below.
1.7 TARGET COMMENCEMENT DATE: The ninetieth (90th) day following the Date of Lease.
1.8 RENT COMMENCEMENT DATE: February 1, 2004.
1.9 PERMITTED USES: (See SECTION 3) (a) Warehouse, distribution and sale of tractor, farm and ranch supplies and equipment, and light assembly of same, (b) storage of retail farm store and related products sold at Tractor Supply Company stores, and (c) office and administrative uses ancillary thereto.
1.10 BROKERS: Grubb and Ellis Company representing Tenant, and Duke Realty Services Limited Partnership representing Landlord.
1.11 BUILDING: The building located on the Property commonly known as Braselton II, located within the Braselton Business Center.
1.12 SECURITY DEPOSIT: None.
1.13 BASE RENT: The Base Rent payable by Tenant (from and after the Rent Commencement Date) is set forth on EXHIBIT C attached hereto.
1.14 AGENT OR MANAGEMENT AGENT: Duke Realty Services Limited Partnership, its successors and assigns.
1.15 MANAGEMENT FEE: Commencing February 1, 2004 and (a) during the first two Lease Years (as hereinafter defined) of the Lease Term, an amount equal to 1% of the Base Rent and CAM Charges (excluding the Management Fee) for the respective Lease Year; (b) during the
third, fourth, and fifth Lease Years of the Lease Term, an amount equal to 2% of the Base Rent and CAM Charges (excluding the Management Fee) for the respective Lease Year; and (c) during each Lease Year for the remainder of the Lease Term, an amount equal to 3% of the Base Rent and CAM Charges (excluding the Management Fee) for the respective Lease Year. For purposes hereof, the term "Lease Year" shall refer to each successive period of twelve (12) months, commencing as of the Rent Commencement Date, and the term "Lease Years" shall refer to two or more of such periods; provided, however, that the first (1st) Lease Year shall also include the period commencing as of the Commencement Date and continuing through and including January 31, 2004.
1.16 EXHIBITS AND RIDERS TO LEASE: The following exhibits and riders are attached to and made a part of this Lease: EXHIBIT A (DEPICTION OF PROPERTY), EXHIBIT B (CONSTRUCTION DRAWINGS), EXHIBIT B-1 (SCOPE OF WORK), EXHIBIT B-2 (LOAD BEARING CAPACITY), EXHIBIT B-3 (SITE PLAN), EXHIBIT B-4 (COMPUTER ROOM), EXHIBIT C (RENT AND LANDLORD ADDRESS), EXHIBIT D (LETTER OF UNDERSTANDING), EXHIBIT E (BUILDING SIGN).
SECTION 2. LEASE OF PREMISES; RENT
2.1 LEASE OF PREMISES FOR LEASE TERM. Landlord hereby leases the
Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the
Lease Term, subject to the conditions of this Lease. Notwithstanding the
foregoing, to the extent permitted by applicable laws, rules and regulations,
Tenant shall have the right to enter the Premises commencing as of the Date of
Lease in order to install fixtures and otherwise prepare the Premises for
occupancy (which right shall expressly exclude making any structural
modifications), provided, that, during any entry prior to the Commencement Date,
Tenant shall (a) comply with all the terms and conditions of this Lease except
the obligation to pay Base Rent and Tenant's Proportionate Share of CAM Charges,
(b) not interfere with the Landlord's completion of the Tenant Improvements, (c)
cause its personnel and contractors to comply with the terms and conditions of
Landlord's rules of conduct (which Landlord shall furnish to Tenant upon
request), and (d) not begin operation of its business, though Tenant may receive
and store merchandise. Tenant acknowledges that it shall be responsible for
obtaining any and all permits and inspections relating to any early entry by
Tenant. Promptly following the Commencement Date, Tenant shall execute
Landlord's Letter of Understanding in substantially the form attached hereto as
EXHIBIT D, acknowledging (i) the Commencement Date of this Lease, and (ii)
except for any punchlist items, that Tenant has accepted the Premises.
2.2 RENEWAL TERM.
(a) Provided that (i) this Lease is in full force and effect and
Tenant is not then in default under the terms hereof that is continuing, and
(ii) the entirety of the Premises is occupied by the original Tenant named
herein (or any Permitted Transferee), Landlord hereby grants to Tenant the
option to extend the Lease Term (the "Renewal Option") for three (3) consecutive
periods of three (3) years (each, a "Renewal Term" and collectively, the
"Renewal Terms"), on the same terms, conditions and provisions as contained in
this Lease, except that (A) this provision giving three (3) extension options
shall be amended to reflect the remaining options to extend, if any, (B) any
improvement allowances or other concessions applicable to the Premises during
the Initial Term shall not apply to the Renewal Term, and (C) the Base Rent
shall be adjusted as set forth herein. The Initial Term, as extended by the
Renewal Terms, if applicable, is herein referred to as the "Term" or the "Lease
Term". In order to exercise each Renewal Option, Tenant must give Landlord
written notice (each, a "Renewal Notice") not less than six (6) months prior to
the applicable Expiration Date of the Initial Term or the immediately preceding
Renewal Term, as the case may be.
(b) The annual Base Rent for the Premises during each Renewal Term shall be equal to the then-prevailing Market Rental Rate (as hereinafter defined). "Market Rental Rate" shall mean the annual rate of net rent, on a per rentable square foot basis, then prevailing in the greater Northeast Atlanta sub-market for (i) premises comparable in square footage, location and design to the Premises and (ii) premises being leased for a duration comparable to the Renewal Term. Landlord shall determine the Market Rental Rate by taking into consideration comparable relevant fact situations involving arm's length negotiations in new and renewal leases during the 12-month period prior to the applicable Renewal Term and other relevant factors. Within sixty (60) days following Tenant's delivery of the Renewal Notice to Landlord, Landlord shall notify
Tenant of Landlord's determination of the Market Rental Rate for the Premises for the applicable Renewal Term. Tenant shall have thirty (30) days following receipt of Landlord's determination (the "Response Period") in which to accept or reject such determination. If Tenant fails to respond within the Response Period, Tenant shall automatically be deemed to have rejected Landlord's determination and, therefore, the then-applicable Renewal Notice shall automatically be deemed to have been withdrawn and rendered null and void and Tenant shall automatically be deemed to have irrevocably waived its rights under this SECTION 2.2. If Tenant timely notifies Landlord that Tenant rejects Landlord's determination then, in such notice of rejection, Tenant shall set forth Tenant's determination of Market Rental Rate, and if Landlord and Tenant, each acting in good faith, fail to agree upon the Market Rental Rate for the applicable Renewal Term within ten (10) days following Tenant's delivery of Tenant's rejection notice (the "Resolution Period"), then the then-applicable Renewal Notice shall automatically be deemed to have been withdrawn and rendered null and void and Tenant shall automatically be deemed to have irrevocably waived its rights under this SECTION 2.2. If Tenant accepts Landlord's determination of the Market Rental Rate within the Response Period, or Landlord and Tenant mutually agree upon the Market Rental Rate during the Resolution Period, each of Landlord and Tenant shall execute promptly an amendment to this Lease reflecting the terms and conditions of the Renewal Term.
2.3 EXPANSION OPTION.
(a) Commencing as of November 1, 2005, the Premises shall be expanded to include an additional 51,600 rentable square feet contiguous to the existing Premises (the "Expansion Space"), as shown on the site plan attached hereto as EXHIBIT B-3. Thereafter, the Expansion Space shall be deemed a part of the Premises for all purposes hereunder. If Tenant occupies all or any portion of the Expansion Space prior to November 1, 2005, then notwithstanding anything to the contrary set forth herein, Tenant's lease of the Expansion Space shall be deemed to occur as of such occupancy, including, without limitation, Tenant's obligation to pay Base Rent and Additional Rent with respect to the Expansion Space.
(b) In addition, commencing as of the Date of Lease and continuing through and including the last day of the sixth (6th) month following the Commencement Date, and provided that no default has occurred and is then continuing, Landlord hereby grants to Tenant a right of first refusal (the "Right of First Refusal") to expand the Premises to include any space in the Building that is adjacent to the Premises (the "Refusal Space"), subject to the following terms and conditions:
(i) Subject to the other terms of this Right of First Refusal, after any part of the Refusal Space has or will become "Available Refusal Space" (as defined herein) for leasing by Landlord, Landlord shall not, during the term of this Lease, lease to another tenant that available portion of the Refusal Space without first offering Tenant the right to lease such Refusal Space.
(ii) Space shall be deemed to become "Available Refusal Space" in the event Landlord either (A) receives a bona fide proposal for the lease of some or all of the Refusal Space from a third party that Landlord desires to secure, or (B) makes a bona fide proposal for the lease of some or all of the Refusal Space to a third party that Landlord desires to secure and that such third party is willing to accept.
(iii) Consistent with subsection (i) above, Landlord shall not lease any Available Refusal Space unless and until Landlord has first offered the Available Refusal Space to Tenant in writing (the "Offer"). The Offer shall contain the following terms that have been offered by Landlord to the third party, or by the third party to Landlord and such terms are acceptable to Landlord: (A) a description of the Available Refusal Space, (B) the date on which Landlord expects the Available Refusal Space to be leased, (C) the Base Rent for the Available Refusal Space, (D) the term for the lease of the Available Refusal Space, and (E) the tenant improvement allowance, if any, being provided by Landlord with respect to the Available Refusal Space.
(iv) Upon receipt of the Offer, Tenant shall have the right, for a period of five (5) business days after receipt of the Offer, to exercise the Right of First Refusal by giving Landlord written notice that Tenant desires to lease the Available Refusal Space upon the terms
and conditions as are contained in the Offer modified as follows: (A) notwithstanding the term for the lease of the Available Refusal Space set forth in the Offer, the term of Tenant's lease of the Available Refusal Space shall be coterminous with the Lease Term then in effect hereunder, and (B) if the Lease Term then in effect hereunder is less than the term for the lease of the Available Refusal Space set forth in the Offer, the base rent and the tenant improvement allowance, if any, set forth in the Offer shall be prorated accordingly.
(v) If, within such five (5) business day period, Tenant exercises the Right of First Refusal, then Landlord and Tenant shall amend the Lease to include the Refusal Space subject to the same terms and conditions as the Lease, as modified in accordance with this subsection (b). In addition, such amendment will reflect the increase in Tenant's Proportionate Share. If, within such five (5) business day period, Tenant declines or fails to exercise the Right of First Refusal, Landlord shall then have the right to lease the Available Refusal Space as long as Landlord enters into a lease with a third party under the basic terms and conditions contained in the Offer. If Landlord does not enter into a lease with a third party under the terms and conditions contained in the Offer within one hundred eighty (180) days after Tenant declines or fails to exercise the Offer, or if Landlord desires to materially alter or modify the terms and conditions of the Offer, Landlord shall be required to present the altered or modified Offer to Tenant pursuant to this Right of First Refusal, in the same manner that the original Offer was submitted to Tenant.
(vi) This Right of First Refusal is personal to Tractor Supply Company and shall automatically terminate and be of no further force and effect if Tractor Supply Company assigns or sublets all or any portion of its interest in the Lease.
(c) Without limiting anything set forth in subsections (a) or (b) above, commencing as of the first day of the seventh (7th) month following the Commencement Date, and provided that no default has occurred and is then continuing hereunder, Landlord hereby grants to Tenant a right of first offer (the "Right of First Offer") to expand the Premises to include any space in the Building that is adjacent to the Premises (the "Offer Space"), subject to the following terms and conditions:
(i) Landlord shall notify Tenant in writing ("Landlord's Notice") of the availability of any Offer Space prior to entering into a lease with a third party for any of such Offer Space. Tenant shall have ten (10) business days from receipt of Landlord's Notice to exercise its Right of First Offer by delivering to Landlord written notice agreeing to lease such space on the terms and conditions contained in Landlord's Notice. If Tenant fails to deliver such notice within ten (10) business days, Tenant shall be deemed to have waived such option and Landlord may lease the Offer Space to a third party; provided, however, if (A) Landlord fails to lease the Offer Space to a third party within ninety (90) days (or, if at the end of said ninety (90) day period, Landlord is actively negotiating with a third party, then within one hundred eighty (180) days) after Tenant's rejection (or deemed rejection) of the Offer Space, or (B) Landlord elects to lease the Offer Space for less than the base rental, or on terms and conditions materially different than those stated in Landlord's Notice, Tenant shall again have the first opportunity to lease the Offer Space in accordance with this subsection (c). Tenant acknowledges that Tenant must exercise its right granted in this subsection (c) with respect to the entire Offer Space and any exercise of such right with respect to only a portion of the Offer Space shall be null and void. For purposes of this paragraph, the phrase "actively negotiating" shall mean that a draft lease has been prepared by either Landlord or said third party and the other party has given comments with respect to such draft lease.
(ii) In the event Tenant accepts the Offer Space pursuant to clause (i) above, Tenant shall lease the Offer Space subject to the same terms and conditions of the Lease, as modified by the terms and conditions of Landlord's Notice; provided, however, that (A) except as otherwise expressly set forth in Landlord's Notice, no improvement allowances or other concessions contained in the Lease, if any, shall apply to the Offer Space, and (B) the term of Tenant's lease of the Offer Space shall be the greater of sixty (60) months or the number of months necessary to make the term of Tenant's lease of the Offer Space coterminous with the term for the original Premises. If the term of the Offer Space would then exceed the Lease Term for the original Premises, the Lease Term for the original Premises shall be extended automatically to the extent necessary to be coterminous with the term for the Offer Space. If the Lease Term for the original Premises is extended as aforesaid, the Base Rent per rentable square
foot for the original Premises during any such extended term shall be Landlord's reasonable determination of the Market Rental Rate for such space.
(iii) If Tenant accepts the Offer Space pursuant to clause (i) above, at the option of either Landlord or Tenant, Landlord and Tenant shall enter into an amendment confirming Tenant's lease of the Offer Space on the aforesaid terms.
(iv) This Right of First Offer is personal to Tractor Supply Company and shall automatically terminate and be of no further force and effect in the event that Tractor Supply Company assigns or sublets all or any portion of its interest in the Lease.
2.4 RENTAL PAYMENTS. Commencing on the Rent Commencement Date, Tenant shall pay the Base Rent in equal monthly installments, in advance, on the first day of each and every calendar month during the term of this Lease. Base Rent for any partial calendar month shall be prorated. In addition, Tenant shall pay Additional Rent as set forth in SECTION 2.5 below.
2.5 ADDITIONAL RENT.
(a) GENERAL. Any amount required to be paid by Tenant hereunder (in addition to Base Rent) and any charges or expenses incurred by Landlord on behalf of Tenant under the terms of this Lease shall be considered "Additional Rent" payable in the same manner and upon the same terms and conditions as the Base Rent reserved hereunder except as set forth herein to the contrary. Any failure on the part of Tenant to pay such Additional Rent when and as the same shall become due shall entitle Landlord to the remedies available to it for non-payment of Base Rent.
(b) COMMON AREA. The term "Common Area" shall mean all areas within the boundaries of the Property available for the non-exclusive use of Tenant and other persons leasing or occupying space on the Property. Without limiting the foregoing, Common Areas shall include parking, access and perimeter roads, landscaped areas, sidewalks, and common utility facilities, if any, serving the Property.
(c) CAM CHARGES. As used herein, the term "Common Area
Maintenance Charges" or "CAM Charges" shall mean the cost for the operation,
repair, replacement and maintenance of the Building and Common Areas, including,
but not limited to, the following: (i) operating, maintaining, repairing,
lighting, cleaning, sweeping, painting, paving and striping and removing snow,
ice and debris from the Common Areas; (ii) removing garbage and trash from the
Common Areas; (iii) landscaping; (iv) electricity and other utilities used with
respect to the Common Areas, including, without limitation, electricity for
lighting the Common Areas; (v) insurance premiums and deductibles, Taxes (as
hereinafter defined), subject to reduction for Landlord's participation in the
Tax Abatement Program pursuant to SECTION 22 below; (vi) the Management Fee,
(vii) fees and assessments imposed by any covenants or owners' associations,
(viii) access patrols, and (ix) maintaining, repairing and replacing the
exterior walls, foundation, structural frame, roof and gutters of the Building.
The cost of any CAM Charges that are capital in nature shall be amortized over
the useful life of such improvement (as reasonably determined by Landlord), and
only the amortized portion shall be included in CAM Charges. For purposes of
this Lease, CAM Charges shall not include the following: (1) principal and
interest payments on any mortgages, deeds of trust or other financing
encumbrances; (2) leasing commission payable by Landlord; (3) depreciation; (4)
the cost of initial construction of the Building and Common Areas; (5) the cost
of repairs or replacements necessitated by Landlord's negligence; (6)
administrative fees, expenses and overhead charges in excess of the Management
Fee; (7) advertising costs; (8) legal fees and expenses, including, without
limitation, those relating to leasing and enforcement of other leases, but
excluding any legal fees and expenses incurred in connection with any tax
contest; (9) the cost of repairs or replacements incurred by reason of fire or
other casualty or condemnation for which Landlord is reimbursed or compensated
therefor through proceeds of insurance or condemnation awards; and (10) costs to
repair latent defects in the Building discovered prior to the fourth (4th)
anniversary of the Commencement Date. For purposes hereof, Taxes shall include
any form of real estate tax or assessment or service payments in lieu thereof,
and any license fee, commercial rental tax, improvement bond or other similar
charge or tax (other than inheritance, personal income or estate taxes) imposed
upon the Building or the Common Areas (or against Landlord's business of leasing
the Building) by any
authority having the power to so charge or tax, together with costs and expenses of contesting the validity or amount of the Taxes.
(d) PERSONAL PROPERTY TAXES. Additionally, Tenant shall pay, prior to delinquency, all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all personal property of Tenant contained in the Premises.
(e) TENANT'S PROPORTIONATE SHARE.
(i) Tenant agrees to pay as Additional Rent "Tenant's Proportionate Share" (as herein defined) of CAM Charges.
(ii) Landlord shall estimate the total amount of CAM Charges to be paid by Tenant during each calendar year of the Lease Term, pro-rated for any partial years. Commencing on the Rent Commencement Date, Tenant shall pay to Landlord each month, at the same time the Base Rent installments are due, an amount equal to one-twelfth (1/12th) of the estimated CAM Charges for such year. Within a reasonable time after the end of each calendar year, Landlord shall submit to Tenant a statement of the actual amount of such CAM Charges (the "Annual Statement") and within thirty (30) days after receipt of such statement, Tenant shall pay any deficiency between the actual amount owed and the estimates paid during such calendar year. In the event of overpayment, Landlord shall credit the amount of such overpayment toward the next installments of Base Rent.
(iii) Tenant shall have the right, at any reasonable time within ninety (90) days following receipt of the Annual Statement, to review Landlord's books and records relating to CAM Charges, provided that Tenant shall give Landlord not less than fifteen (15) days' prior written notice of any such review. In the event such review reveals a discrepancy in the CAM Charges, Tenant's Proportionate Share of CAM Charges for such calendar year shall be adjusted accordingly. If the review results in a change of more than ten percent (10%) in Tenant's Proportionate Share of CAM Charges for such calendar year, Landlord shall reimburse Tenant for the reasonable fees and expenses of Tenant's independent professionals, if any, conducting such review of Landlord's books and records. All of the information obtained through Tenant's inspection with respect to financial matters (including, without limitation, costs, expenses and income) and any other matters pertaining to Landlord, the Premises, the Building and/or the business park in which the Building is located as well as any compromise, settlement or adjustment reached between Landlord and Tenant relative to the results of the inspection shall be held in strict confidence by Tenant and its officers, agents, and employees; and Tenant shall cause its independent professionals to be similarly bound. The obligations within the preceding sentence shall survive the expiration or earlier termination of the Lease.
(iv) For purposes of this Lease, "Tenant's Proportionate Share" shall mean a fraction, the numerator of which shall be the rentable area of the Premises, as set forth in EXHIBIT C, and the denominator of which shall be the rentable area of the Building, as set forth in EXHIBIT C. Tenant's Proportionate Share of the cost of CAM Charges (as set forth herein) in any Lease Year having less than three hundred sixty-five (365) days shall be equitably prorated.
(f) CAP ON CONTROLLABLE EXPENSES. Notwithstanding anything in this Lease to the contrary, Tenant will be responsible for Tenant's Proportionate Share of Taxes, insurance premiums, utilities, snow removal, costs to maintain, repair and/or replace any dock doors and charges assessed against or attributed to the Building pursuant to any applicable declaration of protective covenants ("Uncontrollable Expenses"), without regard to the level of increase in any or all of the above in any year or other period of time. Tenant's obligation to pay all other Building expenses which are not Uncontrollable Expenses (herein "Controllable Expenses") shall be limited to a $0.02 per rentable square foot of space within the Premises per annum increase over the amount the Controllable Expenses for the immediately preceding calendar year would have been had the Controllable Expenses increased at the rate of $0.02 per rentable square foot of space within the Premises in all previous calendar years beginning with the actual Controllable Expenses for the year ending December 31, 2004.
2.6 COVENANTS CONCERNING RENTAL PAYMENTS. Tenant shall pay the Base Rent and Additional Rent (collectively, the "Rent") promptly when due, without notice or demand, abatement, deduction or setoff, except as may otherwise be expressly and specifically provided
in this Lease. No payment by Tenant, or receipt or acceptance by Agent or Landlord, of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or letter accompanying any payment be deemed an accord or satisfaction, and Agent or Landlord may accept such payment without prejudice to its right to recover the balance due or to pursue any other remedy available to Landlord. If the Commencement Date occurs on a day other than the first day of a calendar month, the Rent due for the first calendar month of the Term shall be prorated on a per diem basis, and the term shall be extended to terminate at the end of the calendar month in which the Expiration Date stated in SECTION 1.6 above occurs.
2.7 OFFICE AND TRAILER PARKING.
(a) Tenant shall have the right throughout the Term to use (i) 123 automobile parking spaces in close proximity to the Premises (the "Office Parking") and (ii) thirty-six (36) of the Building's trailer parking spaces (the "Trailer Parking"), both as shown on EXHIBIT B-3 and which Landlord hereby reserves for and allocates to Tenant. Landlord shall have no obligation to police or monitor such reserved spaces; provided, however, Landlord shall mark the Trailer Parking as being for Tenant's exclusive use. No vehicle may be repaired or serviced in the parking area and any vehicle deemed abandoned by Landlord will be towed from the project and all costs therein shall be borne by the Tenant (but only after Tenant is given notice of such abandoned vehicle and Landlord's intent to tow). All driveways and ingress and egress are for the joint use of all tenants. There shall be no parking permitted on any of the streets or roadways located within the business park in which the Building is located.
(b) In addition, Tenant shall have the right throughout the Term to
use up to thirty-five (35) additional trailer parking spaces to be constructed
by Landlord on a portion of the adjacent land owned by Landlord (the "Additional
Trailer Parking Area"), said Additional Trailer Parking Area being shown on
EXHIBIT B-3 hereto. Landlord shall construct and install a fence around the
Additional Trailer Parking Area at a location mutually agreeable to Landlord and
Tenant, provided, that, Tenant shall reimburse Landlord for any actual costs
incurred to construct and install such fence to the extent in excess of $13,000.
Landlord estimates the actual cost to construct and install such fence to be
less than or equal to $13,000. Landlord shall use reasonable speed and diligence
to substantially complete the Additional Trailer Parking Area within one hundred
fifty (150) days after the Date of Lease, as such date may be extended due to
Force Majeure, as defined in SECTION 16.3 BELOW, or Tenant Delay, as defined in
SECTION 4.4(C) above (the "Additional Trailer Parking Date"). If Landlord fails
to substantially complete the Additional Trailer Parking Area on or before the
fifteenth (15th) day after the Additional Trailer Parking Date, Tenant shall
receive one (1) day of free Base Rent and Tenant's Proportionate Share of CAM
Charges for each day after such fifteenth (15th) day that the Additional Trailer
Parking Area is not substantially complete. Except as set forth in this
subsection (b), no liability whatsoever shall arise or accrue against Landlord
by reason of its failure to substantially complete the Additional Trailer
Parking Area on or before the Additional Trailer Parking Date, and Landlord's
inability to complete the Additional Trailer Parking Area on or before said date
shall not have any effect on Substantial Completion or the Commencement Date.
SECTION 3. USE OF PREMISES
3.1 USE OF PREMISES. The Premises shall be used for the purpose(s) set forth in SECTION 1.8 and for no other purpose without Landlord's prior consent, which consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall not, at any time, knowingly use or occupy, or suffer or permit anyone to use or occupy, the Premises, or do or permit anything to be done in the Premises, in any manner that may (a) violate any Certificate of Occupancy for the Premises or the Property; (b) cause, or be liable to cause, injury to the Property or any equipment, facilities or systems therein; (c) constitute a violation of the laws and requirements of any public authority or the requirements of insurance bodies or the rules and regulations of the Property now in force or which may hereafter be in force, including, without limitation, any recorded covenant, condition or restriction affecting the Property; (d) obstruct or interfere with the rights of other tenants or occupants of the Building or other buildings located within the business park; or (e) exceed the load bearing capacity of the floor of the Premises as set forth in EXHIBIT B-2. In addition, Tenant shall not use the Premises, or allow the Premises to be used, for any purpose or in any manner which would invalidate any policy of insurance now or hereafter carried on the Building or increase the rate of premiums payable on any such insurance policy
unless Tenant reimburses Landlord as Additional Rent for any increase in premiums charged. To Landlord's knowledge, the use of the Premises by Tenant for the Permitted Use will not invalidate the policy of insurance currently carried by Landlord with respect to the Building or increase the rate of premiums payable on such policy. If any items stored at the Premises create a nuisance, or otherwise unreasonably interfere with the rights or other tenants or occupants of the Building or other buildings located within the business park, upon written notice from Landlord, Tenant shall take such action as is necessary to cure the problem. If Tenant fails to cure said problem within a reasonable period of time under the circumstances, Landlord shall have the right, but not the obligation, to take such action as Landlord determines is necessary to cure such problem, and Tenant shall reimburse Landlord for all costs and expenses in connection therewith as Additional Rent. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building of its lease or of any rules and regulations; provided, however, that Landlord will enforce all rules and regulations with respect to the Building uniformly.
3.2 SIGNAGE. Tenant, at Tenant's sole cost and expense, shall have the right to (i) install a Building-mounted identification sign (the "Building Sign"), substantially in the form of EXHIBIT E attached hereto, not greater than ten (10) feet by thirty (30) feet in size, which shall include Tenant's name and/or logo, on the parapet wall at the top of the Building, and (ii) install a "V" shaped monument sign (the "Monument Sign") not greater than eight (8) feet by twenty-four (24) feet in size, which shall include Tenant's name and/or logo, at the front of the Building at a location mutually acceptable to Landlord and Tenant. Tenant shall be required to ensure that each of the Building Sign and Monument Sign (collectively, the "Signs"), and Tenant's installation thereof, complies with all laws, rules, regulations and ordinances encumbering the Building; provided, however, that Landlord agrees reasonably to assist Tenant in connection therewith at no cost to Landlord. Without limiting the foregoing, Tenant acknowledges and agrees that Tenant shall be solely responsible for ensuring that the Signs comply with any protective covenants that encumber the Building as of the date of this Lease, and that any failure by Tenant to comply with the terms of said protective covenants (including, without limitation, obtaining any approvals therein required) shall be at Tenant's sole risk and expense. The location, materials, coloring, lettering, lighting and method of installation of the Signs shall be subject to Landlord's prior approval, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall maintain the Signs in good condition and repair and in compliance with all Laws (as hereinafter defined). On or before the expiration or earlier termination of the Lease, Tenant shall be responsible for removing the Signs and returning the surrounding premises to their original condition, reasonable wear and tear excepted. Tenant shall place no other signage on the exterior of the Premises without the prior written consent of Landlord; provided, however, that Tenant shall have the right to place numbering on the truck docks so long as the location, materials, coloring, lettering, lighting and method of installation of such numbering is approved by Landlord. Landlord may immediately remove any signs not in conformity with the Lease.
3.3 FLAGPOLE. Tenant shall have the right, at Tenant's sole cost and expense, to install a flagpole displaying the flag of the United States of America and/or a flag displaying Tenant's name and/or logo (the "Flagpole"), within the Common Areas outside the Building, provided that (i) the design (including, without limitation, color and materials), contractor and precise location of the Flagpole are reasonably satisfactory to Landlord, and (ii) Tenant's installation, use and maintenance of the Flagpole is in accordance with all applicable federal, state and local laws and regulations, all cultural requirements (i.e., the flag must be either lit or taken down at night), and all covenants encumbering the Building and this Lease. Tenant shall be solely responsible for obtaining any necessary permits and licenses required for the installation, operation and maintenance of the Flagpole; provided, however, that Landlord agrees reasonably to assist Tenant in connection therewith at no cost to Landlord. Tenant shall at all times keep the Flagpole in a clean and orderly condition. Upon the expiration or any earlier termination of the Lease, at Landlord's option (to be exercised, if at all, within thirty (30) days following the expiration or any earlier termination of the Lease), Tenant shall be responsible for all costs of removal of the Flagpole. Tenant shall also be responsible for all costs associated with restoring the Common Areas to their original condition after such removal. Tenant agrees, within thirty (30) days after written notice from Landlord, to remove the Flagpole in the event any governmental entity or applicable law or regulation requires removal thereof after the expiration of any applicable appeal period or Tenant fails to comply materially with the terms stated in this
SECTION 3.3. Tenant's obligations hereunder shall survive the expiration or earlier termination of the Lease.
SECTION 4. CONDITION AND DELIVERY OF PREMISES
4.1 CONDITION OF PREMISES. Landlord shall construct and install improvements to the Premises in accordance with this SECTION 4.
4.2 OFFICE PORTION OF INITIAL 260,578 SQUARE FEET. Landlord shall construct and install leasehold improvements to a 7,917 square foot, and 1985 square foot office area located within the Premises (the "Office Improvements") based on the construction drawings and office scope of work attached hereto as EXHIBIT B (collectively, the "Construction Drawings") and in accordance with the terms set forth herein.
(a) Upon execution of this Lease by Tenant, Tenant shall deliver to Landlord $114,795.93 as partial payment for Tenant's share of the cost to construct and install the Office Improvements. Tenant's failure to deliver said payment shall be a Tenant Delay. Following Substantial Completion, Tenant shall pay to Landlord $114,795.92, representing the remaining portion of Tenant's share of the cost to construct and install the Office Improvements.
(b) Landlord shall provide Tenant with a proposed schedule for the construction and installation of the Office Improvements and shall notify Tenant of any material changes to said schedule. Tenant agrees to coordinate with Landlord regarding the installation of Tenant's phone and data wiring and any other trade related fixtures that will need to be installed in the office portion of the Premises prior to Substantial Completion.
(c) Tenant shall have the right to request changes to the Construction Drawings at any time by way of written change order (each, a "Change Order", and collectively, "Change Orders"). Provided such Change Order is reasonably acceptable to Landlord, Landlord shall prepare and submit promptly to Tenant a memorandum setting forth the impact on cost and schedule resulting from said Change Order (the "Change Order Memorandum of Agreement"). Tenant shall, within three (3) business days following Tenant's receipt of the Change Order Memorandum of Agreement, either (i) execute and return the Change Order Memorandum of Agreement to Landlord, or (ii) retract its request for the Change Order. Without limiting anything set forth in subsection (a) above, Tenant shall pay to Landlord (or Landlord's designee), within fifteen (15) days following Landlord's request, any increase in the cost to construct and install the Office Improvements resulting from the Change Order, as set forth in the Change Order Memorandum of Agreement. Landlord shall not be obligated to commence any work set forth in a Change Order until such time as Tenant has delivered to Landlord the Change Order Memorandum of Agreement executed by Tenant and, if applicable, Tenant has paid Landlord in full for any increase in cost due to said Change Order.
(d) Notwithstanding anything to the contrary contained herein, upon an early termination of this Lease for any reason (including, but not limited to, casualty or condemnation) other than for a Landlord default, Tenant shall pay to Landlord, upon demand, all accrued and unpaid interest, together with the unamortized portion of Landlord's cost to construct and install the Office Improvements.
4.3 WAREHOUSE PORTION. Landlord shall construct and install the
following within the warehouse portion of the Premises, as designated in the
Scope of Work attached hereto as EXHIBIT B-1 (collectively the "Warehouse
Items": demising wall, 30,000 lbs. mechanical levelers, mechanical dock locks,
bumpers, a single 110v quadraplex receptacle and dock lights on all doors, two
(2) air changes per hour, an eyewash station, hose bib, ventilation system and
epoxy floor covering for 1,500 square feet. In addition, Tenant shall be
entitled to a $10,000 allowance for electrical costs and a $20,000 allowance for
lighting relocation, which electrical work and lighting relocation shall be
performed by Landlord.
4.4 SUBSTANTIAL COMPLETION.
(a) Landlord shall use reasonable efforts to Substantially Complete that portion of the Office Improvements related to Tenant's computer room (said computer room being shown on EXHIBIT B-4 attached hereto) and the Warehouse Items (said portion of the
Office Improvements and the Warehouse Items being referred to hereinafter, collectively, as the "Phase I Improvements") on or before November 24, 2003, as such date may be extended due to Force Majeure or Tenant Delay (the "Phase I Date"). If Landlord fails to Substantially Complete the Phase I Improvements on or before the fifteenth (15th) day after the Phase I Date, Tenant shall receive one (1) day of free Base Rent and Tenant's Proportionate Share of CAM Charges for each day after such fifteenth (15th) day that the Phase I Improvements are not Substantially Complete. Except as set forth in this subsection (a), no liability whatsoever shall arise or accrue against Landlord by reason its failure to Substantially Complete the Phase I Improvements on or before the Phase I Date.
(b) Without limiting subsection (a) above, Landlord shall use reasonable efforts to Substantially Complete the remainder of the Office Improvements (the "Phase II Improvements") on or before the Target Commencement Date, as such date may be extended due to Force Majeure or Tenant Delay (the "Phase II Date"). If Landlord fails to Substantially Complete the Phase II Improvements on or before the fifteenth (15th) day after the Phase II Date, Tenant shall receive one (1) day of free Base Rent and Tenant's Proportionate Share of CAM Charges for each day after such fifteenth (15th) day that the Phase II Improvements are not Substantially Complete. Except as set forth in this subsection (b), no liability whatsoever shall arise or accrue against Landlord by reason its failure to Substantially Complete the Phase II Improvements on or before the Phase II Date.
(c) For purposes hereof, Substantial Completion (or any grammatical variation thereof) shall mean, with respect to the Phase I Improvements only, completion of construction of the Phase I Improvements, subject only to punchlist items to be identified by Landlord and Tenant in a joint inspection of the Phase I Improvements. For purposes hereof, Substantial Completion (or any grammatical variation thereof) shall mean, with respect to the Phase II Improvements only, completion of construction of the Phase II Improvements, subject only to punchlist items to be identified by Landlord and Tenant in a joint inspection of the Phase II Improvements, the completion of which will not materially affect Tenant's use and occupancy of the Premises, as established by the delivery by Landlord to Tenant of a certificate of occupancy for the Premises issued by the appropriate governmental authority. Notwithstanding anything to the contrary contained herein, if Substantial Completion of the Phase I Improvements and/or the Phase II Improvements (collectively, the "Tenant Improvements") is delayed beyond the Target Commencement Date as a result of Tenant Delay (as hereinafter defined), then, for purposes of determining the Commencement Date, Substantial Completion of the Tenant Improvements shall be deemed to have occurred on the date that Substantial Completion of the Tenant Improvements would have occurred but for such Tenant Delay.
(d) For purposes hereof, Tenant Delay shall mean any delay in the completion of the Tenant Improvements attributable to Tenant, including, without limitation (i) Tenant's failure to meet any time deadlines specified herein, (ii) Change Orders, (iii) Tenant's requirements for special work or materials, finishes or installations other than Building standard, (iv) the performance of any other work in the Premises by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion of such work, (v) Landlord's inability to obtain an occupancy permit for the Premises because of the need for completion of all or a portion of improvements being installed in the Premises directly by Tenant, and (vi) any other act or omission of Tenant.
4.5 EXPANSION SPACE IMPROVEMENTS. Tenant shall have the right to request that Landlord construct and install various improvements within the Expansion Space (the "Expansion Space Improvements") by delivering to Landlord, on or before May 30, 2005, a space plan for the Expansion Space Improvements in detail reasonably acceptable to Landlord. Provided Tenant delivers such space plan as aforesaid, Landlord shall construct and install the Expansion Space Improvements in accordance with this SECTION 4.5.
(a) Within thirty (30) days after Landlord's receipt of the space plan for the Expansion Space Improvements, Landlord shall prepare and submit to Tenant (i) a set of construction drawings (the "Expansion CD's") covering all work to be performed by Landlord in constructing the Expansion Space Improvements to the Expansion Space in accordance with said space plan, and (ii) a statement of the cost to construct and install the Expansion Space Improvements (the "Expansion Cost Statement"). Tenant acknowledges and agrees that (A) the cost to construct and install the Expansion Space Improvements shall include design fees, (B) the
cost to construct and install the Expansion Space Improvements shall include a fee payable to the project's construction manager or general contractor, (C) that such construction manager or general contractor may be a subsidiary, affiliate or employees of Landlord, and (D) said fee shall be included in the Expansion Cost Statement and applied against the Expansion Allowance (as hereinafter defined). Tenant shall have five (5) days after receipt of the Expansion CD's and the Expansion Cost Statement in which to review both the Expansion CD's and the Expansion Cost Statement and to give Landlord written notice of Tenant's approval of the Expansion CD's or its requested changes to the Expansion CD's. Tenant shall have no right to request any changes to the Expansion CD's that would materially alter the exterior appearance or basic nature of the Building or the Building systems. If Tenant fails to approve or request changes to the Expansion CD's within five (5) days after its receipt of the Expansion CD's and the Expansion Cost Statement, then Tenant shall be deemed to have approved the Expansion CD's and the Expansion Cost Statement and the same shall thereupon be final. If Tenant requests any changes to the Expansion CD's, Landlord shall make those changes that are reasonably requested by Tenant and shall within ten (10) days of its receipt of such request submit the revised portion of the Expansion CD's (and, to the extent applicable, the revised Expansion Cost Statement) to Tenant. Tenant may not thereafter disapprove the revised portions of the Expansion CD's unless Landlord has unreasonably failed to incorporate reasonable comments of Tenant and, subject to the foregoing, the Expansion CD's and the Expansion Cost Statement, as modified by said revisions, shall be deemed to be final upon the submission of said revisions to Tenant. Tenant shall at all times in its review of the Expansion CD's and the Expansion Cost Statement, and of any revisions thereto, act reasonably and in good faith. Without limiting the foregoing, Tenant agrees to confirm Tenant's consent to the Expansion CD's and acknowledge the Expansion Cost Statement in writing within three (3) days following Landlord's written request therefor.
(b) Tenant shall be responsible for the cost to construct and install the Expansion Space Improvements only to the extent that the Expansion Cost Statement, taking into account any increases or decreases resulting from Expansion Change Orders (as hereinafter defined), exceeds $35,000 (the "Expansion Allowance"). If the Expansion Cost Statement shows that the cost to construct and install the Expansion Space Improvements exceeds the Expansion Cost Statement (such excess being referred to herein as the "Expansion Space Excess Cost"), Tenant shall pay the Expansion Space Excess Cost to Landlord within ten (10) days following Landlord's written request therefor. Notwithstanding the foregoing, Tenant shall have the option (which option shall be exercised, if at all, by written notice to Landlord within five (5) days following Landlord's delivery of its request for payment) to amortize up to $20,000 of the Expansion Space Excess Cost over the remainder of the Initial Term on a straight-line basis at an annual rate of ten percent (10%), which amortization payments shall commence as of the first day of the calendar month immediately succeeding Landlord's substantial completion of the Expansion Space Improvements and thereafter shall be paid monthly in the same manner as Base Rent. At the request of either party, Landlord and Tenant shall enter into an amendment to the Lease confirming the amortization set forth herein. Upon an early termination of this Lease for any reason (including, but not limited to, casualty or condemnation) other than for a Landlord default, Tenant shall immediately pay to Landlord all accrued and unpaid interest due and payable on the Expansion Space Excess Cost being amortized, together with the unamortized portion of the Expansion Space Excess Cost. Tenant's failure to deliver the payments required in this paragraph shall entitle Landlord to stop the construction and installation of the Expansion Improvements until such payment is received. In addition, all delinquent payments shall accrue interest at 15% per annum. If the Expansion Allowance exceeds the Expansion Cost Statement (taking into account any increases or decreases resulting from any Expansion Change Orders), such savings shall be the property of Landlord.
(c) Landlord shall provide Tenant with a proposed schedule for the
construction and installation of the Expansion Improvements and shall notify
Tenant of any material changes to said schedule. Tenant agrees to coordinate
with Landlord regarding the installation of Tenant's phone and data wiring and
any other trade related fixtures that will need to be installed in the Expansion
Space prior to substantial completion thereof, which for purposes of this
SECTION 4.5 shall mean completion of construction of the Expansion Space
Improvements, subject only to punchlist items to be identified by Landlord and
Tenant in a joint inspection of the Expansion Space.
(d) Tenant shall have the right to request changes to the Expansion CD's at any time by way of written change order (each, an "Expansion Change Order", and collectively,
"Expansion Change Orders"). Provided such Expansion Change Order is reasonably acceptable to Landlord, Landlord shall prepare and submit promptly to Tenant a memorandum setting forth the impact on cost and schedule resulting from said Expansion Change Order (the " Expansion Change Order Memorandum of Agreement"). Tenant shall, within three (3) business days following Tenant's receipt of the Expansion Change Order Memorandum of Agreement, either (i) execute and return the Expansion Change Order Memorandum of Agreement to Landlord, in which case the Expansion Cost Statement shall be deemed modified automatically to take into account said Expansion Change Order, or (ii) retract its request for the Expansion Change Order. If, after taking the Expansion Change Order into account, the cost to construct and install the Expansion Space Improvements, will exceed the Expansion Allowance, then, at Landlord's option, Tenant shall pay to Landlord (or Landlord's designee), within fifteen (15) days following Landlord's request, any increase in the cost to construct and install the Expansion Improvements resulting from the Expansion Change Order, as set forth in the Expansion Change Order Memorandum of Agreement. Landlord shall not be obligated to commence any work set forth in an Expansion Change Order until such time as Tenant has delivered to Landlord the Expansion Change Order Memorandum of Agreement executed by Tenant and, if applicable, Tenant has paid Landlord in full for any increase in the Expansion Cost Statement.
SECTION 5. SUBORDINATION; NOTICES TO SUPERIOR LESSORS AND MORTGAGEES
5.1 SUBORDINATION. Provided that Tenant is provided with a reasonable and customary subordination, nondisturbance and attornment agreement duly executed by the holder of any Mortgage (as hereinafter defined) or the landlord pursuant to any ground lease, this Lease shall be subject and subordinate at all times to all ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises and/or the land upon which the Premises and Property are situated and to any Mortgage that may now exist or be placed upon the Property, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items, which is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. Tenant shall execute and deliver, upon demand by Landlord and in the form reasonably requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or any Mortgage. For purposes of this Lease, "Mortgage" shall mean any or all mortgages, deeds to secure debt, deeds of trust or other instruments in the nature thereof, and any amendments, modifications, extensions or renewals thereof.
5.2 ESTOPPEL CERTIFICATES. Tenant agrees, from time to time and within ten (10) business days after request by Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating such matters pertaining to this Lease as may be reasonably requested by Landlord, including, without limitation, a certification from Tenant (a) that this Lease is in full force and effect and unmodified or stating the nature of any modification, (b) the date to which Base Rent and Additional Rent has been paid, and (iii) that there are not, to Tenant's knowledge, any uncured defaults or specifying such defaults if any are claimed. Failure by Tenant to timely execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included therein are true and correct without exception. Landlord and Tenant intend that any statement delivered pursuant to this SECTION may be relied upon by any prospective purchaser or mortgagee of the Property or of any interest therein or any other Landlord designee.
SECTION 6. QUIET ENJOYMENT
6.1 POSSESSION. Subject to the provisions of this Lease, so long as Tenant pays all of the Rent and performs all of its other obligations hereunder, Tenant shall not be disturbed in its possession of the Premises by Landlord, Agent or any other person lawfully claiming through or under Landlord. This covenant shall be construed as a covenant running with the Property and is not a personal covenant of Landlord.
6.2 APPLICABLE LAW.
(a) EXISTING LAWS. If any federal, state or local laws, ordinances, orders, rules, regulations or requirements and all judicial and administrative decisions relating thereto, or
any covenants encumbering the Property (collectively, "Laws") in existence as of the date of the Lease require an alteration or modification of the Building or Common Areas (a "Code Modification") and such Code Modification (i) is not made necessary as a result of the specific use being made by Tenant of the Premises (as distinguished from an alteration or improvement which would be required to be made by the owner of any warehouse-office building comparable to the Building irrespective of the use thereof by any particular occupant), and (ii) is not made necessary as a result of any alteration of the Premises by Tenant, such Code Modification shall be performed by Landlord, at Landlord's sole cost and expense, and not included in CAM Charges.
(b) LAWS - LANDLORD RESPONSIBILITY. If, as a result of one or more Laws that are not in existence as of the date of this Lease, it is necessary from time to time during the Lease Term, to perform a Code Modification to the Building or the Common Areas that (i) is not made necessary as a result of the specific use being made by Tenant of the Premises (as distinguished from an alteration or improvement which would be required to be made by the owner of any warehouse-office building comparable to the Building irrespective of the use thereof by any particular occupant), and (ii) is not made necessary as a result of any alteration of the Premises by Tenant, such Code Modification shall be performed by Landlord and cost thereof shall be included in CAM Charges without being subject to any applicable cap on expenses set forth herein.
(c) LAWS - TENANT RESPONSIBILITY. If, as a result of one or more Laws, it is necessary from time to time during the Lease Term to perform a Code Modification to the Building or the Common Areas that is made necessary as a result of the specific use being made by Tenant of the Premises or as a result of any alteration of the Premises by Tenant, such Code Modification shall be the sole and exclusive responsibility of Tenant in all respects; provided, however, that Tenant shall have the right to retract its request to perform a proposed alteration in the event that the performance of such alteration would trigger the requirement for a Code Modification.
6.3 BUILDING COMPLIANCE. Without limiting SECTION 6.2 above, Landlord represents and warrants to Tenant that, to Landlord's actual knowledge, the design and construction of the Building materially complies with all Laws in effect as of the date of the Lease, excepting therefrom any requirements related to Tenant's specific use of the Premises.
6.4 ADA COMPLIANCE. Landlord, at its sole cost and expense, shall be
responsible for causing the Building to comply with Title III of the American
with Disabilities Act of 1990 (the "Disabilities Act"), or the regulations
promulgated thereunder (as the Disabilities Act is in effect and pertains to the
general public), as of the date of the Lease. During the Lease Term, Tenant
shall be responsible, at its sole cost and expense, for causing the Building,
the Common Areas and the Premises to comply with the Disabilities Act as a
result of (a) any special requirements of the Disabilities Act relating to
accommodations for individual employees, invitees and/or guests of Tenant, and
(b) any alterations made to the Premises by Tenant.
SECTION 7. ASSIGNMENT, SUBLETTING AND MORTGAGING
7.1 PROHIBITION. Tenant acknowledges that this Lease and the Rent
due under this Lease have been agreed to by Landlord in reliance upon Tenant's
reputation and creditworthiness and upon the continued operation of the Premises
by Tenant for the particular use set forth in SECTION 3 above; therefore, Tenant
shall not, whether voluntarily, or by operation of law, or otherwise: (a) assign
or otherwise transfer this Lease in whole or in part: (b) sublet the Premises or
any part thereof, or allow the same to be used or occupied by anyone other than
Tenant; or (c) mortgage, pledge, encumber, or otherwise hypothecate this Lease
or the Premises, or any part thereof, in any manner whatsoever, without in each
instance obtaining the prior written consent of Landlord, which consent may be
given or withheld in Landlord's reasonable discretion, other than the assignment
by Tenant to a Permitted Transferee, as described in SECTION 7.3 below. By way
of example and not limitation, Landlord shall be deemed to have reasonably
withheld consent to a proposed assignment or sublease if in Landlord's opinion
(i) the purposes for which the proposed transferee intends to use the Premises
are not in keeping with the standards of Landlord for the Building and may have
a material adverse affect on the existing structural or physical condition of
the Premises; (ii) the proposed assignee or subtenant has an Unacceptable
Business Reputation (as hereinafter defined); (iii) the financial worth of the
proposed assignee or subtenant is insufficient to meet the obligations hereunder, or (iv) the prospective assignee or subtenant is (A) a current tenant at the park in which the Building is located or (B) a bona-fide third-party prospective tenant who Landlord has received a proposal from or submitted a proposal to within ninety (90) days prior to the date of Tenant's request to assign or sublet. For purposes of this Lease, Unacceptable Business Reputation shall mean any of the following: (x) the conduct of a business that violates accepted social mores or otherwise suggests moral turpitude, whether because of the name or inherent nature of the underlying business, or (y) a business whose equity owners, officers or principal employees have committed serious criminal or unlawful acts, or have been subject to media publicity regarding criminal investigations, workplace violations or other unlawful acts or behavior that could be reasonably expected to draw negative attention to the Premises, or (z) Landlord has had prior business dealings with the proposed assignee or sublessee, during which such proposed assignee or sublessee acted in a disreputable manner. Any purported assignment, mortgage, transfer, pledge or sublease made without the prior written consent of Landlord (other than to a Permitted Transferee) shall be absolutely null and void. No assignment of this Lease shall be effective and valid unless and until the assignee executes and delivers to Landlord any and all documentation reasonably required by Landlord in order to evidence assignee's assumption of all obligations of Tenant hereunder. Any consent by Landlord to a particular assignment, sublease or mortgage shall not constitute consent or approval of any subsequent assignment, sublease or mortgage, and Landlord's written approval shall be required in all such instances. Any consent by Landlord to any assignment or sublease shall not be deemed to release Tenant from its obligations hereunder and Tenant shall remain fully liable for performance of all obligations under this Lease. Subject to SECTION 7.3 below, any change in control of Tenant resulting from a merger, consolidation, stock transfer or asset sale shall be considered an assignment or transfer that requires Landlord's prior written consent.
7.2 RIGHTS OF LANDLORD. If this Lease is assigned, or if the Premises (or any part thereof) are sublet or used or occupied by anyone other than Tenant, whether or not in violation of this Lease, Landlord or Agent may (without prejudice to, or waiver of its rights), collect Rent from the assignee, subtenant or occupant. Landlord or Agent may apply the net amount collected to the Rent herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any of the provisions of this SECTION 7. If Landlord refuses to give its consent to any proposed assignment or subletting, and within five (5) business days after written notice of such refusal to Tenant, Tenant fails to retract its request, Landlord may, at its option, within thirty (30) days after receiving a request to consent, terminate this Lease by giving Tenant thirty (30) days prior written notice of such termination, whereupon each party shall be released from all further obligations and liability hereunder, except those which expressly survive the termination of this Lease. In the event that Tenant assigns or sublets the Premises or any part thereof, and at any time receives rent and/or other consideration which exceeds that which Tenant would at that time be obligated to pay to Landlord, Tenant shall pay to Landlord, as Additional Rent, 50% of such excess rent and/or other consideration. Tenant agrees to pay Landlord $500.00 upon demand by Landlord to reimburse Landlord for reasonable accounting and attorneys' fees incurred in conjunction with the processing and documentation of any requested assignment, subletting or any other hypothecation of this Lease or Tenant's interest in and to the Premises.
7.3 PERMITTED TRANSFERS. Notwithstanding anything to the contrary
contained in SECTION 7.1 above, Tenant shall have the right, without Landlord's
consent, but upon ten (10) days prior notice to Landlord, to (a) sublet all or
part of the Premises to any related corporation or other entity which controls
Tenant, is controlled by Tenant or is under common control with Tenant; or (b)
assign all or any part of this Lease to any related corporation or other entity
which controls Tenant, is controlled by Tenant, or is under common control with
Tenant, or to a successor entity into which or with which Tenant is merged or
consolidated or which acquires substantially all of Tenant's assets in property,
provided that in the event of a transfer pursuant to clause (b), the tangible
net worth after any such transaction is not less than the tangible net worth of
Tenant as of the date hereof and provided further that such successor entity
assumes all of the obligations and liabilities of Tenant (any such entity
hereinafter referred to as a "Permitted Transferee"). For the purpose hereof (i)
"control" shall mean ownership of not less than fifty percent (50%) of all
voting stock or legal and equitable interest in such corporation or entity, and
(ii) "tangible net worth" shall mean the excess of the value of tangible assets
(i.e. assets excluding those which are intangible such as goodwill, patents and
trademarks) over liabilities. Any such transfer shall not relieve Tenant of its
obligations under this Lease.
SECTION 8. COMPLIANCE WITH LAWS
8.1 COMPLIANCE WITH LAWS. Except to the extent such are Landlord's responsibility under SECTIONS 6 above or 8.3 below, Tenant shall, at its sole expense, comply with all Laws pertaining to the Premises or Tenant's use thereof, including, without limitation, any restrictions of record affecting the Property, any and all Environmental Laws, which for purposes hereof shall mean and refer to all laws pertaining to Hazardous Materials (as hereinafter defined) or which otherwise deal with or relate to air or water quality, air emissions, soil or ground conditions or other environmental and ecological matters of any kind, whether or not any of the foregoing were in effect at the time of the execution of this Lease. If any license or permit is required for the conduct of Tenant's business in the Premises (other than a certificate of occupancy which shall be obtained by Landlord), Tenant, at its expense, shall procure such license prior to the Commencement Date, and shall maintain in good standing such license or permit. Tenant shall give prompt notice to Landlord of any written notice it receives of the alleged violation of any Laws or requirement of any governmental or administrative authority with respect to the Premises or the use or occupation thereof. The judgment of any court of competent jurisdiction, or the admission of Tenant in any action or proceeding against Tenant, whether Landlord is a party thereto or not, that any such Laws pertaining to the Premises have been violated, shall be conclusive of that fact as between Landlord and Tenant.
8.2 HAZARDOUS MATERIALS. As used herein, the term "Hazardous Materials" shall mean any waste, material or substance (whether in the form of liquids, solids or gases, and whether or not air-borne) which is or may be deemed to be or include a pesticide; petroleum, asbestos, polychlorinated biphenyl, radioactive material, urea formaldehyde or any other pollutant or contaminant which is or may be deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or which presents a risk to public health or to the environment, and which is or becomes regulated by any Environmental Law.
8.3 LANDLORD COMPLIANCE. In connection with the operation of the Premises, Landlord represents and warrants that to the extent not the obligation of Tenant, any other tenant or occupant of the Building or any other person or entity, Landlord shall comply in all material respects with all Laws pertaining to the construction of the Premises, including, without limitation, any restrictions of record affecting the Property, including any and all Laws pertaining to Hazardous Materials, or all Environmental Laws applicable to the Premises.
8.4 RESTRICTIONS ON TENANT. Except for small quantities used or stored in compliance with all applicable Environmental Laws in the ordinary course of Tenant's conduct of its business at the Premises for the Permitted Use, Tenant shall not cause or permit the use, generation, release, manufacture, refining, production, processing, storage or disposal of any Hazardous Materials on, under or about the Premises, or the transportation to or from the Premises of any Hazardous Materials without the prior written consent of Landlord, and then the use, storage or disposal of such Hazardous Materials shall be performed in compliance with the Environmental Laws and the highest standards prevailing in the industry. Tenant shall immediately notify Landlord of (a) any violation by Tenant, its employees, agents, representatives, customers, invitees or contractors of the Environmental Laws on, under or about the Premises, or (b) the presence or suspected presence of any Hazardous Materials on, under or about the Premises and shall immediately deliver to Landlord any notice received by Tenant relating to (a) and (b) above from any source. Tenant shall execute affidavits, representations and the like within five (5) days of Landlord's request therefor concerning Tenant's best knowledge and belief regarding the presence of any Hazardous Materials on, under or about the Premises.
8.5 LANDLORD'S RIGHTS. Landlord and its agents shall have the right,
but not the duty, at Landlord's sole expense (except as otherwise set forth in
SECTION 16.2 below), upon advance notice (except in the case of emergency when
no notice shall be required) to inspect the Premises and conduct tests thereon
to determine whether or the extent to which there has been a violation of
Environmental Laws by Tenant or whether there are Hazardous Materials on, under
or about the Premises. In exercising its rights herein, Landlord shall use
reasonable efforts to minimize interference with Tenant's business but such
entry shall not constitute an eviction of Tenant, in whole or in part, and
Landlord shall not be liable for any interference, loss, or damage to Tenant's
property or business caused thereby.
8.6. LANDLORD'S REPRESENTATION AND INDEMNITY. Notwithstanding
anything contained in this Lease to the contrary, Tenant shall not have any
liability to Landlord under this Lease resulting from any Hazardous Materials
existing or generated at, in, on, under or in connection with the Premises prior
to the date hereof except to the extent Tenant exacerbates the same. Landlord
hereby agrees to indemnify Tenant and hold Tenant harmless from and against any
and all reasonable and actual expense, loss and liability suffered by Tenant
(with the exception of any and all punitive or consequential damages) by reason
of Hazardous Materials located upon or within the Premises prior to the date of
this Lease. Notwithstanding the foregoing, Landlord shall have the right to
undertake and perform any studying, remedying, removing, disposing or otherwise
addressing the existence of any Hazardous Materials that are the responsibility
of Landlord hereunder and of all communications with regulatory or governmental
agencies with respect thereto, and Tenant shall not perform such acts and
communications nor be entitled to any indemnification hereunder unless (a)
Tenant is specifically required by Environmental Laws to perform such acts, and
(b) Landlord has failed or refused to perform such acts and communications after
having been afforded reasonable written notice by Tenant and having had
reasonable opportunity to perform such acts and communications.
SECTION 9. INSURANCE
9.1 TENANT INSURANCE. Tenant shall purchase at its own expense and
keep in force during this Lease a policy or policies of (a) Special Form
Insurance (which insurance shall not exclude flood and earthquake) in the amount
of the full replacement cost of Tenant's trade fixtures, merchandise, inventory,
personal property, and Tenant's improvements (other than those improvements, if
any, made pursuant to SECTION 4 above) and betterments, which insurance shall
include an agreed amount endorsement waiving coinsurance; (b) Commercial General
Liability Insurance (which insurance shall not exclude blanket, contractual
liability, broad form property damage, personal injury, and fire damage)
covering the Premises and Tenant's use thereof against claims for bodily injury
or death and property damage, which insurance shall provide coverage on an
occurrence basis with a combined single limit of not less than $3,000,000 per
occurrence, which limit may be satisfied by any combination of primary and
excess or umbrella per occurrence policies; provided, however, aggregate amounts
may not be used to satisfy such limit; (c) Worker's Compensation insurance in
amounts required by applicable law; and (d) Business Income Insurance covering
rental income of two (2) years. Said policies shall (i) name Landlord, Agent,
and any party holding an interest to which this Lease may be subordinated as
additional insureds (except that such requirement shall not be applicable to the
worker's compensation insurance required to be maintained by Tenant), (ii) be
issued by an insurance company with a Best rating of A X or better and otherwise
reasonably acceptable to Landlord and licensed to do business in the state in
which the Property is located, (iii) provide that said insurance shall not be
materially changed or canceled unless thirty (30) days' prior written notice
shall have been given to Landlord, (iv) provide coverage on an occurrence basis;
(v) provide coverage for the indemnity obligations of Tenant under this lease;
(vi) contain a severability of insured parties provision and across liability
endorsement; (vii) be primary, not contributing with, and not in excess of
coverage which Landlord may carry; (viii) include a hostile fire endorsement;
and (ix) otherwise be in such form and include such coverages as Landlord may
reasonably require. Said policy or policies or, at Landlord's option,
Certificate of Insurance on the so-called "ACORD" form 27 evidencing said
policies, shall be delivered to Landlord by Tenant upon commencement of, the
Lease and renewals thereof shall be delivered at least thirty (30) days prior to
the expiration of said insurance. If Tenant fails to carry such insurance and
furnish Landlord with such certificates of insurance, Landlord may obtain such
insurance on Tenant's behalf and Tenant shall promptly reimburse Landlord
therefor.
9.2 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained in this Lease, to the extent permitted by law, and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waive any right each may have against the other on account of any loss of or damage to their respective property, the Premises, its contents, or other portions of the Building arising from any risk which is insured against or required to be insured against by Landlord or Tenant under this Lease. In addition, Landlord and Tenant hereby waive any rights each may have against the other on account of any loss, injury, or damage to an employee of the other arising out of such employee's employment relationship. This provision is intended to waive, fully and for the benefit of each party, any rights and/or claims that might give rise to a right of subrogation by any insurance carrier. The
coverage obtained by each party pursuant to this Lease shall include, without limitation, a waiver of subrogation by the carrier that conforms to the provisions of this SECTION.
SECTION 10. ALTERATIONS
10.1 PROCEDURAL REQUIREMENTS. Tenant may, from time to time, at its expense, make alterations or improvements in and to the Premises (hereinafter collectively referred to as "Alterations"), provided that Tenant first obtains the written consent of Landlord in each instance. Notwithstanding the foregoing, Landlord's consent to non-structural Alterations shall not be required, provided that: (a) the Alterations are non-structural and the structural integrity of the Property shall not he affected; (b) the proper functioning of the mechanical, electrical, heating, ventilating, air conditioning ("HVAC"), sanitary and other service systems of the Property shall not be adversely affected; (c) the Alterations are not reasonably likely to have a material adverse effect on the Property; (d) Tenant shall have appropriate insurance coverage, reasonably satisfactory to Landlord, regarding the performance and installation of the Alterations; (e) the Alterations shall conform with all other requirements of this Lease; (f) Tenant provides Landlord with prior written notice of its intention to make such Alterations stating in reasonable detail the nature, extent and estimated cost of such Alterations, and to the extent customary to the proposed Alteration, a set of reasonably detailed plans for the Alteration; and (g) such Alterations do not exceed Fifty Thousand Dollars ($50,000.00) in cost in any one instance and Two Hundred Fifty Thousand Dollars ($250,000.00) in cost in the aggregate during the Lease Term. If applicable, Tenant shall not permit alterations in or to the Premises unless and until Landlord has approved the plans and the contractor in writing. As a condition of Landlord's approval, Landlord may require Tenant to remove the Alterations and restore the Premises upon termination of this Lease; otherwise, all such Alterations shall at Landlord's option become a part of the realty and the property of Landlord, and shall not be removed by Tenant. After obtaining Landlord's consent to the structural Alterations, Tenant shall give Landlord at least five (5) days' prior written notice of the commencement of any Alterations at the Premises, and Landlord may elect to record and post notices of commencement of construction, non-responsibility or the like, at the Premises.
10.2 PERFORMANCE OF ALTERATIONS. Tenant shall cause the Alterations to be performed in compliance with all applicable permits, laws and requirements of public authorities, restrictions of record affecting the Property and with Landlord's reasonable rules and regulations or any other restrictions that Landlord or Agent may impose on the Alterations. Tenant shall cause the Alterations to be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the standards for the Property established by Landlord or Agent. Tenant shall obtain all necessary permits and certificates for final governmental approval of the Alterations and, where applicable, shall provide Landlord with "as built" plans, copies of all construction contracts, governmental permits and certificates and proof of payment for all labor and materials, including, without limitation, copies of paid invoices and final lien waivers.
10.3 LIEN PROHIBITION. Upon completion of the work, Tenant shall
provide lien waivers from the subcontractors or a final affidavit of lien waiver
from the general contractor, and such lien waiver shall be in a form acceptable
to Landlord. No person shall be entitled to any lien derived through or under
Tenant for any labor or material furnished to the Premises, and nothing in this
Lease shall be construed to constitute a consent by Landlord to the creation of
any lien. Tenant shall pay when due all claims for labor and material furnished
to the Premises in connection with the Alterations. Tenant shall not permit any
mechanics or materialmen's liens to attach to the Premises, the Property, or
Tenant's leasehold estate. Tenant, at its expense, shall procure the
satisfaction or discharge of record of all such liens and encumbrances within
thirty (30) days after the filing thereof; or, if acceptable to Landlord, in
its' reasonable determination, Tenant may procure (for Landlord's benefit), a
bond or other protection against any such lien or encumbrance. In the event
Tenant has not so performed, Landlord may, at its option, pay and discharge such
liens and Tenant shall be responsible to reimburse Landlord, on demand and as
Additional Rent under this Lease, for all costs and expenses incurred in
connection therewith, together with interest thereon at the rate set forth in
SECTION 21.3 below, which expenses shall include reasonable fees of attorneys of
Landlord's choosing, and any costs in posting bond to effect discharge or
release of the lien as an encumbrance against the Premises or the Property.
SECTION 11. LANDLORD'S AND TENANT'S PROPERTY
11.1 LANDLORD'S PROPERTY. Subject to SECTIONS 11.2 and 19.1 below, and except as otherwise expressly set forth in this Lease, the Tenant Improvements and Expansion Space Improvements and all fixtures, improvements and appurtenances attached to, or built into, the Premises at the commencement of, or during the Term, whether or not placed there by or at the expense of Tenant, shall become and remain a part of the Premises; shall be deemed the property of Landlord (the "Landlord's Property"), without compensation or credit to Tenant, and shall not be removed by Tenant at the Expiration Date unless Landlord requests their removal. Further, any personal property in the Premises on the Commencement Date, movable or otherwise, unless installed and paid for by Tenant, shall be and shall remain the property of Landlord and shall not be removed by Tenant. In no event shall Tenant remove any of the following materials or equipment without Landlord's prior written consent; any power wiring or power panels, lighting or lighting fixtures, wall or window coverings, carpets or other floor coverings, heaters, air conditioners or any other HVAC equipment, fencing or security gates, or other similar building operating equipment and decorations.
11.2 TENANT'S PROPERTY. All movable non-structural partitions, business and trade fixtures (including, but not limited to, the racking and sorting equipment installed by Tenant, machinery and equipment, communications equipment and office equipment, that are installed in the Premises by, or for the account of, Tenant without expense to Landlord and that can be removed without structural damage to the Property) and all furniture, furnishings and other articles of movable Personal property owned by Tenant and located in the Premises (collectively, the "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term, provided Tenant repairs or pays the cost of repairing any damage to the Premises or to the Property resulting from the installation and/or removal thereof. At or before the Expiration Date, or promptly after any earlier termination, Tenant, at its expense, shall remove from the Premises all of Tenant's Property (except such items thereof as Landlord shall have expressly permitted, in writing, to remain, which property shall become the property of Landlord), and Tenant shall repair any damage to the Premises or the Property resulting from any installation and/or removal of Tenant's Property.
SECTION 12. REPAIRS AND MAINTENANCE.
12.1 TENANT REPAIRS AND MAINTENANCE. Tenant shall, at its expense, maintain in good condition, regularly servicing and promptly making all repairs and replacements thereto, the Premises, including but not limited to the electrical systems, heating and air conditioning systems, plate glass, floors, windows and doors (with the exception of dock doors), and sprinkler and plumbing systems. In addition, Tenant shall obtain a preventive maintenance contract on the heating, ventilating and air-conditioning systems (and provide Landlord with a copy thereof), which contract shall meet or exceed Landlord's standard maintenance criteria and shall provide for the inspection and maintenance of the heating, ventilating and air conditioning system on not less than a semi-annual basis. Notwithstanding the foregoing, and subject to Tenant's waiver in SECTION 9.2 of the Lease or any other provision of this Lease, Tenant shall not be responsible for repairs or replacements to the Premises to the extent necessitated by the willful misconduct or negligent acts of Landlord or its agents, independent contractors, vendors, suppliers, or employees, in which case such repair or replacement shall be performed by Landlord at its expense. Tenant shall also be responsible for all cost and expenses incurred to perform any and all repairs and replacements (whether structural or non-structural; interior or exterior; and ordinary or extraordinary), in and to the Premises and the Property and the facilities and systems thereof, if and to the extent that the need for such repairs or replacements arises directly or indirectly from (i) the performance or existence of any Alterations, (ii) the installation, use or operation of Tenant's Property in the Premises, (iii) the moving of Tenant's Property in or out of the Property, or (iv) any act, omission, misuse, or neglect of Tenant, any of its subtenants, or others entering into the Premises by act or omission of Tenant or any subtenant. Any repairs or replacements required to be made by Tenant to any or all of the structural components of the Property and the mechanical, electrical, sanitary, HVAC, or other systems of the Property or Premises shall be performed by appropriately licensed contractors and Tenant shall notify Landlord, in writing, and identifying the selected contractor(s), prior to the commencement of any such repairs or replacements. All such repairs or replacements shall be made with materials of equal or better quality than the items being repaired or replaced.
12.2 LANDLORD REPAIRS. During the Lease Term, Landlord shall maintain in good condition and repair, and replace as necessary, the roof, exterior walls (including, without limitation, all dock doors), foundation and structural frame of the Building and the parking and landscaped areas, the costs of which shall be included in CAM Charges; provided, however, that to the extent any of the foregoing items require repair because of the negligence, misuse, or default of Tenant, its employees, agents, customers, contractors or invitees, Landlord shall make such repairs solely at Tenant's expense. Landlord agrees to commence the repairs, replacements or restoration described in this SECTION 12.2 promptly following Landlord becoming aware of such repair or replacement or promptly following the receipt of written notice from Tenant stating the need for such repairs.
SECTION 13. UTILITIES.
Tenant shall purchase all utility services directly from the utility or
municipality providing such service; provided, however, if any utility services
are jointly metered with other property, Landlord shall make a reasonable
determination of Tenant's proportionate share of the cost of such utilities and
services (at rates that would have been payable if such utilities had been
directly billed by the utilities or service providers) and Tenant shall pay such
share to Landlord within fifteen (15) days after receipt of Landlord's written
statement. In addition, Tenant shall provide for scavenger, cleaning and
extermination services; and shall pay for such services when payments are due.
Tenant shall be solely responsible for the repair and maintenance of any meters
necessary in connection with such services. Tenant's use of electrical energy in
the Premises shall not, at any time, exceed the capacity of either or both of
(a) any of the electrical conductors and equipment in or otherwise servicing the
Premises; and (b) the Property's HVAC systems.
SECTION 14. INVOLUNTARY CESSATION OF SERVICES
14.1 CESSATION OF SERVICES. Landlord reserves the right, without any liability to Tenant and without affecting Tenant's covenants and obligations hereunder, upon reasonable prior notice (except where emergency circumstances exist, in which event no notice shall be required) to stop service of the HVAC, electric, sanitary, elevator (if any), or other systems serving the Premises, or to stop any other services required by Landlord under this Lease, whenever and for a reasonable time necessary by reason of (a) accidents, emergencies, strikes, or the making of repairs or changes which Landlord or Agent in good faith deems necessary, or (b) any other cause beyond Landlord's reasonable control. Further, it is also understood and agreed that Landlord or Agent shall have no liability or responsibility for a cessation of services to the Premises or to the Property that occurs as a result of causes beyond Landlord's or Agent's reasonable control. No such interruption of service shall be deemed an eviction or disturbance of Tenant's use and possession of the Premises or any part thereof, or render Landlord or Agent liable to Tenant for damages, or relieve Tenant from performance of Tenant's obligations under this Lease, including, but not limited to, the obligation to pay Rent.
14.2 RENT ABATEMENT. Notwithstanding SECTION 14.1 above, to the extent that (a) such interruption of service is within Landlord's or Agent's reasonable control, and (b) such interruption of service renders the Premises or any portion of the Premises untenantable for a period of five (5) consecutive business days after Landlord receives written notice from Tenant of such interruption of service, Base Rent and Tenant's Proportionate Share of CAM Charges shall abate with respect to the area which is affected for each such consecutive day after said five (5) business day period that such area of the Premises is so rendered until such service is restored (the "Abatement"). The Abatement shall equal the Base Rent and Tenant's Proportionate Share of CAM Charges due for the period of the interruption with respect to the square footage affected. In addition, Tenant shall receive a credit for the Base Rent and Tenant's Proportionate Share of CAM Charges paid by Tenant prior to said fifth (5th) business day, but after the second (2nd) business day of interruption with respect to the square footage affected. Provided, however, to the extent that such interruption is caused or continues as a result of (i) Force Majeure, (ii) the negligence or willful misconduct of Tenant, its agents, employees, contractors, subtenants, invitees or assignees, or (iii) any other cause outside Landlord's or Agent's reasonable control, Tenant shall not be entitled to any abatement hereunder. The Premises shall be considered untenantable if Tenant does not use the Premises or portion thereof affected in the conduct of its normal business operations as a result of said interruption of service to the Premises. It is agreed and understood that Tenant shall not use nor be entitled to use the Premises or portion thereof affected to conduct its normal business operations
during any day for which Landlord is obligated to abate rent hereunder. The abatement herein provided shall be Tenant's sole and exclusive remedy for interruption of service. Landlord agrees to use its reasonable efforts to restore such utility service as soon as possible.
SECTION 15. LANDLORD'S RIGHTS.
Landlord, Agent and their respective agents, employees and representatives shall have the right to enter and/or pass through the Premises at any time or times upon reasonable prior notice (except in the event of emergency, in which event no notice shall be required) (a) to examine and inspect the Premises and to show them to actual and prospective lenders, prospective purchasers or mortgagees of the Property or providers of capital to Landlord and its affiliates; and (b) to make such repairs, alterations, additions and improvements in or to the Premises and/or in or to the Property or its facilities and equipment as Landlord is required or desires to make. Landlord and Agent shall be allowed to take all materials into and upon the Premises that may be required in connection with any repairs, alterations, additions or improvements, without any liability to Tenant and without any reduction or modification of Tenant's covenants and obligations hereunder; provided, however, that Landlord shall use reasonable efforts to avoid interference with Tenant's business operations and Tenant's occupancy and use of the Premises. Additionally, Landlord and Agent shall have the following rights exercisable on reasonable notice to Tenant (except in, the event of emergency in which event no notice shall be required), without liability to Tenant, and without being deemed an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent: (i) to have pass keys, access cards, or both, to the Premises; and (ii) to decorate, remodel, repair, alter or otherwise prepare the Premises for re-occupancy at any time after Tenant vacates or abandons the Premises for more than thirty (30) consecutive days or with, no intention of reoccupying the Premises. During the period of six (6) months prior to the Expiration Date (or at any time, if Tenant has vacated or abandoned the Premises or is otherwise in default under this Lease), Landlord and its agents may exhibit the Premises to prospective tenants and erect a "For Lease" sign thereon.
SECTION 16. NON-LIABILITY AND INDEMNIFICATION
16.1 NON-LIABILITY. Except to the extent of Landlord's negligence or
willful misconduct not otherwise waived pursuant to SECTION 9.2 above or any
other provision of this Lease, none of Landlord, Agent, any other managing
Agent, or their respective affiliates, owners, partners, directors, officers,
agents and employees shall be liable to Tenant for any loss, injury, or damage,
to Tenant or to any other person, or to its or their property, irrespective of
the cause of such injury, damage or loss. Further, except to the extent of
Landlord's negligence or willful misconduct not otherwise waived pursuant to
SECTION 9.2 above or any other provision of this Lease, none of Landlord, Agent,
any other managing agent, or their respective partners, directors, officers,
agents and employees shall be liable (a) for any damage caused by other tenants
or persons in, upon or about the Property, or caused by operations in
construction of any public or quasi-public work; (b) with respect to matters for
which Landlord is liable, for consequential or indirect damages purportedly
arising out of any loss of use of the Premises or any equipment or facilities
therein by Tenant or any person claiming through or under Tenant; (c) any latent
defect in the Premises or the Property; (d) injury or damage to person or
property caused by fire, or theft, or resulting from the operation of heating or
air conditioning or lighting apparatus, or from falling plaster, or from steam,
gas, electricity, water, rain, snow, ice; or dampness, that may leak or flow
from any part of the Property, or from the pipes, appliances or plumbing work of
the same. Notwithstanding the foregoing, nothing contained in this SECTION 16.1
shall override (or be deemed to override) the waivers contained in SECTION 9.2
above.
16.2 INDEMNIFICATION.
(a) TENANT INDEMNIFICATION. Tenant hereby indemnifies, defends, and holds Landlord, Agent and their respective affiliates, owners, partners, directors, officers, agents and employees (collectively, "Landlord Indemnified Parties") harmless from and against any and all Landlord Losses (defined below) to the extent arising from or in connection with (i) the Premises or any business therein, or any work, Tenant Improvements, or Alterations done, or any condition created (other than by Landlord) in or about the Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Premises; (ii) any act, omission or negligence of Tenant or Tenant's agents,
employees, contractors, customers or invitees (collectively, the "Tenant's Parties"); (iii) any accident, injury or damage whatsoever (unless caused by Landlord's negligence) occurring in, at or upon either or both the Property and the Premises; (iv) any breach by Tenant of any of its warranties, representations or covenants under this Lease; (v) any actions necessary to protect Landlord's interest under this Lease in a bankruptcy proceeding or other proceeding under the Bankruptcy Code and relating to Tenant; (vi) any violation or alleged violation by Tenant of any Laws, including, without limitation, any Environmental Laws; (vii) any breach of the provisions of Article 8 by Tenant or any of Tenant's Parties; (viii) any generation, transport, storage, use, treatment, or disposal on, about or from the Premises or the Property of any Hazardous Materials by Tenant or any of Tenant's Parties; (ix) claims for work or labor performed or materials supplies furnished to or at the request of Tenant; and (x) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease (collectively, "Tenant's Indemnified Matters"). In case any action or proceeding is brought against any or all of Landlord and the Landlord Indemnified Parties by reason of any of Tenant's Indemnified Matters, Tenant, upon notice from any or all of Landlord, Agent or any Superior Party (defined below), shall resist and defend such action or proceeding by counsel reasonably satisfactory to, or selected by, Landlord. The term "Landlord Losses" shall mean all claims, demands, expenses, actions, judgments, damages, penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, diminution in value of Landlord's interest in the Premises or the Property, damages for the loss or restriction on use of any space or amenity within the Premises or the Property, damages arising from any adverse impact on marketing space in the Property, sums paid ill settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, without limitation, reasonable attorneys' fees actually incurred without regard to statutory interpretation and consultants' fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. Notwithstanding the foregoing, nothing contained in this SECTION 16.2(A) shall override (or be deemed to override) the waivers contained in SECTION 9.2 above. The provisions of this SECTION 16.2(A) shall survive the expiration or termination of this Lease.
(b) LANDLORD INDEMNIFICATION. Landlord hereby indemnifies, defends and holds Tenant harmless from and against any and all Tenant's Losses (defined below) actually incurred by Tenant and resulting from the negligence or willful misconduct of Landlord, Agent, and its and their contractors and employees. In the event that any action or proceeding is brought against Tenant, and the foregoing indemnity is applicable to such action or proceeding, then Landlord, upon notice from Tenant, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Tenant. Notwithstanding anything to the contrary set forth in this Lease, however, in all events and under all circumstances, the liability of Landlord to Tenant shall be limited to the interest of Landlord in the Property, and Tenant agrees to look solely to Landlord's interest in the Property for the recovery of any judgment or award against Landlord, it being intended that Landlord shall not be personally liable for any judgment or deficiency. The term "Tenant Losses" shall mean all claims, demands, expenses, actions, judgments, damages, penalties, fines, liabilities, losses of every kind and nature (including, without limitation, sums paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, without limitation, reasonable attorneys' fees and expenses actually incurred without regard to statutory interpretation and consultants' fees and expenses, and the costs that are in any way related to any matter covered by the foregoing indemnity. Notwithstanding the foregoing, nothing contained in this SECTION 16.2(B) shall override (or be deemed to override) the waivers contained in SECTION 9.2 above. The provisions of this SECTION 16.2(B) shall survive the expiration or termination of this Lease.
16.3 FORCE MAJEURE. The obligations of the parties hereunder shall not be affected, impaired or excused, and neither Landlord nor Tenant shall have any liability whatsoever to the other, with respect to any act, event or circumstance arising out of (a) Landlord's or Tenant's (as the case may be) failure to fulfill, or delay in fulfilling any of its obligations under this Lease by reason of labor dispute, governmental preemption of property in connection with a public emergency or any other cause, whether similar or dissimilar, beyond Landlord's or Tenant's (as the case may be) reasonable control; or (b) any failure or defect in the supply, quantity or character of utilities furnished to the Premises, or by reason of any requirement, act or omission of any public utility or, others serving the Property, beyond Landlord's or Tenant's (as the case
may be) reasonable control; provided, however, in no event shall the provisions of this SECTION 16.3 apply to Tenant's obligations to pay Base Rent and Additional Rent hereunder.
SECTION 17. DAMAGE OR DESTRUCTION
17.1 NOTIFICATION AND REPAIR. Tenant shall give prompt notice to
Landlord and Agent of any fire or other casualty to the Premises or the
Property. Subject to the provisions of SECTION 17.3 below, if the Property or
the Premises is damaged by fire or other insured casualty, Landlord shall repair
(or cause Agent to repair) the damage and restore and rebuild the Property
and/or the Premises (except for Tenant's Property and any Tenant Alterations)
which repairs shall be commenced within ten (10) days after the later to occur
of (a) notice to it of the damage or destruction, and (b) the adjustment of the
insurance proceeds attributable to such damage and such repairs shall be
performed with reasonable dispatch thereafter. Subject to the provisions of
SECTION 17.3 below, Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for purported
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Premises or of the Property pursuant to this
SECTION. Landlord (or Agent, as the case may be) shall use its diligent, good
faith efforts to make such repair or restoration promptly and in such manner as
not to unreasonably interfere with Tenant's use and occupancy of the Premises,
but Landlord or Agent shall not be required to do such repair or restoration
work except during normal business hours of business days.
17.2 RENTAL ABATEMENT. If (a) the Property is damaged by fire or other casualty thereby causing the Premises to be inaccessible, or (b) the Premises are partially damaged by fire or other casualty, the Rent shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant.
17.3 TOTAL DESTRUCTION. If the Property or the Premises shall be
totally destroyed by fire or other casualty, or if the Property shall be so
damaged by fire or other casualty that (in the opinion of a reputable contractor
or architect designated by Landlord) (a) its repair or restoration requires more
than one hundred eighty (180) days, or (b) the damage (i) requires the
expenditure of more than fifty percent (50%) of the full insurable value of the
Property immediately prior to the casualty; and (ii) occurs during the last two
(2) years of Lease Term, Landlord and Tenant shall each have the option to
terminate this Lease (by so advising the other, in writing) within ten (10) days
after Landlord delivers to Tenant written notice of the opinion of said
contractor or architect, but in all events prior to the commencement of a
restoration of the Premises or the Property by Landlord. In such event, the
termination shall be effective as of the date upon which either Landlord or
Tenant, as the case may be, receives timely written notice from the other
terminating this Lease pursuant to the preceding sentence. If neither Landlord
nor Tenant timely delivers a termination notice, this Lease shall remain in full
force and effect. Provided, however, if (A) any holder of a mortgage or deed of
trust encumbering the Property or landlord pursuant to a ground lease
encumbering the Property (collectively, "Superior Parties") or other party
entitled to the insurance proceeds fails to make such proceeds available to
Landlord in an amount sufficient for restoration of the Premises or the
Property, or (B) the issuer of any casualty insurance policies on the Property
fails to make available to Landlord sufficient proceeds for restoration of, the
Premises or the Property, then Landlord may, at Landlord's sole option,
terminate this Lease by giving Tenant written notice to such effect within
thirty (30) days after Landlord receives notice from the Superior Party or
insurance company, as the case may be, that such proceeds shall not be made
available, in which event the termination of this Lease shall be effective as of
the date Tenant receives written notice from Landlord of Landlord's election to
terminate this Lease. For purposes of this SECTION 17.3 only, "full insurable
value" shall mean replacement cost, less the cost of footings, foundations and
other structures below grade.
SECTION 18. EMINENT DOMAIN
If the whole, or any substantial portion, of the Property is taken or condemned for any public use under any Laws or by right of eminent domain, or by private purchase in lieu thereof (collectively, a "Taking"), Landlord may terminate this Lease effective when the physical taking of said Premises occurs, by giving written notice to Tenant on or before such physical taking.
In the event of a Taking that would prevent or materially interfere with the Permitted Use of the Premises, Tenant shall have the right to terminate this Lease effective when the physical taking of said Premises occurs by giving written notice to Landlord on or before such physical taking. In the event of a Taking of less than a substantial portion of the Property, or if the Taking is temporary (regardless of the portion of the Property affected), this Lease shall not terminate, but the Rent payable hereunder shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant. Landlord shall be entitled to any and all payment, income, rent or award, or any interest therein whatsoever, which may be paid or made in connection with such a Taking, and Tenant shall have no claim against Landlord for the value of any unexpired portion of this Lease. Notwithstanding the foregoing, Tenant may make a claim for damages provided such amount if not subtracted from Landlord's award, in which case any compensation specifically awarded to Tenant for loss of business or goodwill, or for its personal property, shall be the property of Tenant.
SECTION 19. SURRENDER AND HOLDOVER
19.1 SURRENDER. On the last day of the Term, or upon any earlier
termination of this Lease; or upon any re-entry by Landlord upon the Premises,
(a) Tenant shall quit and surrender the Premises to Landlord "broom-clean" and
in good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, (b) Tenant shall remove (i) all of Tenant's Property therefrom, except as
otherwise expressly provided in this Lease, (ii) any of Tenant's Alterations
(which term expressly excludes any Tenant Improvements) designated for removal
by Landlord pursuant to SECTION 10 above, and (iii) all of Tenant's wiring and
cabling; provided, however, that Tenant shall not be required to remove Tenant's
wiring and cabling (including above ceiling) provided that such wiring and
cabling is left in good and usable condition as originally designed for the next
tenant's use of the Premises, (c) Tenant shall promptly repair any damage caused
by such removal. If Tenant fails to do so, Landlord may restore the Premises to
such condition at Tenant's expense, Landlord may cause all of said property to
be removed at Tenant's expense, and Tenant hereby agrees to pay all the costs
and expenses thereby reasonably incurred. All of said property that is not
removed within ten (10) days following Landlord's written demand therefor shall
be conclusively deemed to have been abandoned by Tenant, and Landlord shall be
entitled to dispose of such property at Tenant's cost without thereby incurring
any liability to Tenant. This SECTION 19.1 shall survive the termination or
expiration of this Lease.
19.2 HOLDOVER. If Tenant remains in possession after the Expiration Date hereof or after any earlier termination date of this Lease or of Tenant's right to possession: (a) Tenant shall be deemed a tenant-at-will; (b) Tenant shall pay one hundred fifty percent (150%) of the aggregate of the Base Rent last prevailing hereunder, and also shall pay all damages sustained by Landlord, directly by reason of Tenant's remaining in possession after the expiration or termination of this Lease; (c) there shall be no renewal or extension of this Lease by operation of law; and (d) the tenancy-at-will may be terminated upon thirty (30) days' written notice from Landlord. The provisions of this SECTION 19.2 shall not constitute a waiver by Landlord of any remedies of Landlord in the event of a holdover (including, without limitation, re-entry rights of Landlord provided hereunder or by law) or a consent by Landlord to any holding over by Tenant upon the expiration or earlier termination of this Lease.
SECTION 20. EVENTS OF DEFAULT
20.1 DEFAULT PROVISIONS. Each of the following shall constitute a default by Tenant under this Lease: (a) if Tenant fails to pay Rent or any other payment when due hereunder and such failure remains uncured for a period of (i) five (5) business days following written notice from Landlord on the two (2) occasions in any twelve (12) month period, and (ii) within five (5) business days after the same is due on any subsequent occasion within said twelve (12) month period, or (b) if Tenant fails to timely comply with the obligations imposed on Tenant under this Lease (other than the obligation to pay Rent) for a period of thirty (30) days after Landlord's delivery to Tenant of written notice of such default under this SECTION 20.1(B); provided, however, that if the default cannot, by its nature, be cured within such thirty (30) day period, but Tenant commences and diligently pursues a cure of such default promptly within the initial thirty (30) day cure period, then Landlord shall not exercise its remedies under SECTION 21 unless such default remains uncured beyond a reasonable time period required to cure such default not to exceed one hundred fifty (150) days after Landlord's notice, or (c) Tenant shall assign or sublet all or a portion of the Premises in contravention of the provisions of SECTION 7 of this Lease.
20.2 BANKRUPTCY OF TENANT. It shall be a default by Tenant under this Lease if Tenant makes an assignment for the benefit of creditors or files a voluntary petition under any state or federal bankruptcy or insolvency law, or an involuntary petition alleging an act of bankruptcy or insolvency is filed against Tenant under any state or federal bankruptcy or insolvency law that is not dismissed within ninety (90) days, or whenever a petition is filed by or against (to the extent not dismissed within ninety (90) days) Tenant under the reorganization provisions of the United States Bankruptcy Code or under the provisions of any law or like import, or whenever a petition shall be filed by Tenant under the arrangement provisions of the United States Bankruptcy Code or similar law, or whenever a receiver of Tenant, or of, or for, the property of Tenant shall be appointed, or Tenant admits it is insolvent or is not able to pay its debts as they mature.
SECTION 21 RIGHTS AND REMEDIES
21.1 LANDLORD'S CURE RIGHTS UPON DEFAULT OF TENANT. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account, and at the expense of, Tenant upon compliance with any notice requirements and cure periods set forth in SECTION 21.
21.2 LANDLORD'S REMEDIES. In the event of any default by Tenant under this Lease, Landlord, at its option, and after the proper notice and cure period, but without additional notice or demand from Landlord, if any, as provided in SECTION 21 has expired, shall, in addition to all other rights and remedies provided in this Lease, or otherwise at law or in equity have the following rights and remedies:
(a) Terminate this Lease by giving Tenant notice of termination, in which event this Lease shall expire and terminate on the date specified in such notice of termination and all rights of Tenant under this Lease and in and to the Premises shall terminate. Tenant shall remain liable for all obligations under this Lease arising up to the date of such termination, and Tenant shall surrender the Premises to Landlord on the date specified in such notice. Furthermore, Tenant shall be liable to Landlord for the unamortized balance of any improvement allowance and brokerage fees paid in connection with the Lease.
(b) Terminate this Lease as provided in subparagraph (a) above and
recover from Tenant all damages Landlord may incur by reason of Tenant's
default, including, without limitation, an amount which, at the date of such
termination is equal to the sum of the following: (i) the value of the excess,
if any, discounted at the prime rate of interest (as reported in the WALL STREET
JOURNAL), of (A) the Base Rent, Additional Rent and all other sums that would
have been payable hereunder by Tenant for the period for the remainder of the
Lease Term had this Lease not been terminated (said period being referred to
herein as the "Remaining Term"), LESS (B) the aggregate reasonable rental value
of the Premises for the Remaining Term, as determined by a real estate broker
licensed in the State of Georgia who has at least ten (10) years of experience;
(ii) the costs of recovering possession of the Premises and all other expenses
incurred by Landlord due to Tenant's default, including, without limitation,
reasonable attorney's fees actually incurred (without regard to statutory
interpretation) and the cost to prepare the Premises for re-letting (all costs
and expenses set forth in this clause (ii) being referred to herein,
collectively, as the "Default Damages"); and (iii) the unpaid Base Rent and
Additional Rent that accrued prior to the date of termination, plus any interest
and late fees due hereunder and any other sums of money and damages owing on the
date of termination by Tenant to Landlord under this Lease or in connection with
the Premises. The amount as calculated above shall be deemed immediately due and
payable. Landlord and Tenant acknowledge and agree that the payment of the
amount set forth in clause (i) above shall not be deemed a penalty, but shall
merely constitute payment of liquidated damages, it being understood that actual
damages to Landlord are extremely difficult, if not impossible, to ascertain.
Tenant expressly acknowledges and agrees that the liabilities and remedies
specified in this subparagraph (b) shall survive the termination of this Lease.
Notwithstanding the foregoing, Landlord acknowledges and agrees that so long as
Tractor Supply Company or its Permitted Transferee is the Tenant hereunder,
Landlord shall not be entitled to recover payment of the amount set forth in
clause (i) above.
(c) Without terminating this Lease, terminate Tenant's right to possession of the Premises as of the date of Tenant's default (after the expiration of all applicable notice and cure periods), and thereafter (i) neither Tenant nor any person claiming under or through Tenant shall
be entitled to possession of the Premises, and Tenant shall immediately surrender the Premises to Landlord; and (ii) Landlord may re-enter the Premises and dispossess Tenant and any other occupants of the Premises by any lawful means and may remove their effects, without prejudice to any other remedy which Landlord may have. Thereafter, Landlord may, but shall not be obligated to, re-let all or any part of the Premises as the agent of Tenant for a term different from that which would otherwise have constituted the balance of the Lease Term and for rent and on terms and conditions different from those contained herein, whereupon Tenant shall be obligated to pay to Landlord as liquidated damages the difference between the rent provided for herein and that provided for in any lease covering a subsequent re-letting of the Premises, for the Remaining Term, together with all Default Damages. Neither the filing of a dispossessory proceeding nor an eviction of personalty in the Premises shall be deemed to terminate the Lease.
(d) Allow the Premises to remain unoccupied and collect rent from Tenant as it comes due; provided, however, that to the extent required by applicable law, Landlord shall use reasonable efforts to mitigate its damages.
21.3 ADDITIONAL RIGHTS OF LANDLORD. Any and all costs, expenses and disbursements, of any kind or nature, incurred by Landlord or Agent in connection with the enforcement of any and all of the terms and provisions of this Lease, including reasonable attorneys fees (through all appellate proceedings) actually incurred (without regard to statutory interpretation), shall be due and payable (as Additional Rent) upon Landlord's submission of an invoice therefor. All sums advanced by Landlord or Agent on account of Tenant under this SECTION, or pursuant to any other provision of this Lease, and all Base Rent and Additional Rent, if delinquent or not paid by Tenant and received by Landlord when due hereunder, shall bear interest at the rate of five percent (5%) per annum above the "prime" or "reference" or "base" rate of interest publicly announced as such, from time to time, by Bank of America, N.A. from the due date thereof until paid, and such interest shall be and constitute Additional Rent and be due and payable upon Landlord's or Agent's submission of an invoice therefor. The various rights, remedies and elections of Landlord reserved, expressed or contained herein are cumulative and no one of them shall be deemed to be exclusive of the others or of such other rights, remedies, options or elections as are now or may hereafter be conferred upon Landlord by law.
21.4 EVENT OF BANKRUPTCY. In addition to, and in no way limiting the
other remedies set forth herein, Landlord and Tenant agree that if Tenant ever
becomes the subject of a voluntary or involuntary bankruptcy, reorganization,
composition, or other similar type proceeding under the federal bankruptcy laws,
as now enacted or hereinafter amended, then: (a) "adequate assurance of future
performance" by Tenant and/or any assignee of Tenant pursuant to Bankruptcy Code
Section 365 will include (but not be limited to) payment of an additional/new
security deposit in (the amount of two (2) times the then current monthly Base
Rent payable hereunder; (b) any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed, without
further act or deed, to have assumed all of the obligations of Tenant arising
under this Lease on and after the effective date of such assignment. Any such
assignee shall, upon demand by Landlord, execute and deliver to Landlord an
instrument confirming such assumption of liability; (c) notwithstanding anything
in this Lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this Lease, whether or not expressly denominated as "Rent"; shall
constitute "rent" for the purposes of Section 502(b)(6) of the Bankruptcy Code;
and (d) if this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other considerations
payable or otherwise to be delivered to Landlord or Agent (including Base Rent,
Additional Rent and other charges hereunder), shall be and remain the exclusive
property of Landlord and shall not constitute property of Tenant or of the
bankruptcy estate of Tenant. Any and all monies or other considerations
constituting Landlord's property under the preceding sentence not paid or
delivered to Landlord or Agent shall be held in trust by Tenant or Tenant's
bankruptcy estate for the benefit of Landlord and shall be promptly paid to or
turned over to Landlord.
21.5 TENANT'S CURE RIGHTS. If Landlord defaults in the performance of any of its obligations under this Lease, Tenant shall give written notice of such failure to Landlord, and Landlord shall have thirty (30) days to cure any such default, except to the extent such failure is of an emergency nature, in which event Landlord shall cure such default within a reasonable time under the circumstances; provided, however, that if the term, condition, covenant or obligation to be performed by Landlord is such that it cannot reasonably be performed within thirty (30) days,
such default shall be deemed to have been cured if Landlord commences such performance within said thirty-day period and thereafter diligently undertakes to complete the same. Upon the occurrence of any such default, Tenant may sue for injunctive relief or to recover damages for any loss directly resulting from the breach, but Tenant shall not be entitled to terminate this Lease or withhold, offset or abate any sums due hereunder. As to Landlord's maintenance and repair obligations hereunder, if Landlord has not cured or commenced to cure a maintenance or repair default set forth in said notice from Tenant within the time period set forth above, Tenant may undertake all reasonable action to cure Landlord's failure of performance. If Tenant elects to cure said default, Tenant shall, prior to commencement of said work, provide to Landlord a specific description of the work to be performed by Tenant and the name of Tenant's contractor. Any materials used shall be of equal or better quality than currently exists in the Building and Tenant's contractor shall be adequately insured and of good reputation. Landlord agrees to reimburse Tenant on demand for all reasonable, third party out-of-pocket expenses incurred by Tenant in connection therewith, provided that Tenant delivers to Landlord adequate bills or other supporting evidence substantiating said cost. If Landlord does not reimburse Tenant or give Tenant notice of objection to such reimbursement within ninety (90) days following Tenant's demand as aforesaid, , Tenant shall have the right to set off said reimbursement from Tenant's Proportionate Share of CAM Charges payable by Tenant to Landlord hereunder.
SECTION 22. TAX ABATEMENT PROGRAM
22.1 APPLICATION. Landlord acknowledges that it has agreed to participate in the Winder-Barrow County real estate tax abatement program (the "Tax Abatement Program") for the benefit of Tenant. Landlord and Tenant heretofore filed the application for the Tax Abatement Program. Tenant shall cooperate fully with Landlord in connection with its participation in the Tax Abatement Program. Tenant acknowledges that participation in the Tax Abatement Program requires that Tenant generate a minimum of one hundred (100) jobs at the Premises (the "Job Requirement"). Tenant hereby agrees to (a) satisfy the Job Requirement within the time period required under the Tax Abatement Program, (b) maintain the Job Requirement throughout as long as the Tax Abatement Program is in effect, and (c) file any required documents confirming Tenant's satisfaction of the Job Requirement.
22.2 REIMBURSEMENT. Tenant shall promptly reimburse Landlord for any
and all costs incurred by Landlord and related to the Tax Abatement Program,
including, without limitation (a) the costs, if any, to file the application,
(b) attorneys' fees, and (c) the cost of a leasehold title insurance policy
insuring Landlord's interest in the Property following Landlord's conveyance of
fee title to the Property as described below.
22.3 BENEFITS. Following the inclusion of the Property in the Tax Abatement Program Landlord shall pass through to Tenant all reductions or abatements applicable to the Premises. If the applicable authority elects not to include the Property in the Tax Abatement Program or if the Property is included in the Tax Abatement Program and thereafter removed therefrom at any point during the Lease Term for any reason, Tenant's obligations under this Lease shall not be affected.
22.4 MASTER LEASE. Landlord and Tenant acknowledge and agree that the Tax Abatement Program requires that Landlord convey fee title to the Property to a development authority with a leaseback of the Property to Landlord pursuant to a Master Lease in form reasonably acceptable to Tenant (the "Master Lease") and thus, this Lease shall automatically become a sublease for the term of the Master Lease and subject to the terms and conditions of the Master Lease. Notwithstanding, but without limiting the foregoing, Tenant shall, upon request, execute any and all documents necessary to confirm the status of this Lease as a sublease of the Master Lease and Tenant's consent thereto and that this Lease shall survive and become a prime lease if the Lease Term shall extend beyond the term of the Master Lease.
22.5 ADDITIONAL RENT. Tenant shall review and approve the Master Lease and shall comply with all terms and conditions thereof. Tenant acknowledges that Additional Rent under this Lease to be paid by Tenant shall include any payment Landlord is required to make under the Master Lease. Tenant shall indemnify landlord from and against all claims, damages, costs and expenses, including without limitation, reasonable attorney's fees actually incurred without regard to statutory interpretation and court costs, which Landlord may suffer as a result of a
default under the Master Leased caused by the acts or omissions of Tenant. This
SECTION 22.5 shall survive the expiration or any earlier termination of this
Lease.
22.6 LANDLORD COMPLIANCE. Provided that this Lease is in full force
and effect and Tenant is not in default hereunder (and has not caused a default
under the Master Lease), Landlord hereby agrees that Landlord shall comply in
all material respect with all obligations of the "Lessee" under the Master Lease
in order to preserve unto Tenant all of the benefits of the Tax Abatement
Program. If as a result of Landlord's default under the Master Lease, the
Property no longer qualifies for the Tax Abatement Program, and provided that
(a) such default was not caused by Tenant, and (b) this Lease is in full force
and effect and Tenant is not in default hereunder, then Landlord shall pay (or
credit to) Tenant an amount equal to the real estate tax savings that Tenant
would have received (and at the time such savings would have been received)
prior to January 31, 2007 had the Tax Abatement Program still been in effect.
22.7 OPTION. The documents to be executed by Landlord to implement the Tax Abatement Program must be in a form acceptable to Landlord. The Master Lease must contain an option (the "Option") in favor of Landlord to purchase the Property for a nominal amount (which Tenant agrees to prepay on Landlord's behalf) and Landlord shall receive a leasehold title insurance policy, the cost of which shall be paid by Tenant, insuring Landlord's interest as Tenant under the Master Lease and the Option.
22.8 PURCHASE. Provided the Tax Abatement Program has been implemented, in the event that Landlord elects to sell the Property during the Term, Landlord will first require that the purchaser take an assignment of the Master Lease in lieu of fee title to the Property so as to preserve the Tax Abatement Program. Should the proposed purchaser refuse such an assignment, Landlord shall have the right to exercise the Option and repurchase the Property, thereby possibly ending participation in the Tax Abatement Program, provided that so long as (i) Landlord exercises the Option prior to January 31, 2006, (ii) Tenant is not in default under the Lease, and (iii) as a result of Landlord's exercise of the Option, the Property is no longer part of the Tax Abatement Program, Landlord shall pay (or credit to) Tenant an amount equal to the real estate tax savings that Tenant would have received prior to January 31, 2006 had the tax abatement program still been in effect.
SECTION 23. MISCELLANEOUS
23.1 MERGER. All prior understandings and agreements between the parties are merged in this Lease, which alone fully and completely expresses the agreement of the parties. No agreement shall be effective to modify this Lease, in whole or in part, unless such agreement is in writing, and is signed by the party against whom enforcement of said change or modification is sought.
23.2 NOTICES. Any notice required to be given by either party pursuant to this Lease, shall be in writing and shall be deemed to have been properly given, rendered or made only if personally delivered, or if sent by Federal Express or other comparable commercial overnight delivery service, addressed to the other party at the addresses set forth below (or to such other address as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made on the day so delivered or on the first business day after having been deposited with the courier service:
If to Landlord Duke Realty Limited Partnership
3950 Shackleford Road, Suite 300
Duluth, Georgia 30096
Attn: Legal Department - Atlanta Market
At all times with a copy to: Duke Realty Limited Partnership
3950 Shackleford Road, Suite 300
Duluth, Georgia 30096
Attn: Senior Property Manager - Atlanta Market
If to Tenant: Tractor Supply Company
320 Plus Park Blvd.
Nashville, Tennessee 37217
Attn: Logistics Department
27
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At all times with a copy to: Tractor Supply Company
320 Plus Park Blvd.
Nashville, Tennessee, 37217
Attn: Real Estate Department
At all times with a copy to: Kim A. Brown, Esq.
Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, TN 37219
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23.3 NON-WAIVER. The failure of either party to insist, in any one or more instances, upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the Lease shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt and acceptance by Landlord or Agent of Base Rent or Additional Rent with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach.
23.4 LEGAL COSTS. Any party in breach or default under this Lease (the "Defaulting Party") shall reimburse the other party (the "Nondefaulting Party") upon demand for any reasonable legal fees and court (or other administrative proceeding) costs or expenses that the Nondefaulting Party incurs in connection with the breach or default, regardless whether suit is commenced or judgment entered. Such costs shall include reasonable legal fees actually incurred (without regard to statutory interpretation) and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, in the event of litigation, the court in such action shall award to the party in whose favor a judgment is entered a reasonable attorneys' fees actually incurred (without regard to statutory interpretation) and costs, which sum shall be paid by the losing party. Tenant shall pay Landlord's attorneys' reasonable fees incurred in connection with Tenant's request for Landlord's consent under provisions of this Lease governing assignment and subletting, or in connection with any other act which Tenant proposes to do and which requires Landlord's consent.
23.5 PARTIES BOUND. Except as otherwise expressly provided for in this Lease, this Lease shall be binding upon, and inure to the benefit of, the successors and assignees of the parties hereto. Tenant hereby releases Landlord named herein from any obligations of Landlord for any period subsequent to the conveyance and transfer of Landlord's ownership interest in the Property. In the event of such conveyance and transfer, Landlord's obligations shall thereafter be binding upon each transferee (whether Successor Landlord or otherwise). No obligation of Landlord shall arise under this Lease until the instrument is signed by, and delivered to, both Landlord and Tenant.
23.6 RECORDATION OF LEASE. Tenant shall not record or file this Lease nor a memorandum thereof in the public records of any county or state.
23.7 SURVIVAL OF OBLIGATIONS. Upon the expiration or other termination of this Lease, neither party shall have any further obligation or liability to the other except as otherwise expressly provided in this Lease and except for such obligations as, by their nature or under the circumstances, can only be, or by the provisions of this Lease, may be performed after such expiration or other termination.
23.8 GOVERNING LAW; CONSTRUCTION. This Lease shall be governed by and construed in accordance with the laws of the state in which the Property is located. If any provision of this Lease shall be invalid or unenforceable, the remainder of this Lease shall not be affected but shall be enforced to the extent permitted by law. The captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Each covenant, agreement, obligation or other provision of this Least to be performed by Tenant, shall be construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words
used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. This Lease may be executed in counterpart and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument.
233.9 TIME. Time is of the essence of this Lease. If the time for performance hereunder falls on a Saturday, Sunday or a day that is recognized as a holiday in the state in which the Property is located, then such time shall be deemed extended to the next day that is not a Saturday, Sunday or holiday in said state.
233.10 AUTHORITY OF TENANT. If Tenant is a corporation, partnership, association or any other entity, it shall deliver to Landlord, concurrently with the delivery to Landlord of an executed Lease, certified resolutions of Tenant's directors or other governing person or body (a) authorizing execution and delivery of this Lease and the performance by Tenant of its obligations hereunder, and (b) certifying the authority of the party executing the Lease as having been duly authorized to do so.
23.11 WAIVER OF TRIAL BY JURY. THE LANDLORD AND THE TENANT, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES, OR ANY OTHER MATTER RELATED TO THIS LEASE OR THE PREMISES.
23.12 SUBMISSION OF LEASE. Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to lease. This Lease is not effective until execution by and delivery to both Landlord and Tenant.
23.13 BROKERS FEE. The parties hereby represent and warrant that the only real estate brokers involved in the negotiation and execution of this Lease are the Brokers. Each party shall indemnify the other from any and all liability for the breach of this representation and warranty on its part and shall pay any compensation to any other broker or person who may be entitled thereto. Upon the execution of this Lease by Landlord and Tenant, Landlord shall pay all commissions, fees and expenses due and payable to Brokers pursuant to a separate agreement. The parties acknowledge that certain officers, directors, shareholders, or partners of Landlord or its affiliates are licensed real estate brokers and/or salesmen under the laws of the State of Georgia. Tenant consents to such parties acting in such dual capacities.
23.14 RIDERS. All Riders and Exhibits attached hereto and executed (or initialed both by Landlord and Tenant) shall be deemed to be a part hereof and hereby incorporated herein.
23.16 USUFRUCT. Tenant's interest in the Premises is a usufruct, not subject to levy and sale, and not assignable by Tenant except as expressly set forth herein.
23.17. FINANCIAL STATEMENTS. Tenant shall have no obligation to provide any financial statements to Landlord if Tenant is a public company and such financial statements are publicly available. In the event that Tenant is no longer a publicly traded company, Tenant shall provide to Landlord, upon request, a copy of Tenant's most recent financial statements (certified and audited if the Base Rent hereunder exceeds $100,000). Such financial statements shall be signed by Tenant (or an officer of Tenant, if applicable) who shall attest to the truth and accuracy of the information set forth in such statements. All financial statements provided by Tenant to Landlord hereunder shall be prepared in conformity with generally accepted accounting principles, consistently applied. Notwithstanding the foregoing,
(Remainder of Page Intentionally Left Blank)
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.
LANDLORD: DUKE REALTY LIMITED PARTNERSHIP, an
Indiana limited partnership
BY: Duke Realty Corporation
BY:/S/ ROBERT P. FESSLER
-------------------------------
TITLE: EXECUTIVE VICE PRESIDENT
----------------------------
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TENANT: Tractor Supply CoMPANY, a Delaware corporation
BY:/S/ STEVE HULL
-------------------------------
TITLE: VICE PRESIDENT
----------------------------
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EXHIBIT A
DEPICTION OF PROPERTY
[TO BE SUPPLIED]
EXHIBIT B
CONSTRUCTION DRAWINGS
[TO BE SUPPLIED]
EXHIBIT B-1
SCOPE OF WORK
[TO BE SUPPLIED]
EXHIBIT B-2
LOAD BEARING CAPACITY
[TO BE SUPPLIED]
EXHIBIT B-3
SITE PLAN
(PREMISES, EXPANSION SPACE, OFFICE PARKING, TRAILER PARKING)
[TO BE SUPPLIED]
EXHIBIT B-4
COMPUTER ROOM
[TO BE SUPPLIED]
EXHIBIT C
RENT AND LANDLORD ADDRESS
1. Landlord's Address for Payment of Rent:
Duke Realty Limited Partnership
75 Remittance Drive
Suite 3205
Chicago, Illinois 60675-3205
2. Rentable Area of the Premises (prior to 11/1/05): 260,578 sq. ft.
Rentable Area of the Premises (as of 11/1/05): 312,178 sq. ft.
3. Rental Area of Building: 520,570
4. Tenant's Proportionate Share (prior to 11/1/05): 50.06%
Tenant's Proportionate Share (as of 11/1/05): 59.97%
5. Rent:
Year Annual Monthly
---- ------ -------
1 2/1/04 - 1/31/05 $651,445.00 $54,287.08
2 2/1/05 - 10/31/05 $697,368.90 $55,372.83
11/1/05 - 1/31/06 $66,337.83
3 2/1/06 - 1/31/07 $811,662.80 $67,638.57
4 2/1/07 - 1/31/08 $827,271.70 $68,939.31
5 2/1/08 - 1/31/09 $842,880.60 $70,240.05
6 2/1/09 - 1/31/10 $858,489.50 $71,540.79
7 2/1/10 - 1/31/11 $877,220.18 $73,101.68
8 2/1/11 - 1/31/12 $895,950.86 $74,662.57
9 2/1/12 - 1/31/13 $914,681.54 $76,223.46
10 2/1/13 - 1/31/14 $933,412.22 $77,784.35
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Annual and Monthly Rents during any Renewal Term will be determined in accordance with Section 2.2 of the Lease.
EXHIBIT D
LETTER OF UNDERSTANDING
Duke Realty Limited Partnership, an Indiana limited partnership
Attention: [Property Manager]
[Address] [City, State Zip]
RE: Lease between DUKE REALTY LIMITED PARTNERSHIP, AN INDIANA LIMITED PARTNERSHIP ("Landlord"), and ___________________________ ("Tenant") for the premises located at ________________________________________ (the "Premises"), dated _________________ (the "Lease").
Dear ____________________:
The undersigned, on behalf of the Tenant, certifies to the Landlord as follows:
1. The Commencement Date under the Lease is _________________.
2. The Rent Commencement Date is___________________.
3. The Expiration Date of the Lease is _________________.
4. The Lease (including amendments or guaranty, if any) is the entire agreement between Landlord and Tenant as to the leasing of the Premises and is in full force and effect.
5. The Landlord has completed the improvements designated as Landlord's obligation under the Lease, if any, and Tenant has accepted the Premises as of the Commencement Date.
6. To the best of the undersigned's knowledge, there are no uncured events of default by either Tenant or Landlord under the Lease.
IN WITNESS WHEREOF, the undersigned has caused this Letter of Understanding to be executed this ____ day of ___________, 2003.
By:_________________________________
Printed Name:_______________________
Title: _____________________________
EXHIBIT E
BUILDING SIGN
[TO BE SUPPLIED]
[LOGO] TRACTOR
SUPPLY CO
FIRST AMENDMENT
TO THE
TRACTOR SUPPLY COMPANY SECOND RESTATED 401(K) RETIREMENT PLAN
WHEREAS, Tractor Supply Company ("Employer") adopted the Tractor Supply Company Second Restated 401(k) Retirement Plan ("Plan") on February 27, 2002, to amend and restate the Plan (1) to comply with the General Agreement on Tariffs and Trade, the Uniform Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998 and the Community Renewal Tax Relief Act of 2000, effective as of January 1, 1997, except as otherwise indicated therein; and (2) to comply with certain provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), as a good faith compliance with the requirements of EGTRRA, effective as of January 1, 2002, except as otherwise indicated therein; and
WHEREAS, the Employer desires to adopt an amendment (1) to change the Plan's name from "Tractor Supply Company Second Restated 401(k) Retirement Plan" to "Tractor Supply Company 401(k) Retirement Savings Plan"; and (2) to comply with final and temporary regulations under Section 401(a)(9) of the Internal Revenue Code, relating to required minimum distributions, by adopting the Internal Revenue Service "Model Amendment" under Revenue Procedure 2002-29; and
WHEREAS, in Section 14.1 of the Plan, the Employer reserved the right to amend the Plan;
NOW, THEREFORE, the Employer hereby amends the Plan as follows:
I.
Effective for Plan years beginning on or after January 1, 2003, delete the cover page in its entirety and substitute in lieu thereof the following:
TRACTOR SUPPLY COMPANY 401(K) RETIREMENT SAVINGS PLAN
Amended as of January 1, 2003
II.
Effective for Plan years beginning on or after January 1, 2003, change the name of the Plan on the Table of Contents and preamble page to read as follows:
TRACTOR SUPPLY COMPANY 401(K) RETIREMENT SAVINGS PLAN
III.
Effective for Plan Years beginning on or after January 1, 2003, delete in its entirety Section 1.53, entitled "Plan," and substitute in lieu thereof the following:
1.53 PLAN: Tractor Supply Company 401(k) Retirement Savings Plan, as contained herein and as amended from time to time.
The Plan is designed to qualify as a profit-sharing plan for purposes of Code section 401(a) and to include a qualified cash or deferred arrangement under Code section 401(k).
IV.
Effective for required minimum distributions that are made on or after April 17, 2002, add a new Article 13A after Article 13 as follows:
ARTICLE 13A. MINIMUM REQUIRED DISTRIBUTIONS ON OR AFTER APRIL 17, 2002.
SECTION 1. GENERAL RULES
1.1. EFFECTIVE DATE. The provisions of this Article 13A will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year, as well as required minimum distributions for the 2002 distribution calendar year that are made on or after April 17, 2002.
1.2. COORDINATION WITH MINIMUM DISTRIBUTION REQUIREMENTS PREVIOUSLY IN EFFECT. The provisions of this article shall apply to required minimum distributions that are made on or after April 17, 2002; therefore, required minimum distributions for 2002 under this article will be determined as follows. If the total amount of 2002 required minimum distributions under the Plan made to the distributee prior to the effective date of this article equals or exceeds the required minimum distributions determined under this article, then no additional distributions will be required to be made for 2002 on or after such date to the distributee. If the total amount of 2002 required minimum distributions under the Plan made to the distributee prior to the effective date of this article is less than the amount determined under this article, then required minimum distributions for 2002 on and after such date will be determined so that the total amount of required minimum distributions for 2002 made to the distributee will be the amount determined under this article.
1.3. PRECEDENCE. The requirements of this article will take precedence over any inconsistent provisions of the Plan.
1.4. REQUIREMENTS OF TREASURY REGULATIONS INCORPORATED. All distributions required under this article will be determined and made in accordance with the Treasury regulations under section 401(a)(9) of the Internal Revenue Code.
1.5. TEFRA SECTION 242(B)(2) ELECTIONS. Notwithstanding the other provisions of this article, distributions may be made be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to section 242(b)(2) of TEFRA.
SECTION 2. TIME AND MANNER OF DISTRIBUTION.
2.1. REQUIRED BEGINNING DATE. The participant's entire interest will be distributed, or begin to be distributed, to the participant no later than the participant's required beginning date.
2.2. DEATH OF PARTICIPANT BEFORE DISTRIBUTIONS BEGIN. If the participant dies before distributions begin, the participant's entire interest will be distributed, or begin to be distributed, no later than as follows:
(a) If the participant's surviving spouse is the participant's sole designated beneficiary, then, except as provided in Section 6 below, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the participant died, or by December 31 of the calendar year in which the participant would have attained age 70 1/2, if later.
(b) If the participant's surviving spouse is not the participant's sole designated beneficiary, then, except as provided in Section 6 below, distributions to the designed beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the participant died.
(c) If there is no designated beneficiary as of September 30 of the year following the year of the participant's death, the participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the participant's death.
(d) If the participant's surviving spouse is the participant's sole designated beneficiary and the surviving spouse dies after the participant but before distributions to the surviving spouse begin, this section 2.2, other than section 2.2(a), will apply as if the surviving spouse were the participant.
For purposes of this section 2.2 and section 4, unless section 2.2(d) applies, distributions are considered to begin on the participant's required beginning date. If section 2.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under section 2.2(a). If distributions under an annuity purchased from an insurance company irrevocable commence to the participant before the participant's required beginning date (or to the participant's surviving spouse before the date distributions are required to begin to the surviving spouse under section 2.2(a)), the date distributions are considered to begin is the date distributions actually commence.
2.3. FORMS OF DISTRIBUTION. Unless the participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with sections 3 and 4 of this article. If the participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations.
SECTION 3. REQUIRED MINIMUM DISTRIBUTIONS DURING PARTICIPANT'S LIFETIME.
3.1. AMOUNT OF REQUIRED MINIMUM DISTRIBUTION FOR EACH DISTRIBUTION CALENDAR YEAR. During the participant's lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:
(a) the quotient obtained by dividing the participant's account balance by the distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the participant's age as of the participant's birthday in the distribution calendar year; or
(b) if the participant's sole designated beneficiary for the distribution calendar year is the participant's spouse, the quotient obtained by dividing the participant's account balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the participant's and spouse's attained ages as of the participant's and spouse's birthdays in the distribution calendar year.
3.2. LIFETIME REQUIRED MINIMUM DISTRIBUTIONS CONTINUE THROUGH YEAR OF PARTICIPANT'S DEATH. Required minimum distributions will be determined under this section 3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the participant's date of death.
SECTION 4. REQUIRED MINIMUM DISTRIBUTIONS AFTER PARTICIPANT'S DEATH.
4.1. DEATH ON OR AFTER DATE DISTRIBUTIONS BEGIN.
(A) PARTICIPANT SURVIVED BY DESIGNATED BENEFICIARY. If the participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the longer of the remaining life expectancy of the participant or the remaining life expectancy of the participant's designated beneficiary, determined as follows:
(1) The participant's remaining life expectancy is calculated using the age of the participant in the year of death, reduced by one for each subsequent year.
(2) If the participant's surviving spouse is the participant's sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the participant's death using the surviving spouse's age as of the spouse's birthday in that year. For distribution calendar years after the year of the surviving spouse's death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each subsequent calendar year.
(3) If the participant's surviving spouse is not the participant's sole designated beneficiary, the designated beneficiary's remaining life expectancy is
calculated using the age of the beneficiary in the year following the year of the participant's death, reduced by one for each subsequent year.
(B) NO DESIGNATED BENEFICIARY. If the participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the participant's death, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the participant's remaining life expectancy calculated using the age of the participant in the year of death, reduced by one for each subsequent year.
4.2. DEATH BEFORE DATE DISTRIBUTIONS BEGIN.
(A) PARTICIPANT SURVIVED BY DESIGNATED BENEFICIARY. Except as provided in Section 6 below, if the participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the remaining life expectancy of the participant's designated beneficiary, determined as provided in section 4.1.
(B) NO DESIGNATED BENEFICIARY. If the participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the participant's death, distribution of the participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the participant's death
(C) DEATH OF SURVIVING SPOUSE BEFORE DISTRIBUTIONS TO SURVIVING SPOUSE ARE REQUIRED TO BEGIN. If the participant dies before the date distributions begin, the participant's surviving spouse is the participant's sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under section 2.2(a), this section 4.2 will apply as if the surviving spouse were the participant.
SECTION 5. DEFINITIONS.
5.1. DESIGNATED BENEFICIARY. The individual who is designated as the beneficiary under section 1.6 of the Plan and is the designated beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.
5.2. DISTRIBUTION CALENDAR YEAR. A calendar year for which a minimum distribution is required. For distributions beginning before the participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the participant's required beginning date. For distributions beginning after the participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin under section 2.2. The required minimum distribution for the participant's first distribution calendar year will be made on or before the participant's required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the participant's required beginning date occurs, will be made on or before December 31 of that distribution calendar year.
5.3. LIFE EXPECTANCY. Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations.
5.4. PARTICIPANT'S ACCOUNT BALANCE. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.
5.5. REQUIRED BEGINNING DATE. The date specified in section 13.5 of the Plan.
SECTION 6. ELECTIONS REGARDING 5-YEAR RULE.
6.1. ELECTION TO APPLY 5-YEAR RULE TO DISTRIBUTIONS TO DESIGNATED BENEFICIARIES. If the participant dies before distributions begin and there is a designated beneficiary, distribution to the designated beneficiary is not required to begin by the date specified in section 2.2 above, if the participant's entire interest is distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the participant's death. If the participant's surviving spouse is the participant's sole designated beneficiary and the surviving spouse dies after the participant but before distributions to either the participant or the surviving spouse begin, this election will apply as if the surviving spouse were the participant.
6.2. ELECTION TO ALLOW PARTICIPANTS OR BENEFICIARIES TO ELECT 5-YEAR RULE. Participants or beneficiaries may elect on an individual basis whether the 5-year rule or the life expectancy rule in sections 2.2 and 4.2 above applies to distributions after the death of a participant who has a designated beneficiary. The election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under section 2.2 above or by September 30 of the calendar year which contains the fifth anniversary of the participant's (or, if applicable, surviving spouse's) death. If neither the participant nor beneficiary makes an election under this paragraph, distributions will be made in accordance with sections 2.2 and 4.2 above and, if applicable, the elections in section 6.1 above.
V.
In all other respects, the Tractor Supply Company 401(k) Retirement Savings Plan, as amended through the First Amendment, is in all things ratified and confirmed.
IN WITNESS WHEREOF, the Employer has adopted and executed this First Amendment on December 22, 2003.
TRACTOR SUPPLY COMPANY, EMPLOYER
ATTEST:
By: /s/ Kim Vance By: /s/ Kimberly Vella
----------------------------- --------------------------------
M. Kim Vance, Secretary Kimberly D. Vella,
Vice President of Human Resources
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OFFICE BUILDING LEASE
by and between
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
as Landlord,
and
TRACTOR SUPPLY COMPANY,
as Tenant
FINANCIAL PLAZA
200 POWELL PLACE
BRENTWOOD, TENNESSEE
TABLE OF CONTENTS
SCHEDULE..........................................................................................................1
1. DEMISE AND TERM..........................................................................................2
2. RENT.....................................................................................................3
A. Definitions.....................................................................................3
B. Components of Rent..............................................................................4
C. Payment of Rent.................................................................................5
3. USE ................................................................................................6
4. CONDITION OF BUILDING....................................................................................6
5. BUILDING SERVICES........................................................................................7
A. Basic Services..................................................................................7
B. Electricity.....................................................................................7
C. Telephones......................................................................................7
D. Additional Services.............................................................................8
E. Failure or Delay in Furnishing Services.........................................................8
6. RULES AND REGULATIONS....................................................................................8
7. CERTAIN RIGHTS RESERVED TO LANDLORD......................................................................8
8. MAINTENANCE AND REPAIRS..................................................................................9
9. ALTERATIONS..............................................................................................9
A. Requirements....................................................................................9
B. Liens..........................................................................................10
10. INSURANCE...............................................................................................11
A. Tenant's Insurance.............................................................................11
B. Landlord's Insurance...........................................................................11
C. Risk of Loss...................................................................................12
11. INDEMNIFICATION/HOLD HARMLESS...........................................................................12
12. FIRE OR OTHER CASUALTY..................................................................................12
A. Destruction of the Building....................................................................12
B. Damage to the Building.........................................................................12
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13. CONDEMNATION............................................................................................14
14. ASSIGNMENT AND SUBLETTING...............................................................................14
A. Landlord's Consent.............................................................................14
B. Standards for Consent..........................................................................15
C. Recapture......................................................................................15
D. Assignment or Sublet to Successor..............................................................16
15. SURRENDER...............................................................................................16
16. DEFAULTS AND REMEDIES...................................................................................16
A. Default........................................................................................16
B. Right of Re-Entry..............................................................................17
C. Termination of Right to Possession.............................................................17
D. Termination of Lease...........................................................................17
E. Other Remedies.................................................................................17
F. Bankruptcy.....................................................................................18
G. Waiver of Trial by Jury........................................................................18
H. Venue..........................................................................................18
17. HOLDING OVER............................................................................................18
18. [INTENTIONALLY OMITTED].................................................................................18
19. [INTENTIONALLY OMITTED].................................................................................18
20. ESTOPPEL CERTIFICATE....................................................................................18
21. SUBORDINATION...........................................................................................19
22. QUIET ENJOYMENT.........................................................................................19
23. BROKER 19
24. NOTICES 20
25. MISCELLANEOUS...........................................................................................20
A. Successors and Assigns.........................................................................20
B. Entire Agreement...............................................................................20
C. Time of Essence................................................................................21
D. Execution and Delivery.........................................................................21
E. Severability...................................................................................21
F. Governing Law..................................................................................21
G. Attorneys' Fees................................................................................21
H. [intentionally omitted]........................................................................21
I. Joint and Several Liability....................................................................21
J. Force Majeure..................................................................................21
K. Captions.......................................................................................21
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L. No Waiver......................................................................................21
M. ERISA..........................................................................................22
N. Limitation of Liability........................................................................22
O. Signage........................................................................................22
P. Sensation of Business..........................................................................23
26. SPECIALTY EQUIPMENT.....................................................................................23
27. RIGHT TO TERMINATE......................................................................................24
28. OPTIONS TO EXTEND.......................................................................................25
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OFFICE BUILDING LEASE
---------------------
THIS OFFICE BUILDING LEASE ("Lease") is made as of the 22 day of January, 2004, between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("LANDLORD"), and TRACTOR SUPPLY
COMPANY, a Delaware corporation ("TENANT"), for the building commonly known as Financial Plaza located
at 200 Powell Place, Brentwood, Tennessee (such building, together with the land upon which it is
situated and common areas, including sidewalks, parking areas and landscaped areas, being herein
referred to as the "BUILDING"). The following schedule (the "SCHEDULE") sets forth certain basic terms
of this Lease:
SCHEDULE
1. Commencement Date: the earlier to occur of (a) July 1, 2004, (b) the date
the Work (as defined in the Workletter attached hereto as
Exhibit A (the "WORKLETTER")) is substantially completed
(as defined in the Workletter) and (c) the date Tenant
first occupies the Building for the conduct of business
2. Expiration Date: the day before the eighth (8th) anniversary of the
Commencement Date
3. Rentable Square Feet of the Building: approximately 98,049 square feet
4. Base Rent:
================================================== ====================== =======================
MONTHLY ANNUAL
PERIOD BASE RENT BASE RENT
-------------------------------------------------- ---------------------- -----------------------
From the Commencement Date to the day before the $132,774.69 $1,593,296.28
1st anniversary of the Commencement Date*
-------------------------------------------------- ---------------------- -----------------------
From the 1st anniversary of the Commencement Date
to the day before the 2nd anniversary of the
Commencement Date $135,430.18 $1,625,162.16
-------------------------------------------------- ---------------------- -----------------------
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================================================== ====================== =======================
MONTHLY ANNUAL
PERIOD BASE RENT BASE RENT
-------------------------------------------------- ---------------------- -----------------------
From the 2nd anniversary of the Commencement
Date to the day before the 3rd anniversary of $138,138.78 $1,657,665.36
the Commencement Date
-------------------------------------------------- ---------------------- -----------------------
From the 3rd anniversary of the Commencement
Date to the day before the 4th anniversary of $140,901.56 $1,690,818.72
the Commencement Date
-------------------------------------------------- ---------------------- -----------------------
From the 4th anniversary of the Commencement
Date to the day before the 5th anniversary of $143,719.59 $1,724,635.08
the Commencement Date
-------------------------------------------------- ---------------------- -----------------------
From the 5th anniversary of the Commencement
Date to the day before the 6th anniversary of $146,593.98 $1,759,127.76
the Commencement Date
-------------------------------------------------- ---------------------- -----------------------
From the 6th anniversary of the Commencement
Date to the day before the 7th anniversary of $149,525.85 $1,794,310.32
the Commencement Date
-------------------------------------------------- ---------------------- -----------------------
From the 7th anniversary of the Commencement
Date to the Expiration Date $152,516.38 $1,830,196.56
================================================== ====================== =======================
5. Base Year: 2004
6. Brokers: Colliers Turley Martin Tucker and Eakin Partners
1. DEMISE AND TERM. Landlord leases to Tenant and Tenant leases from Landlord the Building,
subject to the covenants and conditions set forth in this Lease, for a term (the "TERM") commencing on
the date (the "COMMENCEMENT DATE") described in Item 1 of the Schedule and expiring on the date (the
"EXPIRATION DATE") described in Item 2 of the Schedule, unless extended or terminated earlier as
otherwise provided in this Lease.
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2. RENT.
A. DEFINITIONS. For purposes of this Lease, the following terms shall have the following meanings:
(i) "BASE YEAR" shall mean the year set forth in Item 2 of the Schedule. Landlord and Tenant acknowledge that Tenant will not be occupying the Building for the entire Base Year and, accordingly, certain Expenses will not be incurred for the entire Base Year. Accordingly, Landlord and Tenant agree to make an appropriate adjustment of Expenses for the Base Year which vary with the period and level of occupancy to reflect a fully occupied Building for the entire Base Year.
(ii) "EXPENSES" shall mean all expenses, costs and
disbursements (other than Taxes) paid or incurred by Landlord in
connection with the ownership, management, maintenance, operation,
replacement and repair of the Building, including exterior common areas.
Expenses shall not include: (a) costs of tenant alterations; (b) costs
of capital improvements (except for costs of any capital improvements
(1) made or installed (or service agreement or lease entered into) for
the purpose of reducing Expenses or improving the operating efficiency
of any system within the Building (provided, however, that such costs
shall not exceed the reduction in expenses attributable to such capital
improvements, service agreement or lease) or (2) made or installed
pursuant to governmental requirement or insurance requirement, which
costs shall be amortized by Landlord in accordance with sound accounting
and management principles); (c) interest and principal payments on
mortgages (except interest on the cost of any capital improvements for
which amortization may be included in the definition of Expenses) or any
rental payments on any ground leases (except for rental payments which
constitute reimbursement for Taxes and Expenses); (d) advertising
expenses and leasing commissions; (e) any cost or expenditure for which
Landlord is reimbursed, whether by insurance proceeds or otherwise,
except through Adjustment Rent (hereinafter defined); (f) legal expenses
of negotiating leases; (g) salaries and fringe benefits of employees
above the grade of building manager; or (h) depreciation expenses on any
fixed assets. Expenses shall be determined on a cash or accrual basis,
as Landlord may elect, based on generally accepted accounting
principles, consistently applied.
(iii) "RENT" shall mean Base Rent, Adjustment Rent and any other sums or charges due by Tenant hereunder.
(iv) "TAXES" shall mean all taxes, assessments and fees levied upon the Building, the property of Landlord located therein or the rents collected therefrom, by any governmental entity based upon the ownership, leasing, renting or operation of the Building, including all costs and expenses of protesting any such taxes, assessments or fees. Taxes shall not include any net income, capital stock, succession, transfer, franchise, gift, estate or inheritance taxes; provided,
however, if at any time during the Term, a tax or excise on income is levied or assessed by any governmental entity, in lieu of or as a substitute for, in whole or in part, real estate taxes or other AD VALOREM taxes, such tax shall constitute and be included in Taxes.
(v) "PRIME RATE" shall mean the highest of the Prime Rates as reported in the Money Rate Section of the WALL STREET JOURNAL. If the WALL STREET JOURNAL no longer publishes the Prime Rate as an index, Landlord may substitute a comparable index including the Prime Rate or reference rate of a reputable financial institution.
B. COMPONENTS OF RENT. Tenant agrees to pay the following amounts to Landlord at the office of the Building or at such other place as Landlord designates:
(i) Base rent ("BASE RENT") to be paid in monthly installments in the amount set forth in Item 4 of the Schedule in advance on or before the first day of each month of the Term, without demand, except that Tenant shall pay the first month's Base Rent upon execution of this Lease.
Notwithstanding anything in this Lease to the contrary, so long as Tenant is not in default under this Lease, Tenant shall be entitled to an abatement of Base Rent in the amount of $132,774.69 per month for the first seven (7) full calendar months of the Term and $17,670.52 per month for the next five (5) full calendar months of the Term. The total amount of Base Rent abated in accordance with the foregoing shall equal $1,017,775.43 (the "ABATED BASE RENT"). If Tenant defaults at any time during the Term and fails to cure such default within any applicable cure period under this Lease and, if as a result of such uncured default, Landlord elects to terminate this Lease or terminate Tenant's right to possession of the Building as more fully provided under Section 16.B. below, then all Abated Base Rent shall immediately become due and payable. The payment by Tenant of the Abated Base Rent in the event of a default shall not limit or affect any of Landlord's other rights, pursuant to this Lease or at law or in equity. Only Base Rent shall be abated pursuant to this Section, and all Adjustment Rent and other costs and charges specified in this Lease shall remain as due and payable pursuant to the provisions of this Lease.
(ii) Adjustment rent ("ADJUSTMENT RENT") in an amount equal to (a) Expenses for any calendar year which exceed Expenses for the Base Year set forth in Item 5 of the Schedule and (b) Taxes for any calendar year which exceed Taxes for the Base Year set forth in Item 5 of the Schedule. Prior to each calendar year, or as soon as reasonably possible, Landlord shall estimate and notify Tenant of the amount of Adjustment Rent due for such year, and Tenant shall pay Landlord one-twelfth of such estimate on the first day of each month during such year. Such estimate may be revised by Landlord whenever it obtains information relevant to making such estimate more accurate. After the end of each calendar year, Landlord shall deliver to Tenant a report setting forth the
actual Expenses and Taxes for such calendar year and a statement of the amount of Adjustment Rent that Tenant has paid and is payable for such year. Within thirty (30) days after receipt of such report or reports, Tenant shall pay to Landlord the amount of Adjustment Rent due for such calendar year minus any payments of Adjustment Rent made by Tenant for such year, it being acknowledged by Tenant that in the event Landlord separately reports actual Expenses and actual Taxes for a calendar year, Landlord may reasonably allocate Adjustment Rent paid by Tenant for such calendar year between Expenses and Taxes for such calendar year. If Tenant's estimated payments of Adjustment Rent exceed the amount due Landlord for such calendar year, Landlord shall apply such excess as a credit against Tenant's other obligations under this Lease or promptly refund such excess to Tenant if the Term has already expired, provided Tenant is not then in default hereunder, in either case without interest to Tenant.
Notwithstanding the foregoing, for purposes of computing Adjustment Rent, Controllable Expenses (as hereinafter defined) shall not increase by more than 5% per calendar year on a cumulative, compounding basis over the Term. In other words, Controllable Expenses for the calendar year 2005 shall not exceed 105% of the Controllable Expenses for the calendar year 2004. Controllable Expenses for the calendar year 2006 shall not exceed 105% of the limit on Controllable Expenses for the calendar year 2005. "CONTROLLABLE EXPENSES" shall mean all Expenses exclusive of the cost of insurance and utilities. Landlord and Tenant agree that Controllable Expenses for the calendar year 2004 shall be deemed to be two times Controllable Expenses paid or incurred by Landlord during the period commencing July 1, 2004, and ending December 31, 2004.
C. PAYMENT OF RENT. The following provisions shall govern the payment of Rent: (i) if this Lease commences or ends on a day other than the first day or last day of a calendar year, respectively, the Rent for the year in which this Lease so begins or ends shall be prorated and the monthly installments shall be adjusted accordingly; (ii) all Rent shall be paid to Landlord without offset or deduction, and the covenant to pay Rent shall be independent of every other covenant in this Lease; (iii) any sum due from Tenant to Landlord which is not paid when due shall bear interest from the date due until the date paid at the annual rate of five percentage (5%) points above the Prime Rate then in effect, but in no event higher than the maximum rate permitted by law (the "DEFAULT RATE"); and, in addition, Tenant shall pay Landlord a late charge for any Rent payment which is paid more than five (5) days after its due date equal to five percent (5%) of such payment; provided, however, that Landlord shall not charge Tenant such Default Rate or late charge if Tenant cures such failure to pay any sum due within five (5) days after written notice from Landlord of such delinquency; provided further, however, that Landlord shall only be obligated to provide, and Tenant shall only have such cure period, two (2) times during any twelve (12) consecutive calendar month period; (iv) Tenant, or an independent certified accounting firm retained by Tenant on an hourly fee basis (and not on a contingency fee basis), shall have the right to inspect Landlord's accounting records relative to Expenses and Taxes (including Expenses and Taxes for the Base Year) during normal business hours at any time within sixty (60) days following the furnishing
to Tenant of the annual statement of Adjustment Rent; and, unless Tenant shall
take written exception to any item in any such statement within such sixty (60)
day period, such statement shall be considered as final and accepted by Tenant;
(v) in the event of the termination of this Lease prior to the determination of
any Adjustment Rent, Tenant's agreement to pay any such sums and Landlord's
obligation to refund any such sums (provided Tenant is not in default hereunder)
shall survive the termination of this Lease; (vi) no adjustment to the Rent by
virtue of the operation of the rent adjustment provisions in this Lease shall
result in the payment by Tenant in any year of less than the Base Rent shown on
the Schedule; (vii) each amount owed to Landlord under this Lease for which the
date of payment is not expressly fixed shall be due on the same date as the Rent
listed on the statement showing such amount is due; and (viii) if Landlord fails
to give Tenant an estimate of Adjustment Rent prior to the beginning of any
calendar year, Tenant shall continue to pay Adjustment Rent at the rate for the
previous calendar year until Landlord delivers such estimate, at which time
Tenant shall pay retroactively the increased amount for all previous months of
such calendar year.
3. USE. Tenant agrees that it shall occupy and use the Building only as non-governmental business offices and for no other purposes. Tenant shall, at its own cost and expense, comply with all federal, state and municipal laws, ordinances, rules and regulations issued by any governmental authority and all covenants, conditions and restrictions of record which relate to the condition, use or occupancy of the Building. Without limiting the foregoing, Tenant shall not cause, nor permit, any hazardous or toxic substances to be brought upon, produced, stored, used, discharged or disposed of in, on or about the Building without the prior written consent of Landlord and then only in compliance with all applicable environmental laws. Notwithstanding anything herein to the contrary, Tenant shall have no obligation or responsibility with respect to any hazardous or toxic substances which Tenant or its agents did not bring upon, produce, store, use, discharge or dispose of in or about the Building, except to the extent that Tenant exacerbates the same or fails to notify Landlord of the existence of any such hazardous or toxic substances after acquiring knowledge thereof. Without limiting the generality of the effect of the foregoing, Landlord, and not Tenant, shall be responsible for remedying violations of environmental laws, if any, existing with respect to the Building as of the date of delivery of the Building to Tenant and the costs and expenses of such remediation shall not be included within Expenses.
4. CONDITION OF BUILDING. Tenant is taking possession of the Building in its "as is" condition. No agreement of Landlord to alter, remodel, decorate, clean or improve the Building (or to provide Tenant with any credit or allowance for the same), and no representation regarding the condition of the Building, have been made by or on behalf of Landlord or relied upon by Tenant, except as stated in the Workletter attached hereto as Exhibit A and except that Landlord shall be responsible for delivery of the base building heating and cooling, plumbing and electrical systems and roof and other general building structural components to Tenant in working order at Landlord's expense.
5. BUILDING SERVICES.
A. BASIC SERVICES. So long as Tenant is not in default hereunder, Landlord shall furnish the following services: (i) heating, ventilating and air conditioning ("HVAC") to provide a temperature condition required, in Landlord's reasonable judgment, for comfortable occupancy of the interior of the Building under normal business operations, daily from 7:00 A.M. to 7:00 P.M., plus six (6) hours of HVAC services on weekends as hereafter provided, holidays excepted; (ii) water for drinking, and, subject to Landlord's approval, water at Tenant's expense for any private restrooms and office kitchen requested by Tenant; (iii) men's and women's restrooms at locations designated by Landlord; (iv) janitor service, including replacement of paper products in restrooms, floor care (including stripping and waxing, if applicable) at least twice per year, cleaning of windows on a reasonably frequent basis and pest control; (v) maintenance of exterior common areas of the Building, including snow removal as necessary and maintenance of the landscaped areas; and (vi) automated elevator service 24 hours a day, 7 days a week.
As part of basic services, Tenant may order up to six (6) hours in the aggregate of HVAC services on each weekend. A designated employee or agent of Tenant may order such weekend HVAC services by providing notice to Landlord at least three (3) days in advance of such services.
If Tenant is not satisfied with the janitorial services provided by Landlord, then Tenant may elect to provide such janitorial services directly, provided that Tenant's janitorial contractor is reputable and experienced in providing such services in first class office buildings in Brentwood, Tennessee, Tenant shall arrange to be billed directly by such contractor. Tenant shall provide Landlord with sufficient notice to permit Landlord to terminate any existing janitorial service contract orderly and without fee or penalty. In the event Tenant elects to perform such janitorial services directly, then for purposes of determining Adjustment Rent, janitorial costs and expenses which were included in Expenses for the Base Year shall be deducted from such Expenses for the Base Year.
B. ELECTRICITY. Electricity shall be distributed to the Building either by the electric utility company serving the Building or, at Landlord's option, by Landlord; and Landlord shall permit Landlord's wire and conduits, to the extent available, suitable and safely capable, to be used for such distribution. All electricity used in the Building which is in excess of typical general office uses, such as the operation of any special air conditioning systems serving the Building, may be separately metered by Landlord, at Tenant's expense, and shall be paid for by Tenant as additional Rent hereunder.
C. TELEPHONES. Tenant shall arrange for telephone service directly with one or more of the public telephone companies servicing the Building and shall be solely responsible for paying for such telephone service. In no event does Landlord make any representation or warranty with respect to telephone service in the Building and Landlord shall have no liability with respect thereto.
D. ADDITIONAL SERVICES. Landlord shall not be obligated to furnish any services other than those stated above, but Landlord agrees to cooperate in good faith with Tenant to provide such additional services as may be reasonable requested by Tenant. If Landlord elects to furnish services requested by Tenant in addition to those stated above (including services at times other than those stated above), Tenant shall pay one hundred ten percent (110%) of Landlord's actual cost to furnish such services. If Tenant shall fail to make any such payment, Landlord may, without notice to Tenant and in addition to all other remedies available to Landlord, discontinue any additional services. No discontinuance of any such service shall result in any liability of Landlord to Tenant or be considered as an eviction or a disturbance of Tenant's use of the Building. In addition, if Tenant's concentration of personnel or equipment adversely affects the temperature or humidity in the Building, Landlord may install supplementary air conditioning units in the Building, and Tenant shall pay one hundred fifteen percent (115%) of the cost of installation, operation and maintenance thereof.
E. FAILURE OR DELAY IN FURNISHING SERVICES. Tenant agrees that Landlord shall not be liable for damages for failure or delay in furnishing any service stated above if such failure or delay is caused, in whole or in part, by any one or more of the events stated in Section 25.J. below, nor shall any such failure or delay be considered to be an eviction or disturbance of Tenant's use of the Building, or relieve Tenant from its obligation to pay any Rent when due or from any other obligations of Tenant under this Lease. Notwithstanding the foregoing, in the event any such failure or delay in furnishing any services required to be provided by Landlord hereunder is caused by the negligence or wilful misconduct of Landlord and if such failure or delay causes the Building to be untenantable, and as a result thereof Tenant in fact ceases to use the Building for a period in excess of five (5) consecutive days, then commencing on the sixth (6th) consecutive day of such untenantability and non-use, Base Rent and Adjustment Rent payable by Tenant shall be abated until the earliest to occur of (i) the date such failure or delay is remedied, (ii) the date the Building is again tenantable or (iii) the date Tenant resumes use of the requires to be provided by Landlord hereunder.
6. RULES AND REGULATIONS. Tenant shall observe and comply, and shall cause its subtenants, assignees, invitees, employees, contractors and agents to observe and comply, with the Rules and Regulations listed on Exhibit B attached hereto and with such reasonable modifications and additions thereto as Landlord may make from time to time, provided, however, that no such modifications or additions shall have a material adverse effect on Tenant's use of the Building for general office purposes. Landlord shall not be liable for failure of any person to obey the Rules and Regulations. Landlord shall not be obligated to enforce the Rules and Regulations against any person, and the failure of Landlord to enforce any such Rules and Regulations shall not constitute a waiver thereof or relieve Tenant from compliance therewith, provided, however, that Landlord shall not discriminate against Tenant in the enforcement of such Rules and Regulations.
7. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the following rights, each of which Landlord may exercise without notice to Tenant and without liability to Tenant, and the exercise of any such rights shall not be deemed to constitute an
eviction or disturbance of Tenant's use or possession of the Building and shall
not give rise to any claim for set-off or abatement of rent or any other claim:
(a) to change the name or street address of the Building; (b) to install, affix
and maintain any and all signs on the exterior or interior of the Building; (c)
to make repairs, decorations, alterations, additions or improvements, whether
structural or otherwise, in and about the Building, and for such purposes to
enter upon the Building, temporarily close doors, corridors and other areas of
the Building and interrupt or temporarily suspend services or use of common
areas, and Tenant agrees to pay Landlord for overtime and similar expenses
incurred if such work is done other than during ordinary business hours at
Tenant's request; (d) to retain at all times, and to use in appropriate
instances, keys to all doors within and into the Building; (e) to show or
inspect the Building at reasonable times and, if vacated or abandoned, to
prepare the Building for reoccupancy; (f) to take any other action which
Landlord deems reasonable in connection with the operation, maintenance,
marketing or preservation of the Building; and (g) to approve the weight, size
and location of safes or other heavy equipment or articles, which articles may
be moved in, about or out of the Building only at such times and in such manner
as Landlord shall direct, at Tenant's sole risk and responsibility.
Notwithstanding the foregoing, Landlord shall provide notice to Tenant prior to
any entry into the Building hereunder, except, however, in the event of
emergency and in the event of entering the Building to provide the services that
Landlord is required to provide hereunder (such as routine janitorial services),
in which case no notice shall be required. Landlord agrees to use commercially
reasonable efforts to minimize interference with the conduct of Tenant's
business in connection with any such entry into the Building. Additionally,
Landlord acknowledges and agrees that Tenant has the right to place identifying
signage on and about the Building as more fully provided in Section 25.O. below
and that Tenant intends on prominently identifying its presence in the Building
and Landlord agrees to not materially obscure such identification signage of
Tenant.
8. MAINTENANCE AND REPAIRS. Tenant, at its expense, shall maintain and keep the Building in good order and repair at all times during the Term. Landlord shall be responsible for maintaining the structural components of the Building, including the roof. Additionally, Landlord shall perform any maintenance or make any repairs to the Building as Landlord shall desire or deem necessary for the safety, operation or preservation of the Building, or as Landlord may be required or requested to do by the order or decree of any court or by any other proper authority. If any such maintenance or repairs to the Building is required as a result of the negligence or wilful misconduct of Tenant or its employees, contractors or agents, or breach of this Lease by Tenant or its employees, contractors or agents, and if Tenant does not perform such required maintenance or repair with due diligence after notice from Landlord, then Tenant shall reimburse Landlord for any such maintenance or repairs of the Building.
9. ALTERATIONS.
A. REQUIREMENTS. Tenant shall not make any replacement, alteration, improvement or addition to or removal from the Building (collectively an "ALTERATION") without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Review and approval of the Work (as defined in the Workletter) shall be subject to the terms and conditions of the Workletter, rather than the terms and conditions of the this Section 9. In the event Tenant proposes to make any alteration, Tenant shall,
prior to commencing such alteration, submit to Landlord for prior written approval: (i) detailed plans and specifications; (ii) the names, addresses and copies of contracts for all contractors; (iii) all necessary permits evidencing compliance with all applicable governmental rules, regulations and requirements; (iv) certificates of insurance in form and amounts required by Landlord, naming Landlord, its managing agent and any other parties designated by Landlord as additional insureds; and (v) all other documents and information as Landlord may reasonably request in connection with such alteration. Tenant agrees to pay Landlord's reasonable charges for review of all such items and supervision of the alteration. Neither approval of the plans and specifications nor supervision of the alteration by Landlord shall constitute a representation or warranty by Landlord as to the accuracy, adequacy, sufficiency or propriety of such plans and specifications or the quality of workmanship or the compliance of such alteration with applicable law. Tenant shall pay the entire cost of the alteration and, if requested by Landlord, shall deposit with Landlord, prior to the commencement of the alteration, security for the payment and completion of the alteration in form and amount required by Landlord. Each alteration shall be performed in a good and workmanlike manner, in accordance with the plans and specifications approved by Landlord, and shall meet or exceed the standards for construction and quality of materials established by Landlord for the Building. In addition, each alteration shall be performed in compliance with all applicable governmental and insurance company laws, regulations and requirements. Each alteration shall be performed by Landlord or under Landlord's supervision and in harmony with Landlord's employees and contractors. Each alteration, whether temporary or permanent in character, made by Landlord or Tenant in or upon the Building (excepting only Tenant's furniture, equipment and trade fixtures) shall become Landlord's property and shall remain upon the Building at the expiration or termination of this Lease without compensation to Tenant; provided, however, that Landlord shall have the right to require Tenant to remove such alteration at Tenant's sole cost and expense in accordance with the provisions of Section 15 of this Lease, which required removal shall be specified by Landlord when Landlord consents to Tenant's requested alterations, except, however, Landlord may require removal of any electronic, phone, data or other telecommunications conduit and cabling and related equipment installed by or on behalf of Tenant by notice to Tenant given at any time prior to the expiration or earlier termination of this Lease.
B. LIENS. Upon completion of any alteration, Tenant shall
promptly furnish Landlord with sworn owner's and contractors' statements
and full and final waivers of lien covering all labor and materials
included in such alteration. Tenant shall not permit any mechanic's lien
to be filed against the Building, or any part thereof, arising out of
any alteration performed, or alleged to have been performed, by or on
behalf of Tenant. If any such lien is filed, Tenant shall within twenty
(20) days thereafter have such lien released of record or deliver to
Landlord a bond in form, amount, and issued by a surety satisfactory to
Landlord, indemnifying Landlord against all costs and liabilities
resulting from such lien and the foreclosure or attempted foreclosure
thereof. If Tenant fails to have such lien so released or to deliver
such bond to Landlord, Landlord, without investigating the validity of
such lien, may pay or discharge the same, and Tenant shall
reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorneys' fees.
10. INSURANCE. In consideration of the leasing of the Building at the rent stated herein, Landlord and Tenant agree to provide insurance and allocate the risks of loss as follows:
A. TENANT'S INSURANCE. Tenant, at its sole cost and expense but for the mutual benefit of Landlord (when used in this Section 10.A. the term "LANDLORD" shall include Landlord's partners, beneficiaries, officers, agents, servants and employees and the term "TENANT" shall include Tenant's partners, beneficiaries, officers, agents, servants and employees), agrees to purchase and keep in force and effect during the term hereof, insurance under policies issued by insurers of recognized responsibility licensed to do business in the State of Tennessee with a Best's rating of A/X or better on all alterations, additions, and improvements owned by Tenant, and on all personal property located in the Building, protecting Landlord and Tenant from damage or other loss caused by fire or other casualty, including but not limited to vandalism and malicious mischief, perils covered by extended coverage, theft, sprinkler leakage, water damage (however caused), explosion malfunction or failure of heating and cooling or other apparatus, and other similar risks in amounts not less than the full insurable replacement value of such property. Such property insurance shall provide that it is specific and non-contributory and shall contain a replacement cost endorsement. Such insurance shall also contain a clause pursuant to which the insurance carriers waive all rights of subrogation against the Landlord with respect to losses payable under such policies.
Tenant also agrees to maintain commercial general liability
insurance covering Tenant as the insured party, and naming Landlord as
an additional insured, against claims for bodily injury and death and
property damage occurring in or about the Building in accordance with
Section 11 below, with limits of not less than One Million Dollars
($1,000,000.00) per occurrence and Five Million Dollars ($5,000,000.00)
general aggregate.
Tenant shall, prior to commencement of the term, furnish to Landlord certificates evidencing such coverage, which certificates shall state that such insurance coverage may not be changed or canceled without at least thirty (30) days prior written notice to Landlord and Tenant. In the event Tenant shall fail to procure such insurance, Landlord may at its option after giving Tenant no less than ten (10) days prior written notice of its election to do so procure the same for the account of Tenant and the cost thereof shall be paid to Landlord as additional rent upon receipt by Tenant of bills therefor.
B. LANDLORD'S INSURANCE. Landlord agrees to purchase and keep in force and effect commercial general liability insurance in an amount not less than Five Million Dollars ($5,000,000.00) and insurance on the Building improvements (not including, however, any tenant improvements, alterations or additions) against fire or other casualty, including but not limited to vandalism and malicious mischief, perils covered by extended coverage, theft, sprinkler leakage, water damage (however caused), explosion,
malfunction or failure of heating and cooling or other apparatus, and other similar risks in a commercially reasonable amount.
C. RISK OF LOSS. By this Section 10, Landlord and Tenant intend that the risk of loss or damage as described above be borne by responsible insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and to seek recovery only from, their respective insurance carriers in the event of a loss of a type described above to the extent that such coverage is agreed to be provided hereunder. For this purpose, any applicable deductible amount shall be treated as though it were recoverable under such policies. Landlord and Tenant agree that applicable portions of all monies collected from such insurance shall be used toward the full compliance with the obligations of Landlord and Tenant under this Lease in connection with damage resulting from fire or other casualty.
11. INDEMNIFICATION/HOLD HARMLESS.. Tenant agrees to indemnify and hold Landlord harmless from and against any and all claims, liabilities, damages, causes of action, costs and expenses, including attorneys' fees, for personal injury, death, property damage, and other losses occurring in or on the Building arising from Tenant's negligence or failure of the Tenant to perform any of its obligations under the Lease, excluding, however, damages arising out of the negligence of Landlord or failure of Landlord to perform any of its obligations under the Lease.
Landlord agrees to indemnify and hold Tenant harmless from and against any and all claims, liabilities, damages, causes of action, costs and expenses, including attorneys' fees, for personal injury, death, property damage, and other losses occurring in or on the Building as a result of Landlord's negligence or failure of the Landlord to perform any of its obligations under the Lease, excluding, however, damages arising out of the negligence of the Tenant or failure of Tenant to perform any of its obligations under the Lease.
12. FIRE OR OTHER CASUALTY.
A. DESTRUCTION OF THE BUILDING. If the Building should be substantially destroyed (which, as used herein, means destruction or damage to at least 50% of the Building) by fire or other casualty, either party hereto may, at its option, terminate this Lease by giving written notice thereof to the other party within thirty (30) days of such casualty. In such event, Rent shall be apportioned to and shall cease as of the date of such casualty. In the event neither party exercises this option, then the Building shall be reconstructed and restored, at Landlord's expense, to substantially the same condition as they were prior to the casualty. In such event, Rent shall be abated from the date of the casualty until substantial completion of the reconstruction and repairs.
B. DAMAGE TO THE BUILDING. If the Building is damaged, in whole or in part, by fire or other casualty, but the Building is not substantially destroyed as provided above, then the parties hereto shall have the following options:
(i) If, in Landlord's reasonable judgment, the Building cannot be reconstructed or restored within two hundred seventy (270) days of such casualty to substantially the same condition as it was in prior to such casualty, Landlord may terminate this Lease by written notice given to Tenant within thirty (30) days of the casualty. If, in Landlord's reasonable judgement, the Building cannot be reconstructed or restored within two hundred seventy (270) days of such casualty to substantially the same condition as it was in prior to such casualty, but nonetheless Landlord does not so elect to terminate this Lease, then Landlord shall notify Tenant, within thirty (30) days of the casualty, of the amount of time necessary, as reasonably estimated by Landlord, to reconstruct or restore the Building. After receipt of such notice from Landlord, Tenant may elect to terminate this Lease. This election shall be made by Tenant by giving written notice to Landlord within fifteen (15) days after the date of Landlord's notice. If neither party terminates this Lease pursuant to the foregoing, Landlord shall proceed to reconstruct and restore the Building to substantially the same condition as they were in prior to the casualty. In such event this Lease shall continue in full force and effect to the balance of the term, upon the same terms, conditions and covenants as are contained herein; provided, however, that the Rent shall be abated in the proportion which the approximate area of the damaged portion bears to the total area in the Building, from the date of the casualty until substantial completion of the reconstruction of the Building.
Notwithstanding the above, if the casualty occurs during
the last twelve (12) months of the term of this Lease, either
party hereto shall have the right to terminate this Lease as of
the date of the casualty, which right shall be exercised by
written notice to be given by either party to the other party
within thirty (30) days therefrom. If this right is exercised,
Rent shall be apportioned to and shall cease as of the date of
the casualty. After a casualty occurs during the last twelve
(12) months of the term of the Lease, Tenant may not exercise
any renewal options without first obtaining Landlord's written
consent.
Additionally, notwithstanding anything contained herein to the contrary, Landlord shall have no duty to repair or restore the Building if the damage is due to an uninsurable casualty, or if insurance proceeds are insufficient to pay for such repair or restoration, or if the holder of any mortgage, deed of trust or similar instrument applies proceeds of insurance to reduce its loan balance and the remaining proceeds, if any, available to Landlord are not sufficient to pay for such repair or restoration. Tenant shall make any proceeds of Tenant's casualty insurance available to Landlord in connection with any such repair or restoration of the Building and, in the event this Lease is terminated as a result of any casualty as herein provided, such insurance proceeds shall be paid to Landlord.
(ii) If, in Landlord's reasonable judgment, the
Building are able to be restored within two hundred seventy
(270) days of such casualty to substantially the same condition
as they were prior to such casualty, Landlord shall so notify
Tenant within thirty (30) days of the casualty, and Landlord
shall then proceed to
reconstruct and restore the damaged portion of the Building, at Landlord's expense, to substantially the same condition as it was prior to the casualty, Rent shall be abated in the proportion which the approximate area of the damaged portion bears to the total area in the Building from the date of the casualty until substantial completion of the reconstruction repairs, and this Lease shall continue in full force and effect for the balance of the term, upon the same terms, conditions and covenants as are contained herein.
(iii) In the event Landlord undertakes reconstruction
or restoration of the Building pursuant to subparagraph (i) or
(ii) above, Landlord shall use reasonable diligence in
completing such reconstruction repairs, but in the event
Landlord fails to substantially complete the same within three
hundred thirty (330) days from the date of the casualty (except
however, if under subparagraph (i) above Landlord notified
Tenant that it would take longer than two hundred seventy (270)
days to reconstruct or restore the Building, but Tenant
nonetheless elected not to terminate the Lease but require
Landlord to reconstruct or restore the Building, then the
foregoing three hundred and thirty (330) day period shall be
extended to the time period set forth in Landlord's notice plus
sixty (60) days), except as a result of any of the occurrences
set forth in Section 25.J. below, Tenant may, at its option,
terminate this Lease upon giving Landlord written notice to that
effect, whereupon both parties shall be released from all
further obligations and liability hereunder.
13. CONDEMNATION. If the Building is rendered untenantable by reason of a condemnation (or by a deed given in lieu thereof), then either party may terminate this Lease by giving written notice of termination to the other party within thirty (30) days after such condemnation, in which event this Lease shall terminate effective as of the date of such condemnation. If this Lease so terminates, Rent shall be paid through and apportioned as of the date of such condemnation. If such condemnation does not render the Building untenantable, this Lease shall continue in effect and Landlord shall promptly restore the portion not condemned to the extent reasonably possible to the condition existing prior to the condemnation. In such event, however, Landlord shall not be required to expend an amount in excess of the proceeds received by Landlord from the condemning authority. Landlord reserves all rights to compensation for any condemnation. Tenant hereby assigns to Landlord any right Tenant may have to such compensation, and Tenant shall make no claim against Landlord or the condemning authority for compensation for termination of Tenant's leasehold interest under this Lease or interference with Tenant's business; provided however, that Tenant may make a separate claim for moving and relocation expenses.
14. ASSIGNMENT AND SUBLETTING.
A. LANDLORD'S CONSENT. Tenant shall not, without the prior written consent of Landlord: (i) assign, convey, mortgage or otherwise transfer this Lease or any interest hereunder, or sublease the Building, or any part thereof, whether voluntarily or by operation of law; or (ii) permit the use of the Building by any person other than Tenant and its employees. Any such transfer, sublease or use described in the preceding
sentence (a "TRANSFER") occurring without the prior written consent of Landlord shall be void and of no effect. Landlord's consent to any Transfer shall not constitute a waiver of Landlord's right to withhold its consent to any future Transfer. Landlord's consent to any Transfer or acceptance of rent from any party other than Tenant shall not release Tenant from any covenant or obligation under this Lease. Landlord may require as a condition to its consent to any assignment of this Lease that the assignee execute an instrument in which such assignee assumes the obligations of Tenant hereunder. For the purposes of this paragraph, the transfer (whether direct or indirect) of all or a majority of the capital stock in a corporate Tenant (other than the shares of the capital stock of a corporate Tenant whose stock is publicly traded) or the merger, consolidation or reorganization of such Tenant and the transfer of all or any general partnership interest in any partnership Tenant shall be considered a Transfer.
B. STANDARDS FOR CONSENT. If Tenant desires the consent of Landlord to a Transfer, Tenant shall submit to Landlord, at least forty-five (45) days prior to the proposed effective date of the Transfer, a written notice which includes such information as Landlord may require about the proposed Transfer and the transferee, together with a non-refundable processing fee in the amount of five hundred dollars ($500.00). If Landlord does not terminate this Lease, in whole or in part, pursuant to Section 14C, Landlord shall not unreasonably withhold its consent to any assignment or sublease, which consent or lack thereof shall be provided within thirty (30) days of receipt of Tenant's notice. Landlord shall not be deemed to have unreasonably withheld its consent if, in the judgment of Landlord: (i) the transferee is of a character or engaged in a business which is not in keeping with the standards or criteria used by Landlord in leasing the Building; (ii) the financial condition of the transferee is such that it may not be able to perform its obligations in connection with this Lease; (iii) the transferee is a governmental unit; (iv) Tenant is in Default under this Lease; (v) in the judgment of Landlord, such a Transfer would violate any term, condition, covenant or agreement of the Landlord involving the Building; or (vi) any other basis which Landlord reasonably deems appropriate. If Landlord wrongfully withholds its consent to any Transfer, Tenant's sole and exclusive remedy therefor shall be to seek specific performance of Landlord's obligation to consent to such Transfer.
C. RECAPTURE. Landlord shall have the right to terminate this Lease as to that portion of the Building covered by a Transfer. Landlord may exercise such right to terminate by giving notice to Tenant at any time within thirty (30) days after the date on which Tenant has furnished to Landlord all of the items required under Section 14.B. If Landlord exercises such right to terminate, Landlord shall be entitled to recover possession of, and Tenant shall surrender such portion of, the Building (with appropriate demising partitions erected at the expense of Tenant) on the later of (i) the effective date of the proposed Transfer, or (ii) sixty (60) days after the date of Landlord's notice of termination. In the event Landlord exercises such right to terminate, Landlord shall have the right to enter into a lease with the proposed transferee without incurring any liability to Tenant on account thereof. If Landlord consents to any Transfer, Tenant shall pay to Landlord all rent and other consideration received by Tenant in excess of the Rent paid by Tenant hereunder for the portion of the Building so transferred. Such rent shall be
paid as and when received by Tenant. In addition, Tenant shall pay to Landlord any reasonable attorneys' or other fees and expenses incurred by Landlord in connection with any proposed Transfer, whether or not Landlord consents to such Transfer.
D. ASSIGNMENT OR SUBLET TO SUCCESSOR. Notwithstanding anything to the contrary in this Section 14, Landlord's consent shall not be required for an assignment or sublet to an Successor (as hereinafter defined), and the provisions of Section 14.C above shall not be applicable to such assignment or sublet, as long as (i) Tenant provides to Landlord evidence, in form and substance satisfactory to Landlord, that such Successor has a net worth greater than or equal to that of Tenant as of the date hereof, (ii) Tenant is not in default under this Lease, (iii) Tenant gives reasonable advance notice to Landlord of the proposed assignment or sublet to the Successor and (iv) such assignment or sublet is not a subterfuge by Tenant to avoid its obligations under this Lease. No such Transfer to an Successor, however, shall release Tenant from any liability or obligation under this Lease. As used herein, "Successor" shall mean any entity with which Tenant may merge or consolidate or which acquires all or substantially all of the capital stock or assets of Tenant.
15. SURRENDER. Upon termination of the Term or Tenant's right to
possession of the Building, Tenant shall return the Building to Landlord in good
order and condition, ordinary wear and damage by fire or other casualty
excepted. If Landlord requires Tenant to remove any alterations pursuant to
Section 9, then such removal shall be done in a good and workmanlike manner, and
upon such removal Tenant shall restore the Building to its condition prior to
the installation of such alterations. If Tenant does not remove such alterations
after request to do so by Landlord, Landlord may remove the same and restore the
Building, and Tenant shall pay the cost of such removal and restoration to
Landlord upon demand. Tenant shall also remove its furniture, equipment, trade
fixtures and all other items of personal property from the Building prior to
termination of the Term or Tenant's right to possession of the Building. If
Tenant does not remove such items, Tenant shall be conclusively presumed to have
conveyed the same to Landlord without further payment or credit by Landlord to
Tenant, or at Landlord's sole option such items shall be deemed abandoned, in
which event Landlord may cause such items to be removed and disposed of at
Tenant's expense, which shall be 115% of Landlord's actual cost of removal,
without notice to Tenant and without obligation to compensate Tenant.
16. DEFAULTS AND REMEDIES.
A. DEFAULT. The occurrence of any of the following shall
constitute a default (a "DEFAULT") by Tenant under this Lease: (i)
Tenant fails to pay any Rent when due and such failure is not cured
within five (5) days after notice from Landlord (which notice may be in
the form of a Landlord statutory five (5) day notice); (ii) Tenant fails
to perform any other provision of this Lease and such failure is not
cured within thirty (30) days (or immediately if the failure involves a
hazardous condition) after notice from Landlord; (iii) the leasehold
interest of Tenant is levied upon or attached under process of law; (iv)
Tenant abandons or vacates the Building without notice to Landlord; or
(v) any voluntary or involuntary proceedings are filed by or against
Tenant or any guarantor of
this Lease under any bankruptcy, insolvency or similar laws and, in the
case of any involuntary proceedings, are not dismissed within thirty
(30) days after filing.
B. RIGHT OF RE-ENTRY. Upon the occurrence of a Default, Landlord may elect to terminate this Lease or, without terminating this Lease, terminate Tenant's right to possession of the Building. Upon any such termination, Tenant shall immediately surrender and vacate the Building and deliver possession thereof to Landlord. Tenant grants to Landlord the right to enter and repossess the Building and to expel Tenant and any others who may be occupying the Building and to remove any and all property therefrom, without being deemed in any manner guilty of trespass and without relinquishing Landlord's rights to Rent or any other right given to Landlord hereunder or by operation of law.
C. TERMINATION OF RIGHT TO POSSESSION. If Landlord terminates Tenant's right to possession of the Building without terminating this Lease, Landlord may relet the Building or any part thereof. In such case, Landlord shall use reasonable efforts to relet the Building on such terms as Landlord shall reasonably deem appropriate; provided, however, Landlord may first lease Landlord's other available space and shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. Tenant shall reimburse Landlord for the costs and expenses of reletting the Building including, but not limited to, all brokerage, advertising, legal, alteration, redecorating, repairs and other expenses incurred to secure a new tenant for the Building. In addition, if the consideration collected by Landlord upon any such reletting, after payment of the expenses of reletting the Building which have not been reimbursed by Tenant, is insufficient to pay monthly the full amount of the Rent, Tenant shall pay to Landlord the amount of each monthly deficiency as it becomes due. If such consideration is greater than the amount necessary to pay the full amount of the Rent, the full amount of such excess shall be retained by Landlord and shall in no event be payable to Tenant.
D. TERMINATION OF LEASE. If Landlord terminates this Lease, Landlord may recover from Tenant and Tenant shall pay to Landlord, on demand, as and for liquidated and final damages, an accelerated lump sum amount equal to the amount by which Landlord's estimate of the aggregate amount of Rent owing from the date of such termination through the Expiration Date plus Landlord's estimate of the aggregate expenses of reletting the Building, exceeds Landlord's estimate of the fair rental value of the Building for the same period (after deducting from such fair rental value the time needed to relet the Building and the amount of concessions which would normally be given to a new tenant) both discounted to present value at the rate of five percent (5%) per annum.
E. OTHER REMEDIES. Landlord may, but shall not be obligated to, perform any obligation of Tenant under this Lease, and, if Landlord so elects, all costs and expenses paid by Landlord in performing such obligation, together with interest at the Default Rate, shall be reimbursed by Tenant to Landlord on demand. Any and all remedies set forth in this Lease: (i) shall be in addition to any and all other remedies
Landlord may have at law or in equity; (ii) shall be cumulative; and
(iii) may be pursued successively or concurrently as Landlord may elect.
The exercise of any remedy by Landlord shall not be deemed an election
of remedies or preclude Landlord from exercising any other remedies in
the future.
F. BANKRUPTCY. If Tenant becomes bankrupt, the bankruptcy trustee shall not have the right to assume or assign this Lease unless the trustee complies with all requirements of the United States Bankruptcy Code, and Landlord expressly reserves all of its rights, claims and remedies thereunder.
G. WAIVER OF TRIAL BY JURY. Landlord and Tenant waive trial by jury in the event of any action, proceeding or counterclaim brought by either Landlord or Tenant against the other in connection with this Lease.
H. VENUE. If either Landlord or Tenant desires to bring an action against the other in connection with this Lease, such action shall be brought in the federal courts located in Nashville, Tennessee, or state courts located in Williamson County, Tennessee. Landlord and Tenant consent to the jurisdiction of such courts and waive any right to have such action transferred from such courts on the grounds of improper venue or inconvenient forum.
17. HOLDING OVER. If Tenant retains possession of all or any portion of the Building after the expiration or termination of the Term or Tenant's right to possession of the Building, Tenant shall pay Rent during such holding over at 150% times the rate in effect immediately preceding such holding over computed on a monthly basis for each month or partial month that Tenant remains in possession. Tenant shall also pay, indemnify and defend Landlord from and against all claims and damages, consequential as well as direct, sustained by reason of Tenant's holding over. The provisions of this section do not waive Landlord's right of re-entry or right to regain possession by actions at law or in equity or any other rights hereunder, and any receipt of payment by Landlord shall not be deemed a consent by Landlord to Tenant's remaining in possession or be construed as creating or renewing any lease or right of tenancy between Landlord and Tenant.
18. [INTENTIONALLY OMITTED]
19. [INTENTIONALLY OMITTED]
20. ESTOPPEL CERTIFICATE. Tenant agrees that, from time to time upon
not less than ten (10) business days' prior request by Landlord, Tenant shall
execute and deliver to Landlord a written certificate certifying: (i) that this
Lease is unmodified and in full force and effect (or if there have been
modifications, a description of such modifications and that this Lease as
modified is in full force and effect); (ii) the dates to which Rent has been
paid; (iii) that Tenant is in possession of the Building, if that is the case;
(iv) that Landlord is not in default under this Lease, or, if Tenant believes
Landlord is in default, the nature thereof in detail; (v) that Tenant has no
off-sets or defenses to the performance of its obligations under this Lease (or
if Tenant believes there are any off-sets or defenses, a full and complete
explanation thereof);
(vi) that the Building have been completed in accordance with the terms and provisions hereof or the Workletter, that Tenant has accepted the Building and the condition thereof and of all improvements thereto and has no claims against Landlord or any other party with respect thereto; and (vii) such additional matters as may be requested by Landlord, it being agreed that such certificate may be relied upon by any prospective purchaser, mortgagee, or other person having or acquiring an interest in the Building. If Tenant fails to execute and deliver any such certificate within ten days after request, Tenant shall be deemed to have irrevocably appointed Landlord and Landlord's beneficiaries as Tenant's attorneys-in-fact to execute and deliver such certificate in Tenant's name.
21. SUBORDINATION. This Lease is and shall be expressly subject and
subordinate at all times to (i) any ground or underlying lease of the Building,
now or hereafter existing, and all amendments, renewals and modifications to any
such lease, and (ii) the lien of any mortgage or trust deed now or hereafter
encumbering fee title to the Building and/or the leasehold estate under any such
lease, unless such ground lease or ground lessor, or mortgage or mortgagee,
expressly provides or elects that the Lease shall be superior to such lease or
mortgage; provided, however, that notwithstanding such subordination, unless
Tenant is in Default hereunder, Tenant's quiet enjoyment of the Building
pursuant to the terms and conditions of this Lease shall not be disturbed by the
holder of any such superior instrument. If any such mortgage or trust deed is
foreclosed, or if any such lease is terminated, upon request of the mortgagee,
holder or lessor, as the case may be, Tenant will attorn to the purchaser at the
foreclosure sale or to the lessor under such lease, as the case may be. The
foregoing provisions are declared to be self-operative and no further
instruments shall be required to effect such subordination and/or attornment;
provided, however, that Tenant agrees upon request by any such mortgagee,
holder, lessor or purchaser at foreclosure, to execute and deliver such
subordination and/or attornment instruments as may be required by such person to
confirm such subordination and/or attornment, or any other documents required to
evidence superiority of the ground lease or mortgage, should ground lessor or
mortgage elect such superiority; provided, however, that any such subordination
instrument shall confirm that Tenant's quiet enjoyment of the Building pursuant
to the terms and conditions of this Lease shall not be disturbed by the holder
of any such superior instrument so long as Tenant is not Default hereunder. If
Tenant fails to execute and deliver any such instrument or document within ten
(10) days after request, Tenant shall be deemed to have irrevocably appointed
Landlord and Landlord's beneficiaries as Tenant's attorneys-in-fact to execute
and deliver such instrument or document in Tenant's name.
22. QUIET ENJOYMENT. As long as no Default exists, Tenant shall peacefully and quietly have and enjoy the Building for the Term, free from interference by Landlord, subject, however, to the provisions of this Lease. The loss or reduction of Tenant's light, air or view will not be deemed a disturbance of Tenant's occupancy of the Building nor will it affect Tenant's obligations under this Lease or create any liability of Landlord to Tenant. Notwithstanding the foregoing or anything else contained in this Lease to the contrary, Landlord shall not voluntarily obstruct any identifying signage of Tenant.
23. BROKER. Tenant represents to Landlord that Tenant has dealt only with the broker(s) set forth in Item 6 of the Schedule (collectively, the "BROKER") in connection with this Lease and that, insofar as Tenant knows, no other broker negotiated this Lease or is entitled to
any commission in connection herewith. Tenant agrees to indemnify, defend and hold Landlord and Landlord's beneficiaries and agents harmless from and against any claims for a fee or commission made by any broker, other than the Broker, claiming to have acted by or on behalf of Tenant in connection with this Lease. Landlord agrees to pay the Broker a commission in accordance with a separate agreement between Landlord and the Broker.
24. NOTICES. All notices and demands to be given by one party to the other party under this Lease shall be given in writing, mailed or delivered to Landlord or Tenant, as the case may be, at the following address:
If to Landlord: Prudential Real Estate Investors
8 Campus Drive
4th Floor - Arbor Circle South
Parsippany, NJ 07054-4493
Attn: Ms. Lynn deCastro
with a copy to: Grubb & Ellis Management Services, Inc.
30 North LaSalle
Suite 1500
Chicago, Illinois 60602
Attn: Mr. Darin Bright
If to Tenant: Tractor Supply Company
200 Powell Place
Brentwood, Tennessee 37027
Attn: General Counsel
|
or at such other address as either party may hereafter designate. Notices shall be delivered by hand or by United States certified or registered mail, postage prepaid, return receipt requested, or by a nationally recognized overnight air courier service. Notices shall be considered to have been given upon the earlier to occur of actual receipt or two (2) business days after posting in the United States mail.
25. MISCELLANEOUS.
A. SUCCESSORS AND ASSIGNS. Subject to Section 14 of this Lease, each provision of this Lease shall extend to, bind and inure to the benefit of Landlord and Tenant and their respective legal representatives, successors and assigns, and all references herein to Landlord and Tenant shall be deemed to include all such parties.
B. ENTIRE AGREEMENT. This Lease, and the riders and exhibits, if any, attached hereto which are hereby made a part of this Lease, represent the complete agreement between Landlord and Tenant, and Landlord has made no representations or warranties except as expressly set forth in this Lease. No modification or amendment of or waiver under this Lease shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.
C. TIME OF ESSENCE. Time is of the essence of this Lease and each and all of its provisions.
D. EXECUTION AND DELIVERY. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of space or an option for lease, and it is not effective until execution and delivery by both Landlord and Tenant. Execution and delivery of this Lease by Tenant to Landlord shall constitute an irrevocable offer by Tenant to lease the Building on the terms and conditions set forth herein, which offer may not be revoked for fifteen (15) days after such delivery.
E. SEVERABILITY. The invalidity or unenforceability of any provision of this Lease shall not affect or impair any other provisions.
F. GOVERNING LAW. This Lease shall be governed by and construed in accordance with the laws of the State of Tennessee.
G. ATTORNEYS' FEES. . In any action or proceeding hereunder, the prevailing party shall be entitled to recover from the other party the prevailing party's reasonable costs and expenses in such action or proceeding, including reasonable attorneys' fees, costs and expenses.
H. [INTENTIONALLY OMITTED]
I. JOINT AND SEVERAL LIABILITY. If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant's obligations under this Lease.
J. FORCE MAJEURE. Landlord shall not be in default hereunder and Tenant shall not be excused from performing any of its obligations hereunder if Landlord is prevented from performing any of its obligations hereunder due to any accident, strike, shortage of materials, acts of God or other causes beyond Landlord's reasonable control. Tenant shall not be in default hereunder and Landlord shall not be excused from performing any of its obligations hereunder if Tenant is prevented from performing any of its obligations hereunder due to any accident, strike, shortage of materials, acts of God or other causes beyond Tenant's reasonable control, except, however, in no event shall Tenant's obligation to timely pay Rent hereunder be excused.
K. CAPTIONS. The headings and titles in this Lease are for convenience only and shall have no effect upon the construction or interpretation of this Lease.
L. NO WAIVER. No receipt of money by Landlord from Tenant after termination of this Lease or after the service of any notice or after the commencing of any suit or after final judgment for possession of the Building shall renew, reinstate, continue or extend the Term or affect any such notice or suit. No waiver of any default of Tenant shall be implied from any omission by Landlord to take any action on account of such default if such default persists or be repeated, and no express waiver shall affect any
default other than the default specified in the express waiver and then only for the time and to the extent therein stated.
M. ERISA.
(i) Neither Tenant nor any of its "affiliates" (within the meaning of Part V(c) of Prohibited Transaction Exemption 84-14, 49 Fed. Reg. 9494 (1984), as amended ("PTE 84-14")) has, or during the immediately preceding year has exercised the authority to:
(a) appoint or terminate Landlord as investment manager over assets of any "employee benefit plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") invested in, or sponsored by, Landlord; or
(b) negotiate the terms of a management agreement (including renewals or modifications thereof) with Landlord on behalf of any such plan;
(ii) Tenant is not "related" to Landlord (as determined under in Part V(h) of PTE 84-14);
(iii) Tenant has negotiated and determined the terms of this Lease at arm's length, as such terms would be negotiated and determined by the Tenant with unrelated parties; and
(iv) Tenant is not an "employee benefit plan" as defined in Section 3(3) of ERISA, a "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended, or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. ss.2510.3-101 of any such employee benefit plan or plan.
N. LIMITATION OF LIABILITY. Any liability of Landlord under this Lease shall be limited solely to its interest in the Building, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord.
O. SIGNAGE. Provided that Tenant is not in default under any of the terms and conditions of this Lease, Tenant shall have the right to erect and maintain such exterior identifying signage on the Building (which includes on the building itself as well as on a monument sign which may be erected by Tenant on the land) as Tenant may desire ("TENANT'S SIGNAGE"). Tenant shall be responsible, at its sole cost and expense, for the purchase, installation, maintenance (in a first-class manner) and removal at the expiration or earlier termination of this Lease, of all of Tenant's Signage; provided, however, that the cost of purchasing and installing Tenant's Signage may be paid for by Landlord's Contribution as more fully provided in the Workletter. Tenant shall be responsible for compliance with all applicable laws, orders and regulations of the municipality in which the Building is located in connection with Tenant's Signage. Such signage rights
hereunder are personal to Tractor Supply Company, and may not be assigned or subleased.
P. CESSATION OF BUSINESS. Tenant shall have no obligation to conduct business from the Building. If, however, Tenant elects to cease operations from all or substantially all of the Building, than Landlord may, by written notice given to Tenant, elect to terminate this Lease as of a date specified in such written notice from Landlord to Tenant.
26. SPECIALTY EQUIPMENT.
A. Tenant shall have the right to install, operate and maintain (i) certain telecommunications equipment on the roof of the Building (collectively, the "ROOFTOP EQUIPMENT") and (ii) and an emergency back-up generator and related equipment (the "GENERATOR"). The Rooftop Equipment and the Generator are sometimes collectively referred to herein as the "SPECIALTY EQUIPMENT". The exact location of the space on the roof where the Rooftop Equipment will be located shall be designated by Landlord (the "ROOF SPACE") and the exact location of generator will be designated by Landlord (the "GENERATOR SPACE"). Landlord's designation shall take into account Tenant's use of the Rooftop Equipment and Generator, as the case may be. Tenant's right to install the Specialty Equipment shall be subject to the approval rights of Landlord and Landlord's architect and/or engineer with respect to the plans and specifications for the Specialty Equipment, the manner in which the Specialty Equipment is attached to the Roof Space and Generator Space, as the case may be, and the manner in which any cables are run to and from the Specialty Equipment. The precise specifications and description of the Specialty Equipment along with all documents Landlord reasonably requires to review the installation of the Specialty Equipment (the "PLANS AND SPECIFICATIONS"), which information shall include structural reports, shall be submitted to Landlord for Landlord's written approval no later than thirty (30) days before Tenant commences to install the Specialty Equipment. Tenant shall be responsible for reimbursing Landlord for all costs and expenses incurred by Landlord in reviewing any such plans and specifications. Tenant shall be solely responsible for obtaining all necessary governmental and regulatory approvals and for the cost of installing, operating, maintaining and removing the Specialty Equipment. Tenant shall notify Landlord upon completion of the installation of the Specialty Equipment. If Landlord determines that the Specialty Equipment does not comply with the approved Plans and Specifications, that the Building has been damaged during installation of the Specialty Equipment or that the installation was defective, Landlord shall notify Tenant of any noncompliance or detected problems and Tenant immediately shall cure the defects. If Tenant fails to immediately cure the defects, Tenant shall pay to Landlord upon demand the cost, as reasonably determined by Landlord, of correcting any defects and repairing any damage to the Building caused by such installation. If at any time Landlord, in its reasonable discretion, deems it necessary, Tenant shall provide and install, at Tenant's sole cost and expense, appropriate aesthetic screening, reasonably satisfactory to Landlord, for the Specialty Equipment (the "AESTHETIC SCREENING").
B. Tenant shall, at its sole cost and expense, and at its sole risk, install, operate and maintain the Specialty Equipment in a good and workmanlike manner, and in compliance with all building, electric, communication, and safety codes, ordinances, standards, regulations and requirements, now in effect or hereafter promulgated, of the Federal Government, and of the state, city and county in which the Building is located. Landlord and its agents assume no responsibility for the licensing, operation and/or maintenance of Tenant's equipment. The Specialty Equipment shall be connected to Landlord's power supply in strict compliance with all applicable building, electrical, fire and safety codes. Installation, maintenance, repair and removal of the Specialty Equipment shall be performed by Tenant or Tenant's authorized representative or contractors, which shall be approved by Landlord, at Tenant's sole cost and risk. Without limiting the generality of the effect of the foregoing, if required by Landlord, Tenant shall use Landlord's designated rooftop construction consultant or contractor in connection with installation of the Specialty Equipment and, if applicable, the Aesthetic Screening. Neither Landlord nor its agents shall have any responsibility or liability for the conduct or safety of any of Tenant's representatives, repair, maintenance and engineering personnel while in or on any part of the Building, including the Roof Space and Generator Space.
C. The Specialty Equipment, the appurtenances and the Aesthetic Screening, if any, shall remain the personal property of Tenant, and shall be removed by Tenant at its own expense at the expiration or earlier termination of this Lease or Tenant's right to possession hereunder. Tenant shall repair any damage caused by such removal, including the patching of any holes to match, as closely as possible, the color surrounding the area where the equipment and appurtenances were attached. Tenant agrees to maintain all of Tenant's equipment placed on or about any part of the Building in proper operating condition and maintain same in satisfactory condition as to appearance and safety.
D. Such Specialty Equipment rights hereunder personal to Tractor Supply Company, and may not be assigned or subleased.
27. RIGHT TO TERMINATE. Tenant shall have the option, to be
exercised as hereinafter provided, to terminate the Term of this Lease effective
as of either (a) the day before the 6th anniversary of the Commencement Date or
(b) the day before the 7th anniversary of the Commencement Date (the applicable
date being referred to as the "TERMINATION DATE"). Such option shall be
exercised, if at all, time being of the essence, by written notice given by
Tenant to Landlord ("TERMINATION NOTICE") no later than 270 days prior to the
Termination Date and subject to payment by Tenant to Landlord of the sum of (a)
$950,000.00 if the Termination Date is the day before the 6th anniversary of the
Commencement Date or (b) $500,000 if the Termination Date is the day before the
7th anniversary of the Commencement Date (the "TERMINATION FEE"). The
Termination Fee shall be paid simultaneously with the giving of the Termination
Notice. Tenant may not, unless Landlord otherwise agrees, exercise its option to
terminate this Lease pursuant to this Section 27 at any time at which a default
by Tenant exists under this Lease, and no such termination shall be effective if
such default exists unless Landlord otherwise agrees. Any notice of exercise of
Tenant's option to terminate the term of this Lease pursuant to this Section 27
shall be irrevocable by Tenant once given. If Tenant so exercises its option to
terminate the term of this Lease and pays to Landlord the Termination Fee as
above
provided, then effective as of the Termination Date, this Lease shall be deemed to have expired by lapse of time, and Tenant shall return the Building to Landlord on the Termination Date in accordance with the requirements of this Lease. All obligations of Tenant which accrue under this Lease on or before the Termination Date shall survive such termination.
28. OPTIONS TO EXTEND.
A. Tenant, at its option, shall have the right to extend
(each an "OPTION TO EXTEND") the Term for the entire Building for two
(2) consecutive additional three (3) year terms (each an "EXTENDED
TERM") by delivering written notice to Landlord at least two hundred
seventy (270) days, time being of the essence, prior to the then
Expiration Date of the Term. Tenant's exercise of an Option to Extend
shall be irrevocable by Tenant once made. The Extended Term shall
commence the day following the then current Expiration Date of the Term,
expire on the day preceding the annual anniversary of such date three
(3) years thereafter and be upon the same terms, covenants and
conditions as provided in this Lease for the Term, except that Base Rent
shall be at the rates set forth below:
================================================== =========================== ===========================
PERIOD MONTHLY ANNUAL
BASE RENT BASE RENT
-------------------------------------------------- --------------------------- ---------------------------
From the 8th anniversary of the Commencement
Date to the day before the 9th anniversary of $155,566.71 $1,866,800.52
the Commencement Date
-------------------------------------------------- --------------------------- ---------------------------
From the 9th anniversary of the Commencement
Date to the day before the 10th anniversary of $158,678.04 $1,904,136.48
the Commencement Date
-------------------------------------------------- --------------------------- ---------------------------
From the 10th anniversary of the Commencement
Date to the Expiration Date of the first $161,851.60 $1,942,219.20
Extended Term
-------------------------------------------------- --------------------------- ---------------------------
From the 11th anniversary of the Commencement
Date to the day before the 12th anniversary of $165,088.64 $1,981,063.68
the Commencement Date
-------------------------------------------------- --------------------------- ---------------------------
|
-------------------------------------------------- --------------------------- --------------------------- From the 12th anniversary of the Commencement Date to the day before the 13th anniversary of $168,390.41 $2,020,684.92 the Commencement Date -------------------------------------------------- --------------------------- --------------------------- From the 13th anniversary of the Commencement Date to Expiration Date of the Second Extended $171,758.22 $2,061,098.64 Term ================================================== =========================== =========================== |
B. Tenant may only exercise an Option to Extend and an
exercise thereof shall only be effective, if at the time of Tenant's
exercise of the option and on the commencement date of the applicable
Extended Term, this Lease is in full force and effect and, unless waived
by Landlord, no event or circumstance exists which, with the giving of
notice or the passage of time, or both, could constitute a default by
Tenant under this Lease, and, inasmuch as this option is intended only
for the original Tenant named in this Lease, the entire Building is then
occupied by the original Tenant herein, and Tenant has not assigned this
Lease or sublet any portion of the Building. Without limitation of the
foregoing, no sublessee or assignee shall be entitled to exercise an
Option to Extend, and, unless waived by Landlord, no exercise of an
Option to Extend by the original Tenant named herein shall be effective
if Tenant assigns this Lease or subleases any portion of the Building
prior to the date of commencement of the Extended Term. Additionally,
notwithstanding anything contained herein to the contrary, Tenant's
rights under this Section 28 are conditioned upon Tenant delivering to
Landlord, simultaneously with the delivery of Tenant's notice under
Section 28.A above, Tenant's then current financial statements
evidencing that no material adverse change in the financial condition of
Tenant has occurred since the financial statements delivered by Tenant
to Landlord in connection with the initial Term, with respect to the
first Option to Extend, or delivered by Tenant to Landlord in connection
with the first Option to Extend, with respect to the second Option to
Extend.
C. Upon the valid exercise by Tenant of an Option to Extend, at the request of either party hereto and within thirty (30) days after such request, Landlord and Tenant shall enter into a written amendment to this Lease confirming the terms, conditions and provisions applicable to the Extended Term as determined in accordance with the provisions of this Section 28.
IN WITNESS WHEREOF, the parties hereto have executed this Lease in manner sufficient to bind them as of the day and year first above written.
[signatures on following page]
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation
By: GRUBB & ELLIS MANAGEMENT SERVICES, INC.,
a Delaware corporation, its duly authorized agent
By: /s/ Terry Mchugh
--------------------------------------------------
Name: Terry Mchugh
---------------------------------------------
Its: Vice President
----------------------------------------------
|
TRACTOR SUPPLY COMPANY,
a Delaware corporation
By: /s/ James F. Wright
--------------------------------------------------
Name: James F. Wright
---------------------------------------------
Its: President and Chief Operating Officer
----------------------------------------------
|
EXHIBIT A
WORKLETTER
Capitalized terms used herein shall have the meanings ascribed to them in the Lease, unless otherwise defined herein. In consideration of the covenants contained in this Workletter and in the Lease, Landlord and Tenant agree as follows:
TENANT'S
PLANS 1. Tenant desires Landlord to perform
certain leasehold improvement work in the Building (the
"WORK") pursuant to that certain Preliminary Space Plan
attached hereto as Attachment 1 ("TENANT'S SPACE PLAN").
The Work and all plans, drawings and specifications to
be furnished by Tenant shall be subject to Landlord's
approval. Approval by Landlord of the Work, Tenant's
Space Plan, the Working Drawings (as hereinafter
defined) and any additional plans, drawings,
specifications and finish details furnished by Tenant,
shall not constitute any warranty by Landlord to Tenant
of the adequacy of the design for Tenant's intended use
of the Building.
WORKING DRAWINGS
AND BIDS 2. Tenant shall cause Tenant's architect to
prepare final working drawings and specifications for
the Work (the "WORKING DRAWINGS") based upon Tenant's
Space Plan and deliver same to Landlord on or before
February 23, 2004, for review and approval by Landlord.
Landlord shall either approve the proposed Working
Drawings or reject same, with written comments, within
five (5) business days after receipt of same from
Tenant. The requirements of the preceding provisions of
this Paragraph 2 shall be repeated until Tenant approves
the Working Drawings or until the Working Drawings are
deemed approved.
Upon approval of the Working Drawings, or earlier if mutually agreed upon by Landlord and Tenant, Landlord and Tenant shall submit the Working Drawings to the general contractors selected by Landlord and Tenant for bid. Tenant shall have the right to select the general contractor for the Work from the responsive bidders.
PERFORMANCE
OF THE WORK 3. Landlord shall perform, and the Work
shall include, (i) any costs associated with Landlord's
preparation of the Working Drawings, (ii) demolition of
existing improvements in the Building, (iii) the work
shown on the Working Drawings and (iv) any Additional
Work which Landlord agrees to perform pursuant to
Paragraph 7. The cost of the Work shall include all
costs incurred by Landlord in performing the Work as
described above as well as supervision fee equal to 5%
of the cost of the Work.
In addition to the Work, Landlord shall, at its sole cost and expense, install one (1) freight elevator in the Building.
PAYMENT 4. Landlord shall pay up to a maximum of $1,666,833.00 toward the cost of the Work ("LANDLORD'S CONTRIBUTION"). Tenant shall pay Landlord, as additional rent under the Lease, all cost of the Work in excess of Landlord's Contribution (such excess being referred to as "TENANT'S CONTRIBUTION"). If the cost of the Work is less than Landlord's Contribution, Tenant shall be entitled to a credit against Base Rent next becoming due under the Lease until fully applied in the amount of such unused amounts or Tenant may elect to apply such unused amounts against costs and expenses incurred by Tenant in connection with the purchase and installation of Tenant's Signage. Prior to commencing the Work, Landlord will submit to Tenant a written estimate of the cost of the Work, which estimate shall include cost of all labor and materials and insurance premiums charged by contractors. Tenant agrees, within five (5) business days after submission of such estimate of costs, to execute and deliver to Landlord, in the form then in use by Landlord, an authorization to proceed with the Work and that portion of the Work to be paid for by Tenant, if any, and Tenant shall at the same time pay to Landlord the amount set forth in Landlord's estimate as Tenant's Contribution. No Work shall be commenced until Tenant has fully complied with the preceding portions of this Paragraph 4.
SUBSTANTIAL
COMPLETION 5. At such time as Landlord considers the
Work to be substantially completed, Landlord or
Landlord's architect will schedule a walk-through of the
Building with Tenant or Tenant's representative. During
such walk-through, Landlord or Landlord's architect
along with Tenant or Tenant's representative will
prepare a list of minor finish-out and punchlist items
to be completed. The Work being performed by Landlord
(which for purposes of determining substantial
completion may exclude, at Landlord's election, any
Additional Work) shall be considered "substantially
completed" for all purposes under this Workletter
Agreement and the Lease when (i) Landlord's architect
certifies that the Work is substantially complete, (ii)
Brentwood, Tennessee, issues a certificate of occupancy
for the Building, or (iii) Tenant first takes occupancy
of the Building, whichever first occurs.
TENANT
DELAY 6. There shall be no extension of the
Commencement Date of the term of the Lease if the Work
has not been substantially completed by reason of any
delay caused by Tenant ("TENANT DELAY"), including
without limitation, any delay arising as a result of:
(a) the failure of Tenant to furnish approved Working
Drawings to Landlord on or before February 23, 2004;
(b) Tenant's requirements for special work or materials finishes, or installations other then as shown on Tenant's Space Plan;
(c) the performance of any other work in the Building by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion of such work; or
(d) any other act or omission of Tenant.
ADDITIONAL
WORK 7. Upon Tenant's request and submission by
Tenant (at Tenant's sole cost and expense) of the
necessary information, and/or plans and specifications
for work other than the Work (the "Additional Work"),
Landlord may, at its election, perform the Additional
Work, at Tenant's sole cost and expense. Prior to
commencing any Additional Work requested by Tenant,
Landlord shall submit to Tenant a written statement of
the cost of such Additional Work, which cost shall
include the cost of all labor and materials, insurance
premiums charged by contractors and a proposed Tenant
Extra Order (the "TEO") for Additional Work in the
standard form then in use by Landlord. If Tenant shall
fail to enter into said TEO within three (3) days after
Tenant's receipt thereof, Landlord shall proceed to do
only the Work specified in the Working Drawings. Tenant
agrees to pay to Landlord, concurrently with its
execution of the TEO, the entire cost of the Additional
Work as shown in the statement delivered by Landlord.
TENANT'S SECURITY
SYSTEM 8. Landlord agrees that Tenant shall have
the right to install security systems in the Building.
Such installation shall be subject to the terms and
conditions of the Lease, including, without limitation,
the terms and conditions of Section 9 of the Lease. Upon
completion of installation of such security system and
delivery to Landlord of appropriate lien waivers and
other reasonable evidence of completion and payment,
Landlord shall reimburse Tenant up to $15,000.00 for
costs and expenses incurred by Tenant in connection with
installation of such security system. Said contribution
from Landlord shall be in addition to Landlord's
Contribution provided above. Tenant shall be responsible
for operation and maintenance of such security system.
Upon request of Landlord, Tenant shall remove such
security system from the Building and repair any damage
caused by such security system or its removal upon the
expiration or earlier termination of this Lease.
ADDITIONAL PARKING 9. Subject to the terms and conditions of
the Lease, including, without limitation, the terms and
conditions of Section 9 of the Lease, and specifically
subject to Tenant's compliance with all applicable laws,
Tenant shall have the right to construct additional
surface parking for the Building.
LEASE 10. The exculpatory provision set forth in
PROVISIONS Section 25.N. of the Lease as well as all other terms
INCORPORATED and provisions of the Lease, insofar as they are
applicable to this Workletter, are hereby incorporated
herein by this reference.
|
ATTACHMENT TO WORKLETTER
TENANT'S SPACE PLAN
TO BE PREPARED AND PROVIDED BY TENANT AND
SUBJECT TO LANDLORD REVIEW AND APPROVAL
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entries, passages, elevators, stairways and other common areas of the Building shall not be obstructed or used for any other purpose than ingress and egress.
2. No additional locks shall be placed upon any doors in the Building; and the doors leading to the corridors shall be kept closed during business hours, except as they may be used for ingress and egress.
3. No draperies, shades or blinds visible from the exterior of the Building shall be installed unless the color, material, shape, style and size have been approved by Landlord, or Landlord's agent, in writing.
4. No awning, canopy, or the like shall be installed unless approved by Landlord or Landlord's agent, in writing.
5. No freight, furniture or other bulky matter of any description shall be moved into or out of the Building or carried in the elevators, stairways or through the windows of the Building except as approved in advance by Landlord or Landlord's agent, and at such times and in such manner as Landlord or Landlord's agent may direct. There shall not be used in any space, or in any public halls of the Building, either by Tenant or by jobbers or other, in the delivery or receipt of merchandise any hand track, except those equipped with rubber tires and side guards. No trash or other materials shall be left on the premises at any time unless it is retained in trash receptacles located within Tenant's designated space. During move-outs all trash shall be removed from the Premises at the Tenant's expense.
6. Tenant shall promptly remove from the public areas adjacent to the Building any of Tenant's property there delivered or deposited.
7. No parking is permitted in areas which are not properly designated as parking. Cars parked in "no parking" areas will be subject to being removed and stored at owner's expense.
8. No portable heater or fans should be used, maintained or operated within the Building unless Tenant shall have first obtained the prior written consent of Landlord or Landlord's agent.
9. No animals shall be kept in or about the Building.
10. No room or rooms shall be occupied or used as sleeping or lodging apartments at any time, or for an immoral or illegal purposes under penalty of immediate cancellation of lease.
January 28, 2004
Tractor Supply Company
320 Plus Park Blvd.
Nashville, Tennessee 37217
Attn: Calvin B. Massmann, CFO
Re: Credit Agreement dated as of August 15, 2002 (as amended from time to time, the "CREDIT AGREEMENT") among Tractor Supply Company (the "BORROWER"), certain Subsidiaries of the Borrower from time to time party thereto (the "GUARANTORS"), the Lenders identified therein and Bank of America, N.A., as Administrative Agent. Capitalized terms used but not otherwise defined shall have the meanings provided in the Credit Agreement.
Dear Mr. Massmann:
Reference is made to the Credit Agreement described above, the defined terms of which are incorporated herein by reference.
The parties hereto agree that the definition of "Fixed Charge Coverage Ratio" in
Section 1.1 of the Credit Agreement is amended to read as follows:
"FIXED CHARGE COVERAGE RATIO" MEANS, WITH RESPECT TO THE CONSOLIDATED PARTIES ON A CONSOLIDATED BASIS, AS OF THE END OF EACH FISCAL QUARTER OF THE CONSOLIDATED PARTIES FOR THE TWELVE MONTH PERIOD ENDING ON SUCH DATE, THE RATIO OF (A) THE SUM OF (I) CONSOLIDATED EBITDAR FOR THE APPLICABLE PERIOD MINUS (II) CONSOLIDATED CASH TAXES FOR THE APPLICABLE PERIOD TO (B) THE SUM OF (I) THE CASH PORTION OF CONSOLIDATED INTEREST EXPENSE FOR THE APPLICABLE PERIOD PLUS (II) SCHEDULED FUNDED DEBT PAYMENTS FOR THE APPLICABLE PERIOD PLUS (III) CONSOLIDATED RENTAL EXPENSE FOR THE APPLICABLE PERIOD PLUS (IV) THE AGGREGATE AMOUNT OF PERMITTED STOCK REPURCHASES MADE DURING THE APPLICABLE PERIOD.
The parties hereto agree that the definition of "QSI Acquisition Amount" in
Section 1.1 of the Credit Agreement is deleted.
The parties hereto agree that a new Section 6.24 is hereby added to the Credit Agreement that shall read as follows:
6.24 TAX SHELTER REPRESENTATION.
THE BORROWER DOES NOT INTEND TO TREAT THE LOANS AND/OR LETTERS
OF CREDIT AND RELATED TRANSACTIONS AS BEING A "REPORTABLE TRANSACTION"
(WITHIN THE MEANING OF TREASURY REGULATION SECTION 1.6011-4). IF THE
BORROWER DETERMINES TO TAKE ANY ACTION INCONSISTENT WITH SUCH INTENTION,
IT WILL PROMPTLY NOTIFY THE ADMINISTRATIVE AGENT THEREOF. THE BORROWER
ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT AND/OR ONE OR MORE OF THE
LENDERS MAY TREAT THE LOANS AND/OR LETTERS OF CREDIT AS PART OF A
TRANSACTION THAT IS SUBJECT TO TREASURY REGULATION SECTION 1.6011-4 OR
SECTION 301.6112-1, AND THE ADMINISTRATIVE AGENT AND SUCH LENDER OR
LENDERS, AS APPLICABLE,
MAY FILE SUCH IRS FORMS OR MAINTAIN SUCH LISTS AND OTHER RECORDS AS THEY
MAY DETERMINE IS REQUIRED BY SUCH TREASURY REGULATIONS.
The parties hereto agree that a new Section 7.1(k) is hereby added to the Credit Agreement that shall read as follows:
(K) IRS FORM 8886. PROMPTLY AFTER THE BORROWER HAS NOTIFIED
THE ADMINISTRATIVE AGENT OF ANY INTENTION BY THE BORROWER TO TREAT THE
LOANS AND/OR LETTERS OF CREDIT AND RELATED TRANSACTIONS AS BEING A
"REPORTABLE TRANSACTION" (WITHIN THE MEANING OF TREASURY REGULATION
SECTION 1.6011-4), A DULY COMPLETED COPY OF IRS FORM 8886 OR ANY
SUCCESSOR FORM.
The parties hereto agree that Section 7.11(b) of the Credit Agreement is amended to read as follows:
(B) FIXED CHARGE COVERAGE RATIO. THE FIXED CHARGE COVERAGE RATIO, AS OF THE LAST DAY OF EACH FISCAL QUARTER OF THE BORROWER, SHALL BE GREATER THAN OR EQUAL TO 2.00 TO 1.0;
The parties hereto agree that a new Section 8.15 is hereby added to the Credit Agreement that shall read as follows:
8.15 CONSOLIDATED CAPITAL EXPENDITURES.
THE CREDIT PARTIES WILL NOT PERMIT CONSOLIDATED CAPITAL
EXPENDITURES TO EXCEED $100,000,000 FOR ANY FISCAL YEAR.
The parties hereto agree that a new paragraph is added at the end of Section 11.14 of the Credit Agreement that shall read as follows:
Notwithstanding anything herein to the contrary, the information subject to this Section 11.14 shall not include, and the Borrower, the other Credit Parties, the Administrative Agent, each Lender and the respective Affiliates of each of the foregoing (and the respective partners, directors, officers, employees, agents, advisors and other representatives of each of the foregoing and their Affiliates) may disclose to any and all Persons, without limitation of any kind (a) any information with respect to the U.S. federal and state income tax treatment of the transactions contemplated hereby and any facts that may be relevant to understanding such tax treatment, which facts shall not include for this purpose the names of the parties or any other Person named herein, or information that would permit identification of the parties or such other Persons, or any pricing terms or other nonpublic business or financial information that is unrelated to such tax treatment or facts, and (b) all materials of any kind (including opinions or other tax analyses) relating to such tax treatment or facts that are provided to any of the Persons referred to above.
The parties hereto agree that a new Section 11.17 is hereby added to the Credit Agreement that shall read as follows:
11.17 US PATRIOT ACT NOTICE.
EACH LENDER AND THE ADMINISTRATIVE AGENT (FOR ITSELF AND NOT ON BEHALF OF ANY LENDER) HEREBY NOTIFIES THE BORROWER THAT PURSUANT TO THE REQUIREMENTS OF THE USA PATRIOT ACT (TITLE III OF PUB. L. 107-56 (SIGNED INTO LAW OCTOBER 26, 2001)) (THE "ACT"), IT IS REQUIRED TO OBTAIN, VERIFY AND RECORD INFORMATION THAT IDENTIFIES THE BORROWER, WHICH INFORMATION INCLUDES THE NAME AND
ADDRESS OF THE BORROWER AND OTHER INFORMATION THAT WILL ALLOW SUCH LENDER OR THE ADMINISTRATIVE AGENT, AS APPLICABLE, TO IDENTIFY THE BORROWER IN ACCORDANCE WITH THE ACT.
Pursuant to Section 2.4(a) of the Credit Agreement, the Borrower has requested that the Lenders extend the Maturity Date to February 28, 2007. The Lenders party hereto agree that the Maturity Date shall be extended to February 28, 2007.
All references in the Credit Agreement and the other Credit Documents to the "Credit Agreement" shall be deemed to refer to the Credit Agreement as amended hereby.
Except as modified hereby, all of the terms and provisions of the Credit Agreement and the other Credit Documents shall remain in full force and effect.
This letter agreement shall be governed by and construed in accordance with the laws of the State of New York.
Sincerely,
BANK OF AMERICA, N.A., as Administrative Agent
By: /s/ Misha Blackman
--------------------------------
Name: Misha Blackman
------------------------------
Title: Agency Management Officer
-----------------------------
|
ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:
BORROWER: TRACTOR SUPPLY COMPANY
--------- a Delaware corporation
By: /s/ Calvin B. Massman
------------------------------------
Name: Calvin B. Massmann
Title: Senior Vice President /
Chief Financial Officer
|
TRACTOR SUPPLY CO. OF MICHIGAN, LLC
a Michigan limited liability company
By: /s/ Calvin B. Massman ------------------------------------ Name: Calvin B. Massmann Title: Treasurer |
TRACTOR SUPPLY CO. OF TEXAS, LP
a Texas limited partnership
By: /s/ Calvin B. Massman ------------------------------------ Name: Calvin B. Massmann Title: Treasurer |
ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:
BANK OF AMERICA, N.A.
By: /s/ Bryan Hulker
-----------------------------------
Name: Bryan Hulker
----------------------------------
Title: Senior Vice-President
--------------------------------
|
U.S. BANK, NATIONAL ASSOCIATION
By: /s/ Russell S. Rogers
-----------------------------------
Name: Russell S. Rogers
----------------------------------
Title: Vice President
---------------------------------
|
SOUTHTRUST BANK
By: /s/ Michael Johnson
-----------------------------------
Name: Michael Johnson
----------------------------------
Title: Associate Vice President
---------------------------------
|
AMSOUTH BANK
By: /s/ Tom Dozier, Jr.
-----------------------------------
Name: Tom Dozier, Jr.
----------------------------------
Title: Vice President
--------------------------------
|
SUNTRUST BANK
By: /s/ James M. Sloan, Jr.
-----------------------------------
Name: James M. Sloan, Jr.
----------------------------------
Title: Director
---------------------------------
|
COMPASS BANK
By: /s/ Kelly W. Mcgee
-----------------------------------
Name: Kelly W. Mcgee
----------------------------------
Title: Vice President
---------------------------------
|
FIFTH THIRD BANK
By: /s/ David J. Hicks
------------------------------------
Name: David J. Hicks
----------------------------------
Title: Vice President
---------------------------------
|
BRANCH BANKING & TRUST COMPANY
By: /s/ R. Andrew Beam
------------------------------------
Name: R. Andrew Beam
----------------------------------
Title: Senior Vice President
---------------------------------
|
NATIONAL CITY BANK
By: /s/ Michael J. Durbin
------------------------------------
Name: Michael J. Durbin
----------------------------------
Title: Senior Vice President
---------------------------------
|
REGIONS BANK
By: /s/ Jim Schmalz
------------------------------------
Name: Jim Schmalz
----------------------------------
Title: Vice President
---------------------------------
|
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in: (1) the Registration Statement on Form S-8 (File No. 333-10699) and related Prospectus pertaining to the Tractor Supply Company 1996 Associate Stock Purchase Plan; (2) the Registration Statement on Form S-3 (File No. 333-35317) and related Prospectus pertaining to the Tractor Supply Company Restated 401(k) Retirement Plan; (3) the Registration Statement on Form S-8 (File No. 333-80619) and related Prospectus pertaining to the Tractor Supply Company 1994 Stock Option Plan; and (4) the Registration Statement on Form S-8 (File No. 333-102768) and related Prospectus pertaining to the Tractor Supply Company 2000 Stock Incentive Plan, of our report dated January 19, 2004, except for Note 19, as to which the date is January 28, 2004, with respect to the consolidated financial statements of Tractor Supply Company included in the Annual Report (Form 10-K) for the year ended December 27, 2003.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 5, 2004
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Exhibit 31.1
CERTIFICATION
I, Joseph H. Scarlett, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-K of Tractor Supply Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 8, 2004 /s/ Joseph H. Scarlett, Jr.
------------------------ -------------------------------
Joseph H. Scarlett, Jr.
Chairman of the Board and
Chief Executive Officer
|
Exhibit 31.2
CERTIFICATION
I, Calvin B. Massmann, certify that:
1. I have reviewed this quarterly report on Form 10-K of Tractor Supply Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 8, 2004 /s/ Calvin B. Massmann
-------------------------- ---------------------------
Calvin B. Massmann
Senior Vice President and
Chief Financial Officer
|
Exhibit 32.1
In connection with the Annual Report of Tractor Supply Company (the "Company") on Form 10-K for the period ended December 27,2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Joseph H. Scarlett, Jr., Chief Executive Officer, and Calvin B. Massmann, Chief Financial Officer, of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350), that to the best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: March 8, 2004 /s/ Joseph H. Scarlett ---------------------------------------- Joseph H. Scarlett, Jr. Chief Executive Officer /s/ Calvin B. Massmann ---------------------------------------- Calvin B. Massmann Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Tractor Supply Company and will be retained by Tractor Supply Company and furnished to the Securities and Exchange Commission or its staff upon request.