EXHIBIT 10.28
[Net Lease]
LEASE AGREEMENT
THIS LEASE AGREEMENT is made this 30th day of September, 1998, between
ProLogis Development Services Incorporated ("Landlord"), and the Tenant named
below.
TENANT: Select Comfort Corporation
TENANT'S REPRESENTATIVE, Gregory T. Kliner
ADDRESS, AND PHONE NO.: 6105 Trenton Lane N.
Minneapolis, MN 55442-3240
(612) 551-7821, Fax: (612) 551-
7826
PREMISES: That portion of the Building,
containing approximately
100,800 rentable square feet,
as determined by Landlord, plus
parking area, driveways and
common area rights, as shown on
Exhibit A.
PROJECT: Salt Lake International Center
#7
BUILDING: Select Comfort Distribution
Center #1
TENANT'S PROPORTIONATE SHARE
OF PROJECT: 100%
TENANT'S PROPORTIONATE SHARE
OF BUILDING: 100%
LEASE TERM: Beginning on the Commencement
Date and ending on the last day
of the 120th full calendar
month thereafter.
COMMENCEMENT DATE: As described in Addendum 2 and
Addendum 3
INITIAL MONTHLY BASE RENT: $33,969.00
INITIAL ESTIMATED MONTHLY 1. Utilities: $N/A
OPERATING EXPENSE PAYMENTS: 2. Common Area
(estimates only and subject to Charges: $1,068.48
adjustment to actual costs and 3. Taxes: $4,788.00
expenses according to the 4. Insurance: $252.00
provisions of this Lease) 5. Others: $844.00
INITIAL ESTIMATED MONTHLY
OPERATING $6,952.48
EXPENSE PAYMENTS:
INITIAL MONTHLY BASE RENT AND
OPERATING EXPENSE PAYMENTS: $40,921.48
SECURITY DEPOSIT: $37,000, in addition to the
terms as set forth in Addendum
7.
BROKER: N/A
ADDENDA: Addendum 1 (Base Rent Adj.),
Addendum 2 (Building Shell
Construction), Addendum 3
(Improvements Construction),
Addendum 4 (Renewal Option),
Addendum 5 (Purchase Option),
Addendum 6 (Right of First
Offer), Addendum 7 (Credit
Enhancements), Exhibit A (Site
Plan), Exhibit B (Replatting of
Land Parcel)
1. GRANTING CLAUSE. In consideration of the obligation of Tenant to pay
rent as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord,
the Premises, to have and to hold for the Lease Term, subject to the terms,
covenants and conditions of this Lease.
2. ACCEPTANCE OF PREMISES. Tenant shall accept the Premises in its
condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions. Landlord has made no
representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business, and Tenant waives any implied warranty that the Premises
are suitable for Tenant's intended purposes. Except for latent defects for
which Tenant provides Landlord notice within 60 days after taking possession of
the Premises and as provided in Paragraph 10, in no event shall Landlord have
any obligation for any defects in the Premises or any limitation on its use.
The taking of possession of the Premises shall be conclusive evidence that
Tenant accepts the Premises and that the Premises were in good condition at the
time possession was taken except for items that are Landlord's responsibility
under Paragraph 10, and any punchlist items or latent defects or as otherwise
agreed to in writing by Landlord and Tenant.
3. USE. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (but limited to wholesale sales, employee discount
sales, sales made by direct shipment to Tenant's consumers, and limited showroom
sales) products, materials and merchandise made and/or distributed by Tenant,
light manufacturing, and for such other lawful purposes as may be incidental
thereto. Tenant shall not conduct or give notice of any auction, liquidation,
or going out of business sale on the Premises. Tenant will use the Premises in
a careful, safe and proper manner and will not commit waste, overload the floor
or structure of the Premises or subject the Premises to use that would damage
the Premises. Tenant shall not permit
2
any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations
to emanate from the Premises, or take any other action that would constitute
a nuisance or would disturb, unreasonably interfere with, or endanger
Landlord or any tenants of the Project. Outside storage, including without
limitation, storage of non-operable trucks and other non-operable vehicles,
is prohibited without Landlord's prior written consent, which shall not be
unreasonably withheld; provided, however Landlord hereby consents to the
outside storage of Tenant's trucks and tractor-trailers used in Tenant's
normal business operations, not to exceed 5 days and so long as such trucks
and tractor-trailers do not interfere with the ingress and egress of the
Project. Tenant, at its sole expense, shall use and occupy the Premises in
compliance with all laws, including, without limitation, the Americans With
Disabilities Act, orders, judgments, ordinances, regulations, codes,
directives, permits, licenses, covenants and restrictions now or hereafter
applicable to the Premises (collectively, "Legal Requirements"). The
Premises shall not be used as a place of public accommodation under the
Americans With Disabilities Act or similar state statutes or local ordinances
or any regulations promulgated thereunder, all as may be amended from time to
time. Tenant shall, at its expense, make any non-structural alterations or
modifications, within or without the Premises, that are required by Legal
Requirements because of Tenant's particular use or occupation of the
Premises. Tenant will not use or permit the Premises to be used for any
purpose or in any manner that would void Tenant's or Landlord's insurance,
increase the insurance risk, or cause the disallowance of any sprinkler
credits. If any increase in the cost of any insurance on the Premises or the
Project is caused by Tenant's use or occupation of the Premises, or because
Tenant vacates the Premises, then Tenant shall pay the amount of such
increase to Landlord. Any occupation of the Premises by Tenant prior to the
Commencement Date shall be subject to all obligations of Tenant under this
Lease.
Notwithstanding anything contained herein to the contrary, Tenant's
obligations hereunder shall relate only to the interior of the Premises and any
changes to the Project that relate solely to the specific manner of use of the
Premises by Tenant; and Landlord shall make all other additions to or
modifications of the Project required from time to time by Legal Requirements.
The cost of such additions or modifications made by Landlord shall be included
in Operating Expenses pursuant to Paragraph 6 of this Lease, except for those
additions or modifications which are Landlord's sole responsibility pursuant to
Paragraph 10 of this Lease.
Notwithstanding anything contained herein to the contrary, Tenant may
store its pallets in certain designated storage areas as mutually agreed to by
Landlord and Tenant.
4. BASE RENT. Tenant shall pay Base Rent in the amount set forth above.
The first month's Base Rent, the Security Deposit, and the first monthly
installment of estimated Operating Expenses (as hereafter defined) shall be due
and payable on the date hereof, and Tenant promises to pay to Landlord in
advance, without demand, deduction or set-off (except as expressly provided for
in this Lease), monthly installments of Base Rent on or before the first day of
each calendar month succeeding the Commencement Date. Payments of Base Rent for
any fractional calendar month shall be prorated. All payments required to be
made by Tenant to Landlord hereunder shall be payable at such address as
Landlord may specify from time to time by written notice delivered in accordance
herewith. The obligation of Tenant to pay Base Rent and other sums to Landlord
and the obligations of Landlord under this Lease are independent obligations.
Tenant shall have no right at any time to abate, reduce, or set-off any rent due
3
hereunder except as may be expressly provided in this Lease. If Tenant is
delinquent in any monthly installment of Base Rent or of Operating Expenses
beyond 5 business days after the due date thereof, and after receipt of notice
as provided below, Tenant shall pay to Landlord on demand a late charge equal to
5 percent of such delinquent sum. Tenant shall not be obligated to pay the late
charge until Landlord has given Tenant 5 business days written notice of the
delinquent payment (which may be given at any time during the delinquency) and
Tenant has failed to remit said payment within such 5-day period; provided,
however, that such notice shall not be required more than twice in any 12-month
period. The provision for such late charge shall be in addition to all of
Landlord's other rights and remedies hereunder or at law and shall not be
construed as a penalty or as limiting Landlord's remedies in any manner.
5. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord as
security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of an Event of
Default (hereinafter defined), Landlord may use all or part of the Security
Deposit to pay delinquent payments due under this Lease, and the cost of any
damage, injury, expense or liability caused by such Event of Default, without
prejudice to any other remedy provided herein or provided by law. Tenant shall
pay Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease and the Premises to a person or entity assuming
Landlord's obligations under this Paragraph 5. See Addendum 7.
6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term, on
the same date that Base Rent is due, Tenant shall pay Landlord an amount equal
to 1/12 of the annual cost, as estimated by Landlord from time to time, of
Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the
Project. Payments thereof for any fractional calendar month shall be prorated.
The term "Operating Expenses" means all costs and expenses incurred by Landlord
with respect to the ownership, maintenance, and operation of the Project
including, but not limited to costs of: Taxes (hereinafter defined) and fees
payable to tax consultants and attorneys for consultation and contesting taxes;
insurance; utilities; maintenance, repair and replacement of all portions of the
Project, including without limitation, paving and parking areas, roads, roofs,
alleys, and driveways, mowing, landscaping, exterior painting, utility lines,
heating, ventilation and air conditioning systems, lighting, electrical systems
and other mechanical and building systems; amounts paid to contractors and
subcontractors for work or services performed in connection with any of the
foregoing; charges or assessments of any association to which the Project is
subject; property management fees payable to a property manager, including any
affiliate of Landlord, in the amount of $844.00 for the first year of the Lease
Term, increased 4% annually throughout the remainder of the Lease Term; security
services, if any; trash collection, sweeping and removal; and additions or
alterations made by Landlord to the Project or the Building in order to comply
with Legal Requirements (other than those expressly required herein to be made
by Tenant) or that are appropriate to the continued operation of the Project or
the Building as a bulk warehouse facility in the market area, provided that the
cost of additions or alterations that are required to be capitalized for federal
income tax
4
purposes shall be amortized on a straight line basis over a period equal to
the lesser of the useful life thereof for federal income tax purposes or 10
years. Operating Expenses do not include costs, expenses, depreciation or
amortization for capital repairs and capital replacements required to be made
by Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlor with respect thereto, leasing
commissions (if applicable), interest, principal, or other payments on
account of any indebtedness that is secured by any encumbrance on any part of
the Project, or rental or other payments under any ground lease, or any
payments in the nature of returns on or of equity of any kind, costs of
selling, syndicating, financing, mortgaging or hypothecating any part of or
interest in the Project, costs for which Landlord is reimbursed from any
other source, costs of removing Hazardous Materials or of correcting any
other conditions in order to comply with any environmental law or ordinance
(but this exclusion shall not constitute a release by Landlord of Tenant for
any such costs for which Tenant is liable pursuant to Paragraph 30 of this
Lease), depreciation, reserves of any kind, including replacement reserves
and reserves for bad debt or lost rent, or any other charge not involving the
payment of money to third parties, costs incurred in connection with the
construction or remodeling of the Project or any other improvements now or
hereafter located thereon, correction of defects in design or construction,
Landlord's overhead costs, including salaries, equipment, supplies,
accounting and legal fees, rent and other occupancy costs or any other costs
associated with the operation or internal organization and function of
Landlord as a business entity (but this provision does not prevent the
payment of a management fee to Landlord as provided in this Paragraph 6),
costs incurred as a result of Landlord's violation of any lease, contract,
law or ordinance, including fines and penalties, late charges, interest or
penalties of any kind for late or other improper payment of any public or
private obligation, including ad valorem taxes, or the costs of renovating
space for tenants (if applicable).
If Tenant's total payments of Operating Expenses for any year are less
than Tenant's Proportionate Share of actual Operating Expenses for such year,
then Tenant shall pay the difference to Landlord within 30 days after demand,
and if more, then Landlord shall retain such excess and credit it against
Tenant's next payments, except that Landlord shall refund such excess to Tenant
within 30 days following the last calendar year of the Lease Term. For purposes
of calculating Tenant's Proportionate Share of Operating Expenses, a year shall
mean a calendar year except the first year, which shall begin on the
Commencement Date, and the last year, which shall end on the expiration of this
Lease. With respect to Operating Expenses which Landlord allocates to the
entire Project, Tenant's "Proportionate Share" shall be the percentage set forth
on the first page of this Lease as Tenant's Proportionate Share of the Project
as reasonably adjusted by Landlord in the future for changes in the physical
size of the Premises or the Project; and, with respect to Operating Expenses
which Landlord allocates only to the Building, Tenant's "Proportionate Share"
shall be the percentage set forth on the first page of this Lease as Tenant's
Proportionate Share of the Building as reasonably adjusted by Landlord in the
future for changes in the physical size of the Premises or the Building.
Landlord may equitably increase Tenant's Proportionate Share for any item of
expense or cost reimbursable by Tenant that relates to a repair, replacement, or
service that benefits only the Premises or only a portion of the Project or
Building that includes the Premises or that varies with occupancy or use. The
estimated Operating Expenses for the Premises set forth on the first page of
this Lease are only estimates, and Landlord makes no guaranty or warranty that
such estimates will be accurate.
5
7. UTILITIES. Tenant shall pay for all water, gas, electricity, heat,
light, power, telephone, sewer, sprinkler services, refuse and trash collection,
and other utilities and services used on the Premises, all maintenance charges
for utilities, and any storm sewer charges or other similar charges for
utilities imposed by any governmental entity or utility provider, together with
any taxes, penalties, surcharges or the like pertaining to Tenant's use of the
Premises. Landlord shall cause at Landlord's expense all utilities, except for
water and sewer, to be separately metered or charged directly to Tenant by the
provider. Tenant shall pay its share of all charges for jointly metered
utilities based upon consumption, as reasonably determined by Landlord. No
interruption or failure of utilities shall result in the termination of this
Lease or the abatement of rent. Tenant agrees to limit use of water and sewer
for normal restroom use, in the event the Building becomes a multi-tenant
facility.
Notwithstanding anything to the contrary contained in Paragraph 7 of
this Lease, if an interruption or cessation of utilities results from a cause
within the Landlord's reasonable control and the Premises are not usable by
Tenant for the conduct of Tenant's business as a result thereof, Base Rent and
applicable Operating Expenses not actually incurred by Tenant shall be abated
for the period which commences three (3) business days after the date Tenant
gives to Landlord notice of such interruption until such utilities are restored.
8. TAXES. Landlord shall pay all taxes, assessments and governmental
charges (collectively referred to as "Taxes") that accrue against the Project
during the Lease Term, which shall be included as part of the Operating Expenses
charged to Tenant. Landlord may contest by appropriate legal proceedings the
amount, validity, or application of any Taxes or liens thereof. If Landlord
fails to contest the real estate taxes, Tenant shall have the right to request
Landlord to contest such taxes, and Landlord shall so contest, at Tenant's sole
cost and expense (including, without limitation, Landlord's reasonable
attorneys' fees and reasonable fees payable to tax consultants and attorneys for
consultation and contesting taxes) , if, in Landlord's reasonable judgment,
such contest is warranted; provided, however, Tenant's request of such
contesting of Taxes shall be limited to one request in a calendar year.
Landlord shall cooperate in the institution and prosecution of any such
proceedings of contesting taxes and will execute any documents reasonably
required therefor. All capital levies or other taxes assessed or imposed on
Landlord upon the rents payable to Landlord under this Lease and any franchise
tax, any excise, transaction, sales or privilege tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rents from the Premises
and/or the Project or any portion thereof shall be paid by Tenant to Landlord
monthly in estimated installments or upon demand, at the option of Landlord, as
additional rent; provided, however, in no event shall Tenant be liable for taxes
and/or assessments which are attributable to land or buildings not otherwise
included within the Premises nor shall Tenant be liable for any net income taxes
imposed on Landlord unless such net income taxes are in substitution for any
Taxes payable hereunder. If any such tax or excise is levied or assessed
directly against Tenant, then Tenant shall be responsible for and shall pay the
same at such times and in such manner as the taxing authority shall require.
Tenant shall be liable for all taxes levied or assessed against any personal
property or fixtures placed in the Premises, whether levied or assessed against
Landlord or Tenant.
Notwithstanding anything contained herein to the contrary, in the
event that
6
Landlord should receive a tax refund or credit from any taxing authority for
any period in respect of which Tenant paid its Proportionate Share of Taxes
(including the tax which is the subject of such refund), Landlord shall
promptly notify Tenant thereof and refund to Tenant Tenant's Proportionate
Share of the net amount of such refund or credit, after deducting Landlord's
reasonable costs incurred in securing such refund or credit. The provisions
of this paragraph shall survive the termination of this Lease.
9. INSURANCE. Landlord shall maintain all risk property insurance
covering the full replacement cost of the Building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem reasonably necessary, including, but not limited to, commercial liability
insurance and rent loss insurance. All such insurance shall be included as part
of the Operating Expenses charged to Tenant. The Project or Building may be
included in a blanket policy (in which case the cost of such insurance allocable
to the Project or Building will be determined by Landlord based upon the
insurer's cost calculations). Tenant shall also reimburse Landlord for any
increased premiums or additional insurance as a result of Tenant's particular
use of the Premises.
Tenant, at its expense, shall maintain during the Lease Term: all
risk property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the minimum limits required by
law; employer's liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together with such
additional umbrella coverage as Landlord may reasonably require) for property
damage, personal injuries, or deaths of persons occurring in or about the
Premises. Landlord may from time to time require reasonable increases in any
such limits. The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claims-made basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant's policies). Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance. Landlord hereby agrees that Tenant's insurance coverages
hereunder may be in the form of a blanket policy.
The all risk property insurance obtained by Landlord and Tenant shall
include a waiver of subrogation by the insurers and all rights based upon an
assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its
officers, directors, employees, managers, agents, invitees or contractors shall
be liable to the other for loss or damage caused by any risk coverable by all
risk property insurance, and each party waives any claims against the other
party, and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption
7
and losses occasioned thereby sustained by Tenant or any person claiming
through Tenant resulting from any accident or occurrence in or upon the
Premises or the Project from any cause whatsoever, including without
limitation, damage caused in whole or in part, directly or indirectly, by the
negligence of Landlord or its agents, employees or contractors.
10. LANDLORD'S REPAIRS. Landlord shall maintain, at its expense, the
structural soundness of the roof, foundation, and exterior walls of the Building
in good repair, reasonable wear and tear and uninsured losses and damages caused
by Tenant, its agents and contractors excluded. The term "walls" as used in
this Paragraph 10 shall not include windows, glass or plate glass, doors or
overhead doors, special store fronts, dock bumpers, dock plates or levelers, or
office entries. Tenant shall promptly give Landlord written notice of any
repair required by Landlord pursuant to this Paragraph 10, after which Landlord
shall have a reasonable opportunity to repair.
11. TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas and
other common areas of the Building, including, but not limited to driveways,
alleys, landscape and grounds surrounding the Premises. Subject to Landlord's
obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its
expense, shall repair, replace and maintain in good condition all portions of
the Premises and all areas, improvements and systems exclusively serving the
Premises including, without limitation, dock and loading areas, truck doors,
plumbing, water and sewer lines up to points of common connection, fire
sprinklers and fire protection systems, entries, doors, ceilings and roof
membrane, windows, interior walls, and the interior side of demising walls, and
heating, ventilation and air conditioning systems. Such repair and replacements
include capital expenditures and repairs whose benefit may extend beyond the
Term. Heating, ventilation and air conditioning systems and other mechanical
and building systems serving the Premises shall be maintained at Tenant's
expense pursuant to maintenance service contracts entered into by Tenant. The
scope of services and contractors under such maintenance contracts shall be
reasonably approved by Landlord. If Tenant fails to perform any repair or
replacement for which it is responsible within the time period provided for in
this Lease, Landlord may perform such work and be reimbursed by Tenant within 30
days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear
the full cost of any repair or replacement to any part of the Building or
Project that results from damage caused by Tenant, its agents, contractors, or
invitees and any repair that benefits only the Premises.
12. TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations,
additions, or improvements made by or on behalf of Tenant to the Premises
("Tenant-Made Alterations") in excess of $50,000 per occurrence shall be subject
to Landlord's prior written consent, which shall not be unreasonably withheld
provided that such alteration does not materially affect the slab, structure or
the roof of the Building, or modify the utility systems of the Project. Tenant
shall cause, at its expense, all Tenant-Made Alterations to comply with
insurance requirements and with Legal Requirements and shall construct at its
expense any alteration or modification required by Legal Requirements as a
result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be
constructed in a good and workmanlike manner by contractors reasonably
acceptable to Landlord and only good grades of materials shall be used. All
plans and specifications for any Tenant-Made Alterations shall be submitted to
Landlord for its approval.
8
Landlord may monitor construction of the Tenant-Made Alterations. Tenant
shall reimburse Landlord for its reasonable out-of-pocket costs in reviewing
plans and specifications. Landlord's right to review plans and
specifications and to monitor construction shall be solely for its own
benefit, and Landlord shall have no duty to see that such plans and
specifications or construction comply with applicable laws, codes, rules and
regulations. Tenant shall provide Landlord with the identities and mailing
addresses of all persons performing work or supplying materials, prior to
beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Tenant shall
furnish security or make other arrangements satisfactory to Landlord to
assure payment for the completion of all work free and clear of liens and
shall provide certificates of insurance for worker's compensation and other
coverage in amounts and from an insurance company satisfactory to Landlord
protecting Landlord against liability for personal injury or property damage
during construction. Upon completion of any Tenant-Made Alterations, Tenant
shall deliver to Landlord sworn statements setting forth the names of all
contractors and subcontractors who did work on the Tenant-Made Alterations
and final lien waivers from all such contractors and subcontractors. Upon
surrender of the Premises, all Tenant-Made Alterations and any leasehold
improvements constructed by Landlord or Tenant shall remain on the Premises
as Landlord's property, except to the extent Landlord requires removal at
Tenant's expense of any such items or Landlord and Tenant have otherwise
mutually agreed to in writing of which Tenant-Made Alterations shall remain
the property of Tenant and shall be removed by Tenant upon surrender of the
Premises. At Tenant's request, Landlord shall provide Tenant, at the time of
Tenant's request for approval of Tenant-Made Alterations, written
notification of which Tenant-Made Alterations Landlord will require Tenant to
remove upon surrender of the Premises. Tenant shall repair any damage caused
by such removal.
Tenant, at its own cost and expense and without Landlord's prior
approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.
13. SIGNS. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent, except
that Tenant may erect temporary signage on the exterior of the Premises for a 14
day period once in a calendar year, provided that such temporary signage (i)
shall be in good taste and for a good business purpose, (ii) is related solely
to Tenant's business operations, and (iii) does not involve the roof or
structure of the Building. Upon surrender or vacation of the Premises, Tenant
shall have removed all signs and repair, paint, and/or replace the building
facia surface to which its signs are attached. Tenant shall obtain all
applicable governmental permits and approvals for sign and exterior treatments.
All signs, decorations, advertising media, blinds, draperies and other window
treatment or bars or other security installations visible from outside the
Premises shall be subject to Landlord's approval and conform in all respects to
Landlord's
9
requirements.
Notwithstanding anything contained herein to the contrary, Tenant
shall be allowed to place temporary, promotional or special event signage
14. PARKING. Tenant shall be entitled to park in those areas designated
on Exhibit A. Subject to Paragraph 20, Landlord shall not be responsible for
enforcing Tenant's parking rights against any third parties.
15. RESTORATION. If at any time during the Lease Term the Premises are
damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days
after such damage as to the amount of time Landlord reasonably estimates it will
take to restore the Premises. If the restoration time is estimated to exceed 6
months, either Landlord or Tenant may elect to terminate this Lease upon notice
to the other party given no later than 30 days after Landlord's notice. If
neither party elects to terminate this Lease or if Landlord estimates that
restoration will take 6 months or less, then, subject to receipt of sufficient
insurance proceeds, Landlord shall promptly restore the Premises excluding the
improvements installed by Tenant or by Landlord and paid by Tenant, subject to
delays arising from the collection of insurance proceeds or from Force Majeure
events. Tenant at Tenant's expense shall promptly perform, subject to delays
arising from the collection of insurance proceeds, or from Force Majeure events,
all repairs or restoration not required to be done by Landlord and shall
promptly re-enter the Premises and commence doing business within 30 days after
restoration in accordance with this Lease. Notwithstanding the foregoing,
either party may terminate this Lease if the Premises are damaged during the
last year of the Lease Term and Landlord reasonably estimates that it will take
more than one month to repair such damage. Tenant shall pay to Landlord with
respect to any damage to the Premises the amount of the commercially reasonable
deductible under Landlord's insurance policy (not to exceed $10,000) within 10
days after presentment of Landlord's invoice. If the damage involves the
premises of other tenants, Tenant shall pay the portion of the deductible that
the cost of the restoration of the Premises bears to the total cost of
restoration, as determined by Landlord. Base Rent and Operating Expenses shall
be abated for the period of repair and restoration in the proportion which the
area of the Premises, if any, which is not usable by Tenant bears to the total
area of the Premises. Such abatement shall be the sole remedy of Tenant, and
except as provided herein, Tenant waives any right to terminate the Lease by
reason of damage or casualty loss.
16. CONDEMNATION. If any part of the Premises or the Project should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or materially
interfere with Tenant's use of the Premises or in Landlord's judgment would
materially interfere with or impair its ownership or operation of the Project,
then upon written notice by Landlord or Tenant this Lease shall terminate and
Base Rent shall be apportioned as of said date. If part of the Premises shall
be Taken, and this Lease is not terminated as provided above, the Base Rent
payable hereunder during the unexpired Lease Term shall be reduced to such
extent as may be fair and reasonable under the circumstances. In the event of
any such Taking, Landlord shall be entitled to receive the entire price or award
from any such Taking without any payment to Tenant, and Tenant hereby assigns to
Landlord Tenant's
10
interest, if any, in such award. Tenant shall have the right, to the extent
that same shall not diminish Landlord's award, to make a separate claim
against the condemning authority (but not Landlord) for such compensation as
may be separately awarded or recoverable by Tenant for moving expenses and
damage to Tenant's Trade Fixtures and other matters, if a separate award for
such items is made to Tenant. Notwithstanding anything contained herein to
the contrary, Landlord shall use a reasonable portion of any condemnation
proceeds it receives to repair any damage to the Premises caused by such
condemnation.
17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written consent,
Tenant shall not assign this Lease or sublease the Premises or any part thereof
or mortgage, pledge, or hypothecate its leasehold interest or grant any
concession or license within the Premises and any attempt to do any of the
foregoing shall be void and of no effect. For purposes of this paragraph, a
single transfer of 50% or more of the total ownership interests of Tenant shall
be deemed an assignment of this Lease unless such ownership interests are or
become publicly traded. Notwithstanding the above, Tenant may assign or sublet
the Premises, or any part thereof, to any entity controlling Tenant, controlled
by Tenant or under common control with Tenant (a "Tenant Affiliate"), without
the prior written consent of Landlord. Tenant shall reimburse Landlord for all
of Landlord's reasonable out-of-pocket expenses in connection with any
assignment or sublease. Upon Landlord's receipt of Tenant's written notice of a
desire to assign or sublet the Premises, or any part thereof (other than to a
Tenant Affiliate) or as provided in the paragraph immediately below, Landlord
may, by giving written notice to Tenant within 30 days after receipt of Tenant's
notice, terminate this Lease with respect to the space described in Tenant's
notice, as of the date specified in Tenant's notice for the commencement of the
proposed assignment or sublease.
Provided no default has occurred and is continuing under this Lease,
upon 10 days prior written notice to Landlord, Tenant may, without Landlord's
prior written consent, assign this Lease to an entity into which Tenant is
merged or consolidated or to an entity to which substantially all of Tenant's
assets are transferred, provided (x) such merger, consolidation, or transfer of
assets is for a good business purpose and not principally for the purpose of
transferring Tenant's leasehold estate, and (y) the assignee or successor entity
has a net worth at least equal to $22 million dollars immediately prior to such
merger, consolidation, or transfer.
Notwithstanding any assignment or subletting, Tenant and any guarantor
or surety of Tenant's obligations under this Lease shall at all times remain
fully responsible and liable for the payment of the rent and for compliance with
all of Tenant's other obligations under this Lease (regardless of whether
Landlord's approval has been obtained for any such assignments or sublettings),
unless Landlord, at its sole discretion, releases Tenant from such obligations
upon assumption of such obligations by the assignee or sublessee. In the event
that the rent due and payable by a sublessee or assignee (or a combination of
the rental payable under such sublease or assignment plus any bonus or other
consideration therefor or incident thereto) exceeds the rental payable under
this Lease, then Tenant shall be bound and obligated to pay Landlord as
additional rent hereunder all such excess rental and other excess consideration
within 20 days following receipt thereof by Tenant.
If this Lease be assigned or if the Premises be subleased (whether in
whole or in
11
part) or in the event of the mortgage, pledge, or hypothecation of Tenant's
leasehold interest or grant of any concession or license within the Premises
or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder Landlord may collect rent
from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent set forth in the preceding paragraph, apply the amount
collected to the next rent payable hereunder; and all such rentals collected
by Tenant shall be held in trust for Landlord and immediately forwarded to
Landlord. No such transaction or collection of rent or application thereof
by Landlord, however, shall be deemed a waiver of these provisions or a
release of Tenant from the further performance by Tenant of its covenants,
duties, or obligations hereunder.
18. INDEMNIFICATION. Except for the negligence of Landlord, its agents,
employees or contractors, and to the extent permitted by law, Tenant agrees to
indemnify, defend and hold harmless Landlord, and Landlord's agents, employees
and contractors, from and against any and all losses, liabilities, damages,
costs and expenses (including attorneys' fees) resulting from claims by third
parties for injuries to any person and damage to or theft or misappropriation or
loss of property occurring in or about the Project and arising from the use and
occupancy of the Premises or from any activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises or due to any other act or
omission of Tenant, its subtenants, assignees, invitees, employees, contractors
and agents. The furnishing of insurance required hereunder shall not be deemed
to limit Tenant's obligations under this Paragraph 18.
19. INSPECTION AND ACCESS. Landlord and its agents, representatives, and
contractors may enter the Premises at any reasonable time to inspect the
Premises and to make such repairs as may be required or permitted pursuant to
this Lease and for any other business purpose; Landlord and Landlord's
representatives may enter the Premises during business hours for the purpose of
showing the Premises to prospective purchasers and, during the last year of the
Lease Term, to prospective tenants; Landlord may erect a suitable sign on the
Premises stating the Premises are available to let or that the Project is
available for sale; Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises,
provided that none of the foregoing materially interferes with Tenant's use or
occupancy of the Premises. At Landlord's request, Tenant shall execute such
instruments as may be reasonably necessary for such easements, dedications or
restrictions.
20. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, subject to
the terms of this Lease, at all times during the Lease Term, have peaceful and
quiet enjoyment of the Premises against any person claiming by, through or under
Landlord.
21. SURRENDER. Upon termination of the Lease Term or earlier termination
of Tenant's right of possession, Tenant shall surrender the Premises to Landlord
in the same condition as received, broom clean, ordinary wear and tear and
casualty loss and condemnation covered by Paragraphs 15 and 16 excepted. Any
Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as
permitted or required herein shall be deemed abandoned and may be stored,
removed, and disposed of by Landlord at Tenant's expense, and Tenant
12
waives all claims against Landlord for any damages resulting from Landlord's
retention and disposition of such property. All obligations of Tenant
hereunder not fully performed as of the termination of the Lease Term shall
survive the termination of the Lease Term, including without limitation,
indemnity obligations, payment obligations with respect to Operating Expenses
and obligations concerning the condition and repair of the Premises.
22. HOLDING OVER. If Tenant retains possession of the Premises after the
termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall pay Landlord from time to time,
upon demand, as Base Rent for the holdover period, an amount equal to 150% of
the Base Rent in effect on the termination date, computed on a monthly basis for
each month or part thereof during such holding over. All other payments shall
continue under the terms of this Lease. In addition, Tenant shall be liable for
all damages incurred by Landlord as a result of such holding over. No holding
over by Tenant, whether with or without consent of Landlord, shall operate to
extend this Lease except as otherwise expressly provided or agreed to by
Landlord in writing, and this Paragraph 22 shall not be construed as consent for
Tenant to retain possession of the Premises.
23. EVENTS OF DEFAULT. Each of the following events shall be an event of
default ("Event of Default") by Tenant under this Lease:
(i) Tenant shall fail to pay any installment of Base Rent or any
other payment required herein when due, and such failure shall continue for
a period of 5 business days after receipt of notice from Landlord to Tenant
that such payment was due; provided, however, that Landlord shall not be
obligated to provide written notice of such failure more than 2 times in
any consecutive 12-month period, and the failure of Tenant to pay any third
or subsequent installment of Base Rent or any other payment required herein
when due in any consecutive 12-month period shall constitute an Event of
Default by Tenant under this Lease without the requirement of notice or
opportunity to cure.
(ii) Tenant or any guarantor or surety of Tenant's obligations
hereunder shall (A) make a general assignment for the benefit of creditors;
(B) commence any case, proceeding or other action seeking to have an order
for relief entered on its behalf as a debtor or to adjudicate it a bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts or seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all or of any substantial part of its property (collectively a
"proceeding for relief"); (C) become the subject of any proceeding for
relief which is not dismissed within 60 days of its filing or entry; or (D)
die or suffer a legal disability (if Tenant, guarantor, or surety is an
individual) or be dissolved or otherwise fail to maintain its legal
existence (if Tenant, guarantor or surety is a corporation, partnership or
other entity).
(iii) Any insurance required to be maintained by Tenant pursuant
to this Lease shall be canceled or terminated or shall expire or shall be
reduced or materially changed,
13
except, in each case, as permitted in this Lease.
(iv) Tenant shall not occupy or shall vacate the Premises or
shall fail to continuously operate its business at the Premises for the
permitted use set forth herein, whether or not Tenant is in monetary or
other default under this Lease. Tenant's vacating of the Premises shall
not constitute an Event of Default if, prior to vacating the Premises,
Tenant has made arrangements reasonably acceptable to Landlord to (a)
insure that Tenant's insurance for the Premises will not be voided or
canceled with respect to the Premises as a result of such vacancy, (b)
insure that the Premises are secured and not subject to vandalism, and (c)
insure that the Premises will be properly maintained after such vacation.
Tenant shall inspect the Premises at least every 2 months and report every
2 months in writing to Landlord on the condition of the Premises.
(v) Tenant shall attempt or there shall occur any assignment,
subleasing or other transfer of Tenant's interest in or with respect to
this Lease except as otherwise permitted in this Lease.
(vi) Subject to the terms of Paragraph 28 of this Lease, Tenant
shall fail to discharge any lien placed upon the Premises in violation of
this Lease within 30 days after any such lien or encumbrance is filed
against the Premises.
(vii) Tenant shall fail to comply with any provision of this Lease
other than those specifically referred to in this Paragraph 23, and except
as otherwise expressly provided herein, such default shall continue for
more than 30 days after Landlord shall have given Tenant written notice of
such default.
24. LANDLORD'S REMEDIES. Upon each occurrence of an Event of Default and
so long as such Event of Default shall be continuing, Landlord may at any time
thereafter at its election: terminate this Lease or Tenant's right of
possession, (but Tenant shall remain liable as hereinafter provided) and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord, without formal demand or notice of any kind, to re-enter the Premises
by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in
place and use, or remove and store, all of the furniture, fixtures and equipment
at the Premises.
If Landlord terminates this Lease, Landlord may recover from Tenant
the sum of: all Base Rent and all other amounts accrued hereunder to the date of
such termination; the cost of reletting the whole or any part of the Premises,
including without limitation brokerage fees and/or leasing commissions incurred
by Landlord, and costs of removing and storing Tenant's or any other occupant's
property, repairing, altering, remodeling, or otherwise putting the Premises
into condition reasonably acceptable to a new tenant or tenants, and all
reasonable expenses incurred by Landlord in pursuing its remedies, including
reasonable attorneys' fees and court costs; and the excess of the then present
value of the Base Rent and other amounts payable by Tenant under this Lease as
would otherwise have been required to be paid by Tenant to Landlord
14
during the period following the termination of this Lease measured from the
date of such termination to the expiration date stated in this Lease, over
the present value of any net amounts which Tenant establishes Landlord can
reasonably expect to recover by reletting the Premises for such period,
taking into consideration the availability of acceptable tenants and other
market conditions affecting leasing. Such present values shall be calculated
at a discount rate equal to the 90-day U.S. Treasury bill rate at the date of
such termination.
If Landlord terminates Tenant's right to possession without
terminating the Lease after an Event of Default, Landlord shall use commercially
reasonable efforts to relet the Premises; provided, however, (a) Landlord shall
not be obligated to accept any tenant proposed by Tenant, (b) Landlord shall
have the right to lease any other space controlled by Landlord first, and (c)
any proposed tenant shall meet all of Landlord's reasonable leasing criteria.
For the purpose of such reletting Landlord is authorized to make any repairs,
changes, alterations, or additions in or to the Premises as Landlord deems
reasonably necessary or desirable. If the Premises are not relet, then Tenant
shall pay to Landlord as damages a sum equal to the amount of the rental
reserved in this Lease for such period or periods, plus the cost of recovering
possession of the Premises (including attorneys' fees and costs of suit), the
unpaid Base Rent and other amounts accrued hereunder at the time of
repossession, and the reasonable costs incurred in any attempt by Landlord to
relet the Premises. If the Premises are relet and a sufficient sum shall not be
realized from such reletting [after first deducting therefrom, for retention by
Landlord, the unpaid Base Rent and other amounts accrued hereunder at the time
of reletting, the reasonable cost of recovering possession (including attorneys'
fees and costs of suit), all of the costs and expense of repairs, changes,
alterations, and additions, the reasonable expense of such reletting (including
without limitation brokerage fees and leasing commissions) and the reasonable
cost of collection of the rent accruing therefrom] to satisfy the rent provided
for in this Lease to be paid, then Tenant shall immediately satisfy and pay any
such deficiency. Any such payments due Landlord shall be made upon demand
therefor from time to time and Tenant agrees that Landlord may file suit to
recover any sums falling due from time to time. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect in
writing to terminate this Lease for such previous breach.
Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, whether by agreement or
by operation of law, it being understood that such surrender and/or termination
can be effected only by the written agreement of Landlord and Tenant. Any law,
usage, or custom to the contrary notwithstanding, Landlord shall have the right
at all times to enforce the provisions of this Lease in strict accordance with
the terms hereof; and the failure of Landlord at any time to enforce its rights
under this Lease strictly in accordance with same shall not be construed as
having created a custom in any way or manner contrary to the specific terms,
provisions, and covenants of this Lease or as having modified the same. Tenant
and Landlord further agree that forbearance or waiver by Landlord to enforce its
rights pursuant to this Lease or at law or in equity, shall not be a waiver of
Landlord's right to enforce one or more of its rights in connection with any
subsequent default. A receipt by Landlord of rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord. To
the
15
greatest extent permitted by law, Tenant waives the service of notice of
Landlord's intention to re-enter as provided for in any statute, or to
institute legal proceedings to that end, and also waives all right of
redemption in case Tenant shall be dispossessed by a judgment or by warrant
of any court or judge. The terms "enter," "re-enter," "entry" or "re-entry,"
as used in this Lease, are not restricted to their technical legal meanings.
Any reletting of the Premises shall be on such terms and conditions as
Landlord in its sole discretion may determine (including without limitation a
term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any
tenant and leasing any or all other portions of the Project before reletting
the Premises). Landlord shall not be liable, nor shall Tenant's obligations
hereunder be diminished because of, Landlord's failure to relet the Premises
or collect rent due in respect of such reletting.
25. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord's obligations hereunder. All obligations of Landlord under this
Lease will be binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" in this Lease shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord thereafter
accruing, but such obligations shall be binding during the Lease Term upon each
new owner for the duration of such owner's ownership. Any liability of Landlord
under this Lease shall be limited solely to its interest in the Project, 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.
26. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY
JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS
LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
27. SUBORDINATION. This Lease and Tenant's interest and rights hereunder
are and shall be subject and subordinate at all times to the lien of any first
mortgage, now existing or hereafter created on or against the Project or the
Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant
agrees, at the election of the holder of any such mortgage, to attorn to any
such holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder. Tenant hereby appoints Landlord attorney
in fact for Tenant irrevocably (such power of attorney being coupled with an
interest) to execute, acknowledge and deliver any such instrument and
instruments for
16
and in the name of the Tenant and to cause any such instrument to be
recorded. Notwithstanding the foregoing, any such holder may at any time
subordinate its mortgage to this Lease, without Tenant's consent, by notice
in writing to Tenant, and thereupon this Lease shall be deemed prior to such
mortgage without regard to their respective dates of execution, delivery or
recording and in that event such holder shall have the same rights with
respect to this Lease as though this Lease had been executed prior to the
execution, delivery and recording of such mortgage and had been assigned to
such holder. The term "mortgage" whenever used in this Lease shall be deemed
to include deeds of trust, security assignments and any other encumbrances,
and any reference to the "holder" of a mortgage shall be deemed to include
the beneficiary under a deed of trust.
Tenant shall not be obligated to subordinate the Lease or its interest
therein to any future mortgage, deed of trust or ground lease on the Project
unless concurrently with such subordination the holder of such mortgage or deed
of trust or the ground lessor under such ground lease agrees not to disturb
Tenant's possession of the Premises under the terms of the Lease in the event
such holder or ground lessor acquires title to the Premises through foreclosure,
deed in lieu of foreclosure or otherwise. Tenant shall be solely responsible
for any fees or expenses charged by the holder of such mortgage or deed of trust
in connection with the granting of such non-disturbance agreement.
28. MECHANIC'S LIENS. Tenant has no express or implied authority to
create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or
cause to be paid all sums legally due and payable by it on account of any
labor performed or materials furnished in connection with any work performed
on the Premises and that it will save and hold Landlord harmless from all
loss, cost or expense based on or arising out of asserted claims or liens
against the leasehold estate or against the interest of Landlord in the
Premises or under this Lease. Tenant shall give Landlord immediate written
notice of the placing of any lien or encumbrance against the Premises and
cause such lien or encumbrance to be discharged within 30 days of the filing
or recording thereof; provided, however, Tenant may contest such liens or
encumbrances as long as such contest prevents foreclosure of the lien or
encumbrance and Tenant causes such lien or encumbrance to be bonded or
insured over in a manner satisfactory to Landlord within such 30 day period.
29. ESTOPPEL CERTIFICATES. Tenant agrees, from time to time, within 15
days after request of Landlord, to execute and deliver to Landlord, or
Landlord's designee, any estoppel certificate requested by Landlord, stating
that this Lease is in full force and effect, the date to which rent has been
paid, that Landlord is not in default hereunder (or specifying in detail the
nature of Landlord's default), the termination date of this Lease and such other
matters pertaining to this Lease as may be requested by Landlord. Tenant's
obligation to furnish each estoppel certificate in a timely fashion is a
material inducement for Landlord's execution of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate. Tenant hereby irrevocably appoints Landlord as
its attorney in fact to execute on its behalf and in its name any such estoppel
certificate if Tenant fails to execute and deliver the estoppel certificate
within 15 days after Landlord's written request
17
thereof.
30. ENVIRONMENTAL REQUIREMENTS. Except for Hazardous Material contained
in products used by Tenant in de minimis quantities for ordinary cleaning and
office purposes, Tenant shall not permit or cause any party to bring any
Hazardous Material upon the Premises or transport, store, use, generate,
manufacture or release any Hazardous Material in or about the Premises without
Landlord's prior written consent. Tenant, at its sole cost and expense, shall
operate its business in the Premises in strict compliance with all Environmental
Requirements and shall remediate in a manner reasonably satisfactory to Landlord
any Hazardous Materials released on or from the Project by Tenant, its agents,
employees, contractors, subtenants or invitees. Tenant shall complete and
certify to disclosure statements as requested by Landlord from time to time
relating to Tenant's transportation, storage, use, generation, manufacture or
release of Hazardous Materials on the Premises. The term "Environmental
Requirements" means all applicable present and future statutes, regulations,
ordinances, rules, codes, judgments, orders or other similar enactments of any
governmental authority or agency regulating or relating to health, safety, or
environmental conditions on, under, or about the Premises or the environment,
including without limitation, the following: the Comprehensive Environmental
Response, Compensation and Liability Act; the Resource Conservation and Recovery
Act; and all state and local counterparts thereto, and any regulations or
policies promulgated or issued thereunder. The term "Hazardous Materials" means
and includes any substance, material, waste, pollutant, or contaminant listed or
defined as hazardous or toxic, under any Environmental Requirements, asbestos
and petroleum, including crude oil or any fraction thereof, natural gas liquids,
liquified natural gas, or synthetic gas usable for fuel (or mixtures of natural
gas and such synthetic gas). As defined in Environmental Requirements, Tenant
is and shall be deemed to be the "operator" of Tenant's "facility" and the
"owner" of all Hazardous Materials brought on the Premises by Tenant, its
agents, employees, contractors or invitees, and the wastes, by-products, or
residues generated, resulting, or produced therefrom.
Tenant shall indemnify, defend, and hold Landlord harmless from and
against any and all losses (including, without limitation, diminution in value
of the Premises or the Project and loss of rental income from the Project),
claims, demands, actions, suits, damages (including, without limitation,
punitive damages), expenses (including, without limitation, remediation,
removal, repair, corrective action, or cleanup expenses), and costs (including,
without limitation, actual attorneys' fees, consultant fees or expert fees and
including, without limitation, removal or management of any asbestos brought
into the property or disturbed in breach of the requirements of this Paragraph
30, regardless of whether such removal or management is required by law) which
are brought or recoverable against, or suffered or incurred by Landlord as a
result of any release of Hazardous Materials for which Tenant is obligated to
remediate as provided above or any other breach of the requirements under this
Paragraph 30 by Tenant, its agents, employees, contractors, subtenants,
assignees or invitees, regardless of whether Tenant had knowledge of such
noncompliance. The obligations of Tenant under this Paragraph 30 shall survive
any termination of this Lease.
Landlord shall have access to, and a right to perform inspections and
tests of, the Premises to determine Tenant's compliance with Environmental
Requirements, its obligations under this Paragraph 30, or the environmental
condition of the Premises. Access shall be granted
18
to Landlord upon Landlord's prior notice to Tenant and at such times so as to
minimize, so far as may be reasonable under the circumstances, any
disturbance to Tenant's operations. Such inspections and tests shall be
conducted at Landlord's expense, unless such inspections or tests reveal that
Tenant has not complied with any Environmental Requirement, in which case
Tenant shall reimburse Landlord for the reasonable cost of such inspection
and tests. Landlord's receipt of or satisfaction with any environmental
assessment in no way waives any rights that Landlord holds against Tenant.
31. RULES AND REGULATIONS. Tenant shall, at all times during the Lease
Term and any extension thereof, comply with all reasonable rules and regulations
at any time or from time to time established by Landlord covering use of the
Premises and the Project. The current rules and regulations are attached
hereto. In the event of any conflict between said rules and regulations and
other provisions of this Lease, the other terms and provisions of this Lease
shall control. Landlord shall not have any liability or obligation for the
breach of any rules or regulations by other tenants in the Project.
32. SECURITY SERVICE. Tenant acknowledges and agrees that, while Landlord
may patrol the Project, Landlord is not providing any security services with
respect to the Premises and that Landlord shall not be liable to Tenant for, and
Tenant waives any claim against Landlord with respect to, any loss by theft or
any other damage suffered or incurred by Tenant in connection with any
unauthorized entry into the Premises or any other breach of security with
respect to the Premises.
33. FORCE MAJEURE. Landlord shall not be held responsible for delays in
the performance of its obligations hereunder when caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, delay in issuance of permits, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of Landlord ("Force Majeure").
34. ENTIRE AGREEMENT. This Lease constitutes the complete agreement of
Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.
35. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.
36. BROKERS. Tenant represents and warrants that it has dealt with no
broker, agent
19
or other person in connection with this transaction and that no broker, agent
or other person brought about this transaction, other than the broker, if
any, set forth on the first page of this Lease, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this
leasing transaction.
37. MISCELLANEOUS. (a) Any payments or charges due from Tenant to
Landlord hereunder shall be considered rent for all purposes of this Lease.
(b) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.
(c) All notices required or permitted to be given under this Lease shall
be in writing and shall be sent by registered or certified mail, return receipt
requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below,
and with a copy sent to Landlord at 14100 EAST 35TH PLACE, AURORA, COLORADO
80011. Either party may by notice given aforesaid change its address for all
subsequent notices. Except where otherwise expressly provided to the contrary,
notice shall be deemed given upon delivery.
(d) Except as otherwise expressly provided in this Lease or as otherwise
required by law, Landlord's consent or approval shall not be unreasonably
withheld.
(e) At Landlord's request from time to time Tenant shall furnish Landlord
with true and complete copies of its most recent annual and quarterly financial
statements prepared by Tenant or Tenant's accountants and any other financial
information or summaries that Tenant typically provides to its lenders or
shareholders.
(f) Neither this Lease nor a memorandum of lease shall be filed by or on
behalf of Tenant or Landlord in any public record. Landlord may prepare and
file, and upon request by Landlord Tenant will execute, a memorandum of lease.
(g) The normal rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Lease or any exhibits or amendments hereto.
(h) The submission by Landlord to Tenant of this Lease shall have no
binding force or effect, shall not constitute an option for the leasing of the
Premises, nor confer any right or impose any obligations upon either party until
execution of this Lease by both parties.
(i) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way define, limit or
otherwise describe the scope or intent of this Lease, or any provision hereof,
or in any way affect the interpretation of this Lease.
20
(j) Any amount not paid by Tenant within 5 business days after receipt of
notice from Landlord to Tenant that such payment was due; provided, however,
that Landlord shall not be obligated to provide written notice of such failure
more than 2 times in any consecutive 12-month period, shall bear interest from
such due date until paid in full at the lesser of the highest rate permitted by
applicable law or 12 percent per year. It is expressly the intent of Landlord
and Tenant at all times to comply with applicable law governing the maximum rate
or amount of any interest payable on or in connection with this Lease. If
applicable law is ever judicially interpreted so as to render usurious any
interest called for under this Lease, or contracted for, charged, taken ,
reserved, or received with respect to this Lease, then it is Landlord's and
Tenant's express intent that all excess amounts theretofore collected by
Landlord be credited on the applicable obligation (or, if the obligation has
been or would thereby be paid in full, refunded to Tenant), and the provisions
of this Lease immediately shall be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder.
(k) Construction and interpretation of this Lease shall be governed by the
laws of the state in which the Project is located, excluding any principles of
conflicts of laws.
(l) Time is of the essence as to the performance of Tenant's obligations
under this Lease.
(m) All exhibits and addenda attached hereto are hereby incorporated into
this Lease and made a part hereof. In the event of any conflict between such
exhibits or addenda and the terms of this Lease, such exhibits or addenda shall
control.
38. LANDLORD'S LIEN/SECURITY INTEREST. Intentionally deleted.
39. LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND OFFICERS OF
PROLOGIS TRUST. Any obligation or liability whatsoever of ProLogis Trust, a
Maryland real estate investment trust, which may arise at any time under this
Lease or any obligation or liability which may be incurred by it pursuant to any
other instrument, transaction, or undertaking contemplated hereby shall not be
personally binding upon, nor shall resort for the enforcement thereof be had to
the property of, its trustees, directors, shareholders, officers, employees or
agents, regardless of whether such obligation or liability is in the nature of
contract, tort, or otherwise.
40. PURCHASE OF LAND. Landlord and Tenant hereby acknowledge and agree
that the effectiveness of this Lease is contingent upon Landlord acquiring the
real property required to develop the Premises by October 16, 1998, and Landlord
shall use commercially reasonable efforts to effectuate the acquisition of the
real property required to develop the Premises by October 16, 1998. In the
event the Landlord does not acquire the real property required to develop the
Premises by October 16, 1998, then this Lease shall be deemed null and void, and
no longer in full force and effect.
21
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
TENANT LANDLORD:
SELECT COMFORT CORPORATION PROLOGIS DEVELOPMENT SERVICES
INCORPORATED
By: /s/ D. J. McAthie By: /s/ Bud Lyons
---------------------------------- ---------------------------------
Title: Daniel J. McAthie, EVP-CAO-CFR Title: Irving F. (Bud) Lyons III,
& Secretary Co-Chairman
Address: Address:
6105 Trenton Lane N. 14100 E. 35th Place
Minneapolis, MN 55442-3240 Aurora, CO 80011
22
RULES AND REGULATIONS
1 The sidewalk, entries, and driveways of the Project shall not be obstructed
by Tenant, or its agents, or used by them for any purpose other than
ingress and egress to and from the Premises.
2. Tenant shall not place any objects, including antennas, outdoor furniture,
etc., in the parking areas, landscaped areas or other areas outside of its
Premises, or on the roof of the Project, except for miscellaneous furniture
associated with an employee lunch area.
3. Except for seeing-eye dogs, no animals shall be allowed in the offices,
halls, or corridors in the Project.
4. Tenant shall not disturb the occupants of the Project or adjoining
buildings by the use of any radio or musical instrument or by the making of
loud or improper noises.
5. If Tenant desires telegraphic, telephonic or other electric connections in
the Premises, Landlord or its agent will direct the electrician as to where
and how the wires may be introduced; and, without such direction, no boring
or cutting of wires will be permitted. Any such installation or connection
shall be made at Tenant's expense.
6. Tenant shall not install or operate any steam or gas engine or boiler, or
other mechanical apparatus in the Premises, except as specifically approved
in the Lease or by Landlord pursuant to the Lease. The use of oil, gas or
inflammable liquids for heating, lighting or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not
be brought into the Project.
7. Parking any type of recreational vehicles is specifically prohibited on or
about the Project. Except for the overnight parking of operative vehicles,
no vehicle of any type shall be stored in the parking areas at any time.
In the event that a vehicle is disabled, it shall be removed within 48
hours. There shall be no "For Sale" or other advertising signs on or about
any parked vehicle. All vehicles shall be parked in the designated parking
areas in conformity with all signs and other markings. All parking will be
open parking, and no reserved parking, numbering or lettering of individual
spaces will be permitted except as specified by Landlord.
8. Tenant shall maintain the Premises free from rodents, insects and other
pests.
9. Landlord reserves the right to exclude or expel from the Project any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs or who shall in any manner do any act in violation of the
Rules and Regulations of the Project.
10. Tenant shall not cause any unnecessary labor by reason of Tenant's
carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to Tenant for any loss of
property on the Premises, however occurring, or for
23
any damage done to the effects of Tenant by the janitors or any other
employee or person.
11. Tenant shall give Landlord prompt notice of any defects in the water, lawn
sprinkler, sewage, gas pipes, electrical lights and fixtures, heating
apparatus, or any other service equipment affecting the Premises.
12. Except as otherwise provided for in the Lease, Tenant shall not permit
storage outside the Premises, including without limitation, outside storage
of trucks and other vehicles, or dumping of waste or refuse or permit any
harmful materials to be placed in any drainage system or sanitary system in
or about the Premises.
13. All moveable trash receptacles provided by the trash disposal firm for the
Premises must be kept in the trash enclosure areas, if any, provided for
that purpose.
14. No auction, public or private, will be permitted on the Premises or the
Project.
15. No awnings shall be placed over the windows in the Premises except with the
prior written consent of Landlord.
16. The Premises shall not be used for lodging, sleeping or cooking or for any
immoral or illegal purposes or for any purpose other than that specified in
the Lease. No gaming devices shall be operated in the Premises.
17. Tenant shall ascertain from Landlord the maximum amount of electrical
current which can safely be used in the Premises, taking into account the
capacity of the electrical wiring in the Project and the Premises and the
needs of other tenants, and shall not use more than such safe capacity.
Landlord's consent to the installation of electric equipment shall not
relieve Tenant from the obligation not to use more electricity than such
safe capacity.
18. Tenant assumes full responsibility for protecting the Premises from theft,
robbery and pilferage.
19. Tenant shall not install or operate on the Premises any machinery or
mechanical devices of a nature not directly related to Tenant's ordinary
use of the Premises and shall keep all such machinery free of vibration,
noise and air waves which may be transmitted beyond the Premises.
24
ADDENDUM 1
BASE RENT ADJUSTMENTS
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED SEPTEMBER 30, 1998, BETWEEN
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
and
SELECT COMFORT CORPORATION
Subject to the provisions of Addendum 7 to this Lease, Base Rent shall
equal the following amounts for the respective periods set forth below:
Period Monthly Base Rent
------ -----------------
Month 1 - 60 $33,969.00
Month 61-120 $39,070.00
25
ADDENDUM 2
CONSTRUCTION-BUILDING SHELL
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED SEPTEMBER 30, 1998, BETWEEN
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
and
SELECT COMFORT CORPORATION
1. DEFINITIONS . As used in this Addendum 2, the following terms
shall have the following respective meanings:
(a) "BUILDING SHELL IMPROVEMENTS" shall mean all items of
construction and all improvements specified and listed on Attachment 1 to this
Addendum 2 to the Lease, to be more particularly described in the Building Shell
Plans provided for in Paragraph 2(b) below.
(b) "LANDLORD'S PROJECT REPRESENTATIVE" shall mean John Hanson,
or any replacement designated by Landlord in writing to Tenant pursuant to the
notice provisions of the Lease.
(c) "TENANT DELAYS" shall mean and refer to delays in the
completion of construction of the Building Shell Improvements caused or
contributed to by (i) failure of Tenant to respond to the proposed Building
Shell Plans within the time periods provided in Paragraph 2(c) below, and any
delays resulting from the implementation of the hereinbelow provided dispute
resolution process to resolve any disputes between Landlord and Tenant with
respect to such Building Shell Plans, (ii) any request by Tenant for design or
specification changes in the Building Shell Improvements during completion of
construction thereof that will require extensive or substantial re-design of any
structural component or system of the Building Shell Improvements, or (iii)
Tenant's material interference with construction (taking into consideration the
construction deadlines imposed on Landlord hereunder), including (without
limitation) material interference resulting from Tenant's early entry of the
Premises pursuant to Paragraph 5 of this Addendum One. In order to make a claim
for a Tenant Delay under clauses (ii) or (iii) above, Landlord's Project
Representative must give Tenant's Project Representative written notice of such
claim of Tenant Delay within twelve (12) hours following the first occurrence of
the event(s) giving rise to such claim of delay.
(d) "TENANT'S PROJECT REPRESENTATIVE" shall mean Greg Kliner or
any replacement designated by Tenant in writing to Landlord pursuant to the
notice provisions of the Lease.
The other defined terms used in the various Paragraphs of this
Addendum 2 shall have the respective means therein set forth for such terms.
Defined terms used in this
26
Addendum 2 for which no definition is herein provided shall have the
respective meanings provided for such defined terms in the Lease.
2. SCOPE OF THE WORK.
(a) Landlord agrees to furnish or perform, at Landlord's sole cost
and expense, the Building Shell Improvements specified and listed on Attachment
1 to this Addendum 2, to be more particularly described in the Building Shell
Plans provided for in Paragraph 2(b) below.
(b) Landlord shall prepare or cause to be prepared and submitted to
Tenant's Project Representative, Greg Kliner, at Tenant's offices at 6105
Trenton Lane N., Minneapolis, MN 55442-3240, for Tenant's review, by October 1,
1998, subject to Tenant Delays and events of Force Majeure, complete and final
architectural and engineering drawings and specifications (hereinafter
collectively referred to as the "Building Shell Plans"), consistent with the
description of the Building Shell Improvements set forth on Attachment 1 to this
Addendum 2. Tenant agrees that it shall not unreasonably withhold, delay or
condition its approval of the proposed Building Shell Plans. The approval
process for the Building Shell Plans shall be substantially as set forth below.
In no event shall Landlord be obligated to construct any portion of the Building
Shell Improvements unless and until Tenant has approved (or is deemed to have
approved) Building Shell Plans at 100% completion.
(c) Tenant shall have 10 business days after Tenant's receipt of the
proposed Building Shell Plans to review the same and notify Landlord in writing
of any comments or requested changes, or to otherwise give its approval or
disapproval of such proposed Building Shell Plans. Tenant's right to disapprove
the Building Shell Plans shall be limited to material inconsistencies with the
specifications set forth on Attachment 1 hereto and items which do not comply
with applicable Legal Requirements. If Tenant fails to give written comments to
or disapprove the Building Shell Plans within such 10 day period, then Tenant
shall be deemed to have approved the Building Shell Plans as submitted. Subject
to Landlord's rights under the provisions of Paragraph 2(d) below, Landlord
shall have 10 business days following its receipt of Tenant's comments and
requested changes to redraw the proposed Building Shell Plans in compliance with
Tenant's request and to resubmit the same for Tenant's final review and approval
or comment within 5 days of Tenant's receipt of such revised plans. Such
process shall be repeated as necessary until final approval or deemed approval
by Tenant of the proposed Building Shell Plans at 100% completion has been
obtained.
(d) In the event that Landlord disagrees with any of the changes to
the proposed Building Shell Plans requested by Tenant, then the Project
Representatives of Landlord and Tenant shall consult with respect thereto and
each party shall use all reasonable efforts to promptly resolve any disputed
elements of such proposed Building Shell Plans. Landlord and Tenant agree that
if after consultation with each other and their respective architects they are
unable to resolve any disputed items within 10 days of Tenant's written request
for changes, then such dispute between Landlord and Tenant with respect to the
Building Shell Plans or Tenant's request for changes to the proposed Building
Shell Plans shall be resolved pursuant to the provisions of Paragraph 6 below.
27
(e) In the event that Tenant proposes any changes to the Building
Shell Plans (or any portion thereof) after the same have been approved or deemed
approved by Landlord, Landlord shall not unreasonably withhold its consent to
any such changes, provided the changes do not, in Landlord's reasonable opinion,
adversely affect the Building structure, systems, or equipment, or the external
appearance of the Building, or the long-term viability of the Building as an
office/warehouse project. Any proposed changes to the approved Building Shell
Plans shall be reviewed and approved pursuant to the procedures of Subparagraphs
(c) and (d) of this Paragraph 2.
(g) As soon as the Building Shell Plans are mutually agreed upon,
Landlord shall use diligent efforts to obtain all required permits,
authorizations, and licenses from appropriate governmental authorities for
construction of the Building Shell Improvements. Tenant shall be solely
responsible for obtaining any business or other license or permit required for
the conduct of its business at the Premises.
(h) Landlord's construction of the Building Shell Improvements shall
be performed in substantial compliance with this Addendum and the Building Shell
Plans approved in writing by Tenant (and any changes thereto approved by
Landlord as herein provided), and in a good and workmanlike manner, utilizing
only new materials. All such work shall be performed by Landlord in compliance
with all applicable building codes, regulations and all other Legal
Requirements.
3. CONSTRUCTION MILESTONES: DELAY DAMAGES. Landlord shall cause the
following construction milestones to be achieved, subject in each case to Tenant
Delays and events of Force Majeure:
(a) By March 1, 1999, subject to Tenant Delays and events of Force
Majeure (including weather delays but only if such delays exceed 5 days, on a
cumulative basis), Landlord shall cause the Building Shell to be "dried-in" so
as to enable Tenant to begin installing its racking and manufacturing equipment
(as used herein, the term "dried-in" shall mean the exterior walls are erected,
the exterior doors are installed, the roof structure and roofing work, including
flashing, are complete, overhead electrical and mechanical work in the warehouse
is complete, electrical service to the warehouse has been energized, heat to the
Premises has been turned on, the high-bay lighting fixtures for the warehouse
have been installed and are functional, and the warehouse floor has been cleaned
and sealed); otherwise, the scheduled Commencement Date of the Lease shall be
extended for such days of delay beyond March 1, 1999 until the date on which the
Building Shell is dried-in. Additionally, Landlord shall cause the Building
Shell Improvements (but not the Initial Improvements to be constructed by
Landlord as provided for in Addendum 3 to this Lease) to be substantially
completed, with all mechanical systems of the Building in good working order,
except for minor punch list items which do not prevent or restrict in any
material way Tenant's use of the entirety of the facility for its manufacturing
and distribution use (after Landlord's construction of its Initial Improvements
as provided for in Addendum 3 to this Lease) by May 1, 1999, subject to Tenant
Delays and events of Force Majeure, as hereinabove provided; otherwise, the
scheduled Commencement Date of the Lease shall be extended for each day of delay
beyond May 1, 1999 until the date on which the Building Shell Improvements are
substantially completed as hereinabove described. As used herein, the term
"substantially completed" does not mean or require that minor punch list items
for the
28
Building Shell Improvements have been completed or that seasonal items (such
as landscaping) have been completed. The actual date of substantial
completion of the Building Shell Improvements shall be the Commencement Date
of this Lease, but Landlord shall be obligated to continue to use
commercially reasonable efforts, at Landlord's sole cost and expense (which
shall not be Operating Expenses) after commencement of the Lease Term to
complete such minor punch list and seasonal items.
Notwithstanding anything contained herein to the contrary, subject to
Tenant Delays and events of Force Majeure, in the event Landlord fails to cause
the Building Shell to be dried-in by March 1, 1999, Landlord shall pay to Tenant
as a penalty for such delay Base Rent on a per diem basis for every day that the
dried-in construction is delayed, not to exceed 60 days.
(b) As each such construction milestone is achieved, Tenant shall,
within five business (5) days after notice from Landlord of its achievement,
execute and deliver to Landlord a certificate or statement indicating the date
on which such construction milestone has been met, if the same has been met (or
assert in writing within such 5-day period that such milestone has not been
met). This provision shall have no effect on Landlord's next subsequent
construction milestones.
4. PUNCH LIST. Within thirty (30) days following Landlord's notice of
substantial completion of the Building Shell Improvements to Tenant, Landlord's
Project Representative and Tenant's Project Representative shall perform a joint
inspection of the Premises in order to prepare a "punch list" of items to be
completed by Landlord in order to achieve final completion of the Building Shell
Improvements. In the event of any dispute between Landlord and Tenant with
respect to items to be included on the punch list, such disputes shall be
subject to resolution pursuant to the provisions of Paragraph 6 of this Addendum
2. Landlord shall complete such "punch list" items within thirty (30) days
after agreement on such punch list, subject, however, to seasonal requirements
for any landscaping and exterior work, and to any delay in availability of
necessary parts or materials (provided Landlord has exercised due diligence in
ordering such parts or materials) required for completion of the punch list
items.
5. TENANT'S EARLY ENTRY. Subject to applicable ordinances and building
codes governing Tenant's right to occupy or perform in the Building Shell
Improvements and subject to the provisions of Paragraph 12 of the Lease, Tenant
shall be allowed to install its conveyor and racking systems, machinery,
equipment, fixtures, or other property in the Building Shell Improvements
(collectively, Tenant's "FIXTURING") immediately following Landlord's delivering
the Premises in a dried-in condition per Paragraph 3(a) of this Addendum 2,
provided that Tenant does not thereby unreasonably interfere with the completion
of construction or occasion any labor dispute as a result of such fixturing, and
provided further that Tenant does hereby agree to assume all risk of loss or
damage to such improvements, machinery, equipment, fixtures and other property
installed by Tenant, its employees, agents or contractors. In addition, Tenant
agrees to indemnify, defend, and hold Landlord harmless from any and all
liability, loss, or damage arising from any injury to the property of Landlord,
its Contractor, its subcontractors, or materialmen, and any death or personal
injury to any person or persons arising out of such fixturing, to the extent
caused by the negligence or willful misconduct of Tenant, its agents, employees
or contractors.
29
6. DISPUTE RESOLUTION. The parties (through their Project
Representatives) shall make good faith efforts to resolve any dispute which may
arise under this Addendum 2 in an expedient manner. In the event, however, that
any dispute arises, either party may notify the other party of its intent to
invoke the dispute resolution procedure herein set forth by delivering written
notice to the other party. In such event, if the parties' respective Project
Representatives are unable to reach agreement on the subject dispute within five
(5) business days after delivery of such notice, then each party shall, within
five (5) business days thereafter, designate a representative of its management
to meet at a mutually agreed location to resolve the dispute.
7. CONSTRUCTION WARRANTIES. Tenant acknowledges that Landlord has made
no representation or warranty as to the suitability of the design of the
Building Shell Improvements for the conduct of Tenant's business, and Tenant
waives any implied warranty that the Building Shell Improvements are suitable
for Tenant's intended purposes. However, and in lieu of any implied warranties,
Landlord expressly warrants to Tenant, which warranty shall run for the one (1)
year period from and after the actual date of substantial completion of the
Building Shell Improvements, that the Building Shell Improvements will be
constructed in a good and workmanlike manner and substantially in accordance
with the specifications set forth in Attachment 1 to this Addendum 2 and the
Building Shell Plans therefor, will be of good quality and new, and will be free
of material defects.
The above warranty (i) includes labor and materials but (ii) excludes
remedy for damage or defect caused by abuse, modifications not executed by
Landlord or its contractors, Tenant's failure to reasonably maintain the
Building Shell Improvements in accordance with the provisions of the Lease or
Tenant's failure to reasonably operate or use the Building Shell Improvements
for their intended purposes, and normal wear and tear under normal usage. If
within one (1) year after the date of Substantial Completion of the Building
Shell Improvements any of the Building Shell Improvements are found to be not in
accordance with the specifications set forth on Attachment 1 to this Addendum 2
and the Building Shell Plans therefor, or are found to be otherwise defective,
then Landlord shall correct such defects, and any other damaged materials or
finishes that are part of the Building Shell Improvements (but not any of
Tenant's fixtures, furniture, furnishings, equipment, machinery, supplies,
stock, inventory or other personal property), promptly after receipt of written
notice from Tenant. Tenant shall give written notice promptly after discovery
of the condition. Landlord's warranties as set forth above are expressly
intended to survive substantial completion and completion of the construction of
the Building Shell Improvements, acceptance and/or occupancy of the Building
Shell Improvements by Tenant, and the payment of Base Rent or other amounts
payable under this Lease by Tenant, for the full one (1) year period herein set
forth.
Landlord shall assign to Tenant (or have Tenant named as a
co-obligee on) all warranties that are assignable (or on which Tenant may be
named as a co-obligee) and applicable to those portions of the Building Shell
Improvements (including, without limitation, equipment, systems, and the
roof) that Tenant is obligated to maintain or repair under this Lease; and,
to the extent such warranties are not assignable (or Tenant cannot be named
as a co-obligee), Landlord shall use reasonable efforts to enforce such
warranties on behalf of and for the benefit of Tenant, if and as applicable.
With respect to any warranties applicable to those portions of the Building
Shell Improvements that Landlord is obligated to maintain or repair under
this Lease,
30
Landlord also shall use reasonable efforts to have Tenant named as an
additional party entitled to enforce such warranties in the event Landlord
fails or refuses to do so.
31
ADDENDUM 3
CONSTRUCTION-IMPROVEMENTS
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED SEPTEMBER 30, 1998, BETWEEN
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
and
SELECT COMFORT CORPORATION
(a) Landlord agrees to furnish or perform at Landlord's sole cost and
expense those items of construction and those improvements (the "INITIAL
IMPROVEMENTS") specified below and as more fully described on Attachment 1 to
this Addendum 3:
- Warehouse Electrical & Mechanical: 1200 Amp 480/277 volt three
phase electrical service with 6 subpanels as per outline
specifications, 20 foot candles of warehouse lighting 72" above
finished floor prior to installation of racking, (400 watt metal
halide fixtures).
- Warehouse Ventilation: Landlord will provide two air changes per
hour.
- Dock Equipment: Twenty-six (26) dock doors with bumpers, of
which twenty-three (23) dock doors to have hydraulic levelers,
seals and swing-arm type dock lights.
- Warehouse Breakroom: 10'x20' employee breakroom located in the
northwest corner of the Premises.
Further, Landlord agrees to furnish or perform those items of
construction and those improvements (the "INITIAL ALLOWANCE IMPROVEMENTS")
specified below and as more fully described on Attachment 1 to this Addendum 3:
- 6,000 square feet of office area: Allowance calculated at $36.00
p.s.f.
- Main Warehouse Restroom: Allowance in a lump sum amount of
$45,000
- Monument/Building Signage: Allowance in a lump sum amount of
$13,000
Landlord shall pay for the Initial Allowance Improvements up to a maximum amount
of $216,000 for the office area; $45,000 for the main warehouse restroom, and
$13,000 for the building monument signage, and Tenant shall pay for the cost of
the Initial Allowance Improvements in excess of such amount. If the cost of the
Initial Allowance Improvements is estimated to exceed such amount, such
estimated overage shall be paid by Tenant before Landlord begins construction
and a final adjusting payment based upon the actual costs of the Initial
Allowance Improvements shall be made when the Initial Allowance Improvements are
complete.
Additionally, Landlord shall pay for additional miscellaneous tenant
improvements ("Miscellaneous Improvements") up to a maximum amount of $100,000
("Miscellaneous Allowance"), subject to the provisions of Addendum 6 of this
Lease, and in no event shall
32
Landlord have any obligation to pay for any costs of any additional
miscellaneous tenant improvements in excess of the Miscellaneous Allowance.
The Miscellaneous Allowance shall be repaid to Landlord, together with
interest at 10.5% per annum, in equal monthly installments over the Lease
term; provided, however, in no event shall Landlord be obligated to amortize
any portion of such overage in excess of $100,000 and any estimated overage
in excess of such amount shall be paid by Tenant to Landlord before Landlord
begins constructing any additional miscellaneous tenant improvements. Upon
completion the parties shall make an adjusting payment between them.
(b) If Tenant shall desire any changes, Tenant shall so advise
Landlord in writing and Landlord shall determine whether such changes can be
made in a reasonable and feasible manner. Any and all costs of reviewing any
requested changes, and any and all costs of making any changes to the Initial
Improvements, the Initial Allowance Improvements, or the Miscellaneous
Improvements which Tenant may request and which Landlord may agree to shall be
at Tenant's sole cost and expense and shall be paid to Landlord upon demand and
before execution of the change order.
(c) Landlord shall proceed with and complete the construction of the
Initial Improvements, the Initial Allowance Improvements and the Miscellaneous
Improvements, subject to Tenant's compliance with the terms and conditions of
Addendum #7 of this Lease. As soon as such improvements have been Substantially
Completed, Landlord shall notify Tenant in writing of the date that such
improvements were Substantially Completed. Such date, in conjunction with the
substantial completion of the Building Shell as defined in Addendum 2 of this
Lease, shall be the "COMMENCEMENT DATE," unless the completion of such
improvements was delayed due to any act or omission of, or delay caused by,
Tenant including, without limitation, Tenant's failure to approve plans,
complete submittals or obtain permits within the time periods agreed to by the
parties or as reasonably required by Landlord, in which case the Commencement
Date shall be the date such improvements would have been completed but for the
delays caused by Tenant. Such improvements shall be deemed substantially
completed ("SUBSTANTIALLY COMPLETED") when, in the mutual and professional
opinion of Landlord's representative and Tenant's representative ("CONSTRUCTION
MANAGER"), the Premises are substantially completed except for punch list items
which do not prevent in any material way the use of the Premises for the
purposes for which they were intended. In the event Tenant, its employees,
agents, or contractors cause construction of such improvements to be delayed,
the date of Substantial Completion shall be deemed to be the date that, in the
professional and reasonable opinion of the Construction Manager, Substantial
Completion would have occurred if such delays had not taken place. Without
limiting the foregoing, Tenant shall be solely responsible for delays caused by
Tenant's request for any changes in the plans, Tenant's request for long lead
items or Tenant's interference with the construction of the Initial
Improvements, the Initial Allowance Improvements or the Miscellaneous
Improvements, and such delays shall not cause a deferral of the Commencement
Date beyond what it otherwise would have been. After the Commencement Date
Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises.
(d) The failure of Tenant to take possession of or to occupy the
Premises shall not serve to relieve Tenant of obligations arising on the
Commencement Date or delay the payment of rent by Tenant. Subject to applicable
ordinances and building codes governing
33
Tenant's right to occupy or perform in the Premises, Tenant shall be allowed
to install its tenant improvements, machinery, equipment, fixtures, or other
property on the Premises during the final stages of completion of
construction provided that Tenant does not thereby substantially interfere
with the completion of construction or cause any labor dispute as a result of
such installations, and provided further that Tenant does hereby agree to
indemnify, defend, and hold Landlord harmless from any loss or damage to such
property, and all liability, loss, or damage arising from any injury to the
Project or the property of Landlord, its contractors, subcontractors, or
materialmen, and any death or personal injury to any person or persons
arising out of such installations, whether or not any such loss, damage,
liability, death, or personal injury was caused by Landlord's negligence.
Any such occupancy or performance in the Premises shall be in accordance with
the provisions governing Tenant-Made Alterations and Trade Fixtures in the
Lease, and shall be subject to Tenant providing to Landlord satisfactory
evidence of insurance for personal injury and property damage related to such
installations and satisfactory payment arrangements with respect to
installations permitted hereunder. Delay in putting Tenant in possession of
the Premises shall not serve to extend the term of this Lease or to make
Landlord liable for any damages arising therefrom, except as otherwise
provided for in Paragraph 3(a) of Addendum 2.
(e) Except for incomplete punch list items, Tenant upon the
Commencement Date shall have and hold the Premises as the same shall then be
without any liability or obligation on the part of Landlord for making any
further alterations or improvements of any kind in or about the Premises, except
as expressly provided in this Lease.
34
ADDENDUM 4
ONE RENEWAL OPTION AT MARKET
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED SEPTEMBER 30, 1998, BETWEEN
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
and
SELECT COMFORT CORPORATION
(a) Provided that as of the time of the giving of the Extension Notice and
the Commencement Date of the Extension Term, (x) Tenant (or Tenant Affiliate) is
the Tenant originally named herein, (y) Tenant (or Tenant Affiliate) actually
occupies all of the Premises initially demised under this Lease and any space
added to the Premises, and (z) no Event of Default exists or would exist but for
the passage of time or the giving of notice, or both; then Tenant shall have the
right to extend the Lease Term for an additional term of 5 years (such
additional term is hereinafter called the "EXTENSION TERM") commencing on the
day following the expiration of the Lease Term (hereinafter referred to as the
"COMMENCEMENT DATE OF THE EXTENSION TERM"). Tenant shall give Landlord notice
(hereinafter called the "EXTENSION NOTICE") of its election to extend the term
of the Lease Term at least 6 months, but not more than 12 months, prior to the
scheduled expiration date of the Lease Term.
(b) The Base Rent payable by Tenant to Landlord during the Extension Term
shall be the greater of (i) the Base Rent applicable to the last year of the
initial Lease term and (ii) the then prevailing market rate for comparable space
in the Project and comparable buildings in the vicinity of the Project, taking
into account the size of the Lease, the length of the renewal term, market
escalations and the credit of Tenant. The Base Rent shall not be reduced by
reason of any costs or expenses saved by Landlord by reason of Landlord's not
having to find a new tenant for such premises (including, without limitation,
brokerage commissions, costs of improvements, rent concessions or lost rental
income during any vacancy period). In the event Landlord and Tenant fail to
reach an agreement on such rental rate and execute the Amendment (defined below)
at least 6 months prior to the expiration of the Lease, then Tenant's exercise
of the renewal option shall be deemed withdrawn and the Lease shall terminate on
its original expiration date.
(c) The determination of Base Rent does not reduce the Tenant's obligation
to pay or reimburse Landlord for Operating Expenses and other reimbursable items
as set forth in the Lease, and Tenant shall reimburse and pay Landlord as set
forth in the Lease with respect to such Operating Expenses and other items with
respect to the Premises during the Extension Term without regard to any cap on
such expenses set forth in the Lease.
(d) Except for the Base Rent as determined above, Tenant's occupancy of
the Premises during the Extension Term shall be on the same terms and conditions
as are in effect immediately prior to the expiration of the initial Lease Term;
provided, however, Tenant shall have no further right to any allowances, credits
or abatements or any options to expand, contract, renew or extend the Lease.
35
(e) If Tenant does not give the Extension Notice within the period set
forth in paragraph (a) above, Tenant's right to extend the Lease Term shall
automatically terminate. Time is of the essence as to the giving of the
Extension Notice.
(f) Landlord shall have no obligation to refurbish or otherwise improve
the Premises for the Extension Term. The Premises shall be tendered on the
Commencement Date of the Extension Term in "as-is" condition.
(g) If the Lease is extended for the Extension Term, then Landlord shall
prepare and Tenant shall execute an amendment to the Lease confirming the
extension of the Lease Term and the other provisions applicable thereto (the
"Amendment").
(h) If Tenant exercises its right to extend the term of the Lease for the
Extension Term pursuant to this Addendum, the term "Lease Term" as used in the
Lease, shall be construed to include, when practicable, the Extension Term
except as provided in (d) above.
36
ADDENDUM 5
PURCHASE OPTION
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED SEPTEMBER 30, 1998, BETWEEN
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
and
SELECT COMFORT CORPORATION
Subject to Landlord receiving approval from appropriate governmental
authorities on replatting the land parcel as described on the attached Exhibit
B, and in accordance with the terms of this Addendum 5, Tenant shall have the
right and option (the "Purchase Option") to purchase the Premises. Tenant shall
exercise the Purchase Option by delivering written notice ("Purchase Option
Notice") to Landlord no later than 60 days after the Commencement Date of this
Lease.
1. PURCHASE PRICE. The Purchase Price shall be Four Million Six
Hundred Ninety Thousand Nine Hundred Sixty-Four Dollars ($4,690,964) plus any
sales commission payable by Landlord, plus the sum of all Change Orders and
tenant improvement allowance amounts as defined in Addendum 3 of this Lease,
payable in immediately available funds at closing. The intent of the parties is
that the Purchase Price shall be absolutely net to Landlord, with the sole
exception being that Landlord shall pay its attorneys' fees.
2. CLOSING. The Closing shall be conducted through an escrow
established at a title company acceptable to both Landlord and Tenant. All
deliveries shall be deposited in escrow and all closing deliveries and
disbursements shall be made through the escrow. The Closing shall occur no
later than 60 days following the exercise of the Purchase Option.
3. INSPECTION. For a period of 30 days after the date of Tenant's
Purchase Option Notice to Landlord, Tenant shall be entitled to inspect the
Premises. Tenant shall indemnify and defend Landlord for any claim, damage or
liability arising out of Tenant's and its agent's and contractor's inspection.
Tenant may revoke its election to exercise the Purchase Option by notice to
Landlord within the 30-day period if Tenant is not satisfied with any aspect of
the Premises, in which case this Lease shall continue in full force and effect.
4. TITLE. Landlord shall convey to Tenant fee simple title to the
Premises by special warranty deed (warranting title by, through, or under
Landlord, but not otherwise) subject only to all matters of record and those
matters which a correct survey would show but free and clear of any liens or any
other exceptions created by, under, or through Landlord. Tenant shall have the
absolute right to approve title to the Property, and if title is not
satisfactory, Tenant may revoke its election to exercise the Purchase Option by
giving notice to Landlord (x) within the inspection period in subparagraph (a)
above and, (y) with respect to any title exceptions of which Purchaser is
notified after such inspection period but before the Closing, at any time before
the Closing. Landlord shall assign to Tenant all its right, title and interest
in and to all contracts,
37
warranties, permits, approvals, and other intangible property related to the
Premises except for any tradename or other similar rights related to the
Premises, which Landlord shall retain.
5. PRORATIONS. There shall be no proration of taxes or other
expenses.
6. LEASE TERMINATION. The Lease shall be terminated as of the
Closing. All rent and other payments due by Tenant to Landlord under the Lease
shall be prorated to the date of Closing and shall be deposited into the escrow
and disbursed to Landlord at Closing.
7. NO WARRANTY. Landlord makes no, and at closing Tenant shall
waive in writing satisfactory to Landlord any, warranty or representation with
respect to the Premises (other than title to the Premises as provided above) and
shall release Landlord from any right or claims, known or unknown, with respect
to the physical or environmental condition of the Premises or the compliance of
the Premises with applicable law. Tenant is relying on its own inspection and
review of the Premises.
8. RISK OF LOSS. Risk of loss shall remain with Landlord, subject
to Tenant's obligations under the Lease, until the Closing. If any condemnation
is instituted or threatened against the Premises or the Premises are damaged,
either party may terminate the purchase transaction, and the Lease shall remain
in full force and effect.
9. TAX-FREE EXCHANGE. Landlord may conduct the sale as a tax-free
exchange pursuant to Section 1031 of the Internal Revenue Code. Such exchange
shall be conducted through a qualified intermediary, at no cost to Tenant, and
without affecting Landlord's obligations to Tenant. Tenant shall not be
required to take title to any other property in connection with a Section 1031
exchange.
10. EXERCISE IS IRREVOCABLE. Tenant's exercise of the Purchase
Option is irrevocable except as provided herein. Time is of the essence.
11. EXERCISE BY TENANT OR TENANT AFFILIATE ONLY. Only the Tenant
originally named herein or a Tenant Affiliate may exercise this Purchase
Option. The Purchase Option is not assignable except to a Tenant Affiliate to
which the Lease is assigned and shall terminate automatically upon any
termination of the Lease other than as a result of default by Landlord.
Further, no such right is exercisable if as of the date of exercised of the
right or the Closing, the Lease has terminated or an Event of Default or
event ("Potential Default") which but for the passage of time or the giving
of notice, or both, would constitute an Event of Default has occurred and is
continuing.
12. LANDLORD'S RIGHT OF FIRST OFFER. If at any time Tenant desires
to sell the Building, then Tenant, before offering the Building to anyone, shall
offer to Landlord the right to purchase the Building on the same terms and
conditions upon which Tenant intends to offer the Building for sale.
Such offer shall be made by Tenant to Landlord in a written
notice (hereinafter called the "First Offer Notice") which offer shall designate
the terms which Tenant intends to offer the Building for sale. Landlord may
accept the offer set forth in the First Offer
38
Notice by delivering to Tenant an acceptance (hereinafter called "Landlord's
Notice") of such offer within 7 business days after delivery by Tenant of the
First Offer Notice to Landlord. Time shall be of the essence with respect to
the giving of Landlord's Notice. If Landlord does not accept (or fails to
timely accept) an offer made by Tenant pursuant to the provisions of this
Addendum with respect to the purchase of the Building, Tenant shall be free
to sell the Building to anyone for no less than 95% of the purchase price and
on any other terms offered to Landlord.
Notwithstanding the foregoing, if Tenant desires to sell the
Building to anyone on terms which are less than 95% of the purchase price
offered to Landlord, then Tenant must re-offer to Landlord the right to purchase
the Building on such terms (the "Second Offer Notice"). Tenant shall deliver to
Landlord the Second Offer Notice in the same manner as the First Offer Notice.
If Landlord does not accept (or fails to timely accept) the re-offer made by
Tenant pursuant to the provisions of this Addendum with respect to the purchase
of the Building, Landlord shall be deemed to have irrevocably waived all further
rights under this Addendum and Tenant shall be under no further obligation to
Landlord with respect to the sale of the Building by reason of this Addendum.
39
ADDENDUM 6
RIGHT OF FIRST OFFER
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED SEPTEMBER 30, 1998, BETWEEN
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
and
SELECT COMFORT CORPORATION
(a) "OFFERED SPACE" shall mean the Building as described on the first page
of this Lease subject to Landlord receiving approval from appropriate
governmental authorities on replatting the land parcel as described in Addendum
5, and more commonly known as Select Comfort Distribution Center #1.
(b) Provided that as of the date of the giving of Landlord's Notice, (x)
Tenant (or Tenant Affiliate) is the Tenant originally named herein, (y) Tenant
(or Tenant Affiliate) actually occupies all of the Premises originally demised
under this Lease and any premises added to the Premises, and (z) no Event of
Default or event which but for the passage of time in the giving of notice, or
both, would constitute an Event of Default has occurred and is continuing, if
Tenant has not exercised the Purchase Option under the terms and conditions as
described in Addendum 5 of this Lease and Landlord desires to sell the Offered
Space, then Landlord, before selling such Offered Space to anyone, shall first
offer to Tenant the right to purchase the Building on the same terms and
conditions upon which Landlord intends to sell the Offered Space to other
parties.
(c) Such offer shall be made by Landlord to Tenant in a written notice
(hereinafter called the "FIRST OFFER NOTICE") which offer shall designate the
space being offered and shall specify the terms which Landlord intends to offer
with respect to any such Offered Space. Tenant may accept the offer set forth
in the First Offer Notice by delivering to Landlord an unconditional acceptance
(hereinafter called "TENANT'S NOTICE") of such offer within 5 business days
after delivery by Landlord of the First Offer Notice to Tenant. Time shall be
of the essence with respect to the giving of Tenant's Notice. If Tenant does
not accept (or fails to timely accept) an offer made by Landlord pursuant to the
provisions of this Addendum with respect to the Offered Space designated in the
First Offer Notice, Landlord shall be free to sell the Building to anyone for no
less than 95% of the purchase price and on any other terms offered to Tenant.
(d) If Tenant at any time declines any Offered Space offered by Landlord,
Tenant shall be deemed to have irrevocably waived all further rights under this
Addendum.
40
ADDENDUM 7
CREDIT ENHANCEMENT OPTIONS
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED SEPTEMBER 30, 1998, BETWEEN
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
and
SELECT COMFORT CORPORATION
In the event Tenant's net worth is less than $22,000,000 (including the
ability to treat the preferred stock positions from an accounting perspective as
an equity item versus a liability) as of March 1, 1999, Tenant shall be granted
the following options: (1) Tenant shall provide to Landlord, in addition to the
Security Deposit set forth in the Lease, an unconditional, irrevocable Letter of
Credit in an amount equal to $513,000, which amount shall be increased by the
amount equal to the Miscellaneous Allowance (not to exceed $100,000) pursuant to
Addendum 3 of this Lease, and shall be issued from a bank reasonably acceptable
to Landlord; provided, however, the Letter of Credit shall not expire until the
expiration of the Lease Term and any extensions thereof or Tenant's net worth
exceeds $22,000,000 ("Option #1"); or (2) Tenant shall pay to Landlord, in one
lump sum payment, the amount equal to the amount of the Letter of Credit, and
the Base Rent shall be adjusted as described below ("Option #2).
If Tenant desires to exercise Option #1 as described herein, the Letter of
Credit shall be in substantially similar form as attached hereto, shall provide
that it may be drawn down upon by Landlord in the event of a default under the
Lease at any time Landlord delivers its sight draft to the bank, and shall only
be in the amount of Landlord's actual damages sustained in such default.
Notwithstanding anything contained herein to the contrary, in the event Landlord
terminates the Lease pursuant to Paragraph 24 of the Lease, Landlord shall
follow any and all appropriate legal proceedings relating to its remedies,
including, without limitation, acceleration of rent, prior to drawing down upon
the Letter of Credit. If Landlord sells or conveys the Premises, Tenant shall,
at Landlord's request, cooperate in having the Letter of Credit transferred to
the purchaser. If the Letter of Credit is ever drawn upon by Landlord in the
event of a default pursuant to the terms of the Lease and this Addendum, the
default under the Lease shall be deemed cured, and Tenant shall within ten (10)
days thereafter cause the Letter of Credit to be restored to its original
amount. Further, if Tenant desires to exercise Option #1, the monthly Base Rent
shall be reduced by $.0075/sf/mo/NNN during the period of time that the Letter
of Credit is in force, but in no event to exceed 12 months.
41
If Tenant desires to exercise Option #2 as described herein, the monthly
Base Rent as set forth in Addendum 1 of this Lease shall be adjusted as follows:
Period Amount
------ ------
Months 1-60 $29,232.00 (calculated at $.290/sf/mo/NNN)
Months 61-120 $33,667.20 (calculated at $.334/sf/mo/NNN)
42
FORM OF LETTER OF CREDIT
[LETTERHEAD OF LETTER OF CREDIT BANK]
[DATE]
ProLogis Development Services Incorporated
_________________________________
_________________________________
Attention: _______________
Re: Irrevocable Transferrable Letter of Credit
No. ___________________________
Beneficiary:
By order of our client, ______________________________________ (the
"APPLICANT"), we hereby establish this Irrevocable Transferrable Letter of
Credit No. _______________ in your favor for an amount up to but not exceeding
the aggregate sum of ___________________ and No/100 Dollars ($_________) (as
reduced from time to time in accordance with the terms hereof, the "LETTER OF
CREDIT AMOUNT"), effective immediately, and expiring on the close of business at
our office at the address set forth above one year from the date hereof unless
renewed as hereinafter provided.
Funds under this Letter of Credit are available to you on or prior to the
expiry date against presentation by you of your (i) sight drafts drawn on us in
the form of Annex 1 hereto, indicating this Letter of Credit number and (ii)
request in the form of Annex 2 hereto (such sight draft and request, together
referred to as a "DRAWING REQUEST"), sight draft(s), completed and signed by one
of your officers. Presentation of your Drawing Requests may be made by you to
us at the address set forth above or may be made by overnight courier, to the
same address. You may present to us one or more Drawing Requests from time to
time prior to the expiry date in an aggregate amount not to exceed the Letter of
Credit Amount then in effect (it being understood that the honoring by us of
each Drawing Request shall reduce the Letter of Credit Amount then in effect by
the amount of the Drawing Request so honored).
This Letter of Credit will be automatically renewed for a one-year period
upon the expiration date set forth above and upon each anniversary of such date,
unless at least sixty (60) days prior to such expiration date, or sixty (60)
days prior to any anniversary of such date, we notify both you and the Applicant
in writing by certified mail that we elect not to so renew the Letter of Credit.
This Letter of Credit sets forth in full the terms of our undertaking and
such undertaking shall not in any way be modified, amended or amplified by
reference to any document or instrument referred to herein or in which this
Letter of Credit is referred to or to which this Letter of Credit relates, and
no such reference shall be deemed to incorporate herein by reference any
document or instrument.
All bank charges and commissions incurred in this transaction are for the
Applicant's account, except you shall be responsible for all bank charges
related to any assignment of this Letter of Credit to your successors and
assigns.
43
This Letter of Credit is assignable by you to your successors and assigns
any number of times in its entirety and not in part, but only by delivery to us
of a Notice of Assignment in the form of Annex 3 hereto.
We hereby agree with the drawers, endorsers, and bona fide holders of
drafts drawn under and in compliance with the terms of this Letter of Credit
that such drafts will be duly honored upon presentation to the drawee from our
own funds and not the funds of the Applicant and shall be available to such
drawers as the case may be, on or before noon, Minnesota time, on the Business
Day (defined below) next following the date on which such drafts are received by
us. "Business Day" shall mean any day which is not a Saturday, Sunday or day on
which we are required or authorized by law to be closed in Minneapolis,
Minnesota.
To the extent not inconsistent with the express terms hereof, this Letter
of Credit shall be governed by, and construed in accordance with, the terms of
the Uniform Customs and Practice for Commercial Documentary Credits (1993
Revision), I.C.C. Publication No. 500 (the "UCP 500") and as to matters not
governed by the UCP 500, this Letter of Credit shall be governed by and
construed in accordance with the laws of the State of Minnesota.
Very truly yours,
[NAME OF LETTER OF CREDIT BANK]
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
44
ANNEX 1
SIGHT DRAFT
___________, 199__
For value received, at sight pay to the order of PROLOGIS DEVELOPMENT
SERVICES INCORPORATED, the sum of [Amount in words] [Amount in Figures] United
States Dollars drawn under [Name of Letter of Credit Bank] Irrevocable
Transferrable Letter of Credit No. ________ dated
_________________, 199_____.
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
45
ANNEX 2
DRAWING REQUEST
_________________, 199__
[NAME AND ADDRESS OF LETTER
OF CREDIT BANK]
Re: Irrevocable Letter of Credit No. (the "LETTER OF CREDIT")
The undersigned (the "BENEFICIARY"), hereby certifies to [Name of Letter of
Credit Bank] (the "ISSUER") that:
(a) The Beneficiary is making a request for payment in lawful currency
of the United States of America under Irrevocable Letter of Credit No._________
(the "Letter of Credit") in the amount of $________.
(b) The Letter of Credit Amount (as defined in the Letter of Credit) as of
the date hereof and prior to payment of the amount demanded in this Drawing
Request is $________. The amount requested by this Drawing Request does not
exceed the Letter of Credit Amount.
(c) Demand is made for payment under the Letter of Credit in the amount of
Landlord's actual damages as a result of the occurrence and continuation of an
Event of Default (as defined in the Lease Agreement).
Please wire transfer the proceeds of the drawing to the following account
of the Beneficiary at the financial institution indicated below:
-----------------------------
-----------------------------
-----------------------------
Unless otherwise defined, all capitalized terms used herein have the
meanings provided in, or by reference in, the Letter of Credit.
46
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Drawing Request as of the ___ day of _______________, 199__.
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
47
ANNEX 3
NOTICE OF ASSIGNMENT
____________, 199_
[NAME AND ADDRESS OF
LETTER OF CREDIT BANK]
Re: Irrevocable Letter of Credit No. _____
The undersigned (the "BENEFICIARY"), hereby notifies
[Name of Letter of Credit Bank] (the "ISSUER") that it has irrevocably
assigned the above-referenced Letter of Credit to __________ (the "ASSIGNEE")
with an address at ________________ effective as of the date the Issuer
receives this Notice of Assignment. The Assignee acknowledges and agrees
that the Letter of Credit Amount may have been reduced pursuant to the terms
thereof, and that the Assignee is bound by any such reduction.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Notice of Assignment as of this _____ day of _______, 199_.
PROLOGIS DEVELOPMENT SERVICES INCORPORATED
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Agreed:
[Assignee]
- --------------------------------------
48
EXHIBIT A - SITE PLAN
To be provided.
49
EXHIBIT B - REPLATTING OF LAND PARCEL
To be provided.
50