0001005477-01-501457.txt : 20011029
0001005477-01-501457.hdr.sgml : 20011029
ACCESSION NUMBER: 0001005477-01-501457
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20010731
FILED AS OF DATE: 20011023
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: UNITED NATURAL FOODS INC
CENTRAL INDEX KEY: 0001020859
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141]
IRS NUMBER: 050376157
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0731
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15723
FILM NUMBER: 1764586
BUSINESS ADDRESS:
STREET 1: PO BOX 999
STREET 2: 260 LAKE RD
CITY: DAYVILLE
STATE: CT
ZIP: 06241
BUSINESS PHONE: 8607792800
MAIL ADDRESS:
STREET 1: PO BOX 999
STREET 2: 260 LAKE RD
CITY: DAYVILLE
STATE: CT
ZIP: 06241
10-K
1
d01-34883.txt
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for fiscal year ended July 31, 2001
or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
Commission File Number: 000-1020859
UNITED NATURAL FOODS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 05-0376157
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
260 Lake Road Dayville, CT 06241
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (860) 779-2800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock,$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the common stock held by non-affiliates of the
registrant was $332,249,104, based upon the closing price of the registrant's
common stock on the Nasdaq National Market on October 1, 2001. The number of
shares of the registrant's common stock, $0.01 par value, outstanding as of
October 1, 2001 was 18,665,680.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on December 3, 2001 are incorporated herein by
reference into Part III of this report.
UNITED NATURAL FOODS, INC.
FORM 10-K
TABLE OF CONTENTS
Section Page
Part I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for the Registrant's Common Equity and Related 11
Stockholder Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market 22
Risk
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on 39
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and 39
Management
Item 13. Certain Relationships and Related Transactions 39
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports 39
on Form 8-K
Signatures 40
2
PART I.
ITEM 1. BUSINESS
We are the leading national distributor of natural and organic foods and related
products in the United States. We are the primary supplier to a majority of our
customers, offering more than 30,000 high-quality natural products consisting of
groceries and general merchandise, nutritional supplements, bulk and foodservice
products, personal care items, perishables and frozen foods. We serve more than
7,000 customers in 49 states, including super natural chains, independent
natural products retailers and conventional supermarkets, and are the primary
distributor to the two largest super natural chains, Whole Foods Markets, Inc.
("Whole Foods") and Wild Oats Markets, Inc. ("Wild Oats"). In recent years, our
sales to existing and new customers have increased through the acquisition of or
merger with natural products distributors, the expansion of existing
distribution centers and the continued growth of the natural products industry
in general. Through these efforts, we believe that we have been able to broaden
our geographic penetration, expand our customer base, enhance and diversify our
product selections and increase our market share. Through our subsidiary, the
Natural Retail Group, we also own and operate 12 retail natural products stores
located in the eastern United States. We believe our retail business serves as a
natural complement to our distribution business as it enables us to develop new
marketing programs and improve customer service.
Since 1985, we have completed 11 acquisitions of distributors and suppliers,
including Stow Mills, Inc. ("Stow Mills"), Hershey Import Co., Inc. ("Hershey")
and Albert's Organics, Inc. ("Albert's"), and 11 acquisitions of retail stores,
which have significantly expanded our distribution network, product offering and
customer base. On October 31, 1997, we merged with Stow Mills, a regional
natural products distributor serving the Northeast and Midwest regions of the
United States. On February 11, 1998, we acquired the assets of Hershey, located
in Rahway, New Jersey, a business specializing in the international trading,
roasting and packaging of nuts, seeds, dried fruits and snack items. On
September 30, 1998, we acquired substantially all of the outstanding stock of
Albert's, a wholesale distributor of organic produce. Our distribution
operations are divided into three principal units: United Natural Foods in the
Eastern Region (previously Cornucopia Natural Foods, Inc. and Stow Mills, Inc.),
Mountain People's Warehouse, Inc. and Rainbow Natural Foods, Inc. in the Western
Region (previously Rainbow Natural Foods solely comprised the Central Region),
and Albert's Organics in various markets in the United States.
NATURAL PRODUCTS INDUSTRY
Although most natural products are food products, including organic foods, the
natural products industry encompasses a number of other categories, including
nutritional and herbal supplements, toiletries and personal care items,
naturally based cosmetics, natural/homeopathic medicines and cleaning agents.
According to the June 2001 Natural Foods Merchandiser, sales revenues for all
types of natural products exceeded $32 billion in 2000. The 7% increase in the
industry sales was driven by substantial growth in the sales of organic food,
especially for the following organic food categories: organic non-dairy
beverages, organic milk, organic frozen convenience foods, organic produce,
organic yogurt and kefir, organic cheese and cheese alternatives. Other product
categories driving industry growth include: selected fresh and frozen foods,
most notably meat, poultry, and seafood, as well as non-dairy yogurt; selected
non-perishable foods, such as puffed and other snacks, pasta dishes and other
mixes, ready to eat soups, and organic juices; selected personal care
categories, including essential oils, beauty products, body wash and bath gels,
and feminine products; and selected nutritional supplements, most notably
food-supplements, homeopathic medicines, women's and children's vitamin/mineral
formulas, probiotics, therapeutic ointments, lozenges and sprays, and ready to
drink meal replacements.
The growth in these categories appears to be due to the consumer's interest in
natural products that address their health-related concerns. The Natural Foods
Merchandiser noted in particular the consumer's desire to avoid bovine growth
hormone, drink bottled water, and to otherwise postpone the onset of old age as
examples of these health-related concerns. These trends are expected to continue
as the population ages.
COMPETITIVE ADVANTAGES
We believe we benefit from a number of significant competitive advantages
including:
MARKET LEADER WITH A NATIONWIDE PRESENCE. We believe we are one of the few
distributors capable of serving local and regional customers as well as the
rapidly growing super natural chains. We believe we have significant advantages
over smaller, regional natural products distributors as a result of our ability
to: (i) expand marketing and
3
customer service programs between regions; (ii) expand national purchasing
opportunities; (iii) consolidate systems applications between physical locations
and regions; (iv) integrate administrative and accounting functions; and (v)
reduce geographic overlap between regions.
LOW-COST OPERATOR. In addition to our volume purchasing opportunities, a
critical component of our position as a low-cost provider is our management of
warehouse and distribution costs. Our continuing growth has created the need for
expansion of existing facilities to achieve maximum operating efficiencies and
to ensure adequate space for future needs. We have made considerable capital
expenditures and incurred considerable expenses in connection with the expansion
of our facilities, including the expansion of our Auburn, California, New
Oxford, Pennsylvania and Albert's Los Angeles, California locations. We recently
signed a lease to move our Atlanta, Georgia distribution center to a 300,000
square foot facility, an increase of approximately 100,000 square feet. While we
anticipate incremental short-term costs between $0.5 million and $1.0 million
during the second and third quarters of fiscal 2002 as we relocate operations
into this facility, we expect the efficiencies created by consolidating our two
existing facilities into one will lower our expenses relative to sales over the
long-term. We are expanding our Western Region operations into the Los Angeles
area and recently signed an agreement to lease a 200,000 square foot
distribution center with the option to lease an additional 83,000 square feet
for expansion. The Los Angeles facility will enable us to provide enhanced
service levels to our southwestern customers and to further penetrate that
market. While we anticipate short-term incremental costs of approximately $1.0
million, we expect to realize transportation savings and efficiencies once we
are operational early in calendar year 2002. Upon the completion of the Los
Angeles expansion the increased capacity of our distribution centers will be
approximately 55% greater than it was five years ago. While operating margins
may be affected in periods in which these expenses are incurred, over the long
term, we expect to benefit from the increased absorption of our expenses over a
larger sales base.
EXPANDING BASE OF PREMIER CUSTOMER RELATIONSHIPS. We serve more than 7,000
customers in 49 states. We have developed long-standing customer relationships,
which we believe are among the strongest in the industry. We have also been the
primary supplier to each of the industry's two largest super natural chains,
Whole Foods Market, Inc. and Wild Oats, Inc., for more than ten years. Whole
Foods Market, Inc., has recently agreed to extend our current distribution
arrangement through August 31, 2004.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY STAKE. Our management team
has extensive experience in the natural products industry and has been
successful in identifying, consummating and integrating multiple acquisitions.
Since 1985, we have successfully completed 11 acquisitions of distributors and
suppliers, including Stow Mills, Hershey and Albert's, and 11 acquisitions of
retail stores. In addition, our executive officers and directors and their
affiliates, and the Employee Stock Ownership Trust ("ESOT"), beneficially own in
the aggregate approximately 15% of the Company's Common Stock. Accordingly,
senior management and employees have significant incentive to continue to
generate strong growth in operating results in the future.
GROWTH STRATEGY
Our growth strategy is to maintain and enhance our position as a leading
national distributor to the natural products industry. Key elements of our
strategy include:
INCREASE MARKET SHARE OF THE GROWING NATURAL PRODUCTS INDUSTRY. Our strategy is
to continue to increase our leading market share of the growing natural products
industry by expanding our customer base, increasing our share of existing
customers' business and continuing to expand and further penetrate new
distribution territories.
EXPAND CUSTOMER BASE. We have expanded the number of customers served to more
than 7,000 as of July 31, 2001. We plan to continue to expand our coverage of
the highly fragmented natural products industry by cultivating new customer
relationships within the industry and by developing other channels of
distribution such as traditional supermarkets, mass market outlets,
institutional foodservice providers, hotels and gourmet stores.
INCREASE MARKET SHARE OF EXISTING CUSTOMERS' BUSINESS. We seek to become the
primary supplier for a majority of our customers by offering the broadest
product offering in the industry at the most competitive prices. Since 1993, we
have expanded our product offering from approximately 14,000 to more than 30,000
SKUs as of July 31, 2001. Additionally, we have launched a number of private
label programs that present to us and our customers higher margins than many of
our existing product offerings. As a result, we believe we have become the
primary distributor to the majority of our natural products customer base.
4
CONTINUE TO EXPAND AND PENETRATE INTO NEW CHANNELS OF DISTRIBUTION. We have made
considerable capital expenditures and incurred considerable expenses in
connection with the expansion of our facilities, including the expansion of our
Auburn, California, New Oxford, Pennsylvania and Albert's Los Angeles locations.
We recently signed a lease to move our Atlanta, Georgia distribution center to a
300,000 square foot facility, an increase of approximately 100,000 square feet.
We are expanding our Western Region operations into the Los Angeles area and
recently signed an agreement to lease a 200,000 square foot distribution center
with the option to lease an additional 83,000 square feet for expansion. The Los
Angeles facility will enable us to provide enhanced service levels to our
southwestern customers and to further penetrate that market. Upon the completion
of the Los Angeles expansion early in calendar year 2002, the increased capacity
of our distribution centers will be approximately 55% greater than it was five
years ago. We will continue to selectively evaluate opportunities to acquire (i)
distributors to fulfill existing markets and expand into new markets and (ii)
suppliers to expand margins through vertical integration and brand
differentiation. We currently have no agreements or understandings with regard
to any material acquisitions.
CONTINUE TO IMPROVE EFFICIENCY OF NATIONWIDE DISTRIBUTION NETWORK. We
continually seek to improve our operating results by integrating our nationwide
network utilizing the best practices within the industry and within each of the
regions, which have formed our foundation. This focus on achieving improved
economies of scale in purchasing, warehousing, transportation and general and
administrative functions has improved our operating margins, which increased
from 2.5% in fiscal 1994 to 3.4% for the quarter ended July 31, 2001 (excluding
special charges).
CONTINUE TO PROVIDE THE LEADING DISTRIBUTION SOLUTION. Our strategy is to
continue to provide the leading distribution solution to the natural products
industry through our national presence, regional responsiveness, high customer
service focus and breadth of product offering. We offer our customers a
selection of inventory management, merchandising, marketing, promotional and
event management services to increase sales and enhance customer satisfaction.
The marketing services, many of which are supplier-sponsored, include monthly
and thematic flyer programs, in-store signage and assistance in product display,
are offered to assist our customers in increasing their sales.
PRODUCTS
Our extensive selection of high-quality natural products enables us to provide a
primary source of supply to a diverse base of customers whose product needs vary
significantly. We carry more than 30,000 high-quality natural products,
consisting of national brand, regional brand, private label and master
distribution products in six product categories consisting of grocery and
general merchandise, nutritional supplements, bulk and foodservice products,
personal care items, fresh produce and perishables, and frozen foods. Our
private label products address certain preferences of customers, which are not
otherwise being met by other suppliers.
We evaluate approximately 10,000 potential new products each year based on both
existing and anticipated trends in consumer preferences and buying patterns. Our
buyers regularly attend regional and national natural, organic, specialty,
ethnic and gourmet products shows to review the latest products which are likely
to be of interest to retailers and consumers. We also actively solicit
suggestions for new products from our customers. We make the majority of our new
product decisions at the regional level. We believe that our decentralized
purchasing practices allow our regional buyers to react quickly to changing
consumer preferences and to evaluate new products and new product categories
regionally. Additionally, many of the new products that we offer are marketed on
a regional basis or in our own retail stores prior to being offered nationally,
which enables us to evaluate local consumer reaction to the products without
incurring significant inventory risk. Furthermore, by exchanging regional
product sales information between our regions, we are able to make more informed
and timely new product decisions in each region.
SUPPLIERS
We purchase our products from approximately 1,800 suppliers. The majority of our
suppliers are based in the United States, but we source products from suppliers
throughout Europe, Asia, South America, Africa and Australia. We believe that
the reason natural products suppliers seek distribution of their products
through us is because we provide access to a large and growing customer base,
distribute the majority of the suppliers' products and support their marketing
programs. Substantially all product categories that we distribute are available
from a number of suppliers and therefore we are not dependent on any single
source of supply for any product category. Our largest supplier, Hain Celestial
Group, Inc., accounted for approximately 8.9% of total purchases in fiscal 2001.
5
We are well positioned to respond to regional and local customer preferences for
natural products by decentralizing the majority of our purchasing decisions for
all products except bulk commodities. We believe that regional buyers are best
suited to identify and to respond to local demands and preferences. Although
each of our regions is responsible for placing its own orders and can select the
products that it believes will most appeal to its customers, each region is
required to participate in company-wide purchasing programs that enable us to
take advantage of our consolidated purchasing power. For example, we have
positioned ourselves as the largest purchaser of organically grown bulk products
in the natural products industry by centralizing our purchase of nuts, seeds,
grains, flours and dried foods. In addition, we have implemented a number of
national consumer flyer programs, which have resulted in incremental sales
growth for our customers and ourselves.
Our purchasing staff cooperates closely with suppliers to provide new and
existing products. The suppliers assist in training our customer service
representatives in marketing new products, identifying industry trends and
coordinating advertising and other promotions.
We maintain a comprehensive quality assurance program. All of the products we
sell, which are represented as "organic", are required to be certified as such
by an independent third-party agency. We maintain current certification
affidavits on all organic commodities and produce in order to verify the
authenticity of the product. All potential suppliers of organic products are
required to provide such third-party certification to us before they are
approved as a supplier.
CUSTOMERS
We market our products to more than 7,000 customers located in 49 states. We
maintain long-standing customer relationships with independent natural products
retailers, including super natural chains, and have continued to emphasize our
relationships with new customers, such as conventional supermarkets, mass market
outlets and gourmet stores, all of which are continually increasing their
natural product offerings. Among our wholesale customers are leading super
natural chains doing business as Whole Foods Market, Inc. (including Bread and
Circus, Fresh Fields, and Bread of Life), Wild Oats, Inc. (including Henry's),
Nature's Fresh! Northwest, Wild Harvest, Rainbow, Basha's, and conventional
supermarket chains such as Wegman's, Stop and Shop, Shaws/Star Market, Quality
Food Centers (QFC), Hannaford, Pathmark, Bilos, Lowe's and Publix. We believe
that we are the primary supplier to the majority of our customers. Whole Foods
accounted for approximately 17% and 16% of the Company's net sales in fiscal
2001 and 2000, respectively. Wild Oats accounted for approximately 14% and 13%
of our net sales in fiscal 2001 and 2000, respectively. No other customer
accounted for more than 10% of our net sales in fiscal 2001.
FILL RATES
Our average fill rates for fiscal 2001 were approximately 95%. We believe that
our high fill rates are attributable to our experienced purchasing department
and sophisticated warehousing, inventory control and distribution systems. We
offer next-day delivery service to a majority of our active customers and offer
multiple deliveries each week to our largest customers. We believe that customer
loyalty is dependent upon outstanding customer service to ensure accurate
fulfillment of orders, timely product delivery, low prices and a high level of
product marketing support.
MARKETING
We have developed a variety of supplier-sponsored marketing services, which
cater to a broad range of retail formats. These programs are designed to educate
consumers, profile suppliers and increase sales for retailers, the majority of
which do not have the resources necessary to conduct such marketing programs
independently.
We offer multiple monthly flyer programs featuring the logo and address of the
participating retailer imprinted on a flyer advertising approximately 200 sale
items, which are sold by the retailer to its customers. The color flyers are
designed by our in-house marketing department utilizing modern digital
photography and contain detailed product descriptions and pricing information.
Additionally, each flyer generally includes detailed information on selected
suppliers, recipes, product features and a comparison of the characteristics of
a natural product with a similar mass-market product. The monthly flyer programs
are structured to pass through to the retailer the benefit of company negotiated
discounts and advertising allowances. The program also provides retailers with
posters, window banners and shelf tags to coincide with each month's promotions.
In addition, in order to maximize our national leverage and to utilize our rich
internal marketing resources to best effect, we have increased the number of
national flyer programs we offer, with favorable results for our suppliers, our
customers and ourselves.
6
In addition to our monthly flyer programs, we offer thematic custom and seasonal
consumer flyers which are used to promote items associated with a particular
cause or season, such as environmentally sensitive products for Earth Day or
foods and gifts particularly popular during the holiday season. We also (i)
offer in-store signage and promotional materials, including shopping bags and
end-cap displays, (ii) provide assistance with planning and setting up product
displays and (iii) advise on pricing decisions to enable our customers to
respond to local competition.
DISTRIBUTION
We have carefully chosen the sites for our distribution centers to provide
direct access to our regional markets. This proximity allows us to reduce our
transportation costs compared to competitors that seek to service their
customers from locations that are often hundreds of miles away. We believe that
we incur lower inbound freight expense than our regional competitors because our
national presence allows us to buy full and partial truckloads of products.
Whenever necessary we can backhaul between our distribution centers and
satellite staging facilities using our own trucks. Many of our competitors must
employ outside consolidation services and pay higher carrier transportation fees
to move products from other regions. Additionally, we can redistribute
overstocks and inventory imbalances at one distribution center to another
distribution center to ensure products are sold prior to their expiration date.
Products are delivered to our distribution centers primarily by our leased fleet
of trucks, contract carriers and the suppliers themselves. We lease most of our
trucks from Ryder Truck Leasing, which in some cases maintains facilities on our
premises for the maintenance and service of these vehicles. Other trucks are
leased from regional firms that offer competitive services.
We ship orders for supplements or for items that are destined for areas outside
regular delivery routes through United Parcel Service and other independent
carriers. Deliveries to areas outside the continental United States are shipped
by ocean-going containers on a weekly basis.
TECHNOLOGY
We have made a significant investment in information and warehouse management
systems. We continually evaluate and upgrade our management information systems
based on the best practices in the distribution industry and at our regional
operations in order to make the systems more efficient, cost effective and
responsive to customer needs. These systems include radio frequency-based
inventory control, paperless receiving, computer-assisted order processing and
slot locator/retrieval assignment systems. At the receiving docks, warehouse
workers attach computer-generated, preprinted locator tags to inbound products.
These tags contain the expiration date, locations, quantity, lot number and
other information in bar code format. Warehouse workers use hand-held radio
frequency devices to process customer orders by scanning the UPC bar code as the
product is removed from its assigned slot. Similarly, customer returns are
processed by scanning the UPC bar codes. We also employ a management information
system that enables us to lower our inbound transportation costs by making
optimum use of our own fleet of trucks or by consolidating deliveries into full
truckloads. Orders from multiple suppliers and multiple distribution centers are
consolidated into single truckloads for efficient use of available vehicle
capacity and return-haul trips.
RETAIL OPERATIONS
The Company's Natural Retail Group ("NRG") currently owns and operates 11
natural product retail stores located in Florida, Maryland and Massachusetts.
Our retail strategy is to: i) selectively acquire existing stores that meet our
strict criteria in categories such as sales and profitability, growth potential,
merchandising and management; and ii) open new stores in areas with favorable
competitive climates and growth potential. Generally, we will not purchase or
open new stores that directly compete with primary retail customers of our
distribution business. We believe our retail stores have a number of advantages
over their competitors, including our financial strength and marketing
expertise, the purchasing power resulting from group purchasing by stores within
NRG and the breadth of their product selection. We acquired Palm Harbor Natural
Foods in Palm Harbor, Florida in March of 2001 and are planning to open our
twelfth store, SunSplash Market in Port Charlotte, Florida, during the first
quarter of fiscal year 2002. Our strategy for future retail growth is to
identify and acquire or open additional retail stores as opportunities arise and
to continue to focus on the sale of higher margin nutritional supplements while
maintaining emphasis on the sale of organic produce, delicatessen, and bakery
products.
Acting as a distributor to our retail stores is an advantageous position for us
and includes the ability to: (i) control the purchases made by these stores;
(ii) expand the number of high-growth, high-margin product categories such as
produce
7
and prepared foods within these stores; and (iii) keep current with the retail
marketplace which enables us to better serve our distribution customers.
Additionally, as the primary natural products distributor to our retail
locations, we expect to realize significant economies of scale and operating and
buying efficiencies. As an operator of retail stores, we also have the ability
to test market select products prior to offering them nationally. We can then
evaluate consumer reaction to the product without incurring significant
inventory risk. We are able to test new marketing and promotional programs
within our stores prior to offering them to a broader customer base.
COMPETITION
The natural products distribution industry is highly competitive. The industry
has been characterized in recent years by significant consolidation and the
emergence of large competitors. Our major national competitor is Tree of Life
Distribution, Inc. (a subsidiary of Koninklijke Wessanen N.V.) and our major
regional competitors are Nature's Best, Inc. in the Western United States,
Northeast Cooperative in the Eastern United States and Blooming Prairie
Cooperative Warehouse in the Midwestern United States. We also compete with
numerous smaller regional and local distributors of ethnic, Kosher, gourmet and
other specialty foods. Additionally, we compete with national, regional and
local distributors of conventional groceries and, to a lesser extent, companies
that distribute to their own retail facilities. We believe that distributors in
the natural products industry primarily compete on product quality and depth of
inventory selection, price and quality of customer service. Although we believe
we currently compete effectively with respect to each of these factors, there
can be no assurance that we will be able to maintain our competitive position
against current and potential competitors.
Our retail stores compete against other natural products outlets, conventional
supermarkets and specialty stores. We believe that retailers of natural products
compete principally on product quality and selection, price, customer service,
knowledge of personnel and convenience of location.
EMPLOYEES
As of July 31, 2001, we had approximately 2,700 full- and part-time employees.
An aggregate of approximately 230 of the employees at our Auburn, Washington,
and Rahway, New Jersey facilities are covered by a collective bargaining
agreement. We have never experienced a work stoppage by our unionized employees
and we believe that our employee relations are good.
ITEM 2. PROPERTIES
We maintain eleven distribution centers. These facilities consist of an
aggregate of approximately 1.6 million square feet of space, the largest
capacity of any distributor in the natural products industry. We are planning to
move our Atlanta, Georgia distribution center to a facility of approximately
300,000 square feet and we are expanding our Western Region operations into a
200,000 square foot distribution center in Fontana, California. Upon completion
of these moves our total distribution space will be approximately 1.9 million
square feet.
LOCATION SIZE LEASE EXPIRATION
(Square feet)
Atlanta, Georgia 175,000 February 2002
Atlanta, Georgia 80,000 April 2002
Atlanta, Georgia1 300,000 January 2002
Auburn, California 150,000 Owned
Auburn, California 100,000 Owned
Auburn, Washington 204,800 March 2009
Bridgeport, New Jersey 35,700 Owned
Chesterfield, New Hampshire 126,500 Owned
Dayville, Connecticut 245,000 Owned
Denver, Colorado 180,800 July 2013
Kealeakua, Hawaii 16,300 October 2002
Fontana, California2 200,000 November 2011
Vernon, California 34,500 Owned
New Oxford, Pennsylvania 250,000 Owned
Winterhaven, Florida 10,600 October 2001
8
(1) In August 2001, we exercised the option to purchase this facility with the
close date to be determined by the lessor. This facility will replace our two
existing Atlanta facilities. We plan to relocate operations into this facility
during the second and third quarters of fiscal 2002.
(2) We expect to complete the expansion in early calendar 2002.
We also rent facilities to operate twelve retail stores along the east coast
with various lease expiration dates and a 38,000 square foot processing and
manufacturing facility in Rahway, New Jersey with a lease expiration date of
March 2002.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in routine litigation that arises in the
ordinary course of our business. There are no pending material legal proceedings
to which we are a party or to which our property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended July 31, 2001.
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS OF THE REGISTRANT
The executive officers, key employees and directors of the Company and their
ages as of October 19, 2001 are listed below:
NAME AGE POSITION
Thomas B. Simone (1)(2)(3) 59 Chairman of the Board
Michael S. Funk (2) 47 Chief Executive Officer and Vice
Chairman of the Board
Steven Townsend 48 President, President of Eastern
Region and Director
Todd Weintraub 38 Vice President, Chief Financial
Officer and Treasurer
Kevin Michel 44 President of Western Region, Assistant
Secretary and Director
Daniel V. Atwood 43 National Vice President of Marketing
and Secretary
Gordon Barker (1)(3) 55 Director and Chairman of the
Compensation Committee
Joseph M. Cianciolo (1)(3) 62 Director and Chairman of
the Audit Committee
James P. Heffernan (1) 55 Director
(1) Member of the Audit Committee.
(2) Member of the Nominating Committee.
(3) Member of the Compensation Committee.
9
Thomas B. Simone has served as the Chairman of the Board of Directors since
December 1999 and as a member of the Board of Directors since October 1996. Mr.
Simone is a member of the Audit Committee, the Nominating Committee and the
Compensation Committee. Mr. Simone has served as President and Chief Executive
Officer of Simone & Associates, a healthcare and natural products investment and
consulting company, since April 1994. Mr. Simone also serves on the Board of
Directors of ECO-DENT International, Inc. and Spectrum Organic Products, Inc.
Michael S. Funk has served as Vice Chairman of the Board of Directors since
February 1996 and as a member of the Board of Directors since February 1996. Mr.
Funk has served as our Chief Executive Officer since December 1999. Mr. Funk
served as our President from October 1996 to December 1999 and as our Executive
Vice President from February 1996 until October 1996. Since its inception in
July 1976 until April 2001, Mr. Funk served as President of Mountain People's
Warehouse.
Steven Townsend has served as a member of the Board of Directors since December
2000, as our President since April 2001 and as President of our Eastern Region
since January 2000. Mr. Townsend served as a member of our Board of Directors
from August 1988 until September 1999, as our Vice President of Finance and
Administration from July 1983 until May 1995, as Chief Financial Officer from
June 1995 until December 1997.
Todd Weintraub has served as our Vice President, Treasurer and Chief Financial
Officer since April 2001. Mr. Weintraub served as our Corporate Controller from
July 2000 until April 2001. From December 1997 until July 2000 Mr. Weintraub
served as our Manager of Financial Reporting. From June 1995 until December
1997, Mr. Weintraub served in certain financial reporting positions at State
Street Corporation and Allmerica Financial Corporation. Mr. Weintraub met all
requirements as a Certified Public Accountant and was also employed by KPMG LLP
from January 1990 until Feb 1994.
Kevin T. Michel has served as a member of the Board of Directors since February
1996 and as President of our Western Region since April 2001. Mr. Michel served
as our Chief Financial Officer and Treasurer from December 1999 until March
2001, as our interim Chief Financial Officer and Treasurer from August 1999
until November 1999, as Executive Vice President of our Western Region from
April 1999 until July 1999 and as President of our Central Region from January
1998 until March 1999. Mr. Michel served as Chief Financial Officer of Mountain
People's Warehouse from January 1995 until December 1997.
Daniel V. Atwood has served as our National Vice President of Marketing since
April 2001 and as our Vice President and Secretary since January 1998. Mr.
Atwood served on our Board of Directors from August 1988 to December 1997. Mr.
Atwood served as President of our Natural Retail Group from August 1995 until
March 2001.
Gordon D. Barker has served as a member of the Board of Directors since
September 1999. Mr. Barker serves as the Chairman of the Compensation Committee
and as a member of the Audit Committee. Mr. Barker has served as Chief Executive
Officer of Snyder's Drug Stores, Inc. since October 1999. Mr. Barker was the
principal of Barker Enterprises, an investment and consultant firm from January
1997 until September 1999. Mr. Barker also serves on the following Boards of
Directors: Gart Sports Company, Infinity Towers, NuMedics Inc., and Advanced
Cosmetic Treatments, LLC.
Joseph M. Cianciolo has served as a member of the Board of Directors since
September 1999. Mr. Cianciolo serves as Chairman of the Audit Committee and as a
member of the Compensation Committee. Mr. Cianciolo served as the Managing
Partner of KPMG LLP, Providence, Rhode Island Office, from June 1990 until June
1999. Mr. Cianciolo also serves on the Board of Directors of Speidel, Inc. and
serves on the Board of Trustees of Providence College and is Trustee and
Treasurer of Rhode Island Hospital.
James P. Heffernan has served as a member of the Board of Directors since March
2000. Mr. Heffernan serves as a member of the Audit Committee. Mr. Heffernan has
served as a Trustee for the New York Racing Association since November 1998. Mr.
Heffernan served as a member of the Board of Directors and Chairman of the
Finance Committee of Columbia Gas System, Inc. from January 1993 until November
2000.
10
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock is traded on the Nasdaq National Market under the symbol
"UNFI." Our Common Stock began trading on the Nasdaq National Market on November
1, 1996. The following table sets forth for the periods indicated the high and
low sale prices per share of our Common Stock on the Nasdaq National Market:
Fiscal 2000 High Low
----------- ---- ---
First Quarter $19.625 $ 7.625
Second Quarter 15.188 7.000
Third Quarter 16.000 9.625
Fourth Quarter 16.688 12.375
Fiscal 2001 High Low
----------- ---- ---
First Quarter $15.250 $ 9.563
Second Quarter 20.375 11.375
Third Quarter 19.500 10.875
Fourth Quarter 23.200 13.940
On July 31, 2001 we had 76 stockholders of record. The number of record holders
may not be representative of the number of beneficial holders because
depositories, brokers or other nominees hold many shares.
We have never declared or paid any cash dividends on our capital stock. We
anticipate that all of our earnings in the foreseeable future will be retained
to finance the continued growth and development of our business and we have no
current intention to pay cash dividends. Our future dividend policy will depend
on earnings, capital requirements and financial condition, requirements of the
financing agreements to which we are then a party and other factors considered
relevant by the Board of Directors. Our existing revolving line of credit
agreement prohibits the declaration or payment of cash dividends to our
stockholders without the written consent of the bank during the term of the
credit agreement and until all of our obligations under the credit agreement
have been met.
11
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below under the caption
Consolidated Statement of Operations Data with respect to the fiscal years ended
July 31, 1997, 1998, 1999, 2000 and 2001, and under the caption Consolidated
Balance Sheet Data at July 31, 1997, 1998, 1999, 2000 and 2001, are derived from
our consolidated financial statements, which have been audited by KPMG LLP,
independent certified public accountants. The historical results are not
necessarily indicative of results to be expected for any future period. The
following selected consolidated financial data should be read in conjunction
with and are qualified by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Form 10-K.
Consolidated Statement of Operations Data
(In thousands, except per share data) 1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Statement of Operations Data:
Net sales $634,825 $728,910 $856,998 $908,688 $1,016,834
Cost of sales 507,547 578,575 680,301 734,673 818,040
Gross profit 127,278 150,335 176,697 174,015 198,794
Operating expenses 103,885 116,042 144,937 166,673 167,325
Merger, restructuring and asset impairment
expenses -- 4,064 3,869 2,420 801
Amortization of intangibles 1,060 1,185 1,075 1,070 1,036
Total operating expenses 104,945 121,291 149,881 170,163 169,162
Operating Income 22,333 29,044 26,816 3,852 29,632
Other expense (income):
Interest expense 5,976 5,157 5,700 6,412 6,939
Other, net (679) (778) (2,477) (527) 429
Total other expense 5,297 4,379 3,223 5,885 7,368
Income (loss) before income taxes and extraordinary
item 17,036 24,665 23,593 (2,033) 22,264
Income taxes (benefit) 6,636 11,580 10,126 (802) 8,906
Extraordinary item, net of income tax benefit 933 -- -- -- --
Net income (loss) $ 9,467 $ 13,085 $ 13,467 $ (1,231) $ 13,358
Per share data (Basic):
Income (loss) before extraordinary item $ 0.64 $ 0.75 $ 0.74 $ (0.07) $ 0.72
Extraordinary item, net of income tax benefit 0.06 -- -- -- --
Net income (loss) $ 0.58 $ 0.75 $ 0.74 $ (0.07) $ 0.72
Weighted average basic shares of common stock 16,367 17,467 18,196 18,264 18,482
Per share data (Diluted):
Income (loss) before extraordinary item $ 0.63 $ 0.74 $ 0.73 $ (0.07) $ 0.71
Extraordinary item, net of income tax benefit 0.06 -- -- -- --
Net income (loss) per share $ 0.57 $ 0.74 $ 0.73 $ (0.07) $ 0.71
Weighted average diluted shares of common stock 16,553 17,798 18,537 18,264 18,818
12
Consolidated Balance Sheet Data: (In thousands) 1997 1998 1999 2000 2001
-------- -------- -------- -------- ----------
Working capital $ 53,101 $ 65,568 $ 73,825 $ 65,812 $ 53,351
Total assets 164,561 212,242 237,901 270,234 300,444
Total long term debt and capital leases 21,647 25,845 25,791 28,529 9,289
Total stockholders' equity 73,916 104,386 118,581 117,954 135,943
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are the leading national distributor of natural and organic foods and related
products in the United States. In recent years, our sales to existing and new
customers have increased through the acquisition of or merger with natural
products distributors, the expansion of existing distribution centers and the
continued growth of the natural products industry in general. Through these
efforts, we believe that we have been able to broaden our geographic
penetration, expand our customer base, enhance and diversify our product
selections and increase our market share. Our distribution operations are
divided into three principal units: United Natural Foods in the Eastern Region
(previously Cornucopia Natural Foods, Inc. and Stow Mills, Inc.), Mountain
People's Warehouse, Inc. and Rainbow Natural Foods in the Western Region
(previously Rainbow Natural Foods solely comprised the Central Region), and
Albert's Organics in various markets in the United States. Through our
subsidiary, the Natural Retail Group, we also own and operate twelve natural
products retail stores located in the eastern United States. We believe our
retail business serves as a natural complement to our distribution business
enabling us to develop new marketing programs and improve customer service. In
addition, Hershey Import Co., located in Rahway, New Jersey, is a business that
specializes in the international trading, roasting and packaging of nuts, seeds,
dried fruits and snack items.
We are continually integrating certain operating functions in order to improve
operating efficiencies, including: (i) expanding marketing and customer service
programs across the three regions; (ii) expanding national purchasing
opportunities; (iii) consolidating systems applications between physical
locations and regions; (iv) integrating administrative and accounting functions;
and (v) reducing geographic overlap between regions. In addition, our continued
growth has created the need for expansion of existing facilities to achieve
maximum operating efficiencies and to assure adequate space for future needs. We
have made considerable capital expenditures and incurred considerable expenses
in connection with the expansion of our facilities, including the expansion of
our Auburn, California, New Oxford, Pennsylvania and Albert's Los Angeles
locations. We recently signed a lease to move our Atlanta, Georgia distribution
center to a 300,000 square foot facility, an increase of approximately 100,000
square feet. While we anticipate incremental short-term costs between $0.5
million and $1.0 million during the second and third quarters of fiscal 2002
while we relocate operations into this facility, we expect the efficiencies
created by consolidating our two existing facilities into one to lower our
expenses relative to sales over the long-term. We are expanding our Western
Region operations into the Los Angeles area and recently signed an agreement to
lease a 200,000 square foot distribution center with the option to lease an
additional 83,000 square feet for expansion. The Los Angeles facility will
enable us to provide enhanced service levels to our southwestern customers and
to further penetrate that market. While we anticipate short-term incremental
costs of approximately $1.0 million, we expect to realize transportation savings
and efficiencies once we are operational early in calendar year 2002. Upon the
completion of the Los Angeles expansion, the increased capacity of our
distribution centers will be approximately 55% greater than it was five years
ago. While operating margins may be affected in periods in which these expenses
are incurred, over the long term, we expect to benefit from the increased
absorption of our expenses over a larger sales base.
Our net sales consist primarily of sales of natural products to retailers
adjusted for customer volume discounts, returns and allowances. The principal
components of our cost of sales include the amount paid to manufacturers and
growers for product sold, plus the cost of transportation necessary to bring the
product to our distribution facilities. Operating expenses include salaries and
wages, employee benefits (including payments under our Employee Stock Ownership
Plan), warehousing and delivery, selling, occupancy, administrative,
depreciation and amortization expense. Other expenses (income) include interest
on outstanding indebtedness, interest income and miscellaneous income and
expenses. Our operating margin (excluding restructuring costs) increased from
2.5% in fiscal 1994 to 3.40% for the fiscal year ended July 31, 2001.
13
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain income and
expense items expressed as a percentage of net sales:
Year Ended July 31,
-----------------------------
2001 2000 1999
-----------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 80.4% 80.8% 79.4%
-----------------------------
Gross profit 19.6% 19.2% 20.6%
-----------------------------
Operating expenses 16.5% 18.3% 16.9%
Merger, restructuring and asset
impairment expenses 0.1% 0.3% 0.5%
Amortization of intangibles 0.1% 0.1% 0.1%
-----------------------------
Total operating expenses 16.6% 18.7% 17.5%
-----------------------------
Operating income 2.9% 0.4% 3.1%
-----------------------------
Other expense (income):
Interest expense 0.7% 0.7% 0.7%
Other, net 0.0% -0.1% -0.3%
-----------------------------
Total other expense (income) 0.7% 0.6% 0.4%
-----------------------------
Income before income taxes 2.2% -0.2% 2.8%
Income taxes 0.9% -0.1% 1.2%
-----------------------------
Net income 1.3% -0.1% 1.6%
=============================
TWELVE MONTHS ENDED JULY 31, 2001 COMPARED TO TWELVE MONTHS ENDED JULY 31,
2000
Net Sales.
Our net sales increased approximately 11.9%, or $108.1 million, to $1.0 billion
for the year ended July 31, 2001 from $908.7 million for the year ended July 31,
2000. This increase was primarily due to increased sales throughout all
divisions and distribution channels including super naturals, independents and
mass market. We also experienced market share gains during fiscal year 2001 by
selling to a greater number of new customers. Sales to our two largest
customers, Whole Foods Market, Inc. and Wild Oats Markets, Inc. represented
approximately 17% and 14%, respectively, of net sales for the twelve months
ended July 31, 2001. Whole Foods Market, Inc. represented approximately 16% and
Wild Oats Markets, Inc. represented approximately 13%, of net sales for the
twelve months ended July 31, 2000. We expect sales for fiscal 2002 to increase
8% - 12% from fiscal 2001.
Gross Profit.
Gross profit increased approximately 14.2%, or $24.8 million, to $198.8 million
for the year ended July 31, 2001 from $174.0 million for the year ended July 31,
2000. Gross profit as a percentage of net sales increased to 19.6% for the year
ended July 31, 2001 from 19.2% for the year ended July 31, 2000. The increase in
gross profit resulted primarily from our recovery in our Eastern Region as
customer returns and allowances, inventory shrink, pricing errors and inbound
transportation costs decreased significantly. This increase was partially offset
by inventory loss at an outside storage location, as well as reduced margins in
our Albert's Organics division. Additionally, the gain in our gross profit was
further offset by a change in our channel mix as the percentage of our sales to
super naturals, which are at lower gross margins, increased. We expect the
increase in percentage of sales to super naturals to continue in future periods.
We expect our gross margin as a percentage of sales to be 19.4% - 19.8% for
fiscal 2002.
Operating Expenses.
Our total operating expenses, excluding special charges, increased approximately
1.9%, or $3.2 million, to $168.0 million for the twelve months ended July 31,
2001 from $164.8 million for the twelve months ended July 31, 2000. As a
percentage of net sales, operating expenses, excluding special charges,
decreased to 16.5% for the twelve months ended
14
July 31, 2001 from 18.1% for the twelve months ended July 31, 2000. The
reduction in operating expenses as a percentage of net sales was due primarily
to increased labor productivity in our distribution centers, increased
efficiencies in our transportation departments as a result of better routing and
successfully leveraging our fixed expenses against a higher sales base. The
improved labor productivity was due primarily to a more favorable labor market
nationwide and higher retention rate of experienced warehouse employees. The
improved transportation routing resulted in less miles traveled by our fleet,
and corresponding reductions in expenses. We expect to reduce our operating
expenses, excluding special charges, as a percentage of sales to less than 16%
as we continue to realize operating efficiencies and expand our sales base. We
also expect to incur additional special charges as we increase our warehouse
capacity.
Operating expenses for the twelve months ended July 31, 2001 included special
charges of $0.8 million related to the expansion of our New Oxford, PA
distribution facility, and $0.4 million of asset impairment charges, primarily
goodwill, associated with the closing of an unprofitable retail store. Our
operating expenses for the twelve months ended July 31, 2000 were impacted by
several special charges. These charges included approximately $3.0 million of
executive severance costs and the write-off of current assets in the Eastern
Region and Chicago and approximately $2.4 million of restructuring and asset
impairment charges related to the write-off of certain Eastern Region fixed
assets and the planned closing of our Chicago facility. Operating expenses,
including special charges, decreased approximately 0.6% or $1.1 million, to
$169.1 million for the twelve months ended July 31, 2001 from $170.2 million for
the twelve months ended July 31, 2000. As a percentage of sales, operating
expenses, including special charges, decreased to 16.6% for the twelve months
ended July 31, 2001 from 18.7% for the twelve months ended July 31, 2000.
Operating Income.
Operating income, excluding the special charges discussed above, increased $21.1
million to $30.8 million for the twelve months ended July 31, 2001 compared to
$9.7 million for the twelve months ended July 31, 2000. As a percentage of
sales, operating income, excluding special charges, increased to 3.0% for the
twelve months ended July 31, 2001 compared to 1.1% for the twelve months ended
July 31, 2000. Operating income, including special charges, increased $25.8
million to $29.6 million for the twelve months ended July 31, 2001 compared to
$3.9 million for the comparable prior period.
Other (Income)/Expense.
The $1.5 million increase in other expense for the twelve months ended July 31,
2001 compared to the twelve months ended July 31, 2000 was attributable to
slightly higher debt levels and non-cash expense related to an interest rate
swap that were partially offset by lower interest rates. Statement of Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities" requires recognition in the financial
statements of the change in fair value during the year of certain interest rate
protection contracts and other derivatives. We recorded FAS 133 expense of $1.3
million on our interest rate swap agreement resulting from the significant
decline in interest rates during the year. We will continue to recognize this
income or expense for the duration of the swap contract until either October
2003 or 2005, depending on whether the contract is extended. We entered into a
second interest rate swap agreement effective August 2001, with a termination
date of either August 2005 or August 2007. Whether we recognize income or
expense in any given quarter, and the magnitude of that item, is dependent on
interest rates and the remaining term of the contract. Upon expiration of the
swap contract, the cumulative earnings impact will be zero.
Income Taxes.
Our effective income tax rates (benefit) were 40% and (39.5%) for the years
ended July 31, 2001 and 2000, respectively. The effective rates for 2001 and
2000 were higher than the federal statutory rate primarily due to state and
local income taxes.
Net (Loss) Income.
As a result, net income was $13.4 million for the year ended July 31, 2001,
compared to a net loss of ($1.2) million in the year ended July 31, 2000, an
increase of $14.6 million. Excluding the $1.3 million SFAS No. 133 expense ($0.8
million, net of tax), the $0.8 million special charge related to the expansion
of our New Oxford distribution center ($0.5 million, net of tax), and $0.4
million of asset impairment related primarily to the closing of an unprofitable
retail store ($0.2 million, net of tax) in fiscal 2001 and $3.0 million in other
special charges ($1.8 million, net of tax) and $2.4 million in restructuring
costs ($1.4 million net of tax) in fiscal 2000, net income would have been $14.8
million and $2.0 million in
15
2001 and 2000 respectively, resulting in an increase of approximately $12.6
million for the year ended July 31, 2001 . We expect earnings per diluted share,
excluding any special charges, of $1.05 - $1.09 for fiscal 2002.
TWELVE MONTHS ENDED JULY 31, 2000 COMPARED TO TWELVE MONTHS ENDED JULY 31, 1999
Net Sales.
Our net sales increased approximately 6.0%, or $51.7 million, to $908.7 million
for the year ended July 31, 2000 from $857.0 million for the year ended July 31,
1999. The overall increase in net sales was attributable to increased sales to
existing customers, the sale of new product offerings and sales to new
customers. This increase was partially offset by a decrease in net sales from
the Natural Retail Group due to the sale of four stores and the closing of one
store in April 1999. Excluding the Natural Retail Group's fiscal 1999 sales by
the sold and closed stores, sales increased approximately 7.0% for the year
ended July 31, 2000 over the comparable prior year period.
This growth rate is lower than in past years. The major factor contributing to
our lower growth rate was loss of volume in the Eastern Region to other
suppliers due to difficulties encountered in the consolidation effort. Another
contributing factor was the closure of our Chicago facility and the resulting
inability to fully service this region from our Aurora, CO and New Oxford, PA
facilities, which resulted in combined lost sales for our third and fourth
quarters of approximately $2 million.
Gross Profit.
Gross profit decreased approximately 1.5%, or $2.7 million, to $174.0 million
for the year ended July 31, 2000 from $176.7 million for the year ended July 31,
1999. Gross profit as a percentage of net sales decreased to 19.2% for the year
ended July 31, 2000 from 20.6% for the year ended July 31, 1999. The decrease in
gross profit as a percentage of net sales resulted primarily from ongoing
difficulties with the Eastern Region consolidation, as well as an increased
percentage of sales to existing customers under our volume discount program and
the divestiture of four retail stores, which have higher gross margins than our
distribution business. Difficulties in the Eastern Region, which impacted our
margin, include higher than normal levels of customer returns and allowances,
pricing errors, inventory shrink and higher inbound transportation costs for
expedited shipments.
Operating Expenses.
Total operating expenses increased approximately 13.5%, or $20.3 million, to
$170.2 million for year ended July 31, 2000 from $149.9 million for the year
ended July 31, 1999. Our operating expenses for the year ended July 31, 2000
were also impacted by approximately $2.4 million of restructuring and asset
impairment charges related to the write-off of certain Eastern Region fixed
assets and the closing of our Chicago facility. Excluding fiscal 2000
restructuring and asset impairment costs of $2.4 million and other special
charges of $3.0 million, and fiscal 1999 restructuring costs of $3.9 million,
total operating expenses for the years ended July 31, 2000 and 1999 would have
been $164.8 million or 18.1% of net sales, and $146.0 million or 17.0% of net
sales, respectively, resulting in an increase for the year ended July 31, 2000
of $18.8 million, or 12.9% over the comparable prior period.
As a percentage of net sales, operating expenses increased to 18.7% for the year
ended July 31, 2000 from 17.5% for the year ended July 31, 1999. The increase in
operating expenses as a percentage of net sales was primarily due to the
continuing difficulties in the Eastern Region, including redundant
transportation expenses, reduced labor productivity, and outside storage
expenses. An increase in the cost of fuel of approximately $2.2 million during
the year impacted all of our distribution centers. In addition, increased labor
expenses related to the tight labor market limited our ability to attract and
retain trained qualified employees in the Eastern Region particularly, but also
affected all of our distribution centers.
Operating Income.
Operating income decreased $22.9 million to $3.9 million for the year ended July
31, 2000 from $26.8 million for the year ended July 31, 1999. As a percentage of
net sales, operating income decreased to 0.4% in the year ended July 31, 2000
from 3.1% in the comparable 1999 period. Excluding the restructuring, asset
impairment and other special charges noted above, operating income for the year
ended July 31, 2000 and 1999 would have been $9.3 million, or 1.0% of net sales
and $30.7 million, or 3.6% of net sales, respectively, resulting in a decrease
for the year ended July 31, 2000 of $21.4 million versus the comparable prior
period.
16
Other (Income)/Expense.
The $2.7 million increase in other expense for the year ended July 31, 2000
compared to the year ended July 31, 1999 was attributable to a $1.4 million gain
on the sale of retail stores in 1999 and higher interest expense of
approximately $0.7 million in 2000, reflecting a higher level of debt for fiscal
2000.
Income Taxes.
Our effective income tax rates were 39.5% and 42.9% for the years ended July 31,
2000 and 1999, respectively. The effective rates for 2000 and 1999 were higher
than the federal statutory rate primarily due to state and local income taxes
and the settlement of an IRS audit for $0.3 million in 1999.
Net (Loss) Income.
As a result, net income decreased by $14.7 million to a net loss of ($1.2)
million, for the year ended July 31, 2000 from net income of $13.5 million in
the year ended July 31, 1999. Excluding the $2.4 million in restructuring costs
($1.4 million, net of tax) and the $3.0 million in special charges ($1.8
million, net of tax) in fiscal 2000 and the $3.9 million in restructuring costs
($2.3 million, net of tax), the $1.4 million gain on the sale of four retail
stores ($0.8 million, net of tax) and the $0.3 million IRS settlement in fiscal
1999, net income would have been $2.0 million and $15.2 million, respectively,
resulting in a decrease for the year ended July 31, 2000 of $13.1 million over
the comparable prior period.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed operations and growth primarily from cash flows
from operations, borrowings under our credit facility, seller financing of
acquisitions, operating and capital leases, trade payables, bank indebtedness
and the sale of equity and debt securities. Primary uses of capital have been
acquisitions, expansion of plant and equipment and investments in accounts
receivable and inventory.
Net cash provided by operations was $22.0 million for the year ended July 31,
2001 and $11.6 million for the year ended July 31, 2000. Cash provided by
operations in fiscal 2001 related primarily to cash collected from customers net
of cash paid to vendors, partially offset by investments in inventory in the
normal course of business. Days sales outstanding at July 31, 2001 remained
unchanged from July 31, 2000 at 28 days. The increases in inventory levels
relate to supporting increased sales with wider product assortment combined with
our ability to capture purchasing efficiency opportunities in excess of total
carrying costs. These items were partially offset by an increase in accounts
payable. Cash used in operations in fiscal 2000 related primarily to an increase
in accounts receivable and investments in inventory in the ordinary course of
business. Working capital at July 31, 2001 was $53.4 million.
Net cash used in investing activities was $18.2 million and $17.0 million for
the years ended July 31, 2001 and 2000, respectively. Investing activities in
fiscal years 2001 and 2000 were primarily for capital expenditures.
Cash provided by financing activities was $0.7 million and $27.7 million for the
years ended July 31, 2001 and 2000, respectively. Net cash provided by financing
activities was $0.7 million for the year ended July 31, 2001 due to proceeds of
approximately $4.5 million from the exercise of stock options, partially offset
by repayment of long-term debt of approximately $2.7 million and principal
payments on capital leases of approximately $1.2 million. We increased
borrowings on our line of credit by $26.9 million during fiscal 2000 that was
partially offset by debt repayments of $3.8 million. As of July 31 2001, we had
less than $13.0 million available under our revolving credit facility. In
September 2001 we entered into an agreement to increase our secured revolving
credit facility to $150 million from $100 million at an interest rate of LIBOR
plus 1.50% maturing on June 30, 2005. The proceeds were used to refinance our
existing credit facility, several fixed rate mortgage loans, and an equipment
loan. This additional access to capital will provide for working capital
requirements in the normal course of business and the opportunity to grow our
business organically or through acquisitions.
In October 1998, we entered into an interest rate swap agreement. The agreement
provides for us to pay interest for a five-year period at a fixed rate of 5% on
a notional principal amount of $60 million while receiving interest for the same
period at the LIBOR rate on the same notional principal amount. The swap has
been entered into as a hedge against LIBOR interest rate movements on current
and anticipated variable rate indebtedness totaling $60 million. The five-year
term of the swap agreement may be extended to seven years at the option of the
counter party, which prohibits accounting for the swap as an effective hedge
under SFAS No. 133. We entered into a second swap agreement in August
17
2001. This agreement provides for us to pay interest for a four-year period at a
fixed rate of 4.8% on a notional principal amount of $30 million while receiving
interest for the same period at the LIBOR rate on the same notional principal
amount. If LIBOR exceeds 6.0% in a given period the agreement is suspended for
that period. The four-year term of the swap agreement may be extended to six
years at the option of the counterparty, which prohibits accounting for the swap
as an effective hedge under SFAS No. 133.
IMPACT OF INFLATION
Historically, we have been able to pass along inflation-related increases.
Consequently, inflation has not had a material impact upon the results of our
operations or profitability.
SEASONALITY
Generally, we do not experience any material seasonality. However, our sales and
operating results may vary significantly from quarter to quarter due to factors
such as changes in our operating expenses, management's ability to execute our
operating and growth strategies, personnel changes, demand for natural products,
supply shortages and general economic conditions.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative financial
instruments, and hedging activities related to those instruments, as well as
other hedging activities, and was amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133
requires recognition in the financial statements of the change in fair value
during the quarter of certain interest rate protection contracts and other
derivatives. We adopted FAS 133 on August 1, 2000. We recorded $1.3 million in
other expense resulting from the significant decline in interest rates and the
related impact on our interest rate swap agreement during the year ended July
31, 2001.
In July 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS No. 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). SFAS No. 141 requires the use of the purchase
method of accounting for business combinations initiated after June 30, 2001.
SFAS No. 142 requires that companies no longer amortize goodwill, but instead
test goodwill for impairment at least annually (or more frequently if impairment
indicators arise). SFAS No. 142 is required to be applied in fiscal years
beginning after December 15, 2001 to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially
recognized. SFAS No. 142 requires us to complete a transitional goodwill
impairment test six months from the date of adoption. We are also required to
reassess the useful lives of other intangible assets within the first interim
quarter after adoption of SFAS No. 142. We early adopted SFAS No. 142 on August
1, 2001. As of July 31, 2001 we had goodwill of $30.9 million less accumulated
amortization of $3.4 million with amortization expense of approximately $0.8
million in fiscal 2001. Therefore, we expect a reduction of approximately $0.8
million in operating expenses in fiscal 2002 as the result of adopting SFAS No.
142.
Certain Factors That May Affect Future Results
This Annual Report on Form 10-K and the documents incorporated by reference in
this Annual Report on Form 10-K contain forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will," and "would," or similar
words. You should read statements that contain these words carefully because
they discuss future expectations, contain projections of future results of
operations or of financial position or state other "forward-looking"
information. The important factors listed below as well as any cautionary
language in this Annual Report on Form 10-K, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations described in these forward-looking statements. You should
be aware that the occurrence of the events described in the risk factors below
and elsewhere in this Annual Report on Form 10-K could have an adverse effect on
our business, results of operations and financial position.
Any forward-looking statements in this Annual Report on Form 10-K and the
documents incorporated by reference in this Annual Report on Form 10-K are not
guarantees of future performance, and actual results, developments and business
decisions may differ from those envisaged by such forward-looking statements,
possibly materially. We
18
disclaim any duty to update any forward-looking statements, all of which are
expressly qualified by the statement in this section.
Our business could be adversely affected if we are unable to integrate our
acquisitions and mergers
A significant portion of our historical growth has been achieved through
acquisitions of or mergers with other distributors of natural products.
Successful integration of mergers is critical to our future operating and
financial performance. Integration requires, among other things:
* the optimization of delivery routes;
* coordination of administrative, distribution and finance functions;
and
* the integration of personnel.
The integration process has and could divert the attention of management and any
difficulties or problems encountered in the transition process could have a
material adverse effect on our business, financial condition or results of
operations. In addition, the process of combining companies has and could cause
the interruption of, or a loss of momentum in, the activities of the respective
businesses, which could have an adverse effect on their combined operations.
There can be no assurance that we will realize any of the anticipated benefits
of mergers.
We may have difficulty in managing our growth
The growth in the size of our business and operations has placed and is expected
to continue to place a significant strain on our management. Our future growth
is limited in part by the size and location of our distribution centers. There
can be no assurance that we will be able to successfully expand our existing
distribution facilities or open new distribution facilities in new or existing
markets to facilitate growth. In addition, our growth strategy to expand our
market presence includes possible additional acquisitions. To the extent our
future growth includes acquisitions, there can be no assurance that we will
successfully identify suitable acquisition candidates, consummate and integrate
such potential acquisitions or expand into new markets. Our ability to compete
effectively and to manage future growth, if any, will depend on our ability to
continue to implement and improve operational, financial and management
information systems on a timely basis and to expand, train, motivate and manage
our work force. There can be no assurance that our personnel, systems,
procedures and controls will be adequate to support our operations. Our
inability to manage our growth effectively could have a material adverse effect
on our business, financial condition or results of operations.
We have significant competition from a variety of sources
We operate in highly competitive markets, and our future success will be largely
dependent on our ability to provide quality products and services at competitive
prices. Our competition comes from a variety of sources, including other
distributors of natural products as well as specialty grocery and mass market
grocery distributors. There can be no assurance that mass market grocery
distributors will not increase their emphasis on natural products and more
directly compete with us or that new competitors will not enter the market.
These distributors may have been in business longer than us, may have
substantially greater financial and other resources than us and may be better
established in their markets. There can be no assurance that our current or
potential competitors will not provide services comparable or superior to those
provided by us or adapt more quickly than United Natural to evolving industry
trends or changing market requirements. It is also possible that alliances among
competitors may develop and rapidly acquire significant market share or that
certain of our customers will increase distribution to their own retail
facilities. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
our business, financial condition or results of operations. There can be no
assurance that we will be able to compete effectively against current and future
competitors.
We depend heavily on our principal customers
Our ability to maintain close, mutually beneficial relationships with our top
two customers, Whole Foods Market, Inc. and Wild Oats Markets, Inc., is
important to the ongoing growth and profitability of our business. Whole Foods
Market, Inc., recently agreed to extend our current distribution arrangement
through August 31, 2004. Whole Foods and Wild Oats accounted for approximately
17% and 14%, respectively, of our net sales during the fiscal year ended July
31, 2001. As a
19
result of this concentration of our customer base, the loss or cancellation of
business from either of these customers, including from increased distribution
to their own facilities, could materially and adversely affect our business,
financial condition or results of operations. We sell products under purchase
orders, and we generally have no agreements with or commitments from our
customers for the purchase of products. No assurance can be given that our
customers will maintain or increase their sales volumes or orders for the
products supplied by us or that we will be able to maintain or add to our
existing customer base.
Our profit margins may decrease due to consolidation in the grocery industry
The grocery distribution industry generally is characterized by relatively high
volume with relatively low profit margins. The continuing consolidation of
retailers in the natural products industry and the growth of super natural
chains may reduce our profit margins in the future as more customers qualify for
greater volume discounts.
Our industry is sensitive to economic downturns
The grocery industry is also sensitive to national and regional economic
conditions, and the demand for our products may be adversely affected from time
to time by economic downturns. In addition, our operating results are
particularly sensitive to, and may be materially adversely affected by:
* difficulties with the collectibility of accounts receivable,
* difficulties with inventory control,
* competitive pricing pressures, and
* unexpected increases in fuel or other transportation-related costs.
There can be no assurance that one or more of such factors will not materially
adversely affect our business, financial condition or results of operations.
We are dependent on a number of key executives
Management of our business is substantially dependent upon the services of
Michael S. Funk, Chief Executive Officer, Steven Townsend, President, Todd
Weintraub, Chief Financial Officer, Kevin T. Michel, President of our Western
Region and other key management employees. Loss of the services of any officers
or any other key management employee could have a material adverse effect on our
business, financial condition or results of operations.
Our operating results are subject to significant fluctuations
Our net sales and operating results may vary significantly from period to period
due to:
* changes in our operating expenses,
* management's ability to execute our business and growth strategies,
* personnel changes,
* demand for natural products,
* supply shortages,
* general economic conditions,
* changes in customer preferences and demands for natural products,
including levels of enthusiasm for health, fitness and environmental
issues,
20
* fluctuation of natural product prices due to competitive pressures,
* lack of an adequate supply of high-quality agricultural products due
to poor growing conditions, natural disasters or otherwise,
* volatility in prices of high-quality agricultural products resulting
from poor growing conditions, natural disasters or otherwise, and
* future acquisitions, particularly in periods immediately following
the consummation of such acquisition transactions while the
operations of the acquired businesses are being integrated into our
operations.
Due to the foregoing factors, we believe that period-to-period comparisons of
our operating results may not necessarily be meaningful and that such
comparisons cannot be relied upon as indicators of future performance.
We are subject to significant governmental regulation
Our business is highly regulated at the federal, state and local levels and our
products and distribution operations require various licenses, permits and
approvals. In particular:
* our products are subject to inspection by the U.S. Food and Drug
Administration,
* our warehouse and distribution facilities are subject to inspection
by the U.S. Department of Agriculture and state health authorities,
and
* our trucking operations are regulated by the U.S. Department of
Transportation and the U.S. Federal Highway Administration.
The loss or revocation of any existing licenses, permits or approvals or the
failure to obtain any additional licenses, permits or approvals in new
jurisdictions where we intend to do business could have a material adverse
effect on our business, financial condition or results of operations.
Our officers and directors and the employee stock ownership trust have
significant voting power.
As of October 1, 2001, our executive officers and directors, and their
affiliates, and the United Natural Foods Employee Stock Ownership Trust
beneficially owned in the aggregate approximately 15% of United Natural's common
stock. Accordingly, these stockholders, if acting together, may have the ability
to impact the election of our directors and determine the outcome of corporate
actions requiring stockholder approval, depending on how other stockholders may
vote. This concentration of ownership may have the effect of delaying, deferring
or preventing a change in control of United Natural.
Union-organizing activities could cause labor relations difficulties
As of July 31, 2001, approximately 230 employees, representing approximately 8%
of our approximately 2,700 employees, were union members. We have in the past
been the focus of union-organizing efforts. As we increase our employee base and
broaden our distribution operations to new geographic markets, our increased
visibility could result in increased or expanded union-organizing efforts.
Although we have not experienced a work stoppage to date, if additional
employees were to unionize, we could be subject to work stoppages and increases
in labor costs, either of which could materially adversely affect our business,
financial condition or results of operations.
21
Access to capital and the cost of that capital
In September 2001 we entered into an agreement to increase our secured revolving
credit facility to $150 million from $100 million at an interest rate of LIBOR
plus 1.5% maturing on June 30, 2005. The proceeds were used to refinance our
existing credit facility, several fixed term mortgage loans, and an equipment
loan. This additional access to capital will provide for working capital
requirements in the normal course of business and the opportunity to grow our
business organically or through acquisitions.
In order to maintain our profit margins, we rely on strategic investment buying
initiatives, such as discounted bulk purchases, which require spending
significant amounts of working capital. In the event that capital market turmoil
significantly increases our cost of capital or limits our ability to borrow
funds or raise equity capital, we could suffer reduced profit margins and be
unable to grow our business organically or through acquisitions, which could
have a material adverse effect on our business, financial condition or results
of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We do not believe that there is any material market risk exposure with respect
to derivative or other financial instruments that would require disclosure under
this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed below are filed as part of this Annual Report on
Form 10-K.
INDEX TO FINANCIAL STATEMENTS
United Natural Foods, Inc. and Subsidiaries: Page
Independent Auditors' Report 23
Consolidated Balance Sheets 24
Consolidated Statements of Operations 25
Consolidated Statements of Stockholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
United Natural Foods, Inc.:
We have audited the accompanying consolidated balance sheets of United Natural
Foods, Inc. and Subsidiaries as of July 31, 2001 and 2000 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended July 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Natural
Foods, Inc. and Subsidiaries as of July 31, 2001 and 2000 and the results of
their operations and their cash flows for each of the years in the three-year
period ended July 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Providence, Rhode Island
September 4, 2001
23
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
JULY 31, JULY 31,
ASSETS 2001 2000
------ --------- --------
Current assets:
Cash and cash equivalents $ 6,393 $ 1,943
Accounts receivable, net of allowance of $3,544 and $3,302, respectively 81,559 69,474
Notes receivable, trade 685 456
Inventories 110,653 104,486
Prepaid expenses 5,394 6,085
Deferred income taxes 3,513 2,350
Refundable income taxes 366 4,401
--------------------
Total current assets $208,563 $189,195
Property & equipment, net 62,186 52,625
Notes receivable, trade, net 1,050 765
Goodwill, net of accumulated amortization of $3,470 and $2,680, respectively 27,500 26,624
Covenants not to compete, net of accumulated amortization of $250 and $317,
respectively 180 181
Deferred taxes 276 --
Other, net 689 844
--------------------
Total assets $300,444 $270,234
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 68,056 $ 68,007
Current installments of long-term debt 19,625 2,770
Current installments of obligations under capital leases 1,120 1,036
Accounts payable 53,169 39,393
Accrued expenses 13,242 12,178
--------------------
Total current liabilities $155,212 $123,384
Long-term debt, excluding current installments 7,805 26,722
Deferred income taxes -- 367
Obligations under capital leases, excluding current installments 1,484 1,807
--------------------
Total liabilities $164,501 152,280
--------------------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000 shares; none issued or
outstanding -- --
Common stock, $.01 par value, authorized 50,000 shares;
issued and outstanding 18,653 at July 31, 2001
issued and outstanding 18,283 at July 31, 2000 187 183
Additional paid-in capital 72,644 68,180
Unallocated shares of Employee Stock Ownership Plan (2,258) (2,421)
Retained earnings 65,370 52,012
--------------------
Total stockholders' equity 135,943 117,954
--------------------
Total liabilities and stockholders' equity $300,444 $270,234
=====================
See notes to consolidated financial statements.
24
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JULY 31,
-------------------
(In thousands, except per share data) 2001 2000 1999
---- ---- ----
Net sales $1,016,834 $908,688 $856,998
Cost of sales 818,040 734,673 680,301
---------------------------------
Gross profit 198,794 174,015 176,697
---------------------------------
Operating expenses 167,325 166,673 144,937
Merger, restructuring and asset impairment
expenses 801 2,420 3,869
Amortization of intangibles 1,036 1,070 1,075
---------------------------------
Total operating expenses 169,162 170,163 149,881
---------------------------------
Operating income 29,632 3,852 26,816
---------------------------------
Other expense (income):
Interest expense 6,939 6,412 5,700
Other, net 429 (527) (2,477)
---------------------------------
Total other expense 7,368 5,885 3,223
---------------------------------
Income (loss) before income taxes (benefit) 22,264 (2,033) 23,593
Income taxes (benefit) 8,906 (802) 10,126
---------------------------------
Net income (loss) $ 13,358 $ (1,231) $ 13,467
=================================
Basic per share data:
Net income (loss) $ 0.72 $ (0.07) $ 0.74
=================================
Weighted average basic shares of common
stock 18,482 18,264 18,196
=================================
Diluted per share data:
Net income (loss) $ 0.71 $ (0.07) $ 0.73
Weighted average diluted shares of common
stock 18,818 18,264 18,537
=================================
See notes to consolidated financial statements.
25
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Outstanding Unallocated Total
Number of Common Additional Paid Shares of Retained Treasury Stockholders'
Shares Stock in Capital ESOP Earnings Stock Equity
---------------------------------------------------------------------------------------------
(In thousands)
Balances at July 31, 1998 18,175 $182 $67,440 $(2,747) $39,776 $(265) $104,386
Allocation of shares to ESOP -- -- -- 163 -- -- 163
Transfer of undistributed loss to -- -- 19 -- -- -- 19
additional paid-in-capital
Issuance of common stock, net 74 -- 546 -- -- -- 546
Retirement of treasury stock -- -- (265) -- -- 265 --
Net income -- -- -- -- 13,467 -- 13,467
---------------------------------------------------------------------------------------------
Balances at July 31, 1999 18,249 $182 $67,740 $(2,584) $53,243 $ -- $118,581
---------------------------------------------------------------------------------------------
Allocation of shares to ESOP -- -- -- 163 -- -- 163
Issuance of common stock, net 34 1 328 -- -- -- 329
Tax effect of exercises of stock
options -- -- 112 -- -- -- 112
Net income -- -- -- -- (1,231) -- (1,231)
---------------------------------------------------------------------------------------------
Balances at July 31, 2000 18,283 $183 $68,180 $(2,421) $52,012 $ -- $117,954
---------------------------------------------------------------------------------------------
Allocation of shares to ESOP -- -- -- 163 -- -- 163
Issuance of common stock, net 370 4 3,505 -- -- -- 3,509
Tax effect of exercises of stock -- -- 959 -- -- -- 959
options
Net income -- -- -- -- 13,358 -- 13,358
---------------------------------------------------------------------------------------------
Balances at July 31, 2001 18,653 $187 $72,644 $(2,258) $65,370 $ -- $135,943
=============================================================================================
See notes to consolidated financial statements.
26
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JULY 31,
(In thousands) 2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,358 $ (1,231) $ 13,467
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,908 7,601 9,205
Loss on impairment of intangible asset 255 -- --
Gain on sale of business -- -- (1,397)
Loss (gain) on disposals of property & equipment 640 1,977 (195)
Deferred income tax expense (1,529) (930) (941)
Provision for doubtful accounts 2,903 1,992 1,995
Changes in assets and liabilities, net of acquired
companies:
Accounts receivable (14,887) (10,854) (11,524)
Inventory (5,719) (13,761) (460)
Prepaid expenses 713 (425) (2,319)
Refundable income taxes 4,035 (461) (3,889)
Other assets 42 (117) 771
Notes receivable, trade (514) 208 445
Accounts payable 13,725 5,950 334
Accrued expenses 1,056 (1,528) 2,805
--------------------------------------
Net cash provided by (used in) operating activities 21,986 (11,579) 8,297
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of subsidiaries, net of cash
acquired (2,393) (1,200) (8,888)
Proceeds from sale of business -- -- 7,086
Proceeds from disposals of property and equipment 46 57 1,477
Capital expenditures (15,891) (15,870) (6,610)
--------------------------------------
Net cash used in investing activities (18,238) (17,013) (6,935)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under note payable 49 26,854 4,546
Repayments on long-term debt (2,742) (3,846) (4,337)
Proceeds from long-term debt 89 5,287 --
Principal payments of capital lease obligations (1,162) (1,045) (683)
Proceeds from issuance of common stock, net 4,468 440 564
--------------------------------------
Net cash provided by financing activities 702 27,690 90
--------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,450 (902) 1,452
Cash and cash equivalents at beginning of period 1,943 2,845 1,393
--------------------------------------
Cash and cash equivalents at end of period $ 6,393 $ 1,943 $ 2,845
======================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,822 $ 5,746 $ 5,540
======================================
Income taxes, net of refunds $ 5,709 $ 795 $ 15,273
======================================
In 2001, 2000 and 1999, the Company incurred capital lease obligations of
approximately $905, $1,634, and $1,686, respectively.
See notes to consolidated financial statements.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
United Natural Foods, Inc. and Subsidiaries (the "Company") is a
distributor and retailer of natural and organic products. The Company
sells its products throughout the United States.
(b) Basis of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents consist of highly liquid investment instruments with
original maturities of three months or less.
(d) Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of minimum lease payments at the inception
of the lease. Depreciation and amortization are principally provided using
the straight-line method over the estimated useful lives.
(f) Income Taxes
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(g) Intangible Assets and Other Long-Lived Assets
Intangible assets consist principally of goodwill and covenants not to
compete. Goodwill represents the excess purchase price over fair value of
net assets acquired in connection with purchase business combinations and
is being amortized on the straight-line method not exceeding forty years.
Covenants not to compete are initially recorded at fair value and are
amortized using the straight-line method over the lives of the respective
agreements, generally five years.
The Company evaluates impairment of long-lived assets annually, or more
frequently if events or changes in circumstances indicate that carrying
amounts may no longer be recoverable. Impairment losses are determined
based upon the excess of carrying amounts over expected future cash flows
(undiscounted) of the underlying business. The assessment of the
recoverability of long-lived assets will be impacted if estimated future
cash flows are not achieved.
(h) Revenue Recognition and Trade Receivables
The Company records revenue upon shipment of products. Revenues are
recorded net of applicable sales discounts. The Company's sales are with
customers located throughout the United States. The Company had two
customers in 2001, 2000 and 1999, Whole Foods Market, Inc., and Wild Oats
Markets, Inc., which provided
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10% or more of the Company's revenue. Total net sales to Whole Foods and
Wild Oats in 2001 were approximately $169 million and $147 million,
respectively. Total net sales to Whole Foods and Wild Oats in 2000 were
approximately $147 million and $121 million, respectively. Total net sales
to Whole Foods and Wild Oats in 1999 were approximately $143 million and
$90 million, respectively.
(i) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments including
cash, accounts receivable, accounts payable and accrued expenses
approximate fair value due to the short-term nature of these instruments.
The carrying value of notes receivable, long-term debt and capital lease
obligations approximate fair value based on the instruments' interest
rate, terms, maturity date and collateral, if any, in comparison to the
Company's incremental borrowing rate for similar financial instruments.
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United
States of America. Actual results could differ from those estimates.
(k) Notes Receivable, Trade
The Company issues notes receivable, trade to certain customers under two
basic circumstances, inventory purchases for initial store openings and
overdue accounts receivable. Initial store opening notes are generally
receivable over a period not to exceed twelve months. The overdue accounts
receivable notes may extend for periods greater than one year. All notes
are issued at a market interest rate and contain certain guarantees and
collateral assignments in favor of the Company.
(1) Employee Benefit Plans
The Company sponsors various defined contribution plans that cover
substantially all employees. Pursuant to certain stock incentive plans,
the Company has granted stock options to key employees and to non-employee
directors. The Company accounts for stock option grants using the
intrinsic value based method.
(m) Earnings Per Share
Basic earnings per share are calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share are calculated by adding the dilutive potential
common shares to the weighted average number of common shares that were
outstanding during the period. For purposes of the diluted earnings per
share calculation, outstanding stock options are considered common stock
equivalents, using the treasury stock method. A reconciliation of the
weighted average number of shares outstanding used in the computation of
the basic and diluted earnings per share for all periods presented
follows:
YEAR ENDED JULY 31,
(In thousands) 2001 2000 1999
---- ---- ----
Basic weighted average shares outstanding 18,482 18,264 18,196
Net effect of dilutive stock options based upon 336 -- 341
the treasury stock method
--------------------------
Diluted weighted average shares outstanding 18,818 18,264 18,537
--------------------------
Antidilutive potential common shares excluded from -- 1,578 --
the computation above
==========================
(n) Interest rate swaps
The fair market value on the adoption date of August 1, 2000 was less than
$0.1 million. As of July 31, 2001 the fair market values were $(1.0)
million and ($0.3) million of the swap agreement and the option
respectively.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company recorded other expense of $1.3 million to reflect this change
in fair market value. Fair market values are not actual market prices but
are mathematically calculated using models that rely on certain
assumptions regarding past, present and future market conditions.
(2) ACQUISITIONS
Fiscal 1999
On September 30, 1998, the Company acquired substantially all of the outstanding
stock of Albert's Organics, Inc. ("Albert's"), a wholesale distributor of
organic vegetables and fruits for $12.0 million, including $ 1.2 million
contingent payment that was made during fiscal 2000. Albert's had sales of $47.8
million (unaudited) for its most recent fiscal year ending December 31, 1997.
This acquisition was accounted for as a purchase with goodwill of approximately
$10.3 million being amortized on a straight-line basis over 40 years.
(3) STOCK OPTION PLAN
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation,". Under SFAS No. 123, companies can
elect to account for stock-based compensation using a fair value based method or
continue to measure compensation expense using the intrinsic value method. The
Company has elected to continue to apply APB No. 25 accounting treatment for
stock-based compensation. If the fair value method of accounting had been used,
net income (loss) would have been $11.6 million, $(1.8) million and $11.9
million for 2001, 2000 and 1999, respectively, basic earnings (loss) per share
would have been $0.63, $(0.10) and $0.65 for 2001, 2000 and 1999, respectively,
and diluted earnings (loss) per share would have been $0.62,$(0.10) and $0.64
for 2001, 2000 and 1999 respectively. The weighted average grant date fair value
of options granted during 2001, 2000 and 1999 is shown below. The fair value of
each option grant was estimated using the Black-Sholes Option Pricing Model with
the following weighted average assumptions for 2001, 2000 and 1999: a dividend
yield of 0.0%, a risk free interest rate of 5.06% and an expected life of 8
years. The expected volatility was 76.8%, 77.5% and 66.0% for 2001, 2000 and
1999, respectively. The effects of applying SFAS No. 123 in this pro forma
disclosure are not necessarily indicative of future amounts.
On July 29, 1996, the Board of Directors adopted and the stockholders approved,
the 1996 Stock Option Plan, which provides for grants of stock options to
employees, officers, directors and others. These options are intended to qualify
as incentive stock options within the meaning of Section 422 of the Internal
Revenue Code or options not intended to qualify as incentive stock options
("non-statutory stock options"). A total of 2,500,000 shares of common stock may
be issued upon the exercise of options granted under the 1996 Stock Option Plan.
The following table summarizes the stock option activity for the fiscal years
ended July 31, 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year 1,578,140 $ 10.76 985,259 $ 14.05 989,346 $ 13.02
Granted 486,750 $ 15.38 839,500 $ 9.38 80,000 $ 21.37
Exercised (369,881) $ 9.48 (34,119) $ 9.64 (74,087) $ 7.38
Forfeited (276,125) $ 12.93 (212,500) $ 20.74 (10,000) $ 20.25
------------- ------------- -----------
Outstanding at end of year 1,418,884 $ 12.26 1,578,140 $ 10.76 985,259 $ 14.05
============= ============= ===========
Options exercisable at year-end 600,509 $ 10.09 604,113 $ 10.12 490,913 $ 9.32
Weighted average fair value of
options granted during the year:
Exercise price equals stock $ 11.91 $ 7.38 $ 15.54
price
Exercise price exceeds stock -- -- --
price
Stock price exceeds exercise -- -- --
price
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The 1,418,884 options outstanding at July 31, 2001 had exercise prices and
remaining contractual lives as follows:
Weighted Weighted
Weighted Average Average Average
Range of Exercise Shares Remaining Contractual Exercise Exercise
Prices Outstanding Life (years) Price Shares Exercisable Price
------ ----------- ------------ ----- ------------------ -----
$ 6.38 - $ 8.97 520,000 6.5 $ 7.61 338,125 $ 7.01
$ 9.64 - $14.25 300,875 7.1 $11.11 170,375 $10.62
$15.50 - $22.28 598,009 8.1 $16.87 92,009 $20.40
4) NOTES PAYABLE
The Company entered into a line of credit and term loan agreement (see note 5)
with a bank effective February 20, 1996. The agreement has had five subsequent
amendments effective March 1997, July 1997, October 1997, July 1999 and April
2000. In October 1997, the Company amended the agreement with its bank to
increase the amount of the facility from $50 million to $100 million, to
increase the limit on inventory advances to $50 million and the advance rate to
60%, to establish a term loan of $6.6 million and to increase the aggregate
amount of real estate acquisition loans and real estate term loans to $20
million. The agreement also provides for the bank to syndicate the credit
facility to other banks and lending institutions. The credit facility was used
to repay existing indebtedness of Stow owed to the Company's bank at the date of
the merger and is currently used for general operating capital needs. Interest
under the facility, except the portion related to the mortgage commitments,
accrues at the Company's option at the New York Prime Rate (6.75% at July 31,
2001 and 9.50% at July 31, 2000) or 1.25% above the bank's London Interbank
Offered Rate ("LIBOR", 3.78% and 6.62% at July 31, 2001 and 2000, respectively),
and the Company has the option to fix the rate for all or a portion of the debt
for a period up to 180 days. The Company opted to pay 1.25% above LIBOR for
substantially all of fiscal 2001. Interest on approximately $5.9 million of the
mortgage facility accrues at 7.36%, with the remainder to accrue at 1.25% above
the bank's LIBOR rate, although the Company has the option to fix the variable
portion for a period of five years at a rate of 1.25% above the five-year U.S
Treasury Note rate. At July 31, 2001 and 2000, the weighted average interest
rate on the line of credit was 5.06% and 7.87%, respectively. The Company has
pledged all of its assets as collateral for its obligations under the credit
agreement. As of July 31, 2001, the Company's outstanding borrowings under the
credit agreement totaled $86.6 million. The credit agreement originally was set
to expire on July 31, 2002 and contains certain restrictive covenants. The
Company is in compliance with all restrictive covenants at July 31, 2001. In
connection with the amendment to the Company's credit agreement with its bank as
noted above, an Agency and Interlender Agreement was entered into by the
Company, its bank and two additional participating banks effective December 1,
1997. This agreement states, among other things, that the Company's primary bank
will participate in this credit facility with the other banks.
In October 1998, the Company entered into an interest rate swap agreement. The
agreement provides for the Company to pay interest for a five-year period at a
fixed rate of 5% on a notional principal amount of $60 million while receiving
interest for the same period at the LIBOR rate on the same notional principal
amount. The swap was entered into as a hedge against LIBOR interest rate
movements on current and anticipated variable rate indebtedness totaling $60
million. The five-year term of the swap agreement may be extended to seven years
at the option of the counter party.
Subsequent to July 31, 2001, the Company entered into a new credit agreement and
terminated the existing credit agreement. The Company also entered into a new
interest rate swap agreement subsequent to July 31, 2001. See note 16,
Subsequent Events, for further detail of these transactions.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5) LONG-TERM DEBT
Long-term debt consisted of the following: (dollars in July 31, July 31,
thousands) 2001 2000
---- ----
Term loan for employee stock ownership plan, secured by stock
of the Company, due $14 monthly plus interest at 10%, balance $2,258 $2,421
due May 1, 2015
Term loan payable to bank, secured by substantially all
assets of the Company, due $235 quarterly plus interest at 3,075 4,015
1.25% above LIBOR, balance due July 31, 2002
Real estate term loan payable to bank, secured by land and
building, due $28 monthly plus interest at 7.36%, balance due 5,555 5,885
July 31, 2002
Term loan payable to bank, secured by substantially all
assets of the Company, with monthly principal payments of $50 9,890 10,490
through July 2002 and the remaining principal due on July 31,
2002, interest at 7.71%
Real estate term loans payable to bank and others, secured by
building and other assets, due monthly and maturing at
various dates from July 2002 through April 2015, at rates 6,652 6,681
ranging from 5% to 8.6 %
--------------------
27,430 29,492
Less: current installments 19,625 2,770
--------------------
Long-term debt, excluding current installments $ 7,805 $ 26,722
====================
Certain debt agreements contain restrictive covenants. The Company was in
compliance with all of its restrictive covenants at July 31, 2001.
Aggregate maturities of long-term debt for the next five years and thereafter
are as follows at July 31, 2001:
Year (Thousands)
2002 $19,625
2003 1,047
2004 1,043
2005 980
2006 411
Thereafter 4,324
-------
$27,430
=======
Subsequent to July 31, 2001, the Company entered into a new credit agreement and
terminated the existing credit agreement. Loans maturing in July 2002 were
repaid with proceeds from the new credit facility.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(6) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31, 2001 and 2000:
(Dollars in thousands) Estimated 2001 2000
Useful
Lives
(Years)
Land $ 3,824 $ 1,741
Buildings 20-40 38,279 33,912
Building Improvements 20-40 6,939 -
Leasehold improvements 5-30 7,174 9,981
Warehouse equipment 5-20 21,360 20,479
Office equipment 3-10 9,870 8,531
Motor vehicles 3-5 6,164 5,877
Equipment under capital leases 5 5,581 3,984
Construction in progress 1,278 1,742
-------- -------
100,469 86,247
Less accumulated depreciation and
amortization 38,283 33,622
--------------------
Net property and equipment. $ 62,186 $52,625
====================
(7) CAPITAL LEASES
The Company leases computer, office and warehouse equipment under capital leases
expiring in various years through 2007. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum lease
payments or the fair value of the assets. The assets are depreciated over the
lower of their related lease terms or their estimated productive lives. Total
capital leased assets for fiscal year 2001 and 2000 were $5,581 and $3,984,
respectively, less accumulated depreciation of $2,898 and $2,248, respectively.
Minimum future lease payments under capital leases as of July 31, 2001 for each
of the next five fiscal years and in the aggregate are:
Year ended July 31 Amount
(In thousands)
2002 $ 1,280
2003 964
2004 493
2005 134
2006 and thereafter 49
-----------------
Total minimum lease payments 2,920
Less: Amount representing interest 316
-----------------
Present value of net minimum
lease payments 2,604
Less: current installments 1,120
-----------------
Capital lease obligations,
excluding current installments $ 1,484
=================
(8) COMMITMENTS AND CONTINGENCIES
The Company leases various facilities under operating lease agreements with
varying terms. Most of the leases contain renewal options and purchase options
at several specific dates throughout the terms of the leases.
The Company also leases equipment under master lease agreements. Payment under
these agreements will continue for a period of three to five years. The
equipment lease agreements contain covenants concerning the maintenance of
certain financial ratios. The Company was in compliance with its covenants at
July 31, 2001.
Rent and other lease expense for the years ended July 31, 2001, 2000 and 1999
totaled approximately $9.7 million, $8.5 million and $7.2 million, respectively.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Future minimum annual fixed payments required under non-cancelable operating
leases having an original term of more than one year as of July 31, 2001 are as
follows:
Year (In
thousands)
2002 $ 10,149
2003 9,680
2004 8,892
2005 7,296
2006 5,237
2007 and thereafter 30,670
--------
$ 71,924
========
Outstanding commitments as of July 31, 2001 for the purchase of inventory were
approximately $5.5 million. The Company had outstanding letters of credit of
approximately $3.9 million at July 31, 2001.
The Company may from time to time be involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
(9) PROFIT SHARING / SALARY REDUCTION PLANS
The Company has several profit sharing/salary reduction plans, generally called
"401(k) Plans" ("the Plans"), covering various employee groups. Under these
types of Plans the employees may choose to reduce their compensation and have
these amounts contributed to the Plans on their behalf. In order to become a
participant in the Plans, employees must meet certain eligibility requirements
as described in the respective Plan's document. In addition to amounts
contributed to the Plans by employees, the Company makes contributions to the
Plans on behalf of the employees. The Company contributions to the Plans were
approximately $1.3 million, $1.0 million and $1.0 million for the years ended
July 31, 2001, 2000 and 1999, respectively.
(10) INCOME TAXES
Total federal and state income tax (benefit) expense from continuing operations
consists of the following:
(In thousands) Current Deferred Total
------- -------- -----
Fiscal year ended July 31,
2001:
U.S. Federal $ 9,212 $(1,399) $ 7,813
State and local 1,499 (406) 1,093
------- ------- -------
$10,711 $(1,805) $ 8,906
======= ======= =======
Fiscal year ended July 31,
2000:
U.S. Federal $ (141) $ 79 $ (62)
State and local 269 (1,009) (740)
------- ------- -------
$ 128 $ (930) $ (802)
======= ======= =======
Fiscal year ended July 31,
1999:
U.S. Federal $ 9,447 $ (811) $ 8,636
State and local 1,619 (129) 1,490
------- ------- -------
$11,066 $ (940) $10,126
======= ======= =======
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Total income tax expense (benefit) was different than the amounts computed using
the United States statutory income tax rate (40%) applied to income before
income taxes as a result of the following:
July 31, July 31, July 31,
(In thousands) 2001 2000 1999
---- ---- ----
Computed "expected" tax expense (benefit) $7,792 $(712) $ 8,258
State and local income tax, net of Federal
income tax (expense) benefit 710 (481) 968
Non-deductible expenses 137 119 155
Non-deductible amortization 94 88 79
Other, net 173 184 666
------ ----- -------
$8,906 $(802) $10,126
====== ====== =======
Total income tax expense for the years ended July 31, 2001, 2000, and 1999 was
allocated as follows;
July 31, July 31, July 31,
(In thousands) 2001 2000 1999
---- ---- ----
Income from continuing operations $8,906 $(802) $10,126
Shareholders' equity, for compensation
expense for tax purposes in excess of
amounts recognized for financial
statement purposes ($959) ($112) --
------ ------ -------
$7,947 ($914) $10,126
====== ====== =======
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax assets and deferred tax liabilities at July 31, 2001 and
2000 are presented below:
(In thousands) 2001 2000
---- ----
Deferred tax assets:
Inventories, principally due to additional costs inventoried for
tax purposes $1,315 $1,245
Compensation and benefit related 886 750
State net operating loss carryforward 682 617
Accounts receivable, principally due to allowances for
uncollectible accounts 545 304
Reserve for LIFO inventory 45 --
Other 987 169
------ ------
Total gross deferred tax assets 4,460 3,085
Less valuation allowance -- --
Net deferred tax assets 4,460 3,085
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation 33 405
Reserve for LIFO inventory method -- 329
Intangible assets 564 285
Other 74 83
------ ------
Total deferred tax liabilities 671 1,102
------ ------
Net deferred tax assets $3,789 $1,983
====== ======
Current deferred income tax assets $3,513 $2,350
Non-current deferred income tax liabilities 276 (367)
------ ------
$3,789 $1,983
====== ======
At July 31, 2001, the Company had net operating loss carryforwards of
approximately $17 million for state income tax purposes that expire in years
2003 through 2021.
The valuation allowance at July 31, 2001 and 2000 was zero.
In assessing the recoverability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Due to the fact that the Company has sufficient
taxable income in the federal carryback period and anticipates sufficient future
taxable income over the periods which the deferred tax assets are deductible,
the ultimate realization of deferred tax assets for Federal and state tax
purposes appears more likely than not.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(11) EMPLOYEE STOCK OWNERSHIP PLAN
The Company adopted the UNFI Employee Stock Ownership Plan (the "Plan") for the
purpose of acquiring outstanding shares of the Company for the benefit of
eligible employees. The Plan was effective as of November 1, 1988 and has
received notice of qualification by the Internal Revenue Service.
In connection with the adoption of the Plan, a Trust was established to hold the
shares acquired. On November 1, 1988, the Trust purchased 40% of the outstanding
Common Stock of the Company at a price of $4,080,000. The trustees funded this
purchase by issuing promissory notes to the initial stockholders, with the Trust
shares pledged as collateral. These notes bear interest at 10% and are payable
through May 2015. As the debt is repaid, shares are released from collateral and
allocated to active employees, based on the proportion of debt service paid in
the year.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," in November 1993. The statement
provides guidance on employers' accounting for ESOPs and is required to be
applied to shares purchased by ESOPs after December 31, 1992, that have not been
committed to be released as of the beginning of the year of adoption. In
accordance with SOP 93-6, the Company elected not to adopt the guidance in SOP
93-6 for the shares held by the ESOP, all of which were purchased prior to
December 31, 1992. The debt of the ESOP is recorded as debt and the shares
pledged as collateral are reported as unearned ESOP shares in the Consolidated
Balance Sheets. During each of 2001, 2000 and 1999 contributions totaling
approximately $0.4 million were made to the Trust. Of these contributions,
approximately $0.2 million represented interest in 2001 and approximately $0.3
million represented interest in years 2000 and 1999.
The ESOP shares were classified as follows:
(In thousands) July 31, July 31,
2001 2000
Allocated shares. 902 814
Shares released for allocation 88 88
Shares distributed to employees (376) (327)
Unreleased shares 1,210 1,298
----- -----
Total ESOP shares 1,824 1,873
===== =====
The fair value of unreleased shares was approximately $26.8 million at July 31,
2001.
12) BUSINESS SEGMENTS
The Company has several operating segments aggregated under the distribution
segment, which is the Company's only reportable segment. These operating
segments have similar products and services, customer types, distribution
methods and historical margins. The distribution segment is engaged in
independent national distribution of natural foods and related products in the
United States. Other operating segments include the retail segment, which
engages in the sale of natural foods and related products to the general public
through retail storefronts on the east coast of the United States, and a segment
engaging in trading, roasting and packaging of nuts, seeds, dried fruit and
snack items. These other operating segments do not meet the quantitative
thresholds for reportable segments and are therefore included in an "other"
caption in the segment information. The "other" caption also includes corporate
expenses that are not allocated to operating segments.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Following is business segment information for the periods indicated:
(dollars in thousands) Distribution Other Eliminations Consolidated
2001
----
Revenue 977,199 58,464 (18,829) 1,016,834
Operating Income 30,974 (1,339) (3) 29,632
Amortization and 6,625 1,283 -- 7,908
Depreciation
Capital Expenditures 14,457 1,434 -- 15,891
Assets 440,187 1,266 (141,009) 300,444
2000
----
Revenue 870,307 56,131 (17,750) 908,688
Operating Income 8,333 (4,549)) 68 3,852
Amortization and 6,431 1,170 -- 7,601
Depreciation
Capital Expenditures 15,190 680 -- 15,870
Assets 400,538 7,129 (137,433) 270,234
1999
----
Revenue 806,013 72,860 (21,875) 856,998
Operating Income 26,242 422 152 26,816
Amortization and 7,819 1,386 -- 9,205
Depreciation
Capital Expenditures 5,668 942 -- 6,610
Assets 357,401 18,824 (138,324) 237,901
(13) RESTRUCTURING COSTS
The Company's operating expenses for fiscal year 2001 included restructuring
charges of $0.4 million related to the expansion of its New Oxford, PA
distribution facility, and $0.4 million of asset impairment charges, primarily
goodwill, associated with the closing of an unprofitable retail store.
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of quarterly operating results and share data. There were
no dividends paid or declared during 2001 and 2000 and the Company anticipates
that it will continue to retain earnings for use in its business and not pay
cash dividends in the foreseeable future.
(In thousands except per share data) First Second Third Fourth Full Year
-------------------------------------------------------------------------------------------------------
2001
----
Net sales $244,141 $244,422 $258,536 $269,735 $1,016,834
Gross profit 48,051 47,790 49,683 53,270 198,794
Income before income taxes 5,442 4,345 5,470 7,007 22,264
Net income 3,265 2,607 3,282 4,204 13,358
Per common share income
Basic: $ 0.18 $ 0.14 $ 0.18 $ 0.23 $ 0.72
Diluted: $ 0.18 $ 0.14 $ 0.17 $ 0.22 $ 0.71
Weighted average basic
Shares outstanding 18,320 18,414 18,580 18,616 18,482
Weighted average diluted
Shares outstanding 18,633 18,784 18,839 19,027 18,818
Market Price
High $15.25 $20.38 $19.50 $23.20 $23.20
Low $ 9.56 $11.38 $10.88 $13.94 $ 9.56
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands except per share data) First Second Third Fourth Full Year
-------------------------------------------------------------------------------------------------------
2000
----
Net sales $218,455 $231,375 $229,205 $229,653 $908,688
Gross profit 40,452 42,171 45,305 46,087 174,015
(Loss) income before income
(benefit) taxes (1,697) (7,527) 2,940 4,251 (2,033)
Net (loss) income (1,018) (4,528) 1,765 2,550 (1,231)
Per common share income (loss)
Basic: $ (0.06) $ (0.25) $ 0.10 $ 0.14 $ (0.07)
Diluted: $ (0.06) $ (0.25) $ 0.10 $ 0.14 $ (0.07)
Weighted average basic
Shares outstanding 18,260 18,260 18,261 18,275 18,264
Weighted average diluted
Shares outstanding 18,260 18,260 18,562 18,651 18,264
Market Price
High $19.63 $15.19 $16.00 $16.69 $19.63
Low $ 7.63 $ 7.00 $ 9.63 $12.38 $ 7.00
(15) INTEREST RATE SWAP AGREEMENT
In October 1998, the Company entered into an interest rate swap agreement. The
agreement provides for the Company to pay interest for a five-year period at a
fixed rate of 5% on a notional principal amount of $60 million while receiving
interest for the same period at the LIBOR rate on the same notional principal
amount. The swap has been entered into as a hedge against LIBOR interest rate
movements on current and anticipated variable rate indebtedness totaling $60
million at LIBOR plus 1.25%, thereby fixing the Company's effective rate at
6.25%. The five-year term of the swap agreement may be extended to seven years
at the option of the counter party, which prohibits accounting for the swap as
an effective hedge under Statement of Financial Accounting Standards No. 133.
The fair market value on the adoption date of August 1, 2000 was less than $0.1
million. As of July 31, 2001 the fair market values were $(1.0) million and
($0.3) million of the swap agreement and the option respectively. The Company
recorded other expense of $1.3 million to reflect this change in fair market
value. Subsequent to July 31, 2001 the Company entered into a second interest
rate swap agreement. See note 16, Subsequent Events, for further detail of this
transaction.
(16) SUBSEQUENT EVENTS
The Company entered into a new line of credit with its bank effective September
4, 2001. The agreement increased the amount of the credit facility to $150
million from $100 million. Interest accrues, at the Company's option, at the New
York Prime Rate or the banks' London Interbank Offered Rate ("LIBOR") plus
1.50%. The agreement also provides for the bank to syndicate the credit facility
to other banks and lending institutions. The Company has pledged all of its
assets as collateral for its obligations under the credit agreement. The
proceeds were received on September 4, 2001 and were used to refinance the
Company's existing credit facility consisting of a revolving loan balance of
$61.8 million and fixed rate mortgages of $18.3 million. An additional fixed
rate mortgage of $1.5 million and an equipment loan of approximately $2.0
million will also be paid in full.
The Company also entered into an additional interest rate swap agreement
effective August 1, 2001. The agreement provides for the Company to pay interest
for a four-year period at a fixed rate of 4.81% on a notional principal amount
of $30 million while receiving interest for the same period at the LIBOR rate on
the same notional principal amount. The swap has been entered into as a hedge
against LIBOR interest rate movements on current and anticipated variable rate
indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing the
Company's effective rate on the notional amount at 6.31%. If LIBOR exceeds 6.0%
in a given period the agreement is suspended for that period. The four-year term
of the swap agreement may be extended to six years at the option of the counter
party, which prohibits accounting for the swap as an effective hedge under SFAS
No. 133.
Subsequent to July 31, 2001, the Company signed an agreement to lease a 200,000
square foot distribution center in the greater Los Angeles, California area with
the option to lease an additional 83,000 square feet for expansion.
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in part under the caption
"Executive Officers and Directors of the Registrant" in PART I hereof, and the
remainder is contained in the Company's Proxy Statement for its Annual Meeting
of Stockholders to be held in December 2001 (the "2001 Proxy Statement") under
the captions "PROPOSAL 1 ELECTION OF DIRECTORS" and "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE" and is incorporated herein by this reference.
Officers are elected on an annual basis and serve at the discretion of the Board
of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained under the captions "Director
Compensation," "Compensation of Executive Officers" and "Compensation Committee
Interlocks and Insider Participation" in the 2001 Proxy Statement and is
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the 2001 Proxy Statement
under the caption "Stock Ownership of Certain Beneficial Owners and Management"
and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained under the caption "Certain
Transactions" in the 2001 Proxy Statement and is incorporated herein by this
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Form 10-K
1. Financial Statements. The Financial Statements listed in the Index to
Financial Statements in Item 8 hereof are filed as part of this Annual Report on
Form 10-K.
2. Financial Statement Schedules. Schedule II Valuation and Qualifying Accounts
All other schedules are omitted, since the required information is not present
or is not present in amounts consolidated financial statements and notes
thereto.
Independent Auditor's Report on Financial Statement Schedule.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately preceding such
Exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K. None.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNITED NATURAL FOODS, INC.
/s/ TODD WEINTRAUB
-----------------------------
Todd Weintraub
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Dated: October 19, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
/s/ THOMAS B. SIMONE Chairman of the Board October 19, 2001
-----------------------
Thomas B. Simone
/s/ MICHAEL S. FUNK Chief Executive Officer and Vice Chairman October 19, 2001
----------------------- of the Board
Michael S. Funk (Principal Executive Officer)
/s/ STEVEN TOWNSEND President, President of Eastern Region and October 19, 2001
----------------------- Director
Steven Townsend
/s/ TODD WEINTRAUB Vice President, Chief Financial Officer and October 19, 2001
----------------------- Treasurer (Principal Financial and
Todd Weintraub Accounting Officer)
/s/ KEVIN T. MICHEL President of Western Region, Assistant October 19, 2001
----------------------- Secretary and Director
Kevin T. Michel
/s/ GORDON D. BARKER Director October 19, 2001
-----------------------
Gordon D. Barker
/s/ JOSEPH M. CIANCIOLO Director October 19, 2001
-----------------------
Joseph M. Cianciolo
/s/ JAMES P. HEFFERNAN Director October 19, 2001
-----------------------
James P. Heffernan
40
EXHIBIT INDEX
Exhibit No. Description
2** Agreement and Plan of Reorganization by and among the Registrant,
GEM Acquisition Corp., Stow Mills, Inc., Barclay McFadden and
Richard S. Youngman, dated as of June 23, 1997, and amended and
restated as of August 8, 1997
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated By-Laws of the Registrant.
4*+ Specimen Certificate for shares of Common Stock, $.01 par value,
of the Registrant.
10.1* Amended and Restated Employee Stock Ownership Plan.
10.2* ESOT Loan Agreement among Norman A. Cloutier, Steven H. Townsend,
Daniel V. Atwood, Theodore Cloutier and the Employee Stock
Ownership Plan and Trust, dated November 1, 1988, as amended.
10.3* Stock Pledge Agreement between the Employee Stock Ownership Trust
and Steven H. Townsend, Trustee for Norman A. Cloutier, Steven H.
Townsend, Daniel V. Atwood and Theodore Cloutier, dated November
1, 1988, as amended.
10.4* Trust Agreement between Norman A. Cloutier, Steven H. Townsend,
Daniel V. Atwood, Theodore Cloutier and Steven H. Townsend as
Trustee, dated November 1, 1988.
10.5* Guaranty Agreement between the Registrant and Steven H. Townsend
as Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V.
Atwood and Theodore Cloutier, dated November 1, 1988.
10.6*+# 1996 Stock Option Plan.
10.61y Amendment No. 1 to Amended and Restated 1996 Stock Option Plan
10.62y Amendment No. 2 to Amended and Restated 1996 Stock Option Plan
10.63y Amended and Restated 1996 Stock Option Plan
10.8*+ Non-competition Agreement between the Registrant and Norman A.
Cloutier, dated November 16, 1993.
10.9* Amended and Restated Loan and Security Agreement among the
Registrant, Mountain People's, Natural Retail Group, Inc.,
Rainbow, Nutrasource, Inc. and Fleet Capital Corporation, dated
February 20, 1996.
10.10* Purchase and Sale Agreement between the Registrant and O.M.
Killingly Investment Company, dated March 31, 1995.
10.11* Real Estate Term Note between the Registrant and Shawmut Capital
Corporation (now Fleet Capital Corporation), dated September 8,
1995.
10.12* Distribution Agreement between Mountain People's Wine
Distributing, Inc., and Mountain People's, dated August 23, 1994.
10.13* Lease, dated July 29, 1995, between Prem Mark, Inc. and the
Registrant.
Exhibit No. Description
10.14* Lease, dated July 12, 1990, between the Registrant and Sylvan and
Stanford Makover Joint Venture, as amended.
10.15 * Lease, dated August 23, 1989, between the Registrant and Bradley
Spear and Seattle First National Bank, co-executors of the estate
of A.H. Spear.
10.16*+ 1996 Employee Stock Purchase Plan.
10.17*** First Amendment to Amended and Restated Loan Agreement with Fleet
Capital Corporation, dated March 1, 1997.
10.18**** Second Amendment to Amended and Restated Loan Agreement with Fleet
Capital Corporation, dated July 1, 1997.
10.19xx Third Amendment to Amended and Restated Loan Agreement with Fleet
Capital Corporation, dated October 31, 1997.
10.20**** Lease dated July 11, 1997 between AmberJack, Ltd. and the
Registrant.
10.21xxxxx Lease dated June 6, 2001 between M.D. Hodges Enterprises, Inc. and
the Registrant
10.22xxxxx Lease dated July 31, 2001 between Metropolitan Life Insurance
Company and the Registrant
10.23xxx Employment Transition Agreement and Release for Norman A. Cloutier
dated December 8, 1999
10.24yy Employment Agreement for Steven H. Townsend dated December 6, 1999
10.25xx Third Amendment to Amended and Restated Loan Agreement with Fleet
Capital Corporation, dated October 31, 1997.
10.26xx Agency and Interlender Agreement between United Natural Foods,
Inc. and Fleet Capital Corporation, First Union National Bank and
Nationsbank, N.A., dated December 1, 1997.
10.27***** Fourth Amendment to Amended and Restated Loan Agreement with Fleet
Capital Corporation, dated July 31, 1999.
10.28***** Lease dated August, 1998 between Valley Centre I, L.L.C. and the
Registrant.
10.29xxxx Fifth Amendment to Amended and Restated Loan Agreement with Fleet
Capital Corporation, dated March 31, 2000
10.30yy Lease dated December 31, 1996 between Dove Investments, Inc. and
the Registrant and Amendments
10.31yy Purchase and Sale agreement between the Registrant and Dynamic
Builders, Inc., dated June 30, 1999, Amendments and attachment
10.32yy Real estate Term Notes between the Registrant and City National
Bank dated April 28, 2000
21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP.
Schedule II - Valuation and Qualifying Accounts and Report of
Independent Accountants thereon.
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-11349)
** Incorporated by reference to an Annex to the Registrant's Proxy Statement
dated October 15, 1997 with respect to the Special Meeting of
Stockholders dated October 30, 1997.
*** Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997.
**** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 31, 1997.
***** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 31, 1999.
x Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 31, 1998.
xx Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended October 31, 1997.
xxx Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 31, 2000.
xxxx Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 2000.
+ Management contract or compensatory plan or arrangement filed in response
to Item 14(a)(3) of the instructions to Form 10-K.
# Incorporated by reference to the Registrant's Registration Statement on
Form S-8 dated February 3, 1999.
xxxxx Filed herewith.
y Incorporated by reference to the Registrant's Definitive Proxy Statement
on Form DEF 14A (File No. 001-15723).
yy Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended July 31, 2000.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Natural Foods, Inc.:
Under date of September 4, 2001, we reported on the consolidated balance sheets
of United Natural Foods, Inc. and subsidiaries as of July 31, 2001 and 2000 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended July 31, 2001, as
contained in the annual report on Form 10-K for the year 2001. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
------------
KPMG LLP
Providence, Rhode Island
September 4, 2001
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions
beginning of charged to costs Balance at end of
period and expenses Deductions period
------------------------------------------------------------------
Year ended July 31, $3,302 $ 2,903 $2,661 $ 3,544
2001
Year ended July 31, $2,297 $1,992 $ 987 $3,302
2000
Year ended July 31, $1,780 $1,995 $1,478 $2,297
1999
EX-10.21
3
ex10-21.txt
LEASE AGREEMENT
Exhibit 10.21
COMMERCIAL LEASE CONTRACT
THIS LEASE (the "Lease") is made this 6th day of June, 2001, by and
between M.D. HODGES ENTERPRISES, INC., first party, (hereinafter called
"Landlord"); having an address of 2410 Paces Ferry Road, Suite 200, Atlanta,
Georgia 30339, and UNITED NATURAL FOODS, INC., a Delaware Corporation, second
party, (hereinafter called "Tenant"); having an address of 260 Lake Road,
Dayville, Connecticut, 06241.
W I T N E S S E T H:
1. PREMISES - The Landlord, for and in consideration of the rents,
covenants, agreements, and stipulations hereinafter mentioned, reserved, and
contained, to be paid, kept and performed by the Tenant, has leased and rented,
and by these presents does lease and rent, unto the Tenant, and the Tenant
hereby agrees to lease and take upon the terms and conditions which hereinafter
appear, the following described property (exclusive of any easement for light or
air), hereinafter called "Premises," to wit:
311,793 Square Feet of single floor warehouse
space, located at 100 LAKEVIEW COURT, Atlanta,
Georgia, 30336 as located in Land Lot 115 of the
14th F.F. District of Fulton County, Georgia,
being all of the building commonly known as 100
LAKEVIEW COURT (the "Building") (Building #440),
said building located on a tract of land
consisting of approximately 19.63 acres.
2. TERM AND PREPARATION OF PREMISES
A. The term of this Lease shall commence on the Commencement Date,
as hereinafter defined, and shall end at midnight on the last day of the month
that is 184 months after the Commencement Date, unless sooner terminated as
hereinafter provided. The "Commencement Date" shall mean: August 1, 2001;
provided, however, that Tenant shall have the right to utilize the Premises
prior to August 1, 2001 for the purpose of the storage of Tenant's products and
construction of improvements to the Premises as allowed for under the terms of
this Lease. After the Commencement Date, Tenant will, upon demand, furnish
Landlord with a written statement confirming Tenant's acceptance of the Premises
and confirming the Commencement Date of the term of this Lease.
B. After proper execution of this Lease by Landlord and Tenant,
Landlord shall furnish all labor and material as necessary to deliver the
Premises as shown on EXHIBIT "D" hereof, which plans identify the work to be
completed by Landlord with respect to the requirements of this Lease. Said work
shall be performed in a good and workmanlike manner and in compliance with all
applicable laws, regulations and building codes. The Premises and Building
currently comply with all applicable laws, regulations and building codes for
buildings completed to "shell" condition. Except for the foregoing, Tenant
agrees to accept the Premises under the provisions of the Lease "WHERE IS, AS
IS".
3. RENTAL - The Tenant agrees to pay to the Landlord promptly on the first
day of each month in advance, during the term of this Lease, a monthly rental of
AUGUST 1, 2001 THROUGH NOVEMBER 30, 2001
$0.00 monthly ZERO AND 00/100 DOLLARS Four (4)
in advance Months
DECEMBER 1, 2001 THROUGH NOVEMBER 30, 2006
$73,531.19 monthly SEVENTY-THREE THOUSAND, FIVE HUNDRED THIRTY-ONE Sixty (60)
in advance AND 19/100 DOLLARS Months
DECEMBER 1, 2006 THROUGH NOVEMBER 30, 2011
$82,625.15 monthly EIGHTY-TWO THOUSAND, SIX HUNDRED TWENTY-FIVE Sixty (60)
in advance AND 15/100 DOLLARS Months
DECEMBER 1, 2011 THROUGH NOVEMBER 30, 2016
$93,018.25 monthly NINETY-THREE THOUSAND, EIGHTEEN Sixty (60)
in advance AND 25/100 DOLLARS Months
Tenant shall pay all rent and other sums of money as shall become due from and
payable by Tenant to Landlord under this Lease at the times and in the manner
provided in this Lease, without notice, demand, set-off or counterclaim. As used
in this Lease, the term "rent" shall mean the base monthly rental, and any other
amounts that Tenant assumes or agrees to pay under the provisions of this Lease
that are owed to Landlord, including, without limitation, any and all other sums
that may become due by reason of any default of Tenant or failure on Tenant's
part to comply with the agreements, terms, covenants and conditions of this
Lease to be performed by Tenant.
The aforesaid payments of rent are to be made to: M.D. Hodges Enterprises, Inc.
Post Office Box 931932
Atlanta, GA 31193-1932
4. LATE PAYMENTS - If monthly rental or any other amount payable by Tenant
under this Lease is not paid within ten (10) days after the date such payment is
due, Tenant shall pay to Landlord a late charge equal to 5% of the delinquent
amount, and interest on the delinquent amount at the rate of 14% per annum until
paid (the "Default Rate"); provided however said interest shall not begin to
accrue until Landlord has given Tenant written notice of such non-payment.
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 2
5. ADVANCE RENT - Notwithstanding Section 3. of this Lease, Landlord
acknowledges receipt from Tenant of EIGHTY-THREE THOUSAND SIX HUNDRED SIXTY-FOUR
AND 47/100 DOLLARS ($83,664.47), which rent Tenant has paid in advance for the
first month's rent ($73,531.19), Tax Escrow ($7,794.83) and Common Area
Maintenance ($2,338.45).
6. SECURITY DEPOSIT - None.
7. TAXES
A. Landlord shall pay before they become delinquent all taxes,
assessments and governmental charges of any kind and nature whatsoever lawfully
levied or assessed against the Premises and/or Building or any portion thereof
(all of which real estate taxes, assessments, levies, charges and costs,
excluding any late charges or penalties that may be imposed for Landlord's
failure to make payments on account of the foregoing in a timely manner, are
hereafter collectively referred to as "Taxes"), and Tenant shall reimburse
Landlord, as additional rent, for Tenant's share of any such Taxes paid with
respect to any tax year falling within the term of this Lease (prorated for any
partial years). If the Premises are not part of a multi-tenant facility,
Tenant's share of the Taxes for each tax year occurring during the Lease term
shall be one hundred percent (100%). If, however, the Premises are part of a
multi-tenant project, Tenant's share of the Taxes shall be an amount equal to
the product obtained by multiplying the Taxes for the tax year in question
(prorated for any partial years) by a fraction the numerator of which is the
gross rentable area in the Premises, and the denominator of which is the gross
rentable area in the entire Building, including the Premises. Tenant agrees to
pay Landlord promptly on the first day of each month in advance during the term
of this Lease a monthly tax escrow amount of SEVEN THOUSAND, SEVEN HUNDRED
NINETY-FOUR AND 83/100 DOLLARS ($7,794.83) toward payment of Tenant's share of
Taxes for that year (or a portion thereof) with the understanding that, upon
receipt by Landlord of the Tax bill, Landlord and Tenant will then determine
whether Tenant is entitled to a refund or whether Landlord shall bill Tenant for
an extra amount if required so that as the end result and at the end of each
calendar year, Tenant's pro rata share of the Taxes will have been paid.
Landlord shall promptly notify Tenant of actual Tax bills when final bills are
received from government authorities. Tenant and Landlord agree to pay to each
other whatever amount is required to reconcile the annual escrow funds to the
actual bill on December 1 of each tax year during the term of the Lease. In
addition, Landlord shall have the right to increase the monthly Tax escrow
amount no more frequently than once per calendar year based upon any changes in
the most recent Tax bill. However, the monthly Tax escrow amount shall not
exceed one-twelfth (1/12th) of the most recent annual Tax. Landlord has begun
the application process for the Premises to be a separate parcel for tax
purposes and will diligently pursue such process to completion.
B. Tenant shall be liable for all taxes assessed against and levied
upon the trade fixtures, furnishings, equipment and all other personal property
of Tenant contained in the Premises.
C. Landlord shall have the sole, absolute and unrestricted right,
but not obligation, to contest the validity or amount of the Taxes by
appropriate proceedings and the costs thereof shall be included in the Taxes,
and Landlord shall have the sole, absolute and unrestricted right to settle any
contest, proceeding or action upon whatever terms Landlord may, in its sole
discretion, determine. Notwithstanding the foregoing, if Landlord does not
contest the Taxes, Landlord will give Tenant written notice that it is not
contesting the Taxes, and said notice will be given to Tenant at least thirty
(30) days prior to the deadline for filing of a contest of the Taxes. If
Landlord does not contest the Taxes, then Tenant shall have the right to do so
at Tenant's sole cost and expense.
8. UTILITY BILLS - Tenant shall pay for all water, sewer, gas,
electricity, fuel, light, heat, power bills, sprinkler system service charges
(if any) and other utilities serving the Premises, or used by Tenant in
connection therewith. If Tenant does not pay the same directly to the applicable
utility company, Landlord may pay the same and such payment, together with a
reasonable administrative charge by Landlord, shall be added to the rental of
the Premises. If any of such utility services are not separately metered to the
Premises, Tenant shall pay to Landlord, as additional rental, a reasonable
proportion of the total cost of all charges jointly metered with other premises,
plus a reasonable administrative charge by Landlord, all as reasonably
determined by Landlord. With respect to water and sewer charges for multi-tenant
buildings, Landlord's reasonable determination will take into account whether
Tenant or the other tenants of the Building consume water for manufacturing or
other uses, other than water consumed for general office uses. Landlord
represents that (i) the Premises are currently separately metered for water
service, ii) the Premises can be separately metered for gas service at the time
of construction of the tenant improvements, and (iii) Landlord is in the process
of converting the primary metering of "Lakeview" to a separate meter for the
Premises.
9. USE OF THE PREMISES - The Premises shall be used for office and
warehouse and related purposes and no other. The Premises shall not be used for
any illegal purposes; nor in any manner that violates the protective covenants
for the premises set for as EXHIBIT "A" hereof, and by this reference made a
part hereof, or any other restrictions of public record with respect to the
Premises or which create any nuisance or trespass; nor in any manner to vitiate
the insurance or increase the rate of insurance on the Premises. Without
Landlord's prior written consent, Tenant shall not receive, store or otherwise
handle any product, material or merchandise which is explosive or highly
flammable. Outside storage is prohibited without Landlord's prior written
consent. Tenant agrees not vacate the Premises during the period of this Lease,
and agrees to use said Premises for the purpose herein leased until the
expiration hereof.
10. REPAIRS BY LANDLORD - The Landlord agrees to keep in good repair the
parking and truck courts, roof, foundations, and exterior walls of the Building
containing or constituting a part of the Premises; provided, however, the
Landlord shall not be responsible for the repair of glass and exterior doors and
any and all repairs rendered necessary by the negligence of Tenant, its agents,
employees, or invitees. Landlord warrants to Tenant that the structural
integrity of the floors of the Premises is sufficient for uses allowable for a
slab design of six (6) inches unreinforced, 4,000 psi concrete, and Landlord
agrees to perform all repairs necessary due to a breach in said warranty;
provided, however, that Landlord shall not be responsible for the repair of (i)
any and all repairs rendered necessary by the negligence of Tenant, its agents,
employees, or
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 3
invitees, and (ii) any areas of the floor where Tenant installs its cooler and
freezer areas. In addition, with respect to the saw joint areas, this warranty
is conditioned on Tenant providing a flexible epoxy joint sealer similar to Euco
700, manufactured by Euclid Chemical Company, in the saw joint locations of
Tenant's fork lift traffic, with said sealer being applied during the first
twelve months of the Lease term. Landlord gives to Tenant exclusive control of
the Premises and shall be under no obligation to inspect said Premises. Tenant
shall report in writing to Landlord any defective condition known to it within a
reasonable time after learning of such condition, which Landlord is required to
repair, and failure to so report such defects shall make Tenant responsible to
Landlord for any liability incurred by Landlord by reason of such failure to
report except for any repairs rendered necessary by the negligence of Tenant,
its agents, employees, or invitees. Landlord shall warrant all construction for
a period of one (1) year after the Commencement Date. Landlord shall assign to
Tenant all warranties including those for equipment and mechanical systems.
11. REPAIRS BY TENANT - Tenant shall, throughout the term of this
Lease, at its expense, maintain in good order and repair the Premises, including
the heating and air conditioning equipment (including but not limited to
replacement of parts, compressors, air handling units and heating units) and
other improvements located thereon, except those repairs expressly required to
be made by Landlord. Tenant, at its sole cost and expense, shall provide all
regular maintenance and service for the HVAC systems and warehouse unit heaters,
including, but not limited to, placing a qualified HVAC contractor under service
contract for such items as regular changing of filters at intervals not less
than quarterly (once every three months), and to make thorough annual
inspections of and to professionally service the system including, but not
limited to, coolant recharging, replacement of belts or minor electrical
components, lubrication and routine preventive maintenance, and other
miscellaneous items. Tenant shall be responsible for maintaining sprinkler,
valves, fire extinguishers and alarm systems if any, as located within the
Premises and Tenant shall maintain written records, if any, that may be required
by Landlord's insurer covering testing of sprinkler valves, fire extinguishers
and alarm systems located within the Premises. Tenant shall consistently
maintain heat within the Premises as necessary to avoid damage to the sprinkler
system by freezing. In the event Tenant fails to make any repairs required of it
hereunder, then Landlord may, but shall not be obligated to, make such repairs,
in which event, Tenant shall promptly reimburse Landlord for all expenses
incurred thereby. Tenant shall be responsible for pest and termite control.
Tenant agrees to return said Premises to Landlord at the expiration, or prior
termination, of this Lease in as good condition and repair as when first
received, natural wear and tear, damage by storm, fire, lightning, earthquake or
other insured casualty alone excepted. Aside from the aforesaid repairs, Tenant
shall not make any alterations, additions, or improvements to the Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Landlord shall approve or disapprove of plans
and specifications relating to work proposed by Tenant within ten (10) business
days after receipt by Landlord.
12. COMMON AREA MAINTENANCE - Landlord shall provide exterior grounds
maintenance for the Premises. Said maintenance shall include landscaping
services, fertilizing, insecticiding, mulching, pruning of shrubbery and trees,
and cutting and weeding grass. The cost to Tenant for the grounds maintenance,
expense for insurance carried by Landlord as required in this Lease, other
miscellaneous common area charges, and administrative fees shall be TWO
THOUSAND, THREE HUNDRED THIRTY-EIGHT AND 45/100 DOLLARS ($2,338.45) per month,
payable monthly in advance, as additional rent. Landlord hereby certifies that
said costs are reasonable as of the date hereof. Landlord and Tenant hereby
agree that if these costs to Landlord increase subsequent to the date of this
Lease, such costs shall be accounted for in the following manner throughout the
term of this Lease. Upon reasonable proof to Tenant by Landlord that increases
of such costs to Landlord have occurred, Landlord shall establish a revised
monthly cost to Tenant; provided, however, that such increases in costs, if any,
shall not occur during the first twelve (12) months of the original Lease term;
and also provided that said maintenance cost adjustments, if any, shall be
limited to no more than a five percent (5%) annual increase above the previous
year's charge. Tenant shall have the right to audit these common area
maintenance charges.
13. INSURANCE
A. During the term of this Lease, Tenant shall provide and keep in
force the following insurance:
(1) comprehensive general liability insurance relating to
Tenant's business carried on, in or from the Premises, for personal and bodily
injury and death, and damage to others' property, with limits of not less than
$2,000,000.00 for any one accident or occurrence; and
(2) all risk or fire insurance (including standard extended
coverage and coverage for leakage from fire protective devices and other water
damage) relating to Tenant's fixtures, furnishings, and all personal property of
Tenant in the Premises on a full replacement cost basis; and
(3) workmen's compensation insurance as required by applicable
law.
B. During the term of this Lease, Landlord shall provide and keep in
force the following insurance (which may be maintained through one or more
blanket policies):
(1) comprehensive general liability insurance relating to
Landlord's ownership of the Premises, for personal and bodily injury and death,
and damage to other's property, with limits of not less than $2,000,000.00 for
any one accident or occurrence; and
(2) all risk or fire insurance (including standard extended
coverage) relating to the Premises (but excluding Tenant's fixtures, furnishings
and all personal property of Tenant) in an amount required by the holders of any
Security Deeds, or otherwise reasonably determined by Landlord.
C. Prior to the commencement of the Lease term and thereafter, at
least fifteen (15) days prior to the expiration date of any policy required of
Tenant, Tenant agrees to deliver to Landlord a certificate evidencing the
insurance
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 4
coverage required of Tenant under this Lease. Said certificate shall contain an
endorsement that such insurance may not be canceled except upon thirty (30)
days' prior written notice to Landlord, and shall confirm that Landlord, its
managing agent, and the holders of any Security Deeds are named as additional
insureds. The policies required to be carried by Tenant pursuant to the terms of
this Lease shall be issued by a stock or mutual company, licensed to do business
in the State of Georgia.
14. WAIVER OF SUBROGATION Notwithstanding anything else contained in this
Lease to the contrary, Landlord shall waive all rights of recovery and all
causes of action against Tenant for any loss occurring to the Premises resulting
from any of the perils insured against under such policy or policies of
insurance carried by Landlord regardless of cause, including the negligence of
Tenant, but only to the extent of any recovery received by Landlord under such
policy or policies of insurance. Landlord will cause these policies of insurance
to include an endorsement to that effect. Conversely notwithstanding anything
else contained in this Lease to the contrary, Tenant shall waive all rights of
recovery and all causes of action against Landlord regardless of cause,
including the negligence of Landlord, to the extent of any recovery received
under such policy or policies of insurance carried by Tenant (or alternatively,
to the extent of any recovery that could have been received under the insurance
required by Section 13.A. above, if such insurance is not being carried in
breach of such obligations), and Tenant will also cause these policies of
insurance to include an endorsement to that effect.
15. DESTRUCTION OF, OR DAMAGE TO PREMISES
A. If the Premises are totally destroyed by storm, fire, lightning,
earthquake or other casualty, this Lease shall terminate as of the date of such
destruction and rental shall be accounted for as between Landlord and Tenant as
of that date. If the Premises are damaged but not wholly destroyed by any such
casualties, rental shall abate based upon the nature and extent of the damage to
the Premises and the ability of Tenant to conduct its business therefrom, as
reasonably determined by Landlord and Tenant and Landlord shall restore the
Premises to substantially the same condition as before damage as speedily as is
practicable, whereupon full rental shall recommence; provided, however, that if
(i) the Premises are more than 50% damaged or destroyed, in Landlord's
reasonable judgment, or (ii) the Premises are damaged or destroyed during the
last twelve (12) months of the Lease term, or (iii) the holder of a Security
Deed (as defined in Section 26. below) does not make available insurance
proceeds for rebuilding or repair, then and in any such events, Landlord may at
its option terminate this Lease by notice in writing to Tenant within sixty (60)
days after the day of such occurrence. If the Premises are more than 50% damaged
or destroyed, in Landlord's reasonable judgment and Landlord cannot restore the
Premises to substantially the same condition as before damage within 180 days,
then Tenant may at its option terminate this Lease by providing notice in
writing to Landlord within thirty (30) days after the date of such occurrence
that Tenant so desires to terminate this Lease.
B. Landlord shall not be required to repair any injury or damage or
to make any repairs or replacements of any improvements installed in the
Premises by or for Tenant. Tenant shall, at Tenant's sole cost and expense,
repair, replace and restore all of Tenant's personalty, trade fixtures,
equipment and fixtures, and all alterations, additions and/or improvements other
than the repairs required of Landlord under this Lease.
16. INDEMNITY -
A. Subject to Section 14. above, Tenant agrees to indemnify and hold
Landlord, Landlord's agents, and their respective agents, employees,
contractors, officers, directors, shareholders, partners and principals
(disclosed or undisclosed) harmless from and against any and all losses, costs,
liabilities, claims, damages, expenses (including, without limitation,
reasonable attorneys' fees), penalties or fines incurred in connection with,
arising out of or resulting from: (i) any default by Tenant in the performance
of any of the terms, covenants or conditions of this Lease on Tenant's part to
be kept, observed or performed, or (ii) the use or occupancy, or manner of use
or occupancy, of the Premises by Tenant or any person claiming or entering the
Premises by, through or under Tenant, or (iii) any acts, omissions or negligence
of Tenant, its sublessees, assignees, licensees or concessionaires or any of
their respective contractors, agents, employees, guests or invitees.
B. Subject to Section 14. above, Landlord agrees to indemnify and
hold Tenant, Tenant's agents, and their respective agents, employees,
contractors, officers, directors, shareholders, partners and principals
(disclosed or undisclosed) harmless from and against any and all losses, costs,
liabilities, claims, damages, expenses (including, without limitation,
reasonable attorneys' fees), penalties or fines incurred in connection with,
arising out of or resulting from: (i) any default by Landlord in the performance
of any of the terms, covenants or conditions of this Lease on Landlord's part to
be kept, observed or performed, or (ii) any acts, omissions or negligence of
Landlord or any of its contractors, agents, employees, guests or invitees.
17. GOVERNMENTAL ORDERS - Tenant agrees, at its own expense, to promptly
comply with all requirements of any legally constituted public authority made
necessary by reason of Tenant's occupancy of said Premises, including but not
limited to, the providing of fire extinguishers and fire alarm systems in
accordance with said requirements. Landlord agrees to promptly comply with any
such requirements if not made necessary by reason of Tenant's occupancy. It is
mutually agreed, however, between Landlord and Tenant, that if in order to
comply with such requirements, the cost to Landlord or Tenant, as the case may
be, shall exceed a sum equal to one year's rent, then Landlord or Tenant who is
obligated to comply with such requirements is privileged to terminate this Lease
by giving written notice of termination to the other party, by registered mail,
which termination shall become effective sixty (60) days after receipt of such
notice, and which notice shall eliminate necessity of compliance with such
requirement by party giving such notice, unless party receiving such notice of
termination shall, before termination becomes effective, pay to party giving
notice all cost of compliance in excess of one year's rent, or secure payment of
said sum in manner satisfactory to party giving notice.
18. CONDEMNATION - If all or any part of the Premises or the Building
shall be taken as a result of the exercise of the power of eminent domain or
agreement in lieu thereof, this Lease shall terminate as to the part so taken as
of the date of taking. In the case of a partial taking, either Landlord or
Tenant shall have the right to terminate this Lease as to the balance of the
Premises by giving written notice to the other within thirty (30) days after
such date; provided, however, that a
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 5
condition to the exercise by Tenant of such right to terminate shall be that the
portion of the Premises taken shall be of such extent and nature as
substantially to handicap, impede or impair Tenant's use of the balance of the
Premises. In the event of any taking, Landlord shall be entitled to any and all
compensation, damages, income, rent, awards or interest therein whatsoever which
may be paid or made in connection therewith. Tenant shall have no claim against
Landlord or the condemning authority for the value of any unexpired term of this
Lease or otherwise. Tenant shall have the right to claim from the condemning
authority and prove Tenant's right to an award for the unamortized trade
fixtures, alterations, additions and improvements paid for by Tenant, and for
its moving expenses. In the event of a partial taking of the Premises, which
does not result in a termination of this Lease, the base monthly rental
thereafter to be paid shall be equitably reduced.
19. ASSIGNMENT AND SUBLETTING - Tenant may not assign this Lease or
sublease the Premises or any part thereof or permit the use of the Premises by
any party other then Tenant or a Permitted Assignee (as defined below) without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed. In no event shall Tenant have the right nor
shall it be permitted to assign this Lease to another party (except a Permitted
Assignee) for profit; it being understood by the parties hereto that if the
Lease is assigned to others (other then a Permitted Assignee), then any increase
in rent over the rent being paid by Tenant under this Lease or any extension or
renewal hereof shall be payable to Landlord. Consent to one or more assignments
or subleases shall not destroy or waive this provision. Subtenants and assignees
(including Permitted Assignees) shall become directly liable to Landlord for all
obligations of Tenant hereunder to the extent applicable to such subtenants or
assignees, as the case may be, without relieving Tenant's liability under this
Lease which shall continue notwithstanding such assignment or subletting. Tenant
shall promptly reimburse Landlord for Landlord's reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees, in reviewing,
approving or documenting any proposed assignment or subletting provided, that
Tenant shall have no obligation to reimburse Landlord on account of the initial
subletting of approximately 84,000 square feet of space. Any attempted
assignment of subletting made in violation of this Section 19 shall be void as
in no force or effect and shall constitute as event of default under this Lease.
Notwithstanding the foregoing, in the event that Tenant wishes to assign this
Lease or sublet the whole of the Premises (except to a Permitted Assignee), in
lieu of Landlord's providing its consent, Landlord may elect to terminate this
Lease by written notice to Tenant. For purposes of this Lease, the term
"Permitted Assignee" shall mean any one or more of the following: (a) a
successor corporation or other entity to Tenant resulting from merger,
consolidation or corporate reorganization; (b) a corporation or other entity
which controls, is controlled by or is under common control with Tenant, and (c)
a person, or entity which requires all or substantially all of Tenant's assets.
Tenant shall provide Landlord with written notice of any assignment to a
Permitted Assignee within thirty (30) days after such assignment with said
notice containing evidence demonstrating that the assignment was to a Permitted
Assignee.
20. TENANT'S DEFAULT; LANDLORD'S REMEDIES
A. In the event Tenant shall fail to pay when due, any installment
of rent or other charges or monetary obligations to be paid by Tenant hereunder
(all of which obligations of Tenant shall bear interest at the Default Rate from
the date due until paid in full) and such failure is not cured within five (5)
days after written notice thereof from Landlord; or if Tenant shall default in
performing any of the covenants, terms or provisions of this Lease (other than
the payment, when due, of any of Tenant's monetary obligations hereunder) or any
of the rules and regulations now or hereafter reasonably established and
uniformly enforced by Landlord to govern the operation of the project and fails
to cure such default within thirty (30) days after written notice thereof from
Landlord (or such additional time as may be necessary to cure such default
provided tenant commences the cure within said thirty (30) day period and
diligently completes said cure); or if there shall occur any event described as
an event of default by Tenant under this Lease; or if Tenant shall abandon or
vacate the Premises; or if Tenant or any guarantor of Tenant's obligations shall
file a petition or be adjudged bankrupt or insolvent under any applicable
federal or state bankruptcy or insolvency law or admit that it cannot meet its
financial obligations as they become due; or a receiver or trustee shall be
appointed for all or substantially all of the assets of Tenant or any guarantor
of Tenant's obligations; or Tenant shall make a transfer to defraud creditors or
shall make an assignment for the benefit of creditors; or Tenant shall do or
permit to be done any act which results in a lien being filed against the
Premises or Building, which lien is not removed or bonded over in accordance
with Georgia law within twenty (20) days after written notice thereof by
Landlord to Tenant or such shorter period as required by the holder of any
Security Deed; then, and in any of said events, Landlord, at its option may
pursue any one or more of the remedies set forth in Section 20.B. without any
notice or demand whatsoever. Landlord shall only be obligated to give written
notices of monetary defaults and opportunity to cure to Tenant two (2) times in
any period of twelve (12) consecutive months in the event of the reoccurrence of
any default.
B. Upon the occurrence of an event of default as described in
Section 20.A., Landlord shall have the option to do and perform any one or more
of the following in addition to, and not in limitation of, any other remedy or
right permitted it by law or in equity or by this Lease:
(1) Commence dispossessory proceedings with or without the
termination of this Lease. In the absence of Landlord's electing to terminate
the Lease, Tenant shall remain liable for the payment of all rents accruing
after any writ of possession as to the Premises is issued to Landlord.
(2) Commence proceedings against Tenant for all amounts owed
by Tenant to Landlord, whether as base monthly rental, additional rent, damages
or otherwise.
(3) Terminate the Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. Tenant agrees to pay on demand
the amount of all loss and damage which Landlord may suffer by reason of the
termination of the term under this Section 20. or otherwise which loss and
damage shall include, without limitation, an amount which, at the date of the
termination, represents the present value, as computed using an eight percent
(8%) per annum discount rate, of the excess, if any, of (A) the base monthly
rental, additional rental and all other amounts which would have otherwise
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 6
been payable hereunder during the remainder of the Lease term over (B) the
aggregate reasonable net rental value of the Premises for the same period, after
deducting all expenses expected to be incurred in re-letting the Premises.
(4) Upon any termination of Tenant's right to possession only,
without termination of the Lease, Landlord may, at Landlord's option, enter into
the Premises, remove Tenant's signs and other evidences of tenancy, and take and
hold possession thereof as provided below, without such entry and possession
terminating the Lease or releasing Tenant, in whole or in part, from any
obligation, including Tenant's obligation to pay rent, including any amounts
treated as additional rent, hereunder for the full term of the Lease. In any
such case, Landlord may relet the Premises on behalf of Tenant for such term or
terms (which may be greater or less than the period which would otherwise have
constituted the balance of the term of the Lease) and on such terms and
conditions (which may include concessions of free rent and alteration, repair
and improvement of the Premises) as Landlord, in its sole discretion, may
determine and receive directly the rent by reason of the reletting. Tenant
agrees to pay Landlord on demand any deficiency that may arise by reason of any
reletting of the Premises. Tenant further agrees to reimburse Landlord upon
demand for any expenditures made by it for remodeling or repairing in order to
relet the Premises and for all other expenses incurred in connection with such
reletting (including without limitation attorney's fees and brokerage
commissions). Landlord shall have no obligation to relet the Premises or any
part thereof and shall in no event be liable for failure to relet the Premises
or any part thereof, or, in the event of any such reletting, for refusal or
failure to collect any rent due upon such reletting. No such refusal or failure
shall operate to relieve Tenant of any liability under this Lease. Tenant shall
instead remain liable for all rent and for all such expenses.
(5) Change the locks or otherwise enter upon and take
possession of the Premises without the requirement of resorting to the
dispossessory procedures set forth in O.C.G.A. 44-7-50, and without being liable
for prosecution of any claim for damages or for trespass or other tort.
(6) Do or cause to be done whatever Tenant is obligated to do
under the terms of this Lease, in which case Tenant agrees to reimburse Landlord
on demand for any and all reasonable costs or expenses which Landlord may
thereby incur. Tenant agrees that Landlord shall not be liable for any damages
resulting to Tenant from effecting compliance with Tenant's obligations under
this Section 20., whether caused by the negligence of Landlord or otherwise.
(7) Enforce the performance of Tenant's obligations hereunder
by injunction or other equitable relief (which remedy may be exercised upon any
breach or default or any threatened breach or default of Tenant's obligations
hereunder).
21. REMOVAL OF FIXTURES - Tenant may (if not in default hereunder), prior
to the expiration of this Lease or any extension thereof, remove all fixtures
and equipment which Tenant has placed in the Premises; provided, however, that
Tenant shall not remove: (a) air conditioning, air ventilating and heating
fixtures; (b) lighting fixtures; (c) dock levelers; (d) carpeting, and (e) all
tenant improvements (except for cooler and freezer improvements) constructed in
the Premises prior to Tenant's initial use and occupancy of the Premises. Tenant
shall be required to remove all freezer and cooler equipment which Tenant has
placed in the Premises prior to the expiration of this Lease or any extension
thereof. Upon removal of said fixtures and equipment, which Tenant is allowed or
required to remove as set forth in the preceding sentences, Tenant shall repair
all damage to the Premises caused by such removal. Notwithstanding anything to
the contrary contained in this Lease, Tenant shall have the right to remove all
freezer and cooler improvements installed by Tenant; provided, however, that in
no event shall Tenant be responsible for the removal of any piping, plumbing or
other property installed by Tenant below the floor provided the floors meet or
exceed the original specifications of the floors at the time the Premises are
delivered to Tenant.
22. RIGHT OF LANDLORD TO ENTER PREMISES - Without any abatement of Rent,
Landlord and its agents, employees and independent contractors shall have the
right to enter the Premises at such times as Landlord deems reasonably necessary
or desirable for any one (1) or more of the following purposes: (i) to inspect
and examine same, (ii) to make such repairs, additions, alterations, and
improvements as Landlord desires to make to the Building and/or the common areas
or common facilities thereof, (iii) to exhibit said Premises to prospective
purchasers or lenders, and (iv) to exhibit said Premises to prospective tenants
during the last twelve (12) months of the lease term or at any time that Tenant
is in default. Except in the event of an emergency, Landlord agrees to provide
to Tenant reasonable prior oral notification of any such entry, and to use
reasonable efforts to minimize any interference with Tenant's normal business
operations. In the event of emergency or in the event of default of Tenant
hereunder, or if otherwise necessary to prevent injury to person or damage to
property, such entry to the Premises may be made by force without any liability
whatsoever on the part of Landlord for damage resulting from such forcible
entry.
23. EXTERIOR SIGNS - Tenant shall place no signs upon the outside walls or
roof of the Premises except with the written consent of the Landlord. Any and
all signs placed on the Premises by Tenant shall be maintained in compliance
with rules and regulations governing such signs and the Tenant shall be
responsible to Landlord for any damage caused by installation, use, or
maintenance of said signs, and Tenant agrees upon removal of said signs to
repair all damage incident to such removal.
24. CARDING FOR RENT OR SALE - Landlord may card the Premises "For Sale
and "For Rent" during the last twelve (12) months of the Lease term or at any
time that Tenant is in default.
25. EFFECT OF TERMINATION OF LEASE - All obligations of Tenant hereunder
not fully performed as of the expiration or termination of the term of this
Lease shall survive the expiration or earlier termination of the term hereof,
including, without limitation, all payment obligations with respect to rent,
taxes and insurance and all obligations concerning indemnification and the
condition of the Premises.
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 7
26. SUBORDINATION AND ATTORNMENT; ESTOPPEL CERTIFICATES; SUBORDINATION OF
LANDLORD'S LIEN
A. This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to any mortgage, deed to secure debt, deed of trust,
ground lease or other instrument in the nature thereof (herein called "Security
Deed") which may now or hereafter affect Landlord's fee title to the Premises
and/or Building; provided, however, that if the holder of any Security Deed
elects to have this Lease prior to the lien of such holder's Security Deed, and
gives written notice thereof to Tenant, this Lease shall be deemed prior to such
Security Deed. Tenant shall at any time hereafter on demand execute any
instruments, releases or other documents, including the Subordination,
Non-Disturbance and Attornment Agreement substantially in the form attached
hereto as EXHIBIT "B" which may be required by the holder of a Security Deed for
the purpose of subjecting and subordinating this Lease to the lien of any such
Security Deed. If the holder of any such Security Deed shall hereafter succeed
to the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease, Tenant shall, at the request of
such holder, attorn to and recognize such successor as Tenant's landlord under
this Lease. Tenant shall promptly execute and deliver any instrument that may be
necessary to evidence such attornment. Upon Tenant's written request, Landlord
will ask the holder of any Security Deed affecting the Premises to execute a
non-disturbance agreement in favor of Tenant; subject, however, to the
conditions reasonably requested by the holder of such Security Deed as a
prerequisite to the execution of such agreement. Notwithstanding the foregoing,
Tenant's use of the Premises in accordance with the terms hereof shall not be
disturbed by any holder of a Security Deed provided Tenant is in compliance with
all of its obligations under this Lease.
B. Tenant shall upon request from Landlord at any time and from time
to time execute, acknowledge and deliver to Landlord a written statement
certifying as follows: (i) that this Lease is unmodified and in full force and
effect (or if there has been modification thereof, that the same is in full
force and effect as modified and stating the nature thereof); (ii) that to the
best of its knowledge there are no uncured defaults on the part of Landlord (or
if any such default exists, the specific nature and extent thereof); (iii) the
date to which any rent and other charges have been paid in advance, if any; and
(iv) such other matters as Landlord may reasonably request.
C. If Landlord notifies Tenant of the existence of any Security Deed
with respect to the Premises, Tenant agrees that its will not exercise any right
to terminate this Lease, to claim a partial or total eviction, or to reduce any
rental payments hereunder on account of any act or omission by Landlord or any
other occurrence, unless the situation remain unremedied after Tenant has
notified the holder of such Security Deed, in writing, of such act, omission or
occurrence, and given the holder of such Security Deed a reasonable opportunity
to remedy the situation.
D. Landlord shall upon request from Tenant at any time and from time
to time execute, acknowledge and deliver to Tenant a Subordination of Landlord's
Lien in the form attached as Exhibit "F".
27. NO ESTATE IN LAND - This contract shall create the relationship of
Landlord and Tenant between the parties hereto; no estate shall pass out of
Landlord. Tenant has only a usufruct, not subject to levy and sale, and not
assignable by Tenant except by Landlord's consent.
28. CONSTRUCTION OF THIS AGREEMENT - No failure of Landlord to exercise
any power given Landlord hereunder, or to insist upon strict compliance by
Tenant with its obligation hereunder, and no custom or practice of the parties
at variance with the terms hereof shall constitute a waiver of Landlord's right
to demand exact compliance with the terms hereof. Time is of the essence of this
Lease.
29. HOLDING OVER - If Tenant remains in possession of the Premises after
expiration of the term hereof, with Landlord's acquiescence and without any
express agreement of the parties, Tenant shall be a tenant at will at a rental
rate equal to one hundred fifty percent (150%) of the rental rate in effect at
end of Lease; and there shall be no renewal of this Lease by operation of law.
30. ATTORNEYS' FEES AND HOMESTEAD - If any rent owing under this Lease is
collected by or through an attorney at law, Tenant agrees to pay reasonable
attorneys' fees. Tenant waives all homestead rights and exemptions, which he may
have under any law as against any obligation owing under this Lease. Tenant
hereby assigns to Landlord its homestead and exemption.
31. ENVIRONMENTAL MATTERS - The term "Hazardous Substances" as used in
this Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or
any other substances, the removal of which is required or the use of which is
restricted, prohibited or penalized by any "Environmental Law," which term shall
mean any federal, state or local law or ordinance relating to pollution or
protection of the environment. Tenant hereby agrees that (i) no activity will be
conducted on the Premises that will produce any Hazardous Substance, except for
such activities that are part of the ordinary course of Tenant's business
activities that are consistent with Tenant's permitted uses under Section 9. of
this Lease (the "Permitted Activities") provided said Permitted Activities are
conducted in accordance with all Environment Laws and have been expressly
approved in advance in writing by Landlord; (ii) the Premises will not be used
in any manner for the storage of any Hazardous Substances except for the storage
of such materials that are used in the ordinary course of Tenant's business (the
"Permitted Materials") and expressly approved in advance in writing by Landlord,
provided such Permitted Materials are properly stored in a manner and location
meeting all Environmental Laws and in quantities that do not exceed the amounts
approved in writing by Landlord; (iii) no portion of the Premises will be used
as a landfill or a dump; (iv) Tenant will not install any underground tanks of
any type; (v) Tenant will not allow any surface or subsurface conditions to
exist or come into existence that constitute, or with the passage of time may
constitute, a public or private nuisance; (vi) Tenant will not permit any
Hazardous Substances to be brought onto the Premises, except for the Permitted
Materials described above, and if so brought or found located thereon, the same
shall be immediately removed, with proper disposal, and all required cleanup
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 8
procedures shall be diligently undertaken pursuant to all Environmental Laws.
If, at any time during or after the term of this Lease, the Premises is found to
be so contaminated or subject to said conditions, Tenant agrees to indemnify and
hold Landlord harmless from all claims, demands, actions, liabilities, costs,
expenses, damages and obligations of any nature arising from or as a result of
the use of the Premises by Tenant. Landlord agrees to indemnify and hold Tenant
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from any hazardous materials which
existed before, during or after Tenant's occupancy except for such items covered
by Tenant's indemnity in the preceding sentence. The foregoing indemnifications
shall survive the termination or expiration of this Lease. Landlord acknowledges
that Tenant's cleaning solvents, office products and similar items used during
the ordinary course of business constitute Permitted Materials which may be used
without prior notification to Landlord.
32. SERVICE OF NOTICE - Tenant hereby appoints as its agent to receive
service of all dispossessory or distraint proceedings and notices thereunder,
and all notices required under this Lease, the person in charge of the Premises
at the time, or occupying said Premises; and if no person is in charge of, or
occupying said Premises, then such service or notice may be made by attaching
the same on the main entrance to said Premises. A copy of all notices under this
Lease shall also be sent to Tenant's last known address, if different from said
Premises. In addition to the foregoing, all notices to Tenant shall also be sent
to:
Steve Townsend
United Natural Foods, Inc.
260 Lake Road
Dayville, CT 06241
33. EXCULPATION OF LANDLORD - Provided Landlord continues to maintain in
force and effect the insurance required to be maintained pursuant to the
provisions of this Lease, the obligations contained in this Lease to be
performed by Landlord shall be binding on Landlord and its successors and
assigns, only during their respective periods of ownership. Provided Landlord is
in compliance with Section 13(B)(1) of this Lease, Tenant further agrees that
Landlord's obligations and liability to Tenant with respect to this Lease shall
be limited solely to Landlord's equity interest in the Premises, and Tenant
shall look solely to such interest for the satisfaction of any claim, judgment
or decree requiring the payment of money by Landlord based on any default under
this Lease, and no other property or assets of Landlord, its affiliates,
successors, partners, shareholders, subsidiaries, or assigns, shall be subject
to levy, execution or other enforcement procedures for the satisfaction of any
such claim, judgment, injunction or decree.
34. DEFINITIONS - The term "Landlord" and "Tenant" includes male and
female, singular and plural, corporation, partnership or individual, as may fit
the particular parties. If this Lease shall be validly assigned or the Premises
validly sublet, the term "Tenant" shall include such assignee or sublessee, as
to the Premises covered by such assignment or sublease.
35. AGENCY DISCLOSURE - Tenant and Landlord each represents and warrants
to the other that no real estate broker, agent, commission salesman, or other
person other than NAI/BRANNEN GODDARD L.L.C., which has represented Tenant, in
the negotiations for and procurement of this Lease and of the Premises, and that
no commissions, fees or compensation of any kind are due and payable in
connection herewith to any real estate broker, agent, commission salesman or
other person (even including the broker or other person or firm excluded above
from the Tenant's warranty of no broker) except if and only as may be provided
in a separate written commission agreement signed by the party against whom the
commission or compensation is charged. Each party agrees to indemnify and hold
the other hereunder harmless from and against any claim for any such
commissions, fees or other form of compensation by any such third party claiming
through the indemnifying party, including, without limitation, any and all
claims, causes of action, damages, costs and expenses (including attorneys'
fees), associated therewith. Landlord is paying NAI/BRANNEN GODDARD L.L.C. a
commission pursuant to a separate agreement.
36. SEVERABILITY AND INTERPRETATION - If any clause or provision of this
Lease shall be deemed illegal, invalid or unenforceable under present or future
laws effective during the Lease term, then and in that event, the remainder of
this Lease shall not be affected by such illegality, invalidity or
unenforceability. Should any of the provisions of this Lease require judicial
interpretation, it is agreed that the court interpreting or construing the same
shall not apply a presumption that the terms of any such provision shall be more
strictly construed against one party by reason of the rule of construction that
a document is to be construed most strictly against the party who itself or
through its agent prepared the same, it being agreed that the agents of all
parties have participated in the preparation of this Lease. The captions used in
this Lease are for convenience only and shall be considered to be of no effect
in the construction of any provision of this Lease.
37. GEORGIA LAW - The laws of the State of Georgia shall govern the
interpretation, validity, performance and enforcement of this Lease.
38. EXECUTION AND PUBLIC RECORDS - This Lease may be executed in any
number of counterparts, each of which shall be deemed an original and any of
which shall be deemed to be complete in itself and may be introduced into
evidence or used for any purpose without the production of the other
counterparts. No modification or amendment of this Lease shall be binding upon
the parties unless such modification or amendment is in writing and signed by
Landlord and Tenant. Without the prior written consent of both parties, neither
this Lease nor any memorandum hereof shall be recorded or placed on public
record. Notwithstanding the foregoing, Landlord agrees to execute a memorandum
of Lease that Tenant may record in the Public Records of Fulton County Georgia.
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 9
39. SUBMISSION OF LEASE - The submission of this Lease for examination
does not constitute an offer to lease and this Lease shall be effective only
upon execution hereof by Landlord and Tenant and upon execution of any required
Lease guaranty attached hereto.
40. ENTIRE AGREEMENT - This Lease contains the entire agreement between
the parties hereto and no representation or warranty or agreement, oral or
otherwise, between the parties not embodied herein shall not be of any force or
effect. No modification, amendment or alterations of this Lease shall be
effective unless same shall be in writing and signed by Landlord and Tenant. If
any special stipulations are attached to this Lease, then insofar as such
stipulations conflict with any of the foregoing provisions, the stipulations
shall control.
41. SITE PLAN - One plan dated January 27, 1999, as revised through May
17, 2001 and showing a building containing 311,793 Square Feet is attached
hereto as EXHIBIT "C" and by this reference is made a part hereof.
Notwithstanding any other provision of this Special Stipulation or any plan
mentioned herein, in no event shall any plan incorporated herein be effective to
lease and rent more property than is described as the "premises" in Section 1 of
this Lease.
42. WAREHOUSE FLOOR PLAN - Two plan sheets identified as Sheets 1 of 2 and
2 of 2 each dated May 17, 2001, are attached hereto as EXHIBIT "D" and by this
reference is made a part hereof. Notwithstanding any other provision of this
Special Stipulation or any plan mentioned herein, in no event shall any plan
incorporated herein be effective to lease more property than is described as the
"premises" in Section 1 of this Lease.
43. ENTRANCE AND DRIVES - Any common entrance drives and common
maneuvering areas are described in Exhibit "A" attached hereto.
44. TENANT IMPROVEMENT ALLOWANCE -Landlord agrees to provide Tenant at
improvement allowance of ONE MILLION SIXTY AND 00/100 ($1,060,000.00) DOLLARS
for use for the construction of offices and other improvements to the premises.
All plans and specifications for such improvements must be submitted to Landlord
for approval prior to commencement of construction, which approval will not be
unreasonably withheld or delayed. In any event, Landlord will approve or
disapprove of said plans and specifications within five (5) business days after
receipt by Landlord. Landlord acknowledges that Tenant intends to build freezer
and cooler areas in the Premises, which areas are subject to Landlord's approval
as set forth herein. At Tenant's election, Landlord shall (i) pay to Tenant the
allowance of $1,060,000.00 after completion of the improvements and receipt of a
final lien waiver from the general contractor and all subcontractors or (ii) pay
the general contractor directly in accordance with requests for payment made
jointly by Tenant and the general contractor. Under subparagraph (ii), final
payment to the general contractor will be conditioned upon receipt of a final
lien waiver from the general contractor and all subcontractors.
45. PURCHASE OPTION - Tenant shall have the right to purchase the building
and land for $9,331,964 plus an additional amount of $58,325/month (prorated at
$1,917.54/day) from the Commencement Date to the purchase closing date, by
giving written notice to Landlord on or prior to September 1, 2001 and closing
on the sale on or before January 15, 2002 , with the closing date to be
determined by Landlord by giving Tenant 30 days advance written notice of the
date of closing. The purchase price shall be paid all in cash and the purchase
shall be closed by the execution of the documents in the form as attached hereto
as Exhibit "E" and by this reference made a part hereof. The sale of the
Premises is subject to the following additional terms and conditions:
A. Landlord represents and warrants, to the best of its knowledge,
that as of the date hereof and the date of closing of the sale of the Premises:
(a) this Lease and its execution, delivery and performance by Landlord have been
duly authorized by all necessary action on behalf of Landlord; and the sale of
the Premises, and the consummation of the transactions contemplated hereby, will
not result in any violation or breach of any indenture or agreement to which
Landlord is a party or by which Landlord or the Premises is affected or bound;
(b) the use of the Premises for the purposes permitted under this Lease are
permitted under applicable zoning and similar laws, rules and ordinances; (c)
neither Landlord nor any other party is in the default in the payment and
performance of any of its obligations under the protective covenants set forth
in Exhibit A or any other restrictions affecting the Premises; (d) Landlord has
received no notice of any condemnation proceeding or declaration of taking or
other similar instrument filed against the Premises, and there is no litigation
or proceeding pending or threatened which affects Landlord or the Premises; (e)
Landlord has not received any notice of any requirement of any insurance carrier
requiring any modifications or work to be performed on the Premises as a
condition to the maintenance or renewal of any policies of insurance in respect
of the Premises; and (f) no person, firm or entity, has any rights in, or rights
to acquire, the Premises or any part thereof, except as set forth in the Title
Insurance Commitment described below.
B. Notwithstanding the exercise by Tenant of its option to purchase
the Premises, Tenant's obligations to purchase shall be subject to the issuance
by a nationally recognized title insurance company of a title insurance policy
in the amount of the purchase price insuring title to the Premises free and
clear of all liens, claims and encumbrances except those (other than mortgages
and similar liens) set forth in Commitment Number 2-11924(B)(R2) issued by
Chicago Title Insurance Company to First Union National Bank of Georgia, a copy
of which has been delivered to Tenant.
C. Landlord agrees to execute and deliver such affidavits and other
documents as Tenant's lender or title insurance company may reasonably request
in connection with the sale of the Premises and the issuance of such title
insurance policy. The provisions of this Section 45 and of Section 10 shall
survive until July 31, 2002.
D. Landlord shall be responsible for the payment of any required
state and local transfer taxes and the delivery of applicable transfer tax
declarations.
UNITED NATURAL FOODS, INC.
Commercial Lease Agreement
100 Lakeview Court
Page 10
E. Concurrently with the closing, Landlord shall deliver to Tenant
copies of all plans, specifications, permits, licenses and similar documents
relating to the Premises.
46. FIRST RENEWAL OPTION - Provided this Lease is in full force and effect
at the expiration of the original one hundred eighty-four (184) month term of
this Lease, and provided that an uncured default does not exist, the term shall
be extended at the option of Tenant for an additional period of five (5) years
then next ensuing, on the same terms, covenants and conditions as herein set
forth, except that the Renewal Option provided for by this Section shall not be
part of the Lease during the extended period and except that the annual rental
shall be the then "market rent" at the time the notice required to be given by
this Paragraph is given by Tenant to Landlord for comparable space in the area
by taking into account, among other things, recent comparable leases made by
Landlord, the location of the premises, quality of construction, stacking
height, quality and type of paving, sprinkler system, bay sizes, landscaping,
age of improvements, broker commissions, Tenant improvements and modifications
and comparable obligations of Landlord provided, however, that the value of
freezers, coolers, grain room and racking equipment or systems shall be excluded
from the determination of "market rent" by Landlord and such areas shall be
valued as dry storage area only. Tenant may request in writing that Landlord
provide Tenant with the then "market rent" (as defined above) for the premises
fifteen (15) months prior to the expiration of the extended term of this Lease.
Landlord shall provide Tenant with such "market rent" in writing within fifteen
(15) days of receipt of Tenant's written request. If Tenant does not agree with
Landlord's market rent, and Landlord and Tenant cannot agree on market rent
within thirty (30) days after Landlord provides Tenant with market rent, then
Tenant shall have the option of having market rent determined by an arbitrator
(the "Arbitrator") by sending written notice to Landlord of its desire to do so
within five (5) days after the end of said thirty (30) day period. The
Arbitrator shall be selected by The Atlanta Commercial Board of Realtors and
shall be someone with at least ten (10) years experience in industrial space in
Metropolitan Atlanta. Landlord and Tenant both shall submit what they deem to be
market rent to the Arbitrator within ten (10) days after such thirty (30) day
period. The Arbitrator shall have thirty (30) days to make its decision. The
Arbitrator shall be instructed that it must select either Landlord's market rent
or Tenant's market rent. (The Arbitrator shall not select any other market rent.
It must either be Landlord's or Tenant's market rent.) The Arbitrator's decision
shall be final and shall not be appealable. The fees of the Arbitrator shall be
shared equally by Landlord and Tenant. By deciding to use the Arbitrator to
determine market rent in accordance with the above, Tenant shall be deemed to
have exercised its renewal option. If the Arbitrator is not used to determine
market rent, Tenant shall give Landlord twelve (12) months' written notice prior
to the expiration of the extended term of Tenant's desire to so extend such
term; provided further that the option to renew provided for herein shall be
terminated if and when this Lease is terminated, or if and when an uncured
default exists hereunder at any time.
47. SECOND RENEWAL OPTION - Provided this Lease is in full force and
effect at the expiration of the first extended term of this Lease, and provided
that an uncured default does not exist, the first extended term shall be
extended at the option of Tenant for an additional period of five (5) years then
next ensuing, on the same terms, covenants and conditions as herein set forth,
except that the Second Renewal Option provided for by this Paragraph shall not
be part of the Lease during the second extended period and except that the
annual rental shall be the then "market rent" at the time the notice required to
be given by this Section is given by Tenant to Landlord for comparable space in
the area by taking into account, among other things, recent comparable leases
made by Landlord, the location of the premises, quality of construction,
stacking height, quality and type of paving, sprinkler system, bay sizes,
landscaping, age of improvements, broker commissions, Tenant improvements and
modifications and comparable obligations of Landlord. The determination of
"market rate" and the timing of exercising the option shall be the same as set
forth above except that all references to the "extended term" shall refer to the
"first extended five (5) year term" for the purpose of the timing of giving
notice.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals
the day and year first above written.
Signed, sealed and delivered as of the ___ M.D. HODGES ENTERPRISES, INC.
day of __________, 2001, as to Landlord, in
the presence of:
By: --------------------------
------------------------------------------- Name: --------------------------
Unofficial Witness Title: --------------------------
------------------------------------------- [CORPORATE SEAL]
Notary Public
Signed, sealed and delivered as of the ___ UNITED NATURAL FOODS, INC.
day of __________, 2001, as to Landlord, in
the presence of:
By: --------------------------
------------------------------------------- Name: --------------------------
Unofficial Witness Title: --------------------------
------------------------------------------- [CORPORATE SEAL]
Notary Public
EX-10.21
4
ex10-22.txt
LEASE AGREEMENT
Exhibit 10.22
NNN LEASE (MULTI-TENANT)
BETWEEN
METROPOLITAN LIFE INSURANCE COMPANY (LANDLORD)
AND
UNITED NATURAL FOODS, INC. (TENANT)
13204 Philadelphia Street
Fontana, California
TABLE OF CONTENTS
PAGE
ARTICLE ONE - BASIC LEASE PROVISIONS...........................................1
1.01 BASIC LEASE PROVISIONS...........................................1
1.02 ENUMERATION OF EXHIBITS & RIDER(S)...............................2
1.03 DEFINITIONS......................................................2
ARTICLE TWO - PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING..........7
2.01 LEASE OF PREMISES................................................7
2.02 TERM.............................................................7
2.03 FAILURE TO GIVE POSSESSION.......................................7
2.04 AREA OF PREMISES.................................................8
2.05 CONDITION OF PREMISES............................................8
2.06 COMMON AREAS.....................................................8
2.07 TENANT'S PARKING AREA & TRUCK COURT..............................8
2.08 DISPUTE RE SUBSTANTIAL COMPLETION OF OR DEFECTS IN PREMISES......9
ARTICLE THREE - RENT..........................................................10
ARTICLE FOUR - RENT ADJUSTMENTS AND PAYMENTS..................................10
4.01 RENT ADJUSTMENTS................................................10
4.02 STATEMENT OF LANDLORD...........................................10
4.03 BOOKS AND RECORDS...............................................11
4.04 TENANT OR LEASE SPECIFIC TAXES..................................11
ARTICLE FIVE - SECURITY DEPOSIT...............................................11
ARTICLE SIX -UTILITIES & SERVICES.............................................11
6.01 LANDLORD'S OBLIGATIONS GENERALLY................................11
6.02 TENANT'S OBLIGATIONS & PAYMENT..................................12
6.03 TELEPHONE SERVICES..............................................12
6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE...................13
6.05 INTENTIONALLY OMITTED...........................................13
6.06 SIGNAGE.........................................................13
6.07 STANDBY GENERATOR...............................................14
6.08 PROPANE TANK....................................................15
ARTICLE SEVEN - POSSESSION, USE AND CONDITION OF PREMISES.....................15
7.01 POSSESSION AND USE OF PREMISES..................................15
7.02 HAZARDOUS MATERIAL..............................................16
7.03 LANDLORD ACCESS TO PREMISES; APPROVALS..........................19
7.04 QUIET ENJOYMENT.................................................20
ARTICLE EIGHT - MAINTENANCE...................................................20
8.01 LANDLORD'S MAINTENANCE..........................................20
8.02 TENANT'S MAINTENANCE............................................21
8.03 TENANT'S RIGHT TO MAKE CERTAIN REPAIRS..........................21
ARTICLE NINE - ALTERATIONS AND IMPROVEMENTS...................................22
9.01 TENANT ALTERATIONS..............................................22
9.02 LIENS...........................................................23
ARTICLE TEN - ASSIGNMENT AND SUBLETTING.......................................23
10.01 ASSIGNMENT AND SUBLETTING.......................................23
10.02 RECAPTURE.......................................................25
10.03 EXCESS RENT.....................................................25
10.04 TENANT LIABILITY................................................25
ARTICLE ELEVEN - DEFAULT AND REMEDIES.........................................25
11.01 EVENTS OF DEFAULT...............................................25
11.02 LANDLORD'S REMEDIES.............................................25
11.03 ATTORNEY'S FEES.................................................27
11.04 BANKRUPTCY......................................................27
11.05 LANDLORD'S DEFAULT..............................................28
ARTICLE TWELVE - SURRENDER OF PREMISES........................................28
12.01 IN GENERAL......................................................28
12.02 LANDLORD'S RIGHTS...............................................29
i
ARTICLE THIRTEEN - HOLDING OVER...............................................29
ARTICLE FOURTEEN - DAMAGE BY FIRE OR OTHER CASUALTY...........................29
14.01 SUBSTANTIAL UNTENANTABILITY.....................................29
14.02 INSUBSTANTIAL UNTENANTABILITY...................................30
14.03 RENT ABATEMENT..................................................30
14.04 WAIVER OF STATUTORY REMEDIES....................................30
ARTICLE FIFTEEN - EMINENT DOMAIN..............................................30
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART.............................30
15.02 TAKING OF PART..................................................31
15.03 COMPENSATION....................................................31
ARTICLE SIXTEEN - INSURANCE...................................................31
16.01 TENANT'S INSURANCE..............................................31
16.02 FORM OF POLICIES................................................31
16.03 LANDLORD'S INSURANCE............................................31
16.04 WAIVER OF SUBROGATION...........................................32
16.05 NOTICE OF CASUALTY..............................................32
ARTICLE SEVENTEEN - WAIVER OF CLAIMS AND INDEMNITY............................32
17.01 WAIVER OF CLAIMS................................................32
17.02 INDEMNITY BY TENANT.............................................33
17.03 WAIVER OF CONSEQUENTIAL DAMAGES.................................35
ARTICLE EIGHTEEN - RULES AND REGULATIONS......................................33
18.01 RULES...........................................................33
18.02 ENFORCEMENT.....................................................33
ARTICLE NINETEEN - LANDLORD'S RESERVED RIGHTS.................................33
ARTICLE TWENTY - ESTOPPEL CERTIFICATE.........................................34
20.01 IN GENERAL......................................................34
20.02 ENFORCEMENT.....................................................34
ARTICLE TWENTY-ONE - (INTENTIONALLY OMITTED)..................................34
ARTICLE TWENTY-TWO - REAL ESTATE BROKERS......................................34
ARTICLE TWENTY-THREE - MORTGAGEE PROTECTION...................................34
23.01 SUBORDINATION AND ATTORNMENT....................................34
23.02 MORTGAGEE PROTECTION............................................35
ARTICLE TWENTY-FOUR - NOTICES.................................................35
ARTICLE TWENTY-FIVE - INTENTIONALLY OMITTED...................................36
ARTICLE TWENTY-SIX - MISCELLANEOUS............................................36
26.01 LATE CHARGES....................................................36
26.02 NO JURY TRIAL; VENUE; JURISDICTION..............................36
26.03 LANDLORD CONSENT TO ENCUMBRANCE OF TENANT'S PERSONAL
PROPERTY........................................................36
26.04 INTENTIONALLY OMITTED...........................................37
26.05 TENANT AUTHORITY................................................37
26.06 ENTIRE AGREEMENT................................................37
26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE..................37
26.08 EXCULPATION.....................................................37
26.09 ACCORD AND SATISFACTION.........................................37
26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING......................37
26.11 BINDING EFFECT..................................................37
26.12 CAPTIONS........................................................37
26.13 TIME; APPLICABLE LAW; CONSTRUCTION..............................37
26.14 ABANDONMENT.....................................................38
26.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES.....................38
26.16 SECURITY SYSTEM.................................................38
26.17 NO LIGHT, AIR OR VIEW EASEMENTS.................................38
26.18 RECORDATION.....................................................38
26.19 SURVIVAL........................................................38
26.20 RIDERS..........................................................38
ii
NNN LEASE (MULTI-TENANT)
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS
In the event of any conflict between these Basic Lease Provisions and any other
Lease provision, such other Lease provision shall control.
(1) BUILDING AND ADDRESS:
The building located at the Project, which houses spaces with different
street addresses, including:
13204 Philadelphia Street
Fontana, CA 92337
(2) LANDLORD AND ADDRESS:
Metropolitan Life Insurance Company,
a New York corporation
Notices to Landlord shall be addressed:
Metropolitan Life Insurance Company
c/o Cushman & Wakefield
555 South Flower Street, Suite 4200
Los Angeles, CA 90071
Attention: Philadelphia Street Project Manager
with copies to the following:
Metropolitan Life Insurance Company
333 South Hope Street, Suite 2950
Los Angeles, CA 90071
Attention: EIM Manager
and
Metropolitan Life Insurance Company
400 South El Camino Real, 8th Floor
San Mateo, CA 94402
Attention: Associate General Counsel
Telephone number and person to contact in case of emergency (and as
provided pursuant to Section 8.03), except as otherwise designated from
time to time by Landlord or its Project Manager by written notice to
Tenant: Sharon Hansen of Cushman & Wakefield
Telephone number: 213-955-5100 &
Cell Phone Number: 213-361-1591
(3) TENANT AND ADDRESS:
(a) Name: United Natural Foods, Inc.
(b) State of formation & type of entity: a Delaware corporation
(c) Federal Tax Identification Number: 05-0376157
Tenant shall notify Landlord of any change in the foregoing.
Notices to Tenant shall be addressed:
United Natural Foods, Inc.
c/o Mountain People's Warehouse Inc.
12745 Earhart Avenue
Auburn, CA 95602
Attention: Ginny Feth-Michel
with copies to the following:
Joseph F. Whinery, Jr.
Cameron & Mittleman LLP
56 Exchange Terrace
Providence, Rhode Island 02903
(4) DATE OF LEASE: as of July 31, 2001
(5) LEASE TERM: 123 months
1
(6) PROJECTED COMMENCEMENT DATE: November 1, 2001
(7) PROJECTED EXPIRATION DATE: expiration of 123 months after the Commencement
Date
(8) MONTHLY BASE RENT (initial monthly installment due upon Tenant's execution
of this Lease):
Period from/to Monthly Monthly Rate/SF of Rentable Area
-------------- ------- --------------------------------
Months 01 - 02 $0.00 $0.00
Months 03 - 05 $30,355.13 $0.1525
Months 06 - 30 $60,710.25 $0.3050
Months 31 - 60 $65,288.40 $0.3280
Months 61 - 90 $70,165.13 $0.3525
Months 91 - 123 $75,439.95 $0.3790
(9) RENT ADJUSTMENT DEPOSIT (initial monthly rate, until further notice):
$9,000.00 (initial monthly installment due upon Tenant's execution of this
Lease)
(10) RENTABLE AREA OF THE PREMISES: 199,050 square feet
(11) RENTABLE AREA OF THE BUILDING: 380,650 square feet
(12) SECURITY DEPOSIT: zero
(13) SUITE NUMBER &/OR ADDRESS OF PREMISES: (to be designated hereafter)
(14) TENANT'S SHARE: 52.3%
(15) TENANT'S USE OF PREMISES: General office, warehouse, distribution and
associated administrative uses.
(16) PARKING SPACES: a total of 125 parking spaces in Tenant's Parking Area, as
provided in Section 2.07.
(17) BROKERS:
Landlord's Broker: CB Richard Ellis, Inc.
Tenant's Brokers: Travers McKinney Realty Corp., d/b/a McKinney
Travers.ONCOR International & Kidder, Matthews & Segner,
Inc.ONCOR International
1.02 ENUMERATION OF EXHIBITS & RIDER(S)
The Exhibits and Rider(s) set forth below and attached to this Lease are
incorporated in this Lease by this reference:
EXHIBIT A Plan of Premises
EXHIBIT B Workletter Agreement
EXHIBIT C Site Plan; Truck Court & Tenant's Parking Area
EXHIBIT D Permitted Hazardous Material
EXHIBIT E Hazardous Material Plans
EXHIBIT F Form of Nondisturbance Agreement
EXHIBIT G (Intentionally omitted)
EXHIBIT H Permitted Vehicle Repairs
EXHIBIT I Illustrative Calculation of Monthly Base Rent for New Space
RIDER 1 Commencement Date Agreement
RIDER 2 Additional Provisions
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ADJUSTMENT YEAR(S): Every calendar year and partial calendar year during the
Term of this Lease.
AFFILIATE: As defined in Section 10.01.
BUILDING: As specified in Section 1.01(1).
BUILDING SYSTEMS: The electrical, mechanical (including heating, ventilating,
and air conditioning), plumbing, life-safety (including fire sprinkler system,
and any fire alarm), communication, utility, gas (if any), security (if any) and
elevator (if any) systems of the Building (collectively, the "Building
Systems").
2
COMMENCEMENT DATE: The date specified in Section 1.01(6) as the Projected
Commencement Date, unless changed by operation of Article Two.
COMMON AREAS: All areas of the Project made available by Landlord from time to
time for the general common use or benefit of the tenants of the Building or
Project, and their employees and invitees, or the public, as such areas
currently exist and as they may be changed from time to time in accordance with
Section 2.06.
DECORATION: Tenant Alterations which do not require a building permit and which
do not affect the facade or roof of the Building, or involve any of the
structural elements of the Building, or involve any of the Building Systems.
DEFAULT RATE: Two (2) percentage points above the Reference Rate, but in no
event higher than the maximum rate permitted by Law.
ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or generation
of any Hazardous Material or pertaining to environmental conditions on, under or
about the Premises or any part of the Property, including the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.), and the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. Section 6901 et seq.).
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable control
of Landlord, including water shortages, energy shortages or governmental
preemption in connection with an act of God, a national emergency, or by reason
of Law, or by reason of the conditions of supply and demand which have been or
are affected by act of God, war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law; or which are classified as hazardous or
toxic or medical waste or biohazardous waste under any Environmental Law; and
explosives, firearms and ammunition, flammable material, radioactive material,
asbestos, polychlorinated biphenyls and petroleum and its byproducts.
INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the
Property, the property manager and the leasing representatives for the Property
and their respective directors, officers, agents and employees.
LAND: The parcel(s) of real estate on which the Building is located.
LANDLORD WORK: The construction or installation of improvements to be furnished
by Landlord, if any, specifically described in the Workletter or other exhibits
attached hereto.
LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements,
orders, rulings or decisions now or hereafter adopted or made by any
governmental body, agency, department or judicial authority having jurisdiction
over the Property, the Premises or Tenant's activities at the Premises and any
covenants, conditions or restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR: The twelve month period beginning on the first day of the first
month following the Commencement Date (unless the Commencement Date is the first
day of a calendar month in which case beginning on the Commencement Date), and
each subsequent twelve month, or shorter, period until the Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument
encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and other holidays recognized by Landlord and
any unions servicing the Building in accordance with their contracts.
OPERATING EXPENSES: All costs, expenses and disbursements of every kind and
nature which Landlord shall pay or become obligated to pay in connection with
the ownership, management, operation, maintenance, repair and replacement of the
Property as follows, with such adjustments and exclusions as follow:
(a) Subject to the Exclusions specifically set forth in Subsection
(c) below, Operating Expenses shall include the following, by way of
illustration only and not limitation: (1) all costs, expenses and disbursements,
including all charges of independent contractors, for all operation, services,
maintenance, repair and replacements (and if any replacements are classified as
capital costs, they shall be amortized as described in item (a)(6) below)
provided by Landlord pursuant to Section 6.01, Section 8.01 or any other
provision of the Lease, including all inspection contracts for the roof and roof
membrane, preventive
3
maintenance contracts, maintenance contracts or service contracts with respect
to any of the foregoing; (2) all insurance premiums and other costs (including
deductibles), including the cost of rental insurance; (3) all license, permit
and inspection fees; (4) all costs of water, sewer, or other utility or service
which Landlord provides (and which Tenant does not itself provide or directly
contract for and which is not separately metered or sub-metered to Tenant); (5)
all costs of changing power, telephone or utility providers for the Building or
Project; (6) all costs of capital improvements made to or capital assets
acquired after the Commencement Date for the Building or Project that are
intended to comply with Laws, reduce or control Operating Expenses or are
reasonably necessary for the health or safety of the occupants of the Project,
all of which capital costs, and all capital costs recoverable pursuant to item
(a)(1) above, shall be amortized over the period determined in accordance with
generally accepted accounting principles ("GAAP"), together with interest on the
unamortized balance at the Reference Rate; (7) all dues, assessments and other
expenses pursuant to any covenants, conditions and restrictions, or any
reciprocal easements, or any owner's association now or hereafter affecting the
Project; (8) all costs and expenses related to Landlord's retention of
consultants in connection with the routine review, inspection, testing,
monitoring, analysis and control of Hazardous Material, retention of consultants
in connection with the clean-up of Hazardous Material, and all costs and
expenses related to the implementation of recommendations made by such
consultants concerning the use, generation, storage, manufacture, production,
storage, release, discharge, disposal or clean-up of Hazardous Material on,
under or about the Premises or the Project, except for any such costs to the
extent due to Hazardous Material whose presence on, under or about the Project
is caused by acts of Landlord; (9) all costs and fees incurred by Landlord in
connection with the management and operation of this Lease and the Property,
including the cost of those services which are customarily performed by a
property management services company, but not in excess of the amount equal to
two percent (2%) of the effective gross income of the Project (i.e., the total
of the rental income, including base rent, Operating Expenses of the Project,
and other expenses billed to tenants by Landlord, including, for example,
sub-metered electrical charges); (10) all wages, salaries, payroll taxes, fringe
benefits and other labor costs, including the cost of workers' compensation and
disability insurance in connection with any of the foregoing; (11) all supplies,
materials, equipment and tools in connection with any of the foregoing; and (12)
all fees or other charges incurred in connection with voluntary or involuntary
membership in any energy conservation, air quality, environmental, traffic
management or similar organization.
(b) Operating Expenses shall be adjusted as described in this Subsection.
In the event the Building is not 100% occupied during all of any Adjustment
Year, or any other tenant in the Building provides itself (or contracts directly
for) a service of a type which Landlord would supply under the Lease and which
costs would be included in Operating Expenses if paid or incurred by Landlord,
or any such tenant is separately metered or sub-metered for such service, then
Operating Expenses for such Adjustment Year shall be increased, employing sound
management practices, to equal the amount of Operating Expenses that would have
been paid or incurred by Landlord had the Building been 100% occupied during the
entire Adjustment Year and had such service been provided without separate
metering or sub-metering, and the amount so determined shall be deemed to have
been the amount of Operating Expenses for such Adjustment Year; provided,
however, that such adjustment shall fairly allocate variable Operating Expenses
so that Landlord does not, as a result of such adjustment, receive
reimbursements from tenants in excess of its expenditures.
(c) Operating Expenses shall not include the following ("Exclusions"): (1)
costs of alterations solely attributable to space to be occupied by Tenant or
other new or existing tenants of the Project; (2) depreciation charges; (3)
interest and principal payments on loans (except for interest on the unamortized
balance of capital expenditures or improvements which Landlord is allowed to
include in Operating Expenses as provided above); (4) ground rental payments;
(5) real estate brokerage and leasing commissions; (6) advertising and marketing
expenses; (7) repairs to the extent reimbursed by net proceeds of insurance or
net payments by third parties; (8) expenses incurred in negotiating leases of
other tenants in the Project or enforcing lease obligations of other tenants in
the Project; (9) replacement of or structural repairs to: (a) the roof, (b) the
exterior walls, (c) foundation or other structural elements (if any) of the
Building; (10) cost of any service which is provided to other tenants without
charge and which is either not offered to Tenant or is paid for directly by
Tenant; (11) for the purpose of adjusting for certain utilities separately
sub-metered to Tenant (including, for example, electricity) or services directly
contracted for by Tenant (including, for example, janitorial service) and paid
for by Tenant other than as Tenant's Share of Operating Expenses, Operating
Expenses shall exclude such expenses with respect to the Premises and any other
occupiable space in the Building; (12) costs of work, if any, required for the
Base Building (as defined in the Workletter) to comply with the ADA (as defined
in Article Seven) as applicable as of the execution date of the Lease or
required for the Landlord Work to comply with the ADA as applicable as of
Substantial Completion of the Landlord Work or required for the Common Areas to
comply with the ADA as applicable as of the execution date of the Lease; and
(13) fines or penalties imposed upon Landlord and/or the Building due to any
violation of any Law.
PREMISES: The space located in the Building at the Suite Number listed in
Section 1.01(13) and depicted on Exhibit A attached hereto.
PROJECT or PROPERTY: As of the date hereof, the Project is known as Philadelphia
Street and consists of the Building (whose general location is shown on the Site
Plan attached as Exhibit C), together with the Land (including without
limitation, vehicular and parking areas, landscaping and improvements on the
Land), and any associated interests in real property, and the personal property,
fixtures, machinery, equipment, systems and apparatus located in or used in
conjunction with any of the foregoing. Landlord reserves the right from time to
time to add or remove buildings, improvements and parcels of real estate to or
from the Property, or to add or remove a building (or expand the Building) to or
from the Property. Provided however, such changes shall not materially and
adversely interfere with Tenant's access to the Premises and the Truck Court, or
with Tenant's parking, subject to and as more particularly provided in Sections
2.06 and 2.07. In the
4
event of any such addition or removal which affects the Rentable Area of the
Building or the rentable area of the Project, Landlord shall make a
corresponding recalculation and adjustment of any affected rentable area and
Tenant's Share.
REAL PROPERTY: The Property excluding any personal property.
REFERENCE RATE: The rate then most recently announced by Bank of America
National Trust and Savings Association (or any other similar institution
reasonably designated in writing by Landlord in the event Bank of America ceases
to publish such rate) as its corporate base lending rate, from time to time
announced.
RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment
Deposits, and all other charges, payments, late fees or other amounts required
to be paid by Tenant under this Lease.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses
and Taxes. The Rent Adjustments shall be determined and paid as provided in
Article Four.
RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent
Adjustment attributable to each month of the applicable Adjustment Year.
Landlord may estimate and notify Tenant in writing of its estimate of Operating
Expenses and Taxes and Tenant's Share of Operating Expenses and Taxes for the
applicable Adjustment Year. The Rent Adjustment Deposit applicable for the
Adjustment Year in which the Commencement Date occurs shall be the amount
specified in Section 1.01(9) or by subsequent notice from Landlord to Tenant.
Nothing contained herein shall be construed to limit the right of Landlord from
time to time during any calendar year to revise its estimate of Operating
Expenses and to notify Tenant in writing thereof and of revision by prospective
adjustments in Tenant's Rent Adjustment Deposit payable over the remainder of
such year. The last estimate by Landlord shall remain in effect as the
applicable Rent Adjustment Deposit unless and until Landlord notifies Tenant in
writing of a change.
RENTABLE AREA OF THE BUILDING: The amount of square footage set forth in Section
1.01(11), which includes the square footage of the utility room.
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section
1.01(10).
SECURITY DEPOSIT: The funds specified in Section 1.01(12), if any, deposited by
Tenant with Landlord as security for Tenant's performance of its obligations
under this Lease.
SUBSTANTIALLY COMPLETE or SUBSTANTIAL COMPLETION: The completion of the Landlord
Work or Tenant Work, as the case may be, except for minor insubstantial details
of construction, decoration or mechanical adjustments which remain to be done,
and which will not materially and adversely interfere with conduct of Tenant's
business in the ordinary course.
TAXES:
(a) Taxes. All federal, state and local governmental taxes, assessments
(including assessment bonds) and charges of every kind or nature, whether
general, special, ordinary or extraordinary, which Landlord shall pay or become
obligated to pay because of or in connection with the ownership, leasing,
management, control or operation of the Property or any of its components
(including any personal property used in connection therewith), which may also
include any rental or similar taxes levied in lieu of or in addition to general
real and/or personal property taxes. For purposes hereof, Taxes for any tax
fiscal year shall be Taxes which are assessed for any period of such year,
whether or not such Taxes are billed and payable in a subsequent year. There
shall be included in Taxes for any tax fiscal year the amount of all reasonable
fees, costs and expenses (including reasonable attorneys' fees) paid by Landlord
during such year in seeking or obtaining any refund or reduction of Taxes. Taxes
for any tax fiscal year shall be reduced by the net amount of any tax refund
received by Landlord attributable to such year. If a special assessment payable
in installments is levied against any part of the Property, Taxes for any year
shall include only the installment of such assessment and any interest payable
or paid during such year. Taxes shall not include any federal or state
inheritance, general income, gift or estate taxes, except that if a change
occurs in the method of taxation resulting in whole or in part in the
substitution of any such taxes, or any other assessment, for any Taxes as above
defined, such substituted taxes or assessments shall be included in the Taxes.
Notwithstanding the foregoing, Taxes shall not include any amounts paid by
Tenant directly pursuant to Section 4.04.
(b) Treatment of Transfer Increase from a Sale. Notwithstanding the
foregoing, as more particularly provided below in this Subsection (b), only
during the period (the "Protection Period") of the initial Term beginning on the
Commencement Date and ending on the day before the fifth anniversary of the
Commencement Date, a Transfer Increase (defined below) shall be excluded from
Taxes. On and after the fifth anniversary of the Commencement Date there shall
be no further exclusion of any Transfer Increase and Taxes shall include,
without limitation, one hundred percent (100%) of all Taxes assessed. For
purposes of this Subsection (b), the term "Transfer Reassessment" shall mean a
reassessment of the Real Property for real estate tax purposes by the
appropriate governmental authority pursuant to the terms of California
Constitution Article XIII A ("Proposition 13") solely as a result of a sale or
transfer of fee title of the Real Property if such sale or transfer constitutes
a "Change of Ownership", as defined in Section 60 et seq. of the California
Revenue and Taxation Code (the "R&T Code"). For purposes of this Subsection (b),
the term "Transfer Increase" shall mean that portion of Taxes which increases
(if at all) solely as a result of a Transfer Reassessment, as calculated
immediately following the Transfer Reassessment, and
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accordingly, the term Transfer Increase shall not include (and Tenant shall not
be protected from) any portion of real property taxes, as calculated immediately
following the Reassessment, which is (i) attributable to the assessment of the
value of the Real Property, the base Real Property and the tenant improvements
in or about the Real Property immediately prior to the Transfer Reassessment, or
(ii) attributable to any purchase of land which is added to the Real Property,
expansion and/or improvement of the Building at any time permitted in accordance
with other provisions of this Lease, and without limiting the generality of the
foregoing, the real property taxes with respect to the New Land (as defined in
Rider 2) attributable to the period after substantial completion of the shell of
the New Space (as defined in Rider 2), if acquired and constructed; (iii)
attributable to assessments which were pending immediately prior to the Transfer
Reassessment, which assessments were conducted during, and included in, such
Transfer Reassessment, or which assessments were otherwise rendered unnecessary
following the Reassessment, or (iv) attributable to the annual inflationary
increase of real property taxes; or (v) any assessment or reassessment or
increase in real property taxes to the extent arising by virtue of a
modification of Proposition 13 by legislative, judicial or other action
hereafter. If at any time Proposition 13 is repealed or invalidated by
legislative, judicial or other action, the provisions of this Subsection (b)
shall be deemed null and void and of no further force or effect, and any
reassessment for real property tax purposes or other increase in real property
taxes attributable to or arising out of the repeal or invalidation of
Proposition 13 shall not be subject to the provisions of this Subsection.
TENANT ADDITIONS: Collectively, Landlord Work, Tenant Work and Tenant
Alterations.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations or
construction in or to the Premises or any Real Property systems serving the
Premises done or caused to be done by Tenant (excluding Landlord Work or Tenant
Work).
TENANT DELAY: Any event or occurrence which delays the Substantial Completion of
the Landlord Work which is caused by or is described as follows:
(i) special work, changes, alterations or additions requested by Tenant to
the Landlord Work (as described in the Workletter);
(ii) Tenant's delay in submitting plans, supplying information, approving
plans, specifications or estimates, giving authorizations or otherwise;
(iii) failure to approve and pay for such work as Landlord undertakes to
complete at Tenant's expense;
(iv) the performance or completion by Tenant or any person engaged by
Tenant of any work in or about the Premises; or
(v) failure to perform or comply with any obligation or condition binding
upon Tenant pursuant to the Workletter, including the failure to approve
and pay for such Landlord Work or other items if and to the extent the
Workletter provides they are to be approved or paid by Tenant.
Provided however, Tenant Delay shall exclude that number of days where Tenant's
failure or delay is caused by "Tenant's Force Majeure" (defined below).
"Tenant's Force Majeure" shall mean any accident, casualty, act of God, war or
civil commotion, strike or labor troubles, or any cause whatsoever beyond the
reasonable control of Tenant, including water shortages, energy shortages or
governmental preemption in connection with an act of God, a national emergency,
or by reason of Law, or by reason of the conditions of supply and demand which
have been or are affected by act of God, war or other emergency.
TENANT WORK: All work installed or furnished to the Premises by Tenant in
connection with Tenant's initial occupancy pursuant to the Workletter.
TENANT'S SHARE: The percentage specified in Section 1.01(14), which represents
the ratio of the Rentable Area of the Premises to the Rentable Area of the
Building.
TERM: The term of this Lease commencing on the Commencement Date and expiring on
the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
WORKLETTER: The Agreement regarding the manner of completion of Landlord Work
and Tenant Work set forth on Exhibit B attached hereto.
ARTICLE TWO
PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions provided in
this Lease. In the event Landlord delivers possession of the Premises to Tenant
prior to the Commencement Date, Tenant shall be subject to all of the terms,
6
covenants and conditions of this Lease (except with respect to the payment of
Rent) as of the date of such possession.
2.02 TERM
(a) The Commencement Date shall be the date which is the earlier of (i)
the date on which the Landlord Work is Substantially Complete (recognizing that
may occur before, on or after the Projected Commencement Date); or (ii) the date
Tenant first accepts possession and occupies all or part of the Premises for the
conduct of business.
(b) Within thirty (30) days following the occurrence of the Commencement
Date, Landlord and Tenant shall enter into an agreement (which is attached
hereto as Rider 1) confirming the Commencement Date and the Expiration Date. If
Tenant fails to enter into such agreement, then the Commencement Date and the
Expiration Date shall be the dates designated by Landlord in such agreement.
2.03 FAILURE TO GIVE POSSESSION
(a) If Landlord shall be unable to give possession of the Premises on the
Projected Commencement Date by reason of the following: (i) the Building has not
been sufficiently completed to make the Premises ready for occupancy, (ii) the
Landlord Work is not Substantially Complete, or (iii) for any other reason, then
Landlord shall not be subject to any liability for the failure to give
possession on said date. Under such circumstances the Rent reserved and
covenanted to be paid herein shall not commence until the Premises are made
available to Tenant by Landlord, and no such failure to give possession on the
Projected Commencement Date shall affect the validity of this Lease or the
obligations of Tenant hereunder. At the option of Landlord to be exercised
within thirty (30) days of the delayed delivery of possession to Tenant, the
Lease shall be amended so that the Term shall be extended by the period of time
possession is delayed. The said Premises shall be deemed to be ready for
Tenant's occupancy and Substantially Complete in the event Landlord's Work is
Substantially Complete in fact, or if the delay in the availability of the
Premises for occupancy shall be due to any Tenant Delay and/or default on the
part of Tenant and/or its subtenant or subtenants. In the event of any dispute
as to whether the Landlord Work is Substantially Complete, the decision of
Landlord's architect shall be final and binding on the parties, except as
otherwise provided in Section 2.08.
(b) Notwithstanding any provision of Subsection (a) above to the contrary
(but subject to the provisions of Section 2.08 in the event of a dispute as to
Substantial Completion), if Substantial Completion of Landlord's Work does not
occur on or before the Sunset Date (defined below), and Tenant has not, with
Landlord's consent taken possession and occupancy of the Premises and commenced
doing business (other than construction of the Tenant Work) from it prior to
Substantial Completion of the Landlord Work, then, as Tenant's sole and
exclusive remedy, Tenant shall have the option to terminate this Lease
exercisable by giving written notice to Landlord within three (3) business days
after the Sunset Date. If Tenant does not timely give notice of its election to
terminate this Lease as aforesaid and Substantial Completion of Landlord's Work
does not occur on or before the date which is thirty (30) days following the
Sunset Date, then Tenant shall again have such option to terminate this Lease in
the manner described above and such date shall constitute the new Sunset Date;
it being the intention of the parties that Tenant shall have a recurring
termination option after each such thirty (30) day period following the initial
Sunset Date if Substantial Completion of Landlord's Work shall not have occurred
by the end of each such thirty (30) day period. As used in this Lease, "Sunset
Date" means the initial Sunset Date which is ninety (90) days after the
Projected Commencement Date and any succeeding new Sunset Dates (at thirty (30)
day intervals after the initial Sunset Date) and each such Sunset Date, as
applicable, shall be extended by the number of days of delay due to Force
Majeure plus the number of days of Tenant Delay, if any. On or before the Sunset
Date, if such date includes any period of Force Majeure or Tenant Delay,
Landlord shall give Tenant written notice of the resulting calendar date which
the Sunset Date.
2.04 AREA OF PREMISES
Landlord and Tenant agree that for all purposes of this Lease, the Rentable Area
of the Premises and the Rentable Area of the Building as set forth in Article
One are controlling and are not subject to revision after the date of this
Lease, except as otherwise provided herein.
2.05 CONDITION OF PREMISES
Tenant shall notify Landlord in writing within thirty (30) days after the later
of Substantial Completion of the Landlord Work or when Tenant takes possession
of the Premises of any defects in the Premises or in the materials or
workmanship furnished by Landlord in completing the Landlord Work (collectively,
"Defects"). Except for Defects stated in such thirty (30) day notice and Latent
Defects (defined below) of which Tenant gives Landlord notice within eleven (11)
months after Substantial Completion of the Landlord Work, Tenant shall be
conclusively deemed to have accepted the Premises "AS IS" in the condition
existing on the date Tenant first takes possession, and to have waived all
claims relating to the condition of the Premises. Landlord shall proceed
diligently to correct the Defects stated in the applicable notice unless
Landlord disputes the existence of any such Defects. In the event of any dispute
as to the existence of any Defects, the decision of Landlord's architect shall
be final and binding on the parties, except as otherwise provided in Section
2.08. For purposes of this Lease, "Latent Defects" shall mean Defects which were
not readily apparent when the thirty (30) day notice was due. No agreement of
Landlord to alter, remodel, decorate, clean or improve the Premises or the
Property and no representation regarding the condition of the Premises
7
or the Property has been made by or on behalf of Landlord to Tenant, except as
may be specifically stated in this Lease.
2.06 COMMON AREAS
(a) Right to Use Common Areas. Tenant shall have the non-exclusive right,
in common with others, to the use of any common entrances, drives and similar
access and serviceways and other Common Areas in the Project. The rights of
Tenant hereunder in and to the Common Areas shall at all times be subject to the
rights of Landlord and other tenants in the Project who use the same in common
with Tenant, and it shall be the duty of Tenant to keep all the Common Areas
free and clear of any obstructions created or permitted by Tenant or resulting
from Tenant's operations. Tenant shall not use for storage purposes the Common
Areas or common facilities of the Building or the Project, including any
electrical and/or telephone room of the Building, common entrances, drives and
similar access and serviceways, parking lot or trash enclosures. Nothing herein
shall affect the right of Landlord at any time to remove any persons not
authorized to use the Common Areas or common facilities from such areas or
facilities or to prevent their use by unauthorized persons.
(b) Changes in Common Areas. Landlord reserves the right, at any time and
from time to time to (i) make alterations in or additions to the Common Areas or
common facilities of the Project, including constructing new buildings or
changing the location, size, shape or number of the driveways, entrances,
parking spaces, parking areas, loading and unloading areas, landscape areas and
walkways, (ii) designate property to be included in or eliminate property from
the Common Areas or common facilities of the Project, (iii) close temporarily
any of the Common Areas or common facilities of the Project for maintenance
purposes, and (iv) use the Common Areas and common facilities of the Project
while engaged in making alterations in or additions and repairs to the Project;
provided, however, that reasonable access to the Premises, Truck Court and
Tenant's Parking Area remains available, and any such action shall not
materially and adversely interfere with Tenant's occupancy of the Premises or
the conduct of Tenant's business therein.
2.07 TENANT'S PARKING AREA & TRUCK COURT
(a) Right to Use. Tenant shall have the right to use the areas designated
as Tenant's Parking Area and Truck Court, respectively, for only those purposes,
and on the terms and conditions, as follows:
(1) Tenant shall have the right to use the Tenant's Parking Area for
parking of Tenant's vehicles and those of its employees and invitees. Tenant's
Parking Area shall be located in certain areas of the Truck Court, which Truck
Court is shown on Exhibit C and in such other areas of the Property as Landlord
designates, as shown and provided on Exhibit C.
(2) Tenant shall have the right to use the area designated as the
Truck Court on Exhibit C for loading, unloading and parking of Tenant's vehicles
and those of its employees and invitees.
(3) Tenant's Parking Area and the Truck Court are not part of the
Common Areas, and Tenant's use of Tenant's Parking Area and the Truck Court
shall be subject to the same obligations and conditions that apply to Tenant
with respect to the Premises in the same manner as if such areas were a part of
the Premises. Tenant shall not be obligated to repave the Tenant's Parking Area
or Truck Court except for improper use and to repair and restore any damage in
connection with installation, maintenance, repair or removal of any Tenant
Additions affecting the Truck Court.
(b) Landlord's Access; Third Parties. Landlord fully reserves the right
for Landlord or Landlord's agents to enter and use such areas to the same extent
as if such areas were part of the Premises or Common Areas. Landlord shall have
no obligation to restrict or control access of third parties to such areas, or
to tow or remove any vehicles of third parties. Upon completion of a chain link
fence (as part of the Landlord Work pursuant to the Workletter) on the westerly
side of the Truck Court, which will be added to existing fencing and gates, the
Truck Court and East Parking Area will be enclosed within fences with gates. The
Relocation Parking Area shall be as described in Section 2.07(a)(1) above.
2.08 DISPUTE RE SUBSTANTIAL COMPLETION OF OR DEFECTS IN PREMISES
In the event that Tenant disputes the determination by Landlord of Substantial
Completion in accordance with Section 2.03 or Defects to be corrected by
Landlord in accordance with Section 2.05, then within ten (10) business days
after notice from Landlord of the determination of Landlord's architect, Tenant
shall give Landlord written notice ("Tenant's Dispute Notice") stating the
different date of Substantial Completion or different Defects asserted by Tenant
to be in accordance with the terms of such Sections, identifying in detail the
reasons for such differences, and identifying the name, address and telephone
number of Tenant's architect. Landlord's architect and Tenant's architect shall
meet to make a good faith effort to resolve the dispute, but if within ten (10)
business days after Tenant's Dispute Notice they are unable to agree on a
resolution of the disputed item or items, the disputed item or items shall be
submitted to arbitration in accordance with the provisions of this Section. Any
arbitration under this Section 2.06 shall be conducted in the county in which
the Building is located in accordance with the then prevailing rules of the
American Arbitration Association or its successor for arbitration of commercial
disputes, modified as follows, and any judgment or award rendered therein shall
be final and binding upon the parties and may be entered in any court of
competent jurisdiction:
(a) Landlord and Tenant shall select a Qualified Architect to act as
arbitrator hereunder in accordance with the procedure specified below. For
purposes hereof, a "Qualified Architect" shall
8
mean an architect licensed in the State of California who is familiar with
the construction of tenant improvements in warehouse and distribution
buildings in the county in which the Building is located. Within twenty
(20) business days after Tenant's Dispute Notice, Landlord shall in
writing propose to Tenant its choice of a Qualified Architect. If Tenant
reasonably objects to Landlord's proposed Qualified Architect, it shall in
writing notify Landlord within ten business days after Landlord's
proposal. In the event of timely objection, Landlord shall within an
additional ten (10) business days in writing propose another Qualified
Architect and the foregoing process shall continue until Landlord and
Tenant have agreed upon a Qualified Architect. If Landlord and Tenant
cannot agree on a Qualified Architect to act as arbitrator after five
proposals are made and rejected, either party may petition the then Chief
Judge of the United States District Court having jurisdiction over the
county in which the Building is located to appoint a Qualified Architect
as the arbitrator. In the event of Landlord's failure to propose an
arbitrator, Tenant may within ten (10) business days after the expiration
of the period for Landlord to propose a Qualified Architect, propose its
own choice of a Qualified Architect to act as arbitrator and Landlord may
reasonably object. If neither party timely proposes an arbitrator, the
determination of Landlord's architect shall be final and binding with the
same force and effect as a determination by the arbitrator. If an
objection is not timely made to a proposed arbitrator, that arbitrator
shall be deemed selected and accepted as of the date of expiration of the
ten (10) business day period within which an objection could be made, and
shall act as the arbitrator hereunder.
(b) Within fifteen (15) business days after selection of a Qualified
Architect to act as arbitrator, each of Landlord's architect and Tenant's
architect shall render in writing to each of Landlord, Tenant and the
selected arbitrator, its determination in accordance with the provisions
of this Lease of the disputed item(s) and corresponding date of
Substantial Completion or defect(s) to be corrected, as the case may be.
(c) Within thirty (30) days after the arbitrator has received a copy
of the determination of Landlord's architect and Tenant's architect as
provided above, as to each disputed item, the arbitrator shall select that
one of the two submitted determinations which is closer to the
arbitrator's determination. The arbitrator's determination shall be made
in accordance with the provisions of this Lease applicable to such
disputed item, and in no event shall the arbitrator, Landlord's architect
or Tenant's architect modify any provision of the Lease in arriving at its
respective determination. The arbitrator's determination and selection
shall be made in writing to both Landlord and Tenant, and shall be final
and binding upon them.
(d) The arbitrator shall have the right to consult experts and
competent authorities regarding factual information or evidence pertaining
to a determination of the disputed item(s); provided, however, that any
such consultation shall be made in the presence of Landlord, Tenant and
their representatives, with full right on the part of each to
cross-examine.
(e) In the event of any failure, refusal or inability of the
arbitrator to act, a successor shall be appointed in the same manner
provided above for the arbitrator's appointment. Each party shall bear all
costs and expenses of its own architect and both shall equally share all
costs and expenses of the arbitrator, if any. All attorneys' fees and
expenses of witnesses shall be paid by the party engaging such attorney or
calling such witness.
(f) In the event the determination of the disputed item(s) has or
have been submitted to arbitration but such arbitration has not been
concluded prior to the Commencement Date (as initially determined by
Landlord's architect), Tenant shall pay to Landlord Rent from and after
such date pending determination of the disputed item(s). In the event the
Commencement Date for Rent determined by arbitration results in an amount
due for Rent different from the amount paid to date, Tenant shall
immediately pay to Landlord any greater amount due and Landlord shall give
Tenant a credit against the next Monthly Base Rent installments due from
Tenant if the amount due is less that that paid to date.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the first office specified in Section
1.01(2), or to such other persons, or at such other places designated by
Landlord, without any prior demand therefor and without any deduction or offset
whatsoever, Rent, including Monthly Base Rent, Rent Adjustment Deposits and Rent
Adjustments in accordance with Article Four. Monthly Base Rent shall be paid
monthly in advance on the first day of each month of the Term, except that the
first installment of Monthly Base Rent shall be paid by Tenant to Landlord
concurrently with execution of this Lease. Monthly Base Rent shall be prorated
for partial months within the Term. Tenant's covenant to pay Rent shall be
independent of every other covenant in this Lease. It is intended that this
Lease be a "triple net lease," and that the Rent to be paid hereunder by Tenant
will be received by Landlord without any deduction or offset whatsoever by
Tenant, foreseeable or unforeseeable. Except as expressly provided to the
contrary in this Lease, Landlord shall not be required to make any expenditure,
incur any obligation, or incur any liability of any kind whatsoever in
connection with this Lease or the ownership, construction, maintenance,
operation or repair of the Premises.
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ARTICLE FOUR
RENT ADJUSTMENTS AND PAYMENTS
4.01 RENT ADJUSTMENTS
Tenant shall pay to Landlord Rent Adjustments with respect to each Adjustment
Year as follows:
(a) The Rent Adjustment Deposit representing Tenant's Share of
Landlord's estimate of Operating Expenses and of Taxes for the applicable
Adjustment Year, monthly during the Term with the payment of Monthly Base
Rent, except the first installment which shall be paid by Tenant to
Landlord concurrently with the execution of this Lease; and
(b) Any Rent Adjustments due in excess of the Rent Adjustment
Deposits in accordance with Section 4.02.
4.02 STATEMENT OF LANDLORD
Within one hundred twenty (120) days after the end of each calendar year or as
soon thereafter as reasonably possible, Landlord will furnish Tenant a statement
("Landlord's Statement") showing the following:
(a) Operating Expenses for the last Adjustment Year showing in
reasonable detail the actual Operating Expenses and Taxes, and Tenant's
Share thereof as described in Section 4.01 above;
(b) The amount of Rent Adjustments due Landlord for the last
Adjustment Year, less credit for Rent Adjustment Deposits paid, if any;
and
(c) Any change in the Rent Adjustment Deposit due monthly in the
current Adjustment Year, including the amount or revised amount due for
months preceding any such change pursuant to Landlord's Statement.
Tenant shall pay to Landlord within thirty (30) days after receipt of such
statement any amounts for Rent Adjustments then due in accordance with
Landlord's Statement. Any amounts due from Landlord to Tenant pursuant to this
Section shall be credited to the Rent Adjustment Deposit next coming due, or
refunded to Tenant within thirty (30) days after Landlord's Statement is given
if the Term has already expired, provided Tenant is not in default hereunder. No
interest or penalties shall accrue on any amounts which Landlord is obligated to
credit or refund to Tenant by reason of this Section 4.02. Landlord's failure to
deliver Landlord's Statement or to compute the amount of the Rent Adjustments
shall not constitute a waiver by Landlord of its right to deliver such items nor
constitute a waiver or release of Tenant's obligations to pay such amounts. The
Rent Adjustment Deposit shall be credited against Rent Adjustments due for the
applicable Adjustment Year. During the last complete calendar year or during any
partial calendar year in which the Lease terminates, Landlord may include in the
Rent Adjustment Deposit its estimate of Rent Adjustments which may not be
finally determined until after the termination of this Lease. Tenant's
obligation to pay Rent Adjustments survives the expiration or termination of
this Lease.
4.03 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses and Taxes
in accordance with sound accounting and management practices, consistently
applied. Tenant or its representative shall have the right, for a period of
ninety (90) days following the date upon which Landlord's Statement is delivered
to Tenant, to examine Landlord's books and records with respect to the items in
the foregoing statement of Operating Expenses and Taxes during normal business
hours, upon written notice, delivered at least three (3) business days in
advance. If Tenant does not object in writing to Landlord's Statement within one
hundred twenty (120) days of Tenant's receipt thereof, specifying the nature of
the item in dispute and the reasons therefor, then Landlord's Statement shall be
considered final and accepted by Tenant. Any amount due to Landlord as shown on
Landlord's Statement, whether or not disputed by Tenant as provided herein shall
be paid by Tenant when due as provided above, without prejudice to any such
written exception.
4.04 TENANT OR LEASE SPECIFIC TAXES
In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and
other charges to be paid by Tenant, Tenant shall pay to Landlord, upon demand,
any and all taxes payable by Landlord (other than federal or state inheritance,
general income, gift or estate taxes) whether or not now customary or within the
contemplation of the parties hereto: (a) upon, allocable to, or measured by the
Rent payable hereunder, including any gross receipts tax or excise tax levied by
any governmental or taxing body with respect to the receipt of such rent; or (b)
upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (c) upon the measured value of Tenant's personal
property or trade fixtures located in the Premises or in any storeroom or any
other place in the Premises or the Property, or the areas used in connection
with the operation of the Property, it being the intention of Landlord and
Tenant that, to the extent possible, Tenant shall cause taxes on such personal
property and trade fixtures to be billed directly to Tenant, and whether or not
so billed, Tenant shall pay all taxes attributable to its personal property and
trade fixtures; or (d) resulting from Landlord Work, Tenant Work or Tenant
Alterations to the Premises, whether title thereto is in Landlord or Tenant; or
(e) upon this transaction. Taxes paid by Tenant pursuant to this Section 4.04
shall not be included in any computation of Taxes payable pursuant to Sections
4.01 and 4.02.
10
ARTICLE FIVE
SECURITY DEPOSIT
INTENTIONALLY OMITTED
ARTICLE SIX
UTILITIES & SERVICES
6.01 LANDLORD'S OBLIGATIONS GENERALLY
(a) Landlord shall provide services and maintenance only as expressly
provided in this Section 6.01 and Article Eight below.
(b) Landlord shall provide water through Landlord's existing water pipes
and permit Tenant to connect to Landlord's existing water and sewer pipes as
provided in Section 6.02(b) below for the purpose of providing such utilities to
the Premises. Landlord shall not be obligated to provide any chilled water,
tempered water or water heater, nor shall Landlord be obligated to provide any
restroom facility or plumbing above the slab. Notwithstanding any provision of
the foregoing to the contrary, to the extent provided as part of the Landlord
Work in the Workletter, Landlord shall bring a water line to the Premises and
provide restroom facilities connected to the existing under-slab sewer line.
(c) Landlord shall provide electricity to Landlord's existing main
electrical panel in the utility room of the Building and permit Tenant to
connect to such panel for the purpose of providing such utility to the Premises
as provided in Section 6.02(b) below. Notwithstanding any provision of the
foregoing to the contrary, to the extent provided as part of the Landlord Work
in the Workletter, Landlord will bring an electricity line from the utility room
to the designated point on Tenant's side of the demising wall of the Premises
and as otherwise described as part of the Landlord Work.
(d) Landlord shall permit Tenant to connect to Landlord's existing main
telephone panel in the utility room of the Building for the purpose of providing
such utility to the Premises as provided in Sections 6.02(b) and 6.03 below.
6.02 TENANT'S OBLIGATIONS & PAYMENT
(a) Tenant shall be responsible for and shall pay promptly all charges for
refuse pickup (to be performed on a regularly scheduled basis so that
accumulated refuse does not exceed the capacity of Tenant's refuse bins),
janitorial service, pest control and extermination, security and all utilities
(except as provided in Sections 6.02(b) and (c)), materials and services
furnished directly to or used by Tenant in, on or about the Premises, together
with all taxes thereon. Tenant shall contract directly with the providing
companies for such utilities and services, subject to all other provisions of
this Lease.
(b) All connections to Landlord's existing electrical, water, sewer and
telephone systems contemplated by Section 6.01 shall be subject to all other
provisions of this Lease, including Landlord's prior written approval, which
shall not be unreasonably withheld, of all relevant factors, including
allocation of available capacity of each system, the extent to which the system
is safely capable for the desired connection, and other provisions of Article
Nine. Except to the extent provided as part of the Landlord Work in the
Workletter, Tenant shall make, maintain and repair, at its sole cost and
expense, all connections, modifications, extensions and installations to or of
any electrical panel, breaker, feeder, wiring, conduits, transformer, plumbing
and any additional equipment necessary to connect Tenant's facilities to any
Building Systems. Tenant shall be responsible to maintain, repair, replace and
operate all such connections, modifications, extensions and installations, at
Tenant's sole cost and expense. Tenant's use of electric current shall at no
time exceed the capacity of the wiring, feeders and risers providing electric
current to the Premises or the Building. The consent of Landlord to the
installation of electric equipment shall not relieve Tenant from the obligation
to limit usage of electricity to no more than such capacity. Without limiting
the generality of the foregoing, all installations, maintenance, repair,
replacement and use of such installations by Tenant shall comply will Law and
with all requirements of the provider of such utilities, including for example,
all requirements of the water and/or sewer utilities serving the Property.
(c) Without limiting the generality of the foregoing, Tenant, at Tenant's
sole cost and expense, shall provide, install, operate, maintain, repair and
replace separate submeter(s) for Tenant's consumption of electricity (and upon
Landlord's request, for water and any other utility which Landlord permits
Tenant to use). Notwithstanding any provision of the foregoing to the contrary,
to the extent provided as part of the Landlord Work in the Workletter, Landlord
shall provide and install the initial electric submeter and any initial testing
and certification. Tenant shall pay Landlord within fifteen (15) days after
Landlord gives Tenant a statement for all costs of such electricity (and water
or other utility which is separately submetered) used by or furnished to Tenant,
as shown by such submeter(s). For any billing period which will not be completed
and billed before the Lease terminates, Landlord may bill Tenant in advance on
an estimated basis, subject to subsequent adjustment for any further amount due
from Tenant or credit/refund due from Landlord when the final submeter readings
are done. Tenant's obligation to pay such amounts survives the expiration or
termination of this Lease. In the event of failure or malfunction of such
submeter(s), Tenant shall promptly repair or replace such failed or
malfunctioning submeter(s), and for any period of failure or malfunction, Tenant
shall pay any amounts due based upon estimated usage. Tenant shall cause all
submeters installed by Tenant for any purpose, whether for electricity, water or
other utility to be
11
tested and certified prior to Tenant's occupancy of the Premises and thereafter
at least annually by a State of California certified testing company, at
Tenant's sole cost and expense.
6.03 TELEPHONE SERVICES
All telegraph, telephone, and communication connections which Tenant may desire
outside the Premises and location thereof shall be subject to Landlord's prior
written approval, which shall not be unreasonably withheld. As to any such
connections or work outside the Premises requiring Landlord's approval, Landlord
reserves the right to restrict and control access to the utility room, telephone
cabinets or panels, and the contractors performing telephone or other
communication cable installation, removal, repair and maintenance outside the
Premises shall be subject to Landlord's reasonable prior written approval.
Provided however, such approval is not required as to Tenant's choice of service
provider serving Tenant exclusively or telephone equipment installation within
the Premises and serving Tenant exclusively. Tenant shall be responsible for and
shall pay all costs incurred in connection with the installation of telephone
cables and communication wiring in the Premises, including any hook-up, access
and maintenance fees related to the installation of such wires and cables in the
Premises and the commencement of service therein, and the maintenance thereafter
of such wire and cables; and there shall be included in Operating Expenses for
the Building all installation, removal, hook-up or maintenance costs incurred by
Landlord in connection with telephone cables and communication wiring serving
the Building which are not allocable to any individual users of such service but
are allocable to the Building generally. If Tenant fails to maintain all
telephone cables and communication wiring in the Premises and such failure
affects or interferes with the operation or maintenance of any other telephone
cables or communication wiring serving the Building, Landlord or any vendor
hired by Landlord may, on reasonable notice to Tenant at the Premises (i.e.,
without written notice to Tenant pursuant to Article Twenty-four and except that
no notice shall be required in a situation where, in the reasonable judgment of
Landlord, an emergency exists), enter into and upon the Premises forthwith and
perform such repairs, restorations or alterations as Landlord deems necessary in
order to eliminate any such interference (and Landlord may recover from Tenant
all of Landlord's costs in connection therewith).
6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE
To the extent that any equipment or machinery furnished or maintained by
Landlord is used in the delivery of utilities to Tenant pursuant to Sections
6.01 or 6.02 and breaks down or ceases to function properly, Landlord shall use
reasonable diligence to repair same promptly. In the event of any failure,
stoppage or interruption of, or change in, any utilities or services supplied by
Landlord which are not directly obtained by Tenant, Landlord shall use
reasonable diligence to have service promptly resumed. In either event covered
by the preceding two sentences, if the cause of any such failure, stoppage or
interruption of, or change in, utilities or services is within the control of a
public utility, other public or quasi-public entity, or utility provider,
notification to such utility or entity of such failure, stoppage or interruption
and request to remedy the same shall constitute "reasonable diligence" by
Landlord to have service promptly resumed. Notwithstanding any other provision
of this Section to the contrary, in the event of any failure, stoppage or
interruption of, or change in, any utility or other service furnished to the
Premises or the Project resulting from any cause, including changes in service
provider or Landlord's compliance with any voluntary or similar governmental or
business guidelines now or hereafter published or any requirements now or
hereafter established by any governmental agency, board or bureau having
jurisdiction over the operation of the Property: (a) Landlord shall not be
liable for, and Tenant shall not be entitled to, any abatement or reduction of
Rent; (b) no such failure, stoppage, or interruption of any such utility or
service shall constitute an eviction of Tenant or relieve Tenant of the
obligation to perform any covenant or agreement of this Lease to be performed by
Tenant; and (c) Landlord shall not be in breach of this Lease nor be liable to
Tenant for damages or otherwise. Notwithstanding any provision of the foregoing
to the contrary:
(a) the preceding sentence shall not deprive Tenant of any abatement of
Rent to which Tenant would be entitled pursuant to Article Fourteen or of
Tenant's rights and remedies for a Landlord default pursuant to Section
11.05, and shall not relieve Landlord of liability for damages to either
persons, property, or business to the extent caused by Landlord's
negligence or wrongful act, subject to and without diminishing any waivers
by Tenant pursuant to Article Seventeen or waivers by Tenant or Landlord
or their respective insurers in effect pursuant to Section 16.04;
(b) subject to Section 6.04(c) below, in the event and to the extent that
Tenant is unable to occupy the Premises or part thereof for five (5)
consecutive days after Tenant has given Landlord written notice of such
condition (the "Eligibility Period") as a result of Landlord's failure to
provide utilities or services which Landlord is obligated to provide, but
excluding any period occupancy is prevented to the extent caused by any of
the following:
(i) caused by any act or omission of Tenant, any assignee, any
subtenant or any other occupant of the Premises, or
(ii) where Tenant or any assignee requests Landlord to make a
decoration, alteration, improvement or addition, including, for
example, any upgrade or modification to the Building's electrical
system, either in connection with the Landlord Work under the
Workletter or subsequently, or
(iii) caused by Force Majeure,
then Monthly Base Rent and Rent Adjustments shall abate in the proportion
in which the area of the Premises which is unusable and unused bears to
the total area of the Premises on a per diem basis
12
from the expiration of the Eligibility Period until the earlier of
restoration of the applicable utility or service or Tenant's re-occupancy
or use of the affected portion of the Premises; and
(c) notwithstanding any provision of Section 6.04(b) to the contrary, in
the event and to the extent that Tenant is unable to occupy the Premises
or part thereof for three (3) consecutive days after Tenant has given
Landlord written notice of such condition (the "Electricity Eligibility
Period") as a result of Landlord's failure to provide electricity and such
failure is caused solely by Landlord's negligence or wrongful act [but
excluding any period occupancy is prevented to the extent caused by any of
the matters described in clauses (i), (ii) and (iii) of Section 6.04(b)],
then Monthly Base Rent and Rent Adjustments shall abate in the proportion
in which the area of the Premises which is unusable and unused bears to
the total area of the Premises on a per diem basis from the expiration of
the Electricity Eligibility Period until the earlier of restoration of
electricity or Tenant's re-occupancy or use of the affected portion of the
Premises.
6.05 INTENTIONALLY OMITTED
6.06 SIGNAGE
(a) Tenant shall not install any signage within the Project, the Building
or the Premises without obtaining the prior written approval of Landlord, in its
reasonable discretion, and Tenant shall be responsible for procurement,
installation, maintenance and removal of any such signage installed by Tenant,
and all costs in connection therewith. Any such signage shall comply with
Landlord's current Project signage criteria and all Laws.
(b) So long as Tenant is in continuous operation at and occupancy of the
entire Premises, and if permitted by applicable Laws, Tenant shall have the
non-exclusive right to place a single sign bearing Tenant's name and/or logo in
one location on the side of the Building's exterior wall at the end where the
Premises is located subject to the terms and conditions set forth in this
Section ("Exterior Sign Right"). Nothing contained herein shall prohibit or
limit Landlord in granting other tenants of the Project or Building rights to
install signs on or at the Project or Building or space leased to such tenants.
All drawings, plans and specifications (including size, design, color and
materials) and the location of such signage shall (a) be proposed and prepared
by Tenant at its sole cost and expense, (b) be subject to approval by Landlord
in its reasonable discretion, and (c) be consistent with the design of the
Project and conform at all times with any sign criteria of the Project and all
applicable Laws. Tenant, at its sole cost and expense, shall be responsible to
obtain all approvals and/or permits necessary for the sign under applicable
Laws, and its rights hereunder are subject to such Laws. Tenant shall, at its
sole cost and expense: (i) procure, install, maintain and replace such sign;
(ii) maintain the area on which the sign is mounted watertight and in good
appearance; (iii) maintain insurance covering the sign; and (iv) be responsible
for electrical service and connections, if any, for the sign. Upon the
expiration or termination of the Exterior Sign Right, but in no event later than
the expiration of the Term or earlier termination of the Lease, Tenant shall, at
its sole cost and expense, remove such sign and shall repair and restore the
area in which the sign was located to its condition prior to installation of
such sign. The Exterior Sign Right under this Subsection is personal to United
Natural Foods, Inc. and may not be used by, and shall not be transferrable or
assignable (voluntarily or involuntarily) to any person or entity except to an
assignee of the Lease of the entire Premises which assignee is either (aa) an
Affiliate which has complied with all the requirements of Article Ten applicable
to an assignment to an Affiliate or (bb) has been approved by Landlord and which
has complied with all the requirements of Article Ten applicable to an
assignment.
6.07 STANDBY GENERATOR
(a) At any time during the Term, Tenant shall have the right, at Tenant's
sole cost and expense, to install, operate, maintain, repair, replace, remove
and use Standby Generator Installations (as defined below), upon and subject to
the terms and conditions of this Section and this Lease. The "Standby Generator
Installations" shall mean (i) a standby diesel generator to be installed or
housed, along with its fuel tank, in a mobile van trailer to be parked on the
Truck Court; (ii) wiring, cabling and conduit (subject to Subsection (b) below)
from it to the separate electrical circuit(s) serving only the Premises, and all
associated switchover equipment and circuits to connect & operate the generator
on a standby basis without interference with or damage to any Building Systems
or any other equipment of Landlord or other occupants of the Building; (iii) a
diesel fuel storage tank with a capacity of not more than eight hundred (800)
gallons located outside the Building, above-ground, in a fuel tank installed or
housed in a mobile van trailer to be parked on the Truck Court; and (iv) all
ancillary containment vessels, pipe, ventilation systems and equipment. The
Standby Generator Installations shall be for the sole purpose of providing
Tenant electrical power for its operation in the Premises in the event of any
interruption in the supply of electricity, and shall not be used at any other
times or in any other way except for occasional testing, as necessary. This
right to Standby Generator Installations is further conditioned upon the
following: (1) in all respects, such right shall be subject to Tenant seeking
and obtaining from applicable governmental authorities and the electric utility
serving the Real Property all approvals and permits to install, operate,
maintain, repair, replace and use such Standby Generator Installations; (2)
except as otherwise specified above, the exact location, size and all
specifications of such Standby Generator Installations, shall be subject to
Landlord's prior written approval, which shall not be unreasonably withheld; (3)
without limiting the generality of any other provisions of this Lease, Tenant
shall install, operate, maintain, repair, replace, remove and use Standby
Generator Installations in compliance with this Lease, all Environmental Laws
and all other Laws; (4) without limiting the generality of any other provisions
of Section 7.02 below, the Standby Generator Installations, whether located in
the Premises or elsewhere at the Real Property, shall be subject to and covered
by the indemnity and all
13
other provisions of Section 7.02 and shall be deemed to be in and part of the
Premises for all purposes of Section 7.02; and (5) notwithstanding any provision
of this Lease to the contrary, Tenant shall, as of the expiration or earlier
termination of this Lease, remove the Standby Generator Installations and all
Hazardous Material introduced to the Property by Tenant, an Affiliate of Tenant,
or any occupant or user of all or part of the Premises permitted by Tenant or an
Affiliate, or any employee, agent, contractor, customer or invitee of any of
them, and restore the Property to its condition immediately prior to the
installation of the Standby Generator Installations, all at Tenant's sole cost
and expense. Landlord has no obligation to seek or obtain from applicable
governmental authorities or the electric utility serving the Real Property all
approvals and permits to install, operate, maintain, repair, replace, remove and
use such Standby Generator Installations. Provided however, upon Tenant's
written request, Landlord will cooperate with Tenant in the event that requests
for approval require the consent of Landlord or require that the request be made
in the name of Landlord, but Tenant shall pay all costs in connection with such
cooperation, and such cooperation shall not subject Landlord to or result in any
cost, expense, liability or obligation of Landlord. Landlord makes no
representation or warranty either (i) as to whether or not the foregoing
complies with Law or is or will be acceptable to or approved by applicable
governmental authorities, the electric utility serving the Real Property or (ii)
that adequate or suitable space exists at the Real Property for such
installations.
(b) Any installations contemplated by this Section 6.07 shall be part of
the Tenant Work pursuant to the Workletter if proposed to be done preparatory to
or in connection with Tenant's initial occupancy of the Premises and, if
proposed to be done thereafter, shall be Tenant Alterations subject to Article
Nine and the location and method of installation of conduits and related
equipment in any of the Building's horizontal and vertical pathways shall be
subject to the prior written approval of Landlord, in its reasonable discretion.
Further, Tenant's employees, agents or contractors who shall install, maintain,
repair, replace or remove any installations contemplated by this Section 6.07
shall be subject to Landlord's prior written approval, in its reasonable
discretion, and to the extent any such work is to be done outside the Premises
in conduits or the Building's horizontal or vertical pathways or similar areas
whose use is shared by Landlord or other occupants of the Building or other
service providers to the Building, such work shall be subject to the direction
of Landlord, and Landlord reserves the right to restrict and control access to
such areas. All installations pursuant to this Section 6.07 (whether as part of
or after the initial installations) and their maintenance, repair, removal and
use shall not adversely affect the operation, maintenance or replacement of any
Building Systems, and shall be subject to compliance with other provisions of
this Lease. Without limiting the generality of the foregoing, Tenant shall be
responsible to provide all switchover equipment and circuits to connect &
operate the generator on a standby basis without interference with or damage to
any Building Systems or any other equipment of Landlord or other occupants of
the Building. With respect to all operations (including all installations,
maintenance, repair, removal and use) with respect to this Section 6.07, Tenant
shall conduct its business and control its agents, employees and invitees in
such manner as not to create any nuisance, or interfere with, annoy or disturb
any other licensee or tenant of the Building or Landlord in its operation of the
Building. With respect to all conduit for electrical connections contemplated by
this Section 6.07, Landlord shall permit Tenant to install a single conduit (no
larger than three (3) inch conduit) to connect Tenant's standby generator to the
separate electrical circuit(s) serving only the Premises.
6.08 PROPANE TANK
(a) At any time during the Term, Tenant shall have the right, at Tenant's
sole cost and expense, to install, operate, maintain, repair, replace, remove
and use a Propane Tank (as defined below), upon and subject to the terms and
conditions of this Section and this Lease. The "Propane Tank" shall mean (i) a
propane fuel storage tank with a capacity of not more than two hundred (200)
gallons located outside the Building on the Truck Court, above-ground; and (ii)
all ancillary containment vessels, pipe, ventilation systems and equipment. The
Propane Tank shall be for the sole purpose of providing Tenant a supply of
propane to refill the separate portable propane tanks mounted on fork lifts used
at the Premises. This right to a Propane Tank is further conditioned upon the
following: (1) in all respects, such right shall be subject to Tenant seeking
and obtaining from applicable governmental authorities all approvals and permits
to install, operate, maintain, repair, replace and use such Propane Tank; (2)
except as otherwise specified above, the exact location, size and all
specifications of such Propane Tank, shall be subject to Landlord's prior
written approval, which shall not be unreasonably withheld; (3) without limiting
the generality of any other provisions of this Lease, Tenant shall install,
operate, maintain, repair, replace, remove and use the Propane Tank in
compliance with this Lease, all Environmental Laws and all other Laws; (4)
without limiting the generality of any other provisions of Section 7.02 below,
the Propane Tank located on the Truck Court shall be subject to and covered by
the indemnity and all other provisions of Section 7.02 and shall be deemed to be
in and part of the Premises for all purposes of Section 7.02; and (5)
notwithstanding any provision of this Lease to the contrary, Tenant shall, as of
the expiration or earlier termination of this Lease, remove the Propane Tank and
all Hazardous Material introduced to the Property by Tenant, an Affiliate of
Tenant, or any occupant or user of all or part of the Premises permitted by
Tenant or an Affiliate, or any employee, agent, contractor, customer or invitee
of any of them, and restore the Property to its condition immediately prior to
the installation of the Propane Tank, all at Tenant's sole cost and expense.
Landlord has no obligation to seek or obtain from applicable governmental
authorities approvals and permits to install, operate, maintain, repair,
replace, remove and use such Propane Tank. Provided however, upon Tenant's
written request, Landlord will cooperate with Tenant in the event that requests
for approval require the consent of Landlord or require that the request be made
in the name of Landlord, but Tenant shall pay all costs in connection with such
cooperation, and such cooperation shall not subject Landlord to or result in any
cost, expense, liability or obligation of Landlord. Landlord makes no
representation or warranty either (i) as to whether or not the foregoing
complies with Law or is or will be acceptable to or approved by applicable
governmental authorities, or (ii) that adequate or suitable space exists at the
Real Property for such installations.
14
(b) Any installations contemplated by this Section 6.08 shall be part of
the Tenant Work pursuant to the Workletter if proposed to be done preparatory to
or in connection with Tenant's initial occupancy of the Premises and, if
proposed to be done thereafter, shall be Tenant Alterations subject to Article
Nine. With respect to all operations (including all installations, maintenance,
repair, removal and use) with respect to this Section 6.08, Tenant shall conduct
its business and control its agents, employees and invitees in such manner as
not to create any nuisance, or interfere with, annoy or disturb any other
licensee or tenant of the Building or Landlord in its operation of the Building.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall be entitled to possession of the Premises when the
Landlord Work is Substantially Complete. Provided however, before the Landlord
Work is Substantially Complete Tenant may, with Landlord's prior written
consent, which will not unreasonably be withheld, enter the Premises solely for
the purpose of performing Tenant Work under the Workletter, installing Tenant's
fixtures and Tenant's personal property, including cabling for phones and
computers, as long as such entry will not interfere with the timely and orderly
construction and completion of the Landlord Work. Tenant shall notify Landlord
of its desired time(s) of entry and shall submit for Landlord's approval the
scope of the work to be performed and the name(s) of the contractor(s) who will
perform such work. Such work and such contractors shall be subject to Landlord's
approval as provided in the Workletter. Such entry shall be without payment of
Monthly Base Rent or Rent Adjustments, but such entry and all acts and omissions
in connection with it are subject to and governed by all other provisions of the
Lease, including Tenant's indemnification obligations, insurance obligations and
obligations under this Article Seven. Tenant shall occupy and use the Premises
only for the uses specified in Section 1.01(15) to conduct Tenant's business.
Tenant shall not occupy or use the Premises (or permit the use or occupancy of
the Premises) for any purpose or in any manner which: (i) is unlawful or in
violation of any Law or Environmental Law; (ii) may be dangerous to persons or
property or which may increase the cost of, or invalidate, any policy of
insurance carried on the Building or covering its operations; (iii) is contrary
to or prohibited by the terms and conditions of this Lease or the rules and
regulations as provided in Article Eighteen; (iv) contrary to or prohibited by
the articles, bylaws or rules of any owner's association affecting the Project;
(v) is improper, immoral, or objectionable; (vi) would obstruct or interfere
with the rights of other tenants or occupants of the Project, or injure or annoy
them, or would tend to create or continue a nuisance; or (vii) would constitute
any waste in or upon the Premises or Project. No manufacturing operations may be
conducted from the Premises. Without limiting the generality of the foregoing,
Tenant shall not maintain, service, repair, fuel or refuel any truck or vehicle
of any kind on the Premises or the Property, except that Tenant may take any of
the actions described on Exhibit G hereto and by this reference incorporated
herein.
(b) Landlord and Tenant acknowledge that the Americans With Disabilities
Act of 1990 (42 U.S.C. ss.12101 et seq.) and regulations and guidelines
promulgated thereunder, as all of the same may be amended and supplemented from
time to time (collectively referred to herein as the "ADA") establish
requirements for business operations, accessibility and barrier removal, and
that such requirements may or may not apply to the Premises, the Building and
the Project depending on, among other things: (i) whether Tenant's business is
deemed a "public accommodation" or "commercial facility", (ii) whether such
requirements are "readily achievable", and (iii) whether a given alteration
affects a "primary function area" or triggers "path of travel" requirements. The
parties hereby agree that: (a) Landlord shall be responsible for ADA Title III
compliance to the extent of the Base Building (defined in the Workletter) as
required as of the execution date of this Lease, to the extent of the Landlord
Work as of the date of its Substantial Completion, and in the Common Areas,
except as provided below, (b) Tenant shall be responsible for ADA Title III
compliance in the Premises, including any leasehold improvements or other work
to be performed in the Premises under or in connection with this Lease, (c)
Landlord may perform, or require that Tenant perform, and Tenant shall be
responsible for the cost of, ADA Title III "path of travel" requirements
triggered by Tenant Additions in the Premises, and (d) Landlord may perform, or
require Tenant to perform, and Tenant shall be responsible for the cost of, ADA
Title III compliance in the Common Areas necessitated by the Building being
deemed to be a "public accommodation" instead of a "commercial facility" as a
result of Tenant's use of the Premises. Tenant shall be solely responsible for
requirements under Title I of the ADA relating to Tenant's employees.
(c) Tenant agrees to cooperate with Landlord and to comply with any and
all guidelines or controls concerning energy management imposed upon Landlord by
federal or state governmental organizations or by any energy conservation
association to which Landlord is a party or which is applicable to the Building.
7.02 HAZARDOUS MATERIAL
(a) Tenant shall not use, generate, manufacture, produce, store, release,
discharge, or dispose of, on, under or about the Premises or any part of the
Project, or transport to or from the Premises or any part of the Project, any
Hazardous Material, or allow its employees, agents, contractors, licensees,
invitees or any other person or entity to do so except to the extent expressly
provided in Subsections (a)(1) and (a)(2) below.
(1) So long as Tenant uses the Premises only for a food warehouse
and food distribution (and associated office and administrative uses)
Tenant shall be permitted to use and store in, and transport to and from,
the Premises Hazardous Material incidental to such use, but in no event
any fuel, petroleum or its byproducts except propane fuel in the amount
and as otherwise
15
described in Section 6.08 above, propane fuel in separate portable tanks
to mount on fork lifts used at the Premises, and diesel fuel in the amount
and as otherwise provided in Section 6.07 above (such limited category of
permitted Hazardous Material may be referred to as "Hazardous Material
Incidental to Food Use") so long as: (i) each item of Hazardous Material
Incidental to Food Use is used or stored in, or transported to and from,
the Premises only to the extent necessary for Tenant's operation for such
food warehouse and distribution (and associated office and administrative
uses) at the Premises; (ii) Tenant shall not install any underground tanks
of any type; and (iii) the conditions and provisions set forth in this
Subsection (a)(1) (which includes the part of Subsection (a) above) and
Subsections (a)(3), (i) and (l) below are strictly complied with, and for
so long as Tenant strictly complies with such conditions and provisions,
the other conditions and provisions of this Section 7.02 shall not be
applicable. Tenant shall comply with and shall cause Tenant's Agents (as
defined in Subsection 7.02 (b)) to comply with all Environmental Laws
pertaining to Tenant's occupancy and use of the Premises and concerning
the proper storage, use, handling, removal and disposal of any Hazardous
Material introduced to the Premises, the Building or the Property by
Tenant or Tenant's Agents. Tenant shall, no later than the Termination
Date, surrender the Premises to Landlord free of Hazardous Material. In
the event that Tenant is notified of any investigation or violation of any
Environmental Law arising from any activity of Tenant or Tenant's Agents
at the Property, Tenant shall immediately deliver to Landlord a copy of
such notices and reports in connection therewith. In such event or in the
event Landlord reasonably believes that a violation exists of
Environmental Law by Tenant or Tenant's Agents or of this Subsection
(a)(1), Landlord may conduct, at Tenant's expense, such tests and studies
as Landlord deems desirable relating to compliance by Tenant or Tenant's
Agents with Environmental Laws or the alleged presence of Hazardous
Material introduced to the Premises, the Building or the Property by
Tenant or Tenant's Agents.
(2) Notwithstanding the foregoing, Tenant shall be permitted to use
and store in, and transport to and from, the Premises the Hazardous
Material identified on Exhibit D hereto and by this reference incorporated
herein ("Permitted Hazardous Material") so long as: (i) each item of the
Permitted Hazardous Material is used or stored in, or transported to and
from, the Premises only to the extent necessary for Tenant's operation of
its business at the Premises; (ii) at no time shall any Permitted
Hazardous Material be in use or storage at the Premises in excess of the
quantity specified therefor in Exhibit D; and (iii) the conditions and
provisions set forth in this Section 7.02 are strictly complied with.
(3) The right to use and store in, and transport to and from, the
Premises Hazardous Material Incidental to Food Use and/or, as applicable,
the Permitted Hazardous Material is personal to United Natural Foods, Inc.
and, as long as it remains an Affiliate of Tenant, MPWI [as defined in
Section 10.01(e)], and may not be assigned or otherwise transferred except
to an assignee which is an Affiliate and which has complied with the
requirements of Article Ten applicable to an assignment to an Affiliate
(and Tenant may allow the same uses permitted Tenant hereunder, subject to
all the terms and conditions hereof, by a sublessee which is an Affiliate
and which has complied with the requirements of Article Ten applicable to
a sublease to an Affiliate) without the prior written consent of Landlord,
which consent may be withheld in Landlord's sole discretion. Any consent
by Landlord pursuant to Article Ten to an assignment, transfer,
subletting, mortgage, pledge, hypothecation or encumbrance of this Lease,
and any interest therein or right or privilege appurtenant thereto, shall
not constitute consent by Landlord to the use or storage at, or
transportation to, the Premises of any Hazardous Material (including a
Hazardous Material Incidental to Food Use or a Permitted Hazardous
Material) by any such assignee, sublessee or transferee unless Landlord
expressly agrees otherwise in writing. Any consent by Landlord to the use
or storage at, or transportation to or from the Premises, of any Hazardous
Material (including a Hazardous Material Incidental to Food Use or a
Permitted Hazardous Material) by an assignee, sublessee or transferee of
Tenant shall not constitute a waiver of Landlord's right to refuse such
consent as to any subsequent assignee or transferee.
(b) Tenant shall comply with and shall cause Tenant's employees, agents,
contractors, licensees, invitees or any other person or entity for whom Tenant
is responsible (collectively, "Tenant's Agents") to comply with, and shall keep
and maintain the Premises and cause Tenant's Agents to keep and maintain the
Premises, in compliance with all Environmental Laws. Neither Tenant nor Tenant's
Agents shall violate, or cause or permit the Premises to be in violation of, any
Environmental Laws.
Tenant shall, at its own expense prior to Tenant's use and
occupancy, procure, maintain in effect and comply with all conditions of any and
all permits, licenses and other governmental and regulatory approvals required
for Tenant's use of the Premises. Tenant shall cause any and all Hazardous
Material removed from the Premises to be removed and transported solely by duly
licensed handlers to duly licensed facilities for final disposal of such
materials and wastes.
Tenant agrees to provide Landlord with: (i) a copy of any hazardous
material management plan or similar document required by any federal, state or
local governmental or regulatory authority to be submitted by Tenant; (ii)
copies of all permits, licenses and other governmental and regulatory approvals
with respect to the use of Hazardous Material at the Project; (iii) copies of
hazardous waste manifests reflecting the legal and proper disposal of all
Hazardous Material removed from the Premises; and (iv) copies of all reports,
studies and written results of tests or inspections concerning the Premises or
any part of the Project with respect to Hazardous Material, including the
"Plans" hereinafter defined (collectively, "Documents"). Tenant shall deliver
all Documents to Landlord promptly following the earlier of (1) Tenant's
submission of such Documents to the requesting governmental agency, or (2)
Tenant's receipt of such Documents (Tenant
16
hereby agreeing that it shall exercise diligent efforts to expeditiously obtain
copies of any such Documents known by Tenant to exist).
(c) Upon commencing any activity involving Hazardous Material on the
Premises, and continuing thereafter throughout the Term, Tenant shall initiate
and maintain the systems set forth in the following (collectively, "Plans") in
order to ensure the routine monitoring of the levels of Hazardous Material which
may be present on, under or about the Premises or any part of the Project or
properties adjoining or in the vicinity of the Project as the result of the
activities of Tenant or Tenant's Agents and to ensure continued compliance with
the procedures and regulations concerning the handling, storage, use and
disposal of Hazardous Material: (i) each permit, license or other governmental
or regulatory approval with respect to the use of Hazardous Material at the
Project, (ii) each Hazardous Material management plan or similar document
required by any federal, state, or local governmental or regulatory entity,
(iii) each plan for handling and disposing of Hazardous Material necessary to
comply with Environmental Laws prepared by or on behalf of Tenant or Tenant's
Agents (whether or not required to be submitted to a governmental agency).
Copies of the foregoing described Plans are listed on Exhibit E hereto and
attached to this Lease as Exhibits E-1 through E- .
(d) Not less often than once each calendar quarter during the Term, Tenant
shall provide Landlord with a written report which shall set forth the results
of the monitoring of Hazardous Material during the previous calendar quarter.
Landlord may elect (but shall not be obligated) to retain an independent
consultant experienced in the use and management of Hazardous Material for the
purpose of reviewing any information received by Landlord in connection with
Hazardous Material. Pursuant to such review, Landlord's consultant may make
recommendations in connection with Tenant's control of Hazardous Material on the
Premises, and Tenant shall implement, at Tenant's sole cost, the recommendations
of Landlord's consultant. Landlord's failure to appoint any consultant shall not
relieve Tenant of any of Tenant's obligations under this Lease relating to
Hazardous Material nor constitute a waiver of Landlord's rights under this
Lease. Notwithstanding the foregoing, as long as the conditions with respect to
Permitted Hazardous Materials set forth in this Section 7.02 are strictly
complied with, Tenant shall not be obligated to provide Landlord with the
foregoing written report with respect to Permitted Hazardous Materials, unless
required to do so by Law.
(e) Landlord may install permanent or other testing wells or devices at or
about the Premises or any part of the Project, and may cause the ground water to
be tested to detect the presence of Hazardous Material at least once every
twelve (12) months during the Term by the use of such wells or devices as are
then customarily used for such purposes. If Tenant so requests in writing,
Landlord shall supply Tenant with a copy of any such test results. The costs of
any such tests, and the installation, maintenance, repair, removal, closure and
replacement of such wells or devices shall be included in Operating Expenses
pursuant to this Lease; provided, however, such costs shall be borne solely by
Tenant if the same are incurred by Landlord based upon Landlord's reasonable
belief, at the time such testing is initiated, that Tenant is in breach of its
obligations under this Section 7.02 or if, following the initiation of such
testing, the presence of Hazardous Material is detected and Tenant or Tenant's
Agents are responsible therefor. Tenant's obligations under this Section 7.02(e)
shall survive the expiration or earlier termination of this Lease.
(f) Landlord and its representative shall have the right, at the following
times, to enter the Premises and to: (i) conduct any testing, monitoring and
analysis for Hazardous Material; (ii) review any documents, materials,
inventory, financial data or notices or correspondence to or from private
parties or governmental or regulatory authorities in connection therewith; and
(iii) review all storage, use, transportation and disposal facilities and
procedures associated with the storage, use, transportation and disposal of
Hazardous Material (collectively, "Inspection"):
(1) Once every three months for the first twelve (12) months after
the later of the date Tenant introduces Hazardous Material to the Premises
pursuant to this Section 7.02 or notifies Landlord of such use, and once every
twelve (12) months thereafter throughout the Term. Tenant agrees to notify
Landlord at least three (3) days prior to the use or storage in, or
transportation to, the Premises of Hazardous Material; and
(2) At any time during the Term if, in Landlord's reasonable
judgment, Tenant is breaching its obligation under this Section 7.02 or is not
in compliance with any other provision of this Lease.
All costs and expenses incurred by Landlord in connection with any
Inspection pursuant to this Section 7.02(f) shall, subject to Section 7.02(n)
below, become due and payable by Tenant as additional Rent, upon presentation by
Landlord of an invoice therefor.
(g) Tenant shall give prompt written notice to Landlord of:
(1) any proceeding or inquiry by, notice from, or order of any
governmental authority (including the California State Department of Health
Services) with respect to the presence of any Hazardous Material on, under or
about the Premises or any part of the Project or the migration thereof from or
to other property;
(2) all claims made or threatened by any third party against Tenant,
the Premises or any part of the Project relating to any loss or injury resulting
from any Hazardous Material;
(3) any spill, release, discharge or nonroutine disposal of
Hazardous Material that occurs with respect to the Premises or operations at the
Premises by Tenant or Tenant's Agents;
17
(4) all matters of which Tenant is required to give notice pursuant
to Sections 25249.5 et seq. and 25359.7 of the California Health and Safety
Code; and
(5) Tenant's discovery of any occurrence or condition on, under or
about the Premises or any part of the Project or any real property adjoining or
in the vicinity of the Premises or the Project that could cause the Premises or
any part of the Project to be subject to any restrictions on the ownership,
occupancy, transferability or use of the Premises or any part of the Project
under any Environmental Laws, including without limitation, Tenant's discovery
of any occurrence or condition on any real property adjoining or in the vicinity
of the Premises or the Project that could cause the Premises or any part of the
Project to be classified as "border zone property" under the provisions of
California Health and Safety Code Sections 25220 et seq. or any regulation
adopted in accordance therewith, or to be otherwise subject to any restrictions
on the ownership, occupancy, transferability or use of the Premises or any part
of the Project under any Environmental Laws.
(h) Landlord shall have the right to join and participate in, as a party
if it so elects, any legal proceedings or actions affecting the Premises or any
part of the Project initiated in connection with any Environmental Laws and have
its attorneys' fees in connection therewith paid by Tenant. In addition, Tenant
shall not take any remedial action in response to the presence of any Hazardous
Material in, under, or about the Premises or the Project (except in the case
where loss of life or substantial property damage is imminent or immediate
action is required by any governmental entity, in which event Tenant shall take
immediate remedial action), nor enter into any settlement agreement, consent
decree or other compromise in respect to any claims relating to any Hazardous
Material in any way connected with the Premises or the Project, without first
notifying Landlord of Tenant's intention to do so and affording Landlord ample
opportunity to appear, intervene or otherwise appropriately assert and protect
Landlord's interest with respect thereto.
(i) To the extent permitted by law, Tenant hereby indemnifies and agrees
to protect, defend and hold the Indemnitees harmless against any actions,
claims, demands, liability, costs and expenses, including attorneys' fees and
costs, arising from the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal, transportation to or from, or
presence of any Hazardous Material on, under or about the Premises or any part
of the Project caused by Tenant or by Tenant's Agents (collectively, a
"Release") including, without limitation: (1) all foreseeable consequential
damages, including loss of rental income and diminution in property value; (2)
the costs of any investigation, monitoring, removal, restoration, abatement,
repair, cleanup, detoxification or other ameliorative work of any kind or nature
(collectively, "Remedial Work") and the preparation and implementation of any
closure, remedial or other required plans; (3) any injury to or death of persons
or damage to or destruction of property; and (4) any failure of Tenant or
Tenant's Agents to observe the covenants of this Section 7.02. For purposes of
this Section 7.02(i), any acts or omissions of Tenant's Agents (whether or not
they are negligent, intentional, willful or unlawful) shall be strictly
attributable to Tenant. Tenant's obligations under this Section 7.02(i) shall
survive the expiration or earlier termination of this Lease. In case of any
action or proceeding brought against the Indemnitees by reason of any such
claim, upon notice from Landlord, Tenant covenants to defend such action or
proceeding by counsel chosen by Landlord, and reasonably approved by Tenant. In
any event, Landlord shall have the right to select as counsel a law firm of
quality and capability consistent with first quality "large law firms" in the
downtown Los Angeles area. Landlord reserves the right to settle, compromise or
dispose of any and all actions, claims and demands related to the foregoing
indemnity.
In no event shall Landlord be responsible to Tenant for the presence
of Hazardous Material in, on or about the Premises or the Project to the extent
caused or contributed to by any third party.
(j) Commencing with the Lease Year in which any Release occurs and
continuing thereafter throughout the Term, Tenant shall comply with the
provisions of this Section 7.02(j). Within forty-five (45) days following the
end of Tenant's fiscal year, Tenant shall provide Landlord with financial
statements prepared in accordance with generally accepted accounting principles
consistently applied and certified as true and correct by Tenant's independent
certified public accountant setting forth Tenant's performance for the
applicable fiscal year. As of the execution of this Lease, Tenant's fiscal year
ends __________. Tenant shall provide Landlord with prompt written notice of any
change in Tenant's fiscal year. If at any time it reasonably appears to Landlord
that Tenant is not maintaining sufficient insurance or is not otherwise
financially capable of fulfilling its obligations under this Section 7.02,
whether or not such obligations have accrued, become liquidated, conditional or
contingent, Tenant shall procure and thereafter maintain in full force and
effect such insurance or other form of financial assurance, with or from
companies or persons and in forms reasonably acceptable to Landlord, as Landlord
may from time to time request.
(k) Upon any Release, Tenant shall, subject to Section 7.02(h), promptly
notify Landlord of the Release and shall, at its sole expense and immediately
after demand by Landlord, commence to perform and thereafter diligently
prosecute to completion such Remedial Work as is necessary to restore the
Premises, Project or any other property affected by the Release to the condition
existing prior to the use of any Hazardous Material. All such Remedial Work
shall be performed: (i) in conformance with the requirements of all applicable
Environmental Laws; (ii) by one or more contractors, approved in advance in
writing by Landlord; and (iii) under the supervision of a consulting engineer
approved in advance in writing by Landlord. All costs and expenses of such
Remedial Work shall be paid by Tenant, including the charges of such
contractor(s) and/or the consulting engineer and Landlord's reasonable
attorneys' fees and costs incurred in connection with the monitoring or review
of such Remedial Work. In the event Tenant shall fail to timely commence, or
cause to be commenced, or fail to diligently prosecute to completion, such
Remedial Work, Landlord may, but shall not be required to, cause such Remedial
Work to be performed and all costs and expenses thereof, or incurred in
connection therewith, shall become immediately due and payable by Tenant.
Tenant's obligations under this Section 7.02(k) shall survive the expiration or
sooner termination of
18
this Lease.
(l) Hazardous Material shall include by way of illustration, and without
limiting the generality of the definition of Hazardous Material in Section 1.03,
the following: (i) those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances" or "solid
waste" under all present and future federal, state and local laws (whether under
common law, statute, rule, regulation or otherwise) relating to the protection
of human health or the environment, including California Senate Bill 245
(Statutes of 1987, Chapter 1302), the Safe Drinking Water and Toxic Enforcement
Act of 1986 (commonly known as Proposition 65) and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901 et seq., and the Hazardous Materials Transportation Act,
49 U.S.C. Sections 1801, et seq., all as heretofore and hereafter amended, or in
any regulations promulgated pursuant to said laws; (ii) those substances defined
as "hazardous wastes" in Section 25117 of the California Health & Safety Code or
as "hazardous substances" in Section 25316 of the California Health & Safety
Code, or in any regulations promulgated pursuant to said laws; (iii) those
substances listed in the United States Department of Transportation Table (49
CFR 172.101 and amendments thereto) or designated by the Environmental
Protection Agency (or any successor agency) as hazardous substances (see, e.g.,
40 CFR Part 302 and amendments thereto); (iv) such other substances, materials
and wastes which are or become regulated under applicable Law or by the United
States government or which are or become classified as hazardous or toxic under
any Law, including California Health & Safety Code, Division 20, and Title 26 of
the California Code of Regulations; and (v) any material, waste or substance
which contains petroleum, asbestos or polychlorinated biphenyls, is designated
as a "hazardous substance" pursuant to Section 311 of the Clean Water Act of
1977, 33 U.S.C. Sections 1251, et seq. (33 U.S.C. ss. 1321), is listed pursuant
to Section 307 of the Clean Water Act of 1977 (33 U.S.C. ss. 1317), or contains
any flammable, explosive or radioactive material.
(m) In addition to Tenant's obligations pursuant to Article Twelve, Tenant
shall, no later than the Termination Date, surrender the Premises to Landlord
free of Hazardous Material. If Tenant fails to so surrender the Premises and the
Project, the provisions of Section 7.02(i) shall apply. Landlord shall have the
right, but not the obligation, to appoint a consultant, at Tenant's expense, to
conduct an investigation to determine whether any Hazardous Material are located
in or about the Premises or the Project, and to determine the corrective
measures required to remove such Hazardous Material. Tenant, at its expense,
shall comply with all recommendations of the consultant. A failure by Landlord
to appoint such a consultant shall in no way relieve Tenant of any of Tenant's
obligations set forth in this Lease relating to Hazardous Material, nor
constitute a waiver of Landlord's rights under this Lease. Tenant's obligations
under this Section 7.02(m) shall survive the expiration or earlier termination
of this Lease.
(n) Except as otherwise provided in Section 7.02(d) (concerning the
implementation of consultant recommendations) and Section 7.02(k) (concerning
the monitoring and review of Remedial Work), all costs incurred by Landlord in
retaining a consultant for any purpose contained in this Section 7.02 shall be
included in Operating Expenses under this Lease unless Landlord retains a
consultant pursuant to this Section 7.02, and such consultant reasonably
determines after appropriate review of information and/or inspection that Tenant
is breaching its obligations under this Lease to comply with this Section 7.02,
in which event all costs and expenses incurred by Landlord in connection with
any such review, inspection, and/or implementation of recommendations pursuant
to this Section 7.02 shall become due and payable by Tenant as additional Rent,
upon presentation by Landlord of an invoice therefor.
(o) Upon any violation of any of the foregoing covenants, Landlord shall
be entitled to exercise all remedies available to a landlord against a
defaulting tenant, including but not limited to those set forth in Article
Eleven. Without limiting the generality of the foregoing, Tenant expressly
agrees that upon any such violation Landlord may, at its option (i) immediately
terminate this Lease, or (ii) continue this Lease in effect until compliance by
Tenant with its clean-up and removal covenant (notwithstanding the expiration of
the Term). No action by Landlord hereunder shall impair the obligations of
Tenant pursuant to Section 7.02.
7.03 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes, ducts,
wiring and conduits in and through the Premises, so long as Tenant's use, layout
or design of the Premises is not materially affected or altered. Landlord or
Landlord's agents shall have the right to enter upon the Premises in the event
of an emergency, or to inspect the Premises, to conduct safety and other testing
in the Premises and to make such repairs, alterations, improvements or additions
to the Premises or the Building or other parts of the Property as Landlord may
deem necessary or desirable (including all alterations, improvements and
additions in connection with a change in service provider or providers). Any
entry or work by Landlord shall be during normal business hours with prior
notice to Tenant at the Premises (without need of written notice to Tenant
pursuant to Article Twenty-four), except in emergency, and Landlord shall use
reasonable efforts to ensure that any entry or work shall not unreasonably
interfere with Tenant's occupancy of the Premises or the conduct of Tenant's
business therein.
(b) If Tenant shall not be personally present to permit an entry into the
Premises when because of an emergency an entry therein shall be necessary or
permissible, Landlord (or Landlord's agents), after attempting to notify Tenant
at the Premises (without need of written notice to Tenant pursuant to Article
Twenty-four), may enter the Premises without rendering Landlord or its agents
liable therefor, and without relieving Tenant of any obligations under this
Lease.
19
(c) During normal business hours with prior notice to Tenant at the
Premises (without need of written notice to Tenant pursuant to Article
Twenty-four), except in emergency, Landlord may enter the Premises for the
purpose of conducting such inspections, tests and studies as Landlord may deem
desirable or necessary to confirm Tenant's compliance with all Laws and
Environmental Laws or for other purposes necessary in Landlord's reasonable
judgment to ensure the sound condition of the Property and the systems serving
the Property. Landlord's rights under this Section 7.03 (c) are for Landlord's
own protection only, and Landlord has not, and shall not be deemed to have
assumed, any responsibility to Tenant or any other party as a result of the
exercise or non-exercise of such rights, for compliance with Laws or
Environmental Laws or for the accuracy or sufficiency of any item or the quality
or suitability of any item for its intended use.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs without such action
constituting an actual or constructive eviction of Tenant, in whole or in part,
or giving rise to an abatement of Rent by reason of loss or interruption of
business of Tenant, or otherwise.
(e) The review, approval or consent of Landlord with respect to any item
required or permitted under this Lease is for Landlord's own protection only,
and Landlord has not, and shall not be deemed to have assumed, any
responsibility to Tenant or any other party, as a result of the exercise or
non-exercise of such rights, for compliance with Laws or Environmental Laws or
for the accuracy or sufficiency of any item or the quality or suitability of any
item for its intended use.
7.04 QUIET ENJOYMENT
Landlord covenants, in lieu of any implied covenant of quiet possession or quiet
enjoyment, that so long as Tenant is in compliance with the covenants and
conditions set forth in this Lease, Tenant shall have the right to quiet
enjoyment of the Premises without hindrance or interference from Landlord or
those claiming through Landlord, and subject to the covenants and conditions set
forth in this Lease and to the rights of any Mortgagee or ground lessor.
ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
(a) Subject to Article Fourteen and Section 8.02, Landlord shall maintain
in good condition the following: (i) structural portions of the Building; (ii)
roof and skylights; (iii) exterior walls (excluding interior paint on such
walls, and all glass and exterior doors, facing or opening into any space
occupied by Tenant or other tenants); (iv) foundation; (v) slab floor; (vi)
under-slab standard sewer and plumbing system of the Building; (vii) standard
feeder lines for electricity, cable, telephone, telecommunications and other
utilities to the main panels in the Building's utility room, except for any
parts of such lines and facilities which are owned and/or maintained by the
respective utility; and (viii) fire pump assembly and distribution system up to
the boundary of the Premises. Landlord shall have no responsibility to maintain,
repair or replace the Building's standard heating, ventilating and air
conditioning equipment (except to the extent of any such equipment exclusively
serving Common Areas, if any, within the Building), and all such maintenance,
repairs and replacement shall be performed by Tenant pursuant to the terms of
Section 8.02. Landlord shall not be required to make any repair under this
Section 8.01 to the Premises or Property (either as initially delivered by
Landlord or thereafter) resulting from (a) any Tenant Additions performed by,
for or because of Tenant or to special equipment or systems installed by, for or
because of Tenant, (b) the installation, use or operation of Tenant's property,
fixtures and equipment, and without limiting the generality of the foregoing,
Tenant shall be responsible for any maintenance or repair resulting from its
racking system, (c) the moving of Tenant's goods, fixtures, equipment or other
property in or out of the Premises or Property, or in and about the Premises or
Property, (d) Tenant's use or occupancy of the Premises in violation of Article
Seven, (e) Tenant's failure to observe any condition or perform any obligation
of Tenant under this Lease, (f) any act or neglect of Tenant, its employees,
servants, agents, contractors, invitees or customers, (g) fire and other
casualty, except as provided by Article Fourteen, or (h) condemnation, except as
provided by Article Fifteen.
(b) Subject to Article Fourteen and Section 8.02, Landlord shall also (i)
operate and maintain in good condition and replace as necessary the Common Areas
of the Project, including the landscaping and irrigation therefor, common
drives, ramps, access and serviceways (including sweeping, striping and slurry
coating), outdoor lighting of the Common Areas, and (ii) operate, manage and
maintain in good condition any Project signage, except any specific
identification of Tenant or other tenants on any monument(s) or multi-tenant
sign platform(s), if any. Subject to Section 2.07, Section 8.02 and Article
Fourteen, Landlord shall be responsible to repave, as necessary, the Truck Court
and Tenant's Parking Area, except that Tenant shall be responsible for repaving
and repair due to improper use and due to any damage in connection with
installation, maintenance, repair or removal of any Tenant Additions affecting
such area.
(c) There shall be no abatement of rent, no allowance to Tenant for
diminution of rental value and no liability of Landlord by reason of
inconvenience, annoyance or any injury to or interference with Tenant's business
arising from the making of or the failure to perform any maintenance, repairs,
alterations or improvements in or to any portion of the Project or in or to any
fixtures, appurtenances or equipment therein. Except as otherwise provided in
Section 8.03, Tenant waives the right to make repairs at Landlord's expense
under any Law now or hereafter in effect. The preceding sentences shall not
deprive Tenant of any abatement of Rent to which Tenant would be entitled
pursuant to Section 6.04, Article Fourteen or Article Fifteen, or of Tenant's
rights and remedies for a Landlord default pursuant to Section 11.05, and shall
not relieve Landlord of liability for damages to either persons, property, or
business to the
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extent caused by Landlord's negligence or wrongful act, subject to and without
diminishing any waivers by Tenant pursuant to Article Seventeen or waivers by
Tenant or Landlord or their respective insurers in effect pursuant to Section
16.04.
8.02 TENANT'S MAINTENANCE
Subject to the provisions of Article Fourteen, Tenant shall, at Tenant's sole
cost and expense, maintain in good and clean condition, and make all repairs
(except for any maintenance and repair which Landlord is expressly required to
make pursuant to Section 8.01) to the following: (a) the Premises and fixtures
therein, including the interior walls, any paint on the interior side of
exterior walls, glass and windows of the Premises, all doors to the Premises and
all doors within the Premises; (b) the slab within the Premises, but Tenant
shall only be responsible for repair and repaving due to damage to or removal of
any part of the slab in connection with installation, maintenance, repair or
removal of any Tenant Additions or due to improper use, including overloading or
improperly engineered or installed racking system, and without limiting the
generality of the foregoing, Tenant shall cause any racking system to be
designed by an engineer who has been approved in writing by Landlord, and any
such system and its use shall be appropriate for, and shall not cause any damage
to, the slab; (c) the electrical, lighting, plumbing and heating, ventilating
and air conditioning systems or other utilities to the extent located within or
serving the Premises (including both standard and non-standard equipment); (d)
the Truck Court, Tenant's Parking Area and other area immediately surrounding
the Premises (including all service-ways, loading docks and dock areas adjacent
to the Premises, and garbage enclosures serving the Premises), and without
limiting the generality of the foregoing, if the Term is longer than sixty-one
(61) months, Tenant shall slurry coat any asphalt surfacing in such areas once
every four (4) years during the Term, provided however, Tenant shall not be
obligated to repave the Truck Court or Tenant's Parking Area except for improper
use and for repair and restoration of any damage in connection with
installation, maintenance, repair or removal of any Tenant Additions affecting
such area; (e) fire sprinkler system within the Premises and (f) Tenant's
signage. Tenant shall enter into contracts ("Service Contracts") for regularly
scheduled inspections and preventive maintenance/service, with contractors,
scope of work and frequency of inspection, maintenance or service, approved in
writing by Landlord, in its reasonable discretion, for inspection, servicing and
maintaining the following equipment and improvements, to the extent either
located within or serving the Premises (including both standard and non-standard
equipment)(but this obligation shall not apply to equipment, if any, which is
located within the Premises but does not serve the Premises): heating,
ventilating and air conditioning systems and equipment, and, if requested by
Landlord, of any other systems, equipment or improvements. Such service
contracts shall provide for reports to Landlord by the contractors. Tenant shall
deliver to Landlord a copy of the initial Service Contracts within sixty (60)
days after the Commencement Date and any other Service Contract entered into by
Tenant with respect to the Premises within ten (10) after Landlord's request. In
the event Tenant fails, in the reasonable judgment of Landlord, to meet the
requirements for such Service Contracts and cause such inspections, maintenance
or service to be performed, or in the event Tenant fails to maintain the
Premises, Truck Court and Tenant's Parking Areas in good and clean condition and
repair, which failure continues at the end of twenty-two (22) days following
written notice given by Landlord stating with particularity the nature of the
failure, Landlord shall have the right (but shall not be obligated) to obtain
such Service Contracts and to enter such areas and perform such maintenance,
repairs or refurbishing at Tenant's sole cost and expense (including a sum for
overhead to Landlord); provided, however, if the nature of the maintenance or
repair is such that it cannot, with the exercise of reasonable diligence, be
completed within twenty-two (22) days of Tenant's receipt of Landlord's notice,
Landlord shall not undertake such maintenance or repairs at Tenant's expense
provided Tenant commences such maintenance or repairs within said 22-day period
and thereafter diligently and continuously prosecutes the same to completion and
provided further, however, that in the event of an emergency condition, Landlord
shall have the right to make such repairs on behalf of Tenant after giving
Tenant such notice, if any, as is reasonable under the circumstances. Landlord's
right of entry pursuant to Section 7.03 shall include the right to enter and
inspect such areas for violations of Tenant's covenants herein. Tenant shall
maintain written records of maintenance and repairs, and shall use certified
technicians to perform such maintenance and repairs, as required by any
applicable Law. Notwithstanding anything contained in Section 8.01, but subject
to the waivers set forth in Section 16.04, Tenant shall pay for any repairs to
the Building or the Project which are caused by the act, negligence or
carelessness of Tenant or its assignees, subtenants or employees, or of the
respective agents of any of the foregoing persons, or of any other persons
permitted in the Building or elsewhere in the Project by Tenant or any of them.
8.03 TENANT'S RIGHT TO MAKE CERTAIN REPAIRS
Notwithstanding any other provision of the Lease to the contrary (but subject to
the provisions of Article Fourteen or Article Fifteen), if Tenant gives detailed
written notice to Landlord, with a copy to any Mortgagee or ground lessor whose
name and address have been furnished to Tenant, of a failure of Landlord to
perform a specific repair or maintenance obligation of Landlord under Section
8.01(a) or (b), which failure materially adversely affects the conduct of
Tenant's business from the Premises, and Landlord (or such Mortgagee or ground
lessor) fails to commence corrective action within thirty (30) days after
receipt of such notice, and if Tenant gives Landlord (and such Mortgagee or
ground lessor) a second detailed written notice specifying the required
corrective action which Tenant proposes to take if Landlord does not commence
the required corrective action within ten (10) business days after receipt of
such second notice, and thereafter diligently pursue it to completion, and
Landlord (or such Mortgagee or ground lessor) fails to commence the required
corrective action within ten (10) business days after receipt of such second
notice, and thereafter diligently to pursue it to completion, then Tenant may
proceed to take the required action and shall be entitled to reimbursement by
Landlord of Tenant's reasonable, actual costs in taking such action, which
action and reimbursement shall be in accordance with the provisions below.
Provided however, in the event of an emergency (as defined below), Tenant may
give such notice by telephone to the emergency/after hours telephone number and
person designated by Landlord from time to time (as set forth in Section 1.01(2)
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above or as otherwise designated from time to time by Landlord or its Project
Manager by written notice to Tenant), and if Tenant gives such notice to
Landlord and Landlord (or Mortgagee or ground lessor) fails to commence
corrective action within twenty-four (24) hours after receipt of such notice and
thereafter diligently pursue it to completion, then Tenant may proceed to take
the required action and shall be entitled to reimbursement by Landlord of
Tenant's reasonable, actual costs in taking such action, which action and
reimbursement shall be in accordance with the provisions below. In any such
event, Tenant shall also send (on the same day if during business hours on a
business day and otherwise on the next business day) Landlord a written notice
via overnight courier with respect to such emergency and required corrective
action confirming Tenant's telephonic notice. For purposes of this Section 8.03,
an "emergency" shall mean a failure of Landlord as described in the first
sentence of this Section which further has caused, is presently causing or will
immediately cause serious bodily injury or material damage to Tenant's property
or material adverse affect on the conduct of Tenant's business from the
Premises. In the event that Tenant takes such action, Tenant shall use only
those contractors used by Landlord in the Building for the type of work required
unless such contractors are unwilling or unable to perform, or timely perform,
such work, in which event Tenant may utilize the services of any other qualified
contractor which normally and regularly performs similar work in comparable
buildings in the San Bernardino-Riverside warehouse/industrial market. Provided
however, Tenant shall use only such contractor, materials, parts and techniques
required under any warranty then in effect. In all work, Tenant shall use only
materials and parts of kind and quality at least equal to the original and
consistent with the design of the Building. Any corrective action by either
party under this Subsection (d) shall otherwise comply with all applicable
provisions of the Lease. Promptly following completion of any work by Tenant
pursuant to this Subsection (d), Tenant shall deliver to Landlord a detailed
invoice of the work completed, the contractors used, the materials used and the
reasonable, actual costs of such work which Tenant claims are payable by
Landlord hereunder. Such amount shall be due within thirty (30) days after
receipt by Landlord, unless within thirty (30) days after receipt Landlord gives
Tenant written notice of objection to the payment of such invoice, setting forth
with reasonable particularity Landlord's reasons for its claim that such action
was not required to be taken by Landlord pursuant to the terms of the Lease, or
that the work by Tenant was defective (or otherwise did not correctly repair the
problem), or that the charges are excessive (in which case Landlord shall pay
the amount it contends would not have been excessive). In the event Tenant
disputes Landlord's objection or in the event that Landlord has not objected but
has failed to pay, Tenant's sole remedy shall be to claim a default by Landlord
under the Lease and to sue Landlord for payment, provided that in no event shall
Tenant have the right to a deduction or offset against Rent or to terminate or
rescind the Lease.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT ALTERATIONS
(a) The following provisions shall apply to the completion of any Tenant
Alterations:
(1) Tenant shall not, except as provided herein, without the prior
written consent of Landlord, which consent shall not be unreasonably
withheld, make or cause to be made any Tenant Alterations in or to the
Premises or any Building Systems serving the Premises. Further, Tenant
shall not, except as provided herein, without the prior written consent of
Landlord, in Landlord's sole discretion, make or cause to be made any
Tenant Alterations which affect any structural elements of the Building,
its foundation, its roof, its exterior, or any areas outside the Building.
Prior to making any Tenant Alterations, Tenant shall give Landlord ten
(10) days prior written notice (or such earlier notice as would be
necessary pursuant to applicable Law) to permit Landlord sufficient time
to post appropriate notices of non-responsibility. Subject to all other
requirements of this Article Nine, Tenant may undertake Decoration work
without Landlord's prior written consent. Tenant shall furnish Landlord
with the names and addresses of all contractors and subcontractors and
copies of all contracts. All Tenant Alterations shall be completed only by
contractors or mechanics approved by Landlord, which approval shall not be
unreasonably withheld, provided, however, that all engineers and
contractors performing all work relating to the Building Systems, any work
in the Building's utility room, or which affect any structural elements of
the Building, the foundation, the roof or the exterior of the Building
shall be engineers or contractors chosen by Tenant from a list of at least
three (3) engineers or contractors (other than the fire alarm contractor)
submitted by Landlord to Tenant or such other engineer or contractor as
Landlord shall approve in writing (which approval Landlord may withhold
with or without justification and without stating any reason or basis for
such non-approval). The contractors, mechanics and engineers who may be
used are further limited to those whose work will not cause or threaten to
cause disharmony or more than de minimis interference with Landlord or
other tenants in the Building and their respective agents and contractors
performing work in or about the Building. Landlord may further condition
its consent upon Tenant furnishing to Landlord and Landlord approving
prior to the commencement of any work or delivery of materials to the
Premises related to the Tenant Alterations such of the following as
specified by Landlord: architectural plans and specifications, opinions
from Landlord's engineers stating that the Tenant Alterations will not
adversely affect the Building Systems, necessary permits and licenses,
certificates of insurance, and such other documents in such form
reasonably requested by Landlord. Landlord may, in the exercise of
reasonable judgment, request that Tenant provide Landlord with appropriate
evidence of Tenant's ability to complete and pay for the completion of the
Tenant Alterations. Upon completion of the Tenant Alterations, Tenant
shall deliver to Landlord an as-built mylar and digitized (if available)
set of plans and specifications for the Tenant Alterations.
(2) Tenant shall pay the cost of all Tenant Alterations and the cost
of decorating the Premises and any work to the Property occasioned
thereby. With Tenant's request for approval of
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Tenant Alterations, Tenant shall submit plans and specifications to
Landlord and shall reimburse Landlord for all costs which Landlord may
incur in connection with review of such plans and specifications,
including any costs or expenses which Landlord may incur in electing to
have outside architects and engineers review said matters. Upon completion
of Tenant Alterations, Tenant shall furnish Landlord with contractors'
affidavits and full and final waivers of lien and receipted bills covering
all labor and materials expended and used in connection therewith and such
other documentation reasonably requested by Landlord or Mortgagee.
(3) Tenant agrees to complete all Tenant Alterations (i) in
accordance with all Laws, Environmental Laws, all requirements of
applicable insurance companies and in accordance with Landlord's standard
construction rules and regulations, and (ii) in a good and workmanlike
manner with the use of good grades of materials. Tenant shall notify
Landlord immediately if Tenant receives any notice of violation of any Law
in connection with completion of any Tenant Alterations and shall
immediately take such steps as are necessary to remedy such violation. In
no event shall such supervision or right to supervise by Landlord nor
shall any approvals given by Landlord under this Lease constitute any
warranty by Landlord to Tenant of the adequacy of the design, workmanship
or quality of such work or materials for Tenant's intended use or of
compliance with the requirements of Section 9.01(a)(3)(i) and (ii) above
or impose any liability upon Landlord in connection with the performance
of such work.
(b) All Tenant Additions to the Premises whether installed by Landlord or
Tenant, shall without compensation or credit to Tenant, become part of the
Premises and the property of Landlord at the time of their installation and
shall remain in the Premises, unless pursuant to Article Twelve, Tenant may
remove them or is required to remove them at Landlord's request; provided
however, Landlord and Tenant agree that Tenant's freezers and coolers, racking,
equipment, and office furniture shall be the property of Tenant, and shall be
removed by Tenant, and the affected areas restored to their condition before any
such installation, subject to Article Twelve.
(c) To the extent that any work in connection with Tenant's connections to
Landlord's existing electrical, water, sewer and telephone systems pursuant to
Section 6.02, Tenant's connections or installations pursuant to Sections 6.03 or
6.07, or performance of Tenant's obligations pursuant to Section 8.02, or
performance of any Tenant Work pursuant to the Workletter, or performance of any
Tenant Alterations permitted above, would require access by Tenant to or through
space of another lessee or occupant of the Building, any such access shall be
further subject to the following conditions: (i) Tenant's reasonable prior
written request to Landlord, so that Landlord may in turn give or make
reasonable advance written notice and/or request to such lessee or occupant;
(ii) coordination by Tenant so that the time of such entries shall be at
mutually convenient dates and times for the lessee or occupant, Landlord and
Tenant, provided however, Tenant agrees that Landlord or such lessee or occupant
may require that such entry or entries be outside of normal business hours;
(iii) Tenant shall use commercially reasonable efforts to avoid interference,
and to minimize unavoidable interference, from any such access with the
occupancy of such lessee or occupant; and (iv) in connection with any such
access, Tenant shall promptly pay for all damage caused by Tenant and/or those
entering on its behalf, and at the option of Landlord, Tenant shall perform any
such repairs and restoration.
(d) To the extent that any work in connection with Tenant's connections to
Landlord's existing electrical, water, sewer and telephone systems pursuant to
Section 6.02, Tenant's connections or installations pursuant to Sections 6.03 or
6.07, or performance of Tenant's obligations pursuant to Section 8.02, or
performance of any Tenant Work pursuant to the Workletter, or performance of any
Tenant Alterations permitted above, would require access by Tenant through the
Common Areas, any such access shall be subject to Section 2.06(a).
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or
supplier or any other lien to be filed against the Premises, Building or any
other part of the Property arising out of work performed, or alleged to have
been performed by, or at the direction of, or on behalf of Tenant. If any such
lien or claim for lien is filed, Tenant shall within thirty (30) days of
receiving notice of such lien or claim (a) have such lien or claim for lien
released of record or (b) deliver to Landlord a bond in form, content, amount,
and issued by surety, reasonably satisfactory to Landlord, indemnifying,
protecting, defending and holding harmless the Indemnitees against all costs and
liabilities resulting from such lien or claim for lien and the foreclosure or
attempted foreclosure thereof. If Tenant fails to take any of the above actions,
Landlord, in addition to its rights and remedies under Article Eleven, without
investigating the validity of such lien or claim for lien, may bond (or in the
event of risk of imminent forfeiture, may pay or discharge) the same and Tenant
shall, as payment of additional Rent hereunder, reimburse Landlord upon demand
for the amount so paid by Landlord, including Landlord's expenses and attorneys'
fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord as provided in this
Article 10, Tenant may not sublease, assign, mortgage, pledge, hypothecate or
otherwise transfer or permit the transfer of this Lease or the encumbering of
Tenant's interest therein in whole or in part, by operation of Law or otherwise
or permit the use or occupancy of the Premises, or any part thereof, by anyone
other than Tenant, provided, however,
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if Landlord chooses not to recapture the space proposed to be subleased or
assigned as provided in Section 10.02, Landlord shall not unreasonably withhold
its consent to a subletting or assignment under this Section 10.01. Tenant
agrees that the provisions governing sublease and assignment set forth in this
Article Ten shall be deemed to be reasonable. If Tenant desires to enter into
any sublease of the Premises or assignment of this Lease, Tenant shall deliver
written notice thereof to Landlord ("Tenant's Notice"), together with the
identity of the proposed subtenant or assignee and the proposed principal terms
thereof and financial and other information sufficient for Landlord to make an
informed judgment with respect to such proposed subtenant or assignee at least
sixty (60) days prior to the commencement date of the term of the proposed
sublease or assignment. If Tenant proposes to sublease less than all of the
Rentable Area of the Premises, the space proposed to be sublet and the space
retained by Tenant must each be a marketable unit as reasonably determined by
Landlord and otherwise in compliance with all Laws. Landlord shall notify Tenant
in writing of its approval or disapproval of the proposed sublease or assignment
or its decision to exercise its rights under Section 10.02 within thirty (30)
days after receipt of Tenant's Notice (and all required information). During any
time when any other space in the Building (including the New Space, as defined
in Rider 2, if not leased by Tenant) is not under lease or is being marketed by
Landlord in anticipation such space will be available for lease, Tenant shall
not sublease any portion of the Premises or assign this Lease to any other
tenant of the Project. Tenant shall submit for Landlord's approval (which
approval shall not be unreasonably withheld) any advertising which Tenant or its
agents intend to use with respect to the space proposed to be sublet.
(b) With respect to Landlord's consent to an assignment or sublease,
Landlord may take into consideration any factors which Landlord may deem
relevant, and the reasons for which Landlord's denial shall be deemed to be
reasonable shall include, without limitation, the following:
(i) the business reputation or creditworthiness of any proposed subtenant
or assignee is not acceptable to Landlord; or
(ii) any proposed assignee's or subtenant's use of the Premises would
violate Section 7.01 or any other provision of the Lease; or
(iii) the proposed subtenant or assignee is a bona fide prospective tenant
of Landlord in the Project as demonstrated by a written proposal dated
within ninety (90) days prior to the date of Tenant's request.
In no event shall Landlord be obligated to consider a consent to any proposed
assignment of the Lease which would assign less than the entire Premises. In the
event Landlord wrongfully withholds its consent to any proposed sublease of the
Premises or assignment of the Lease, Tenant's sole and exclusive remedy therefor
shall be to seek specific performance of Landlord's obligations to consent to
such sublease or assignment.
(c) Any sublease or assignment shall be expressly subject to the terms and
conditions of this Lease. Any subtenant or assignee shall execute such documents
as Landlord may require to evidence the terms of such consent, including the
agreements described below. If Tenant shall assign this Lease as permitted
herein, the assignee shall expressly assume all of the obligations of Tenant
hereunder in a written instrument satisfactory to Landlord and furnished to
Landlord not later than fifteen (15) days prior to the effective date of the
assignment. If Tenant shall sublease the Premises as permitted herein, Tenant
shall, at Landlord's option, within fifteen (15) days following any request by
Landlord, obtain and furnish to Landlord the written agreement satisfactory to
Landlord of such subtenant to the effect that the sublease is subordinate to the
Lease, and (i) in the event of a default by Tenant under the Lease, subtenant
will upon notice from Landlord of such default and of Tenant's assignment to
Landlord of all rents and payments under the sublease, pay such rents and
payments directly to Landlord; and (ii) subtenant will attorn to Landlord and
will pay all subrent directly to Landlord. Tenant shall deliver to Landlord a
copy of all agreements executed by Tenant and the proposed subtenant and
assignee with respect to the Premises for Landlord's approval, which shall not
be unreasonable withheld. Landlord's approval of a sublease, assignment,
hypothecation, transfer or third party use or occupancy shall not constitute a
waiver of Tenant's obligation to obtain Landlord's consent to further
assignments or subleases, hypothecations, transfers or third party use or
occupancy.
(d) For purposes of this Article Ten, an assignment shall be deemed to
include a change in the majority control of Tenant, resulting from any transfer,
sale or assignment of shares of stock or membership interests of Tenant
occurring by operation of Law or otherwise, and includes any merger,
acquisition, consolidation or reorganization, except as otherwise provided in
this Subsection below. Notwithstanding any provision of this Section to the
contrary, an assignment for purposes of this Article does not include any
transfer of control of the stock or membership interests of Tenant through (i)
any public offering of shares of stock in Tenant in accordance with applicable
State and Federal law, rules, regulations and orders if thereafter the stock
shall be listed and publicly traded through the New York Stock Exchange,
American Stock Exchange or Pacific Stock Exchange, or listed and publicly traded
through the NASDAQ national market and its price listed at least daily in the
Wall Street Journal; or (ii) public sale of such stock effected through such
Exchanges or the NASDAQ national market. If Tenant is a partnership, any change
in the partners of Tenant shall be deemed to be an assignment.
(e) Notwithstanding anything to the contrary in Sections 10.01(a) and
10.02, Tenant shall have the right, without the prior written consent of
Landlord, to assign this Lease to an Affiliate (defined below) or to sublease
the Premises or any part thereof to an Affiliate provided that (i) Landlord
receives thirty (30) days prior written notice of an assignment or sublease;
(ii) with respect to an Affiliate which is a
24
Successor or Purchaser as defined in Section 10.01(g), such Affiliate's net
worth is not less than Tenant's net worth immediately prior to the assignment or
subletting; (iii) the Affiliate assumes (except in the event of a sublease) in a
writing reasonably satisfactory to Landlord all of Tenant's obligations and
liability under this Lease and delivers to Landlord a proposed assumption no
later than fifteen (15) days prior to the effective date of the assignment and a
fully executed original of such assumption no later than the effective date;
(iv) Landlord receives no later than the effective date a fully executed copy of
an assignment or sublease agreement between Tenant and the Affiliate; and (v)
promptly after Landlord's written request, Tenant and the Affiliate provide such
reasonable documents or information which Landlord reasonably requests for the
purpose of substantiating whether or not the assignment or sublease is to an
Affiliate. Possession or occupancy of the Premises by Mountain People's
Warehouse Incorporated ("MPWI"), an Affiliate of Tenant, as long as it remains
an Affiliate of Tenant, shall not be deemed or construed to be a sublease
hereunder and Tenant shall be permitted to allow, subject to the terms and
conditions of this Lease (but without having to obtain Landlord's consent
thereto), MPWI to occupy the Premises, provided that MPWI acknowledges that it
is jointly and severally liable with Tenant under the terms and conditions of
this Lease.
(f) (Intentionally omitted)
(g) For purposes of this Lease, Affiliate shall mean any Person (as
defined below) which: (i) is controlled by, controls, or is under common control
with Tenant; or (ii) is the corporation or other entity (the "Successor")
resulting from a merger, consolidation or non-bankruptcy reorganization with
Tenant; or (iii) is the purchaser of substantially all the assets of Tenant as a
going concern (the "Purchaser"). The word Person means an individual,
corporation, limited liability company, partnership, trust, firm or other
entity. For purposes of this definition, the word "control," shall mean, with
respect to a Person that is a corporation or a limited liability company, the
right to exercise, directly or indirectly, more than fifty percent (50%) of the
voting rights attributable to the shares or membership interests of the
controlled Person and, with respect to a Person that is not a corporation, the
possession, directly or indirectly, of the power at all times to direct or cause
the direction of the management of the controlled Person.
10.02 RECAPTURE
Except with respect to (a) any sublease or assignment to an Affiliate which
complies with the provisions of Section 10.01 above, or (b) any sublease of less
than fifty percent (50%) of the Premises which complies with the provisions of
Section 10.01 above, Landlord shall have the option to exclude from the Premises
covered by this Lease ("recapture"), the space proposed to be sublet or subject
to the assignment, effective as of the proposed commencement date of such
sublease or assignment. If Landlord elects to recapture, Tenant shall surrender
possession of the space proposed to be subleased or subject to the assignment to
Landlord on the effective date of recapture of such space from the Premises,
such date being the Termination Date for such space. Effective as of the date of
recapture of any portion of the Premises pursuant to this section, the Monthly
Base Rent, Rentable Area of the Premises and Tenant's Share shall be adjusted
accordingly.
10.03 EXCESS RENT
(Intentionally omitted)
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
past, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent such exercise is
expressly permitted by Landlord. Tenant's liability shall remain primary, and in
the event of default by any subtenant, assignee or successor of Tenant in
performance or observance of any of the covenants or conditions of this Lease,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said subtenant, assignee or successor. After any assignment,
Landlord may consent to subsequent assignments or subletting of this Lease, or
amendments or modifications of this Lease with assignees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto, and such action shall not relieve Tenant or any successor of
Tenant of liability under this Lease. If Landlord grants consent to such
sublease or assignment, Tenant shall pay all reasonable attorneys' fees and
expenses incurred by Landlord with respect to such assignment or sublease. In
addition, if Tenant has any options to extend the Term or to add other space to
the Premises, such options shall not be available to any subtenant or assignee
(other than an assignee which is an Affiliate and entitled to exercise any such
option pursuant to its provisions as set forth in Rider 2), directly or
indirectly without Landlord's express written consent, which may be withheld in
Landlord's sole discretion, except as otherwise expressly provided in such
options.
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
(i) Tenant fails to pay any installment or other payment of Rent
including Rent Adjustment Deposits or Rent Adjustments within three (3)
business days after the date when due;
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(ii) Tenant fails to observe or perform any of the other covenants,
conditions or provisions of this Lease and fails to cure such default
within fifteen (15) days after written notice thereof to Tenant, unless
the default involves a hazardous condition, which shall be cured forthwith
or unless the failure to perform is a Default for which this Lease
specifies there is no cure or grace period, provided however, if the
default is one to which the fifteen (15) day cure period applies and of
such nature that it cannot reasonably be cured within fifteen (15) days,
Tenant shall be in Default if Tenant either fails to commence to cure such
default within fifteen (15) days or fails diligently and continuously to
prosecute such cure to completion or in any event fails to complete such
cure within ninety (90) days after such written notice from Landlord
(unless such Default is not capable of being cured within ninety (90) days
and subject to reasonable extensions for Force Majeure delays);
(iii) the interest of Tenant in this Lease is levied upon under
execution or other legal process;
(iv) a petition is filed by or against Tenant to declare Tenant
bankrupt or seeking a plan of reorganization or arrangement under any
Chapter of the Bankruptcy Act, or any amendment, replacement or
substitution therefor, or to delay payment of, reduce or modify Tenant's
debts, which in the case of an involuntary action is not discharged within
thirty (30) days;
(v) Tenant is declared insolvent by Law or any assignment of
Tenant's property is made for the benefit of creditors;
(vi) a receiver is appointed for Tenant or Tenant's property, which
appointment is not discharged within thirty (30) days;
(vii) any action taken against Tenant to reorganize or modify
Tenant's capital structure in a materially adverse way which in the case
of an involuntary action is not discharged within thirty (30) days; or
(viii) upon the dissolution of Tenant.
11.02 LANDLORD'S REMEDIES
(a) A Default shall constitute a breach of the Lease for which Landlord
shall have the rights and remedies set forth in this Section 11.02 and all other
rights and remedies set forth in this Lease or now or hereafter allowed by Law,
whether legal or equitable, and all rights and remedies of Landlord shall be
cumulative and none shall exclude any other right or remedy.
(b) With respect to a Default, at any time Landlord may terminate Tenant's
right to possession by written notice to Tenant stating such election. Any
written notice required pursuant to Section 11.01 shall constitute notice of
unlawful detainer pursuant to California Code of Civil Procedure Section 1161
if, at Landlord's sole discretion, it states Landlord's election that Tenant's
right to possession is terminated after expiration of any period required by Law
or any longer period required by Section 11.01. Upon the expiration of the
period stated in Landlord's written notice of termination (and unless such
notice provides an option to cure within such period and Tenant cures the
Default within such period), Tenant's right to possession shall terminate and
this Lease shall terminate, and Tenant shall remain liable as hereinafter
provided. Upon such termination in writing of Tenant's right to possession,
Landlord shall have the right, subject to applicable Law, to re-enter the
Premises and dispossess Tenant and the legal representatives of Tenant and all
other occupants of the Premises by unlawful detainer or other summary
proceedings, or otherwise as permitted by Law, regain possession of the Premises
and remove their property (including their trade fixtures, personal property and
those Tenant Additions which Tenant is required or permitted to remove under
Article Twelve), but Landlord shall not be obligated to effect such removal, and
such property may, at Landlord's option, be stored elsewhere, sold or otherwise
dealt with as permitted by Law, at the risk of, expense of and for the account
of Tenant, and the proceeds of any sale shall be applied pursuant to Law.
Landlord shall in no event be responsible for the value, preservation or
safekeeping of any such property. Tenant hereby waives all claims for damages
that may be caused by Landlord's removing or storing Tenant's personal property
pursuant to this Section or Section 12.01, and Tenant hereby indemnifies, and
agrees to defend, protect and hold harmless, the Indemnitees from any and all
loss, claims, demands, actions, expenses, liability and cost (including
attorneys' fees and expenses) arising out of or in any way related to such
removal or storage. Upon such written termination of Tenant's right to
possession and this Lease, Landlord shall have the right to recover damages for
Tenant's Default as provided herein or by Law, including the following damages
provided by California Civil Code Section 1951.2:
(1) the worth at the time of award of the unpaid Rent which had been
earned at the time of termination;
(2) the worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination until the time of
award exceeds the amount of such Rent loss that Tenant proves could
reasonably have been avoided;
(3) the worth at the time of award of the amount by which the unpaid
Rent for the balance of the Term after the time of award exceeds the
amount of such Rent loss that Tenant proves could be reasonably avoided;
and
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(4) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. The word "rent" as used in this
Section 11.02 shall have the same meaning as the defined term Rent in this
Lease. The "worth at the time of award" of the amount referred to in
clauses (1) and (2) above is computed by allowing interest at the Default
Rate. The worth at the time of award of the amount referred to in clause
(3) above is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). For the purpose of determining unpaid Rent under clause (3)
above, the monthly Rent reserved in this Lease shall be deemed to be the
sum of the Monthly Base Rent and the amounts last payable by Tenant as
Rent Adjustment Deposits and for electricity and other utilities used by
or furnished to Tenant for the calendar year in which Landlord terminated
this Lease as provided hereinabove.
(c) Even if Tenant is in Default and/or has abandoned the Premises, this
Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession by written notice as provided in Section 11.02(b)
above, and Landlord may enforce all its rights and remedies under this Lease,
including the right to recover Rent as it becomes due under this Lease. In such
event, Landlord shall have all of the rights and remedies of a landlord under
California Civil Code Section 1951.4 (lessor may continue Lease in effect after
Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant
has the right to sublet or assign, subject only to reasonable limitations), or
any successor statute. During such time as Tenant is in Default, if Landlord has
not terminated this Lease by written notice and if Tenant requests Landlord's
consent to an assignment of this Lease or a sublease of the Premises, subject to
Landlord's option to recapture pursuant to Section 10.02, Landlord shall not
unreasonably withhold its consent to such assignment or sublease. Tenant
acknowledges and agrees that the provisions of Article Ten shall be deemed to
constitute reasonable limitations of Tenant's right to assign or sublet. Tenant
acknowledges and agrees that in the absence of written notice pursuant to
Section 11.02(b) above terminating Tenant's right to possession, no other act of
Landlord shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, including acts of maintenance
or preservation or efforts to relet the Premises or the appointment of a
receiver upon the initiative of Landlord to protect Landlord's interest under
this Lease or the withholding of consent to a subletting or assignment, or
terminating a subletting or assignment, if in accordance with other provisions
of this Lease.
(d) (Intentionally omitted)
(e) Tenant hereby waives any and all rights to relief from forfeiture,
redemption or reinstatement granted by Law (including California Civil Code of
Procedure Sections 1174 and 1179) in the event of Tenant being evicted or
dispossessed for any cause or in the event of Landlord obtaining possession of
the Premises by reason of Tenant's Default or otherwise;
(f) When this Lease requires giving or service of a notice, that notice
shall replace rather than supplement any equivalent or similar statutory notice,
including any equivalent or similar notices required by California Code of Civil
Procedure Section 1161 or any similar or successor statute. When a statute
requires service of a notice in a particular manner, service of that notice (or
a similar notice required by this Lease) in the manner required by Article
Twenty-four shall replace and satisfy the statutory service-of-notice
procedures, including those required by Code of Civil Procedure section 1162 or
any similar or successor statute.
(g) The voluntary or other surrender or termination of this Lease, or a
mutual termination or cancellation thereof, shall not work a merger and shall
terminate all or any existing assignments, subleases, subtenancies or
occupancies permitted by Tenant, except if and as otherwise specified in writing
by Landlord.
(h) No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant, and no exercise by Landlord of its rights
pursuant to Section 26.15 to perform any duty which Tenant fails timely to
perform, shall impair any right or remedy or be construed as a waiver. No
provision of this Lease shall be deemed waived by Landlord unless such waiver is
in a writing signed by Landlord. The waiver by Landlord of any breach of any
provision of this Lease shall not be deemed a waiver of any subsequent breach of
the same or any other provision of this Lease.
11.03 ATTORNEY'S FEES
In the event any party brings any suit or other proceeding with respect to the
subject matter or enforcement of this Lease, the prevailing party (as determined
by the court, agency or other authority before which such suit or proceeding is
commenced) shall, in addition to such other relief as may be awarded, be
entitled to recover reasonable attorneys' fees, expenses and costs of
investigation as actually incurred, including court costs, expert witness fees,
costs and expenses of investigation, and all reasonable attorneys' fees, costs
and expenses in any such suit or proceeding (including in any action or
participation in or in connection with any case or proceeding under the
Bankruptcy Code, 11 United States Code Sections 101 et seq., or any successor
statutes, in establishing or enforcing the right to indemnification, in
appellate proceedings, or in connection with the enforcement or collection of
any judgment obtained in any such suit or proceeding).
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
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(a) In connection with any proceeding under Chapter 7 of the Bankruptcy
Code where the trustee of Tenant elects to assume this Lease for the purposes of
assigning it, such election or assignment, may only be made upon compliance with
the provisions of (b) and (c) below, which conditions Landlord and Tenant
acknowledge to be commercially reasonable. In the event the trustee elects to
reject this Lease then Landlord shall immediately be entitled to possession of
the Premises without further obligation to Tenant or the trustee.
(b) Any election to assume this Lease under Chapter 11 or 13 of the
Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the
"Electing Party") must provide for:
The Electing Party to cure or provide to Landlord adequate assurance that
it will cure all monetary defaults under this Lease within fifteen (15)
days from the date of assumption and it will cure all nonmonetary defaults
under this Lease within thirty (30) days from the date of assumption.
Landlord and Tenant acknowledge such condition to be commercially
reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign
Tenant's interest under this Lease to any other person, such interest may be
assigned only if the intended assignee has provided adequate assurance of future
performance (as herein defined), of all of the obligations imposed on Tenant
under this Lease.
For the purposes hereof, "adequate assurance of future performance" means
that Landlord has ascertained that each of the following conditions has
been satisfied:
(i) The assignee has submitted a current financial statement,
certified by its chief financial officer, which shows a net worth and
working capital in amounts sufficient to assure the future performance by
the assignee of Tenant's obligations under this Lease; and
(ii) Landlord has obtained consents or waivers from any third
parties which may be required under a lease, mortgage, financing
arrangement, or other agreement by which Landlord is bound, to enable
Landlord to permit such assignment.
(d) Landlord's acceptance of rent or any other payment from any trustee,
receiver, assignee, person, or other entity will not be deemed to have waived,
or waive, the requirement of Landlord's consent, Landlord's right to terminate
this Lease for any transfer of Tenant's interest under this Lease without such
consent, or Landlord's claim for any amount of Rent due from Tenant.
11.05 LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and
pursued with reasonable diligence the cure of any failure of Landlord to meet
its obligations hereunder within thirty (30) days after the receipt by Landlord
of written notice from Tenant of the alleged failure to perform. In no event
shall Tenant have the right to terminate or rescind this Lease as a result of
Landlord's default as to any covenant or agreement contained in this Lease.
Tenant hereby waives such remedies of termination and rescission and hereby
agrees that Tenant's remedies for default hereunder and for breach of any
promise or inducement shall be limited to a suit for damages and/or injunction.
In addition, Tenant hereby covenants that, prior to the exercise of any such
remedies, it will give Mortgagee notice and a reasonable time to cure any
default by Landlord. Notwithstanding any provision of this Section 11.05 to the
contrary, Tenant shall have the option to terminate this Lease under the
conditions and terms provided in Section 2.03(b) above.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, except for ordinary wear and tear, and damage caused by
Landlord or by fire or other casualty (but such exception with respect to fire
or other casualty shall not alter or derogate from Tenant's (a) obligations to
remove any property of Tenant or improvements, whether damaged or not, (b)
insurance obligations under Article Sixteen with respect to Tenant Additions or
(c) obligations with respect to Tenant's Share of Operating Expenses). Tenant
shall deliver to Landlord all keys to the Premises. Tenant shall remove from the
Premises all movable personal property of Tenant and Tenant's trade fixtures,
including equipment and office furniture. Tenant shall be entitled to remove
such Tenant Additions which at the time of their installation Landlord and
Tenant agreed may be removed by Tenant. Tenant shall also remove such other
Tenant Additions and restore the Premises as follows: (a) any Tenant Work,
Tenant Alterations, trade fixtures or equipment containing Hazardous Materials;
(b) Tenant's racking (but Tenant will not be required to remove bolts relating
to the racking system so long as they are ground flush with the floor surface
and any voids patched), Tenant's freezers and coolers, Tenant's swamp coolers
and connections thereto, and any other installation which Tenant is required to
remove pursuant to any other provision of the Lease (by way of example and not
limitation, including the Standby Generator Installations as provided in Section
6.07 and the Propane Tank as provided in Section 6.08); (c) Landlord hereby
reserves the right upon expiration or any earlier termination to require Tenant
to remove the portion of the mezzanine which is not over the office area (as
installed as part as part of the Landlord Work for Tenant's initial occupancy);
and (d) any other Tenant Addition if at the time of Landlord's approval of such
Tenant Addition, Landlord notifies Tenant that Landlord reserves the right to
elect upon expiration or any earlier termination to require Tenant to remove it.
Except as
28
otherwise provided in the following sentences of this Section, Landlord shall
not require Tenant to replace the existing slab which Tenant proposes to remove
under the area in which Tenant seeks to install freezers and coolers, and will
not require Tenant to remove the new slab and sub-slab support, insulation and
plumbing under the freezers and coolers, which are to be installed by Tenant, so
long as all such removal and installations are in accordance with plans and
specifications approved by Landlord and Tenant as described in the Workletter.
Notwithstanding Landlord's approval of the initial plans and specifications for
the design and initial installation of any Tenant Work or Tenant Alterations,
including the above-described flooring and sub-floor areas under the freezers
and coolers, Tenant shall remain responsible to repair or replace any of such
Tenant Work or Tenant Alterations (excluding any Tenant is required or permitted
to remove) which on the Termination Date are defective or not in as good
condition as, and matching with, other original components of the Building,
ordinary wear and tear excepted. For such purposes, by way of example and not
limitation, it is agreed that if upon the Termination Date, the new flooring
under the freezers and coolers does not properly join to and match the original
floor (in undamaged condition) with respect to flatness, fitness, hardness and
floor-loading capacity, Tenant, at Tenant's expense, shall be obligated to
repair or replace it, as appropriate. Tenant immediately shall repair all damage
resulting from removal of any of Tenant's property, furnishings or Tenant
Additions, shall close all floor, ceiling and roof openings and shall restore
the Premises to a tenantable condition or to the condition of the Premises prior
to commencement of the Landlord Work or Tenant Work. In the event possession of
the Premises is not delivered to Landlord when required hereunder, or if Tenant
shall fail to remove those items described above, Landlord may (but shall not be
obligated to), at Tenant's expense, remove any of such property and store, sell
or otherwise deal with such property as provided in Section 11.02(b), including
the waiver and indemnity obligations provided in that Section, and undertake, at
Tenant's expense, such restoration work as Landlord reasonably deems necessary
or advisable.
12.02 LANDLORD'S RIGHTS
All property which may be removed from the Premises by Landlord shall be
conclusively presumed to have been abandoned by Tenant and Landlord may deal
with such property as provided in Section 11.02(b), including the waiver and
indemnity obligations provided in that Section. Tenant shall also reimburse
Landlord for all costs and expenses incurred by Landlord in removing any Tenant
Additions and in restoring the Premises to the condition required by this Lease
at the Termination Date.
ARTICLE THIRTEEN
HOLDING OVER
Tenant shall pay Landlord one hundred twenty-five percent (125%) of the monthly
Rent payable for the month immediately preceding the holding over (including
increases for Rent Adjustments which Landlord may reasonably estimate) for each
month or portion thereof that Tenant retains possession of the Premises, or any
portion thereof, after the Termination Date (without reduction for any partial
month that Tenant retains possession). Tenant shall also pay all damages
sustained by Landlord by reason of such retention of possession. The provisions
of this Article shall not constitute a waiver by Landlord of any re-entry rights
of Landlord and Tenant's continued occupancy of the Premises shall be as a
tenancy in sufferance.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) If any fire or other casualty (whether insured or uninsured) renders
all or any part of the Premises or the Building untenantable, Landlord shall,
with reasonable promptness after the occurrence of such damage, reasonably
estimate the length of time that will be required to substantially complete the
repair and restoration and shall by notice advise Tenant of such estimate
("Landlord's Notice"). If the amount of time required to substantially complete
such repair and restoration, as reasonably estimated by Landlord, exceeds one
hundred fifty (150) days from the date such damage occurred, then Landlord, or
Tenant if all or a substantial portion of the Premises is rendered untenantable,
shall have the right to terminate this Lease as of the date of such damage upon
giving written notice to the other at any time within twenty (20) days after
delivery of Landlord's Notice, provided that if Landlord so chooses, Landlord's
Notice may also constitute such notice of termination.
(b) In the event that the Building is damaged or destroyed to the extent
of more than twenty-five percent (25%) of its replacement cost or to any extent
if no insurance proceeds or insufficient insurance proceeds are receivable by
Landlord, and regardless of whether or not the Premises be damaged, Landlord may
elect by written notice to Tenant given within thirty (30) days after the
occurrence of the casualty to terminate this Lease in lieu of so restoring the
Premises, in which event this Lease shall terminate as of the date specified in
Landlord's notice, which date shall be no later than sixty (60) days following
the date of Landlord's notice.
(c) Unless this Lease is terminated as provided in the preceding
Subsections 14.01 (a) and (b), Landlord shall proceed with reasonable promptness
to repair and restore the Premises to its condition as existed prior to such
casualty, subject to reasonable delays for insurance adjustments and Force
Majeure delays, and also subject to zoning Laws and building codes then in
effect. Landlord shall have no liability to Tenant, and Tenant shall not be
entitled to terminate this Lease if such repairs and restoration are not in fact
completed within the time period estimated by Landlord so long as Landlord shall
proceed with reasonable diligence to complete such repairs and restoration.
29
(d) Tenant acknowledges that Landlord shall be entitled to the full
proceeds of any insurance coverage, whether carried by Landlord or Tenant, for
damages to the Premises, except for those proceeds of Tenant's insurance of its
own personal property and equipment which would be removable by Tenant at the
Termination Date. All such insurance proceeds shall be payable to Landlord
whether or not the Premises are to be repaired and restored, provided, however,
if this Lease is not terminated and the parties proceed to repair and restore
Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of
Tenant's insurance covering Tenant Additions, such proceeds shall be applied to
reimburse Tenant for its cost of repairing and restoring Tenant Additions.
(e) Notwithstanding anything in this Article Fourteen to the contrary: (i)
Landlord shall have no duty pursuant to this Section to repair or restore any
portion of any Tenant Additions or to expend for any repair or restoration of
the Premises or Building amounts in excess of insurance proceeds paid to
Landlord and available for repair or restoration; and (ii) Tenant shall not have
the right to terminate this Lease pursuant to this Section if any damage or
destruction was caused by the willful and wrongful act of Tenant, its agents or
employees. Whether or not the Lease is terminated pursuant to this Article
Fourteen, in no event shall Tenant be entitled to any compensation or damages
for loss of the use of the whole or any part of the Premises or for any
inconvenience or annoyance occasioned by any such damage, destruction,
rebuilding or restoration of the Premises or the Building or access thereto.
(f) Any repair or restoration of the Premises performed by Tenant shall be
in accordance with the provisions of Article Nine hereof.
14.02 INSUBSTANTIAL UNTENANTABILITY
Unless this Lease is terminated as provided in the preceding Subsections 14.01
(a) and (b), then Landlord shall proceed to repair and restore the Building or
the Premises other than Tenant Additions, with reasonable promptness, unless
such damage is to the Premises and occurs during the last six (6) months of the
Term, in which event either Tenant or Landlord shall have the right to terminate
this Lease as of the date of such casualty by giving written notice thereof to
the other within twenty (20) days after the date of such casualty.
Notwithstanding the foregoing, Landlord's obligation to repair shall be limited
in accordance with the provisions of Section 14.01 above.
14.03 RENT ABATEMENT
If all or any part of the Premises are rendered untenantable by fire or other
casualty and this Lease is not terminated, Monthly Base Rent and Rent
Adjustments shall abate for that part of the Premises which is untenantable on a
per diem basis from the date of the casualty until Landlord has Substantially
Completed the repair and restoration work in the Premises which it is required
to perform, provided, that as a result of such casualty, Tenant does not occupy
the portion of the Premises which is untenantable during such period.
14.04 WAIVER OF STATUTORY REMEDIES
The provisions of this Lease, including this Article Fourteen, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, the Premises or the Property or any part of either, and
any Law, including Sections 1932(2), 1933(4), 1941 and 1942 of the California
Civil Code, with respect to any rights or obligations concerning damage or
destruction shall have no application to this Lease or to any damage to or
destruction of all or any part of the Premises or the Property or any part of
either, and are hereby waived.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In either event that: (a) the whole or any substantial part of the Building or
of the Premises is taken or condemned by any competent authority for any public
use or purpose (including a deed given in lieu of condemnation) and is thereby
rendered untenantable, or (b) such taking or condemnation is of a substantial
part of the Truck Court or Tenant's Parking Area, or of access thereto and to
the Premises, and materially and adversely interferes with such access and the
conduct of Tenant's business, and reasonable alternative area and access are not
made available to Tenant which would avoid such material and adverse
interference, then this Lease shall terminate as of the date title vests in such
authority or any earlier date on which possession is required to be surrendered
to such authority, and Monthly Base Rent and Rent Adjustments shall be
apportioned as of the Termination Date. Further, if at least twenty-five percent
(25%) of the rentable area of the Project is taken or condemned by any competent
authority for any public use or purpose (including a deed given in lieu of
condemnation), and regardless of whether or not the Premises be so taken or
condemned, Landlord may elect by written notice to Tenant to terminate this
Lease as of the date title vests in such authority or any earlier date on which
possession is required to be surrendered to such authority, and Monthly Base
Rent and Rent Adjustments shall be apportioned as of the Termination Date.
Landlord may, without any obligation to Tenant, agree to sell or convey to the
taking authority the Premises, the Building, the Project or any portion thereof
sought by the taking authority, free from this Lease and the right of Tenant
hereunder, without first requiring that any action or proceeding be instituted
or, if instituted, pursued to a judgment. Notwithstanding anything to the
contrary herein set forth, in the event the taking of the Building or Premises
is temporary (for less than the remaining term of the Lease), Landlord may elect
either (i) to terminate this Lease or (ii) permit Tenant to receive the entire
award attributable to the Premises in which case Tenant shall continue to pay
Rent and this Lease shall not terminate.
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15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any
competent authority (or a deed is delivered in lieu of condemnation) and this
Lease is not terminated, the Lease shall be amended to reduce or increase, as
the case may be, the Monthly Base Rent and Tenant's Share to reflect the
Rentable Area of the Premises or Building, as the case may be, remaining after
any such taking or condemnation. Landlord, upon receipt and to the extent of the
award in condemnation (or proceeds of sale) shall make necessary repairs and
restorations to the Premises (exclusive of Tenant Additions) and to the Building
to the extent necessary to constitute the portion of the Building not so taken
or condemned as a complete architectural and economically efficient unit.
Notwithstanding the foregoing, if as a result of any taking, or a governmental
order that the grade of any street or alley adjacent to the Building is to be
changed and such taking or change of grade makes it necessary or desirable to
substantially remodel or restore the Building or prevents the economical
operation of the Building, Landlord shall have the right to terminate this Lease
upon ninety (90) days prior written notice to Tenant.
15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Additions
paid for by Tenant without any credit or allowance from Landlord, for fixtures
or personal property of Tenant, or for relocation or business interruption
expenses, so long as there is no diminution of Landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies acceptable to Landlord, during the Term: (a) Commercial General
Liability Insurance on a primary basis and without any right of contribution
from any insurance carried by Landlord covering the Premises on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage, including contractual liability covering the indemnification provisions
in this Lease. Such insurance shall be for such limits that are reasonably
required by Landlord from time to time but not less than a combined single limit
of Five Million and No/100 Dollars ($5,000,000.00); (b) Workers' Compensation
and Employers' Liability Insurance to the extent required by and in accordance
with the Laws of the State of California; (c) "All Risks" property insurance in
an amount adequate to cover the full replacement cost of all Tenant Additions to
the Premises, equipment, installations, fixtures and contents of the Premises in
the event of loss; (d) In the event a motor vehicle is to be used by Tenant in
connection with its business operation from the Premises, Comprehensive
Automobile Liability Insurance coverage with limits of not less than Three
Million and No/100 Dollars ($3,000,000.00) combined single limit coverage
against bodily injury liability and property damage liability arising out of the
use by or on behalf of Tenant, its agents and employees in connection with this
Lease, of any owned, non-owned or hired motor vehicles; and (e) such other
insurance or coverages as Landlord reasonably requires.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (i) name Landlord and the Indemnitees as additional insureds
(except Workers' Compensation and Employers' Liability Insurance), (ii) be
issued by one or more responsible insurance companies licensed to do business in
the State of California reasonably satisfactory to Landlord, (iii) where
applicable, provide for deductible amounts satisfactory to Landlord and not
permit co-insurance, (iv) shall provide that such insurance may not be canceled
or amended without thirty (30) days' prior written notice to Landlord, and (v)
each policy of "All-Risks" property insurance shall provide that the policy
shall not be invalidated should the insured waive in writing prior to a loss,
any or all rights of recovery against any other party for losses covered by such
policies. Tenant shall deliver to Landlord, certificates of insurance and at
Landlord's request, copies of all policies and renewals thereof to be maintained
by Tenant hereunder, not less than ten (10) days prior to the Commencement Date
and not less than ten (10) days prior to the expiration date of each policy.
16.03 LANDLORD'S INSURANCE
Landlord agrees to purchase and keep in full force and effect during the Term
hereof, including any extensions or renewals thereof, insurance under policies
issued by insurers of recognized responsibility, qualified to do business in the
State of California on the Building in amounts not less than the greater of
eighty (80%) percent of the then full replacement cost (without depreciation) of
the Building (above foundations and excluding Tenant Additions to the Premises)
or an amount sufficient to prevent Landlord from becoming a co-insurer under the
terms of the applicable policies, against fire and such other risks as may be
included in standard forms of all risk coverage insurance reasonably available
from time to time. Landlord agrees to maintain in force during the Term,
Commercial General Liability Insurance covering the Building on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage. Such insurance shall be for a combined single limit of Five Million and
No/100 Dollars ($5,000,000.00). Neither Landlord's obligation to carry such
insurance nor the carrying of such insurance shall be deemed to be an indemnity
by Landlord with respect to any claim, liability, loss, cost or expense due,
31
in whole or in part, to Tenant's negligent acts or omissions or willful
misconduct. Without obligation to do so, Landlord may, in its sole discretion
from time to time, carry insurance in amounts greater and/or for coverage
additional to the coverage and amounts set forth above.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, it will include in its "All Risks" policies appropriate clauses
pursuant to which the insurance companies (i) waive all right of subrogation
against Tenant with respect to losses payable under such policies and/or (ii)
agree that such policies shall not be invalidated should the insured waive in
writing prior to a loss any or all right of recovery against any party for
losses covered by such policies.
(b) Tenant agrees to include, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, in its "All Risks" insurance policy or policies on Tenant Additions
to the Premises, whether or not removable, and on Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions of this Lease appropriate clauses pursuant to which the insurance
company or companies (i) waive the right of subrogation against Landlord and/or
any tenant of space in the Building with respect to losses payable under such
policy or policies and/or (ii) agree that such policy or policies shall not be
invalidated should the insured waive in writing prior to a loss any or all right
of recovery against any party for losses covered by such policy or policies. If
Tenant is unable to obtain in such policy or policies either of the clauses
described in the preceding sentence, Tenant shall, if legally possible and
without necessitating a change in insurance carriers, have Landlord named in
such policy or policies as an additional insured. If Landlord shall be named as
an additional insured in accordance with the foregoing, Landlord agrees to
endorse promptly to the order of Tenant, without recourse, any check, draft, or
order for the payment of money representing the proceeds of any such policy or
representing any other payment growing out of or connected with said policies,
and Landlord does hereby irrevocably waive any and all rights in and to such
proceeds and payments.
(c) Provided that Landlord's right of full recovery under its policy or
policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Real Property and the fixtures, appurtenances and equipment therein,
except Tenant Additions, to the extent the same is covered by Landlord's
insurance, notwithstanding that such loss or damage may result from the
negligence or fault of Tenant, its servants, agents or employees. Provided that
Tenant's right of full recovery under its aforesaid policy or policies is not
adversely affected or prejudiced thereby, Tenant hereby waives any and all right
of recovery which it might otherwise have against Landlord, its servants, and
employees and against every other tenant in the Building who shall have executed
a similar waiver as set forth in this Section 16.04 (c) for loss or damage to
Tenant Additions, whether or not removable, and to Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions hereof to the extent the same is covered or coverable by Tenant's
insurance required under this Lease, notwithstanding that such loss or damage
may result from the negligence or fault of Landlord, its servants, agents or
employees, or such other tenant and the servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if the
clauses to be included in their respective insurance policies pursuant to
subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore
provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured,
as aforesaid. Landlord and Tenant hereby also agree to notify the other promptly
of any cancellation or change of the terms of any such policy which would affect
such clauses or naming. All such policies which name both Landlord and Tenant as
additional insureds shall, to the extent obtainable, contain agreements by the
insurers to the effect that no act or omission of any additional insured will
invalidate the policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises
promptly after Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives
all claims for, damage to person or property sustained by Tenant or any occupant
of the Premises or the Property resulting directly or indirectly from any
existing or future condition, defect, matter or thing in and about the Premises
or the Property or any part of either or any equipment or appurtenance therein,
or resulting from any accident in or about the Premises or the Property, or
resulting directly or indirectly from any act or neglect of any tenant or
occupant of the Property or of any other person, including Landlord's agents and
servants, except to the extent caused by the gross negligence or by the willful
and wrongful act of any of the Indemnitees, but the foregoing exception is
subject to and shall not diminish any other waivers by Tenant or Landlord or
their respective insurers, including those in effect in accordance with Section
16.04. If any such damage, whether to the Premises or the Property or any part
of either, or whether to Landlord or to other tenants in the Property, results
from any act or neglect of Tenant, its employees, servants, agents, contractors,
invitees or customers, Tenant shall be liable therefor in excess of amounts, if
any, paid to Landlord under insurance
32
covering such damages. Tenant shall not be liable for any such damage caused by
its acts or neglect if Landlord or a tenant has recovered the full amount of the
damage from proceeds of insurance policies and the insurance company has waived
its right of subrogation against Tenant.
17.02 INDEMNITY BY TENANT
To the extent permitted by Law, Tenant hereby indemnifies, and agrees to
protect, defend and hold the Indemnitees harmless, against any and all actions,
claims, demands, liability, costs and expenses, including reasonable attorneys'
fees and expenses for the defense thereof, arising from Tenant's occupancy of
the Premises, from the undertaking of any Tenant Additions or repairs to the
Premises, from the conduct of Tenant's business on the Premises, or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or from any willful act or negligence of Tenant, its agents, contractors,
servants, employees, customers or invitees, in or about the Premises or the
Property or any part of either. In case of any action or proceeding brought
against the Indemnitees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such action or proceeding by counsel chosen by
Landlord, and reasonably approved by Tenant. In any event, Landlord shall have
the right to select as counsel a law firm of quality and capability consistent
with first quality "large law firms" in the downtown Los Angeles area. Landlord
reserves the right to settle, compromise or dispose of any and all actions,
claims and demands related to the foregoing indemnity after reasonable notice to
Tenant. The foregoing indemnity shall not operate to relieve any of the
Indemnitees of liability to the extent its share of liability is caused by its
gross negligence or by its willful and wrongful act. Further, the foregoing
indemnity and exception are subject to and shall not diminish any waivers by
Tenant or Landlord or their respective insurers, including those in effect in
accordance with Section 16.04.
17.03 WAIVER OF CONSEQUENTIAL DAMAGES
To the extent permitted by law, Tenant hereby waives and releases the
Indemnitees from any consequential damages, compensation or claims for
inconvenience or loss of business, rents or profits as a result of any injury or
damage, whether or not caused by the willful and wrongful act of any of the
Indemnitees.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to comply with all reasonable rules and regulations of general application with
respect to use of the Premises, the Building and the Project imposed by
Landlord, as the same may be revised from time to time, including all of the
requirements of Landlord's emergency response plan, as the same may be amended
from time to time. Such rules and regulations are and shall be imposed for the
cleanliness, good appearance, proper maintenance, good order and reasonable use
of the Premises, the Building and the Project and as may be necessary for the
enjoyment of the Building and the Project by all tenants and their clients,
customers, and employees.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon Landlord any duty or
obligation to enforce the rules and regulations as set forth above or as
hereafter adopted, or the terms, covenants or conditions of any other lease as
against any other tenant, and Landlord shall not be liable to Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Building in a uniform and non-discriminatory
manner.
ARTICLE NINETEEN
LANDLORD'S RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
and without liability to Tenant for damage or injury to persons, property or
business and without being deemed an eviction or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for offset or abatement
of Rent: (a) to change the Building's name or street address upon thirty (30)
days' prior written notice to Tenant; (b) to install, affix and maintain all
signs on the exterior and/or interior of the Building; (c) upon reasonable
notice to Tenant, to display the Premises to prospective purchasers at
reasonable hours at any time during the Term and to prospective tenants at
reasonable hours during the last twelve (12) months of the Term; (e) to grant to
any party the exclusive right to conduct any business or render any service in
or to the Building, provided such exclusive right shall not operate to prohibit
Tenant from using the Premises for the purpose permitted hereunder; (f) to
change the arrangement and/or location of entrances or passageways, doors and
doorways, corridors, elevators, stairs, washrooms or public portions of the
Building, and to close entrances, doors, corridors, elevators or other
facilities, provided that such action shall not materially and adversely
interfere with Tenant's access to the Premises, the Building, the Truck Court or
Tenant's parking, or materially and adversely interfere with Tenant's occupancy
of the Premises or the conduct of Tenant's business therein; (g) to have access
for Landlord and other tenants of the Building to any mail chutes and boxes
located in or on the Premises as required by any applicable rules of the United
States Post Office; and (h) to close the Building after Standard Operating
Hours, except that Tenant and its employees and invitees shall be entitled to
admission at all times, under such regulations as Landlord prescribes for
security purposes.
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ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant,
certifying (a) that this Lease is unmodified and in full force and effect (or if
there have been modifications, a description of such modifications and that this
Lease as modified is in full force and effect); (b) the dates to which Rent has
been paid; (c) that Tenant is in the possession of the Premises if that is the
case; (d) that, to the extent known to Tenant, Landlord is not in default under
this Lease, or, if Tenant believes Landlord is in default, the nature thereof in
detail; (e) that, to the extent known to Tenant, Tenant has no offsets or
defenses to the performance of its obligations under this Lease (or if Tenant
believes there are any offsets or defenses, a full and complete explanation
thereof); (f) that the Premises have been completed in accordance with the terms
and provisions hereof, that Tenant has accepted the Premises and the condition
thereof and of all improvements thereto and has no claims against Landlord or
any other party with respect thereto; (g) that if an assignment of rents or
leases has been served upon Tenant by a Mortgagee, Tenant will acknowledge
receipt thereof and agree to be bound by the provisions thereof; (h) that Tenant
will give to the Mortgagee copies of all default notices given by Tenant to
Landlord; and (i) to any other information reasonably requested.
20.02 ENFORCEMENT
In the event that Tenant fails to deliver an Estoppel Certificate within the 15
days specified above, then if Tenant fails to deliver an Estoppel Certificate
within five days after notice of such initial failure (or a second request for
an Estoppel Certificate), Tenant appoints Landlord as its attorney-in-fact to
execute and deliver the certificate on its behalf, which power of attorney shall
be coupled with an interest and shall be irrevocable.
ARTICLE TWENTY-ONE
INTENTIONALLY OMITTED
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that, except for the brokers listed in Section 1.01(17),
Tenant has not dealt with any real estate broker, sales person, or finder in
connection with this Lease, and no such person initiated or participated in the
negotiation of this Lease, or showed the Premises to Tenant. Landlord agrees to
pay any commission to which Landlord's Broker listed in Section 1.01(17) is
entitled in connection with this Lease pursuant to Landlord's written agreement
with such broker. Landlord and Tenant agree that Tenant's Brokers shall share
the commission paid to Landlord's Broker pursuant to a separate, written
agreement between Landlord's Broker and Tenant's Brokers. If and to the extent
that either or both of Tenant's Brokers claim any amounts in excess of their
share pursuant to their separate written agreement with Landlord's Broker (or if
Tenant's Brokers do not enter into such agreement), such amounts shall be paid
by Tenant. Tenant hereby agrees to indemnify, protect, defend and hold Landlord
and Landlord's Broker harmless from and against any and all liabilities and
claims for commissions, fees or any compensation by (a) Tenant's Brokers except
for their share pursuant to their separate written agreement with Landlord's
Broker of the commission payable to Landlord's Broker by Landlord or (b) by any
other person claiming to represent Tenant or to be working for Tenant's benefit.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION AND ATTORNMENT
(a) Subject to Section 23.01(b) hereof, this Lease is and shall be
expressly subject and subordinate at all times to (a) any ground or underlying
lease of the Real Property, now or hereafter existing, and all amendments,
extensions, renewals and modifications to any such lease, and (b) the lien of
any mortgage or trust deed now or hereafter encumbering fee title to the Real
Property and/or the leasehold estate under any such lease, and all amendments,
extensions, renewals, replacements and modifications of such mortgage or trust
deed and/or the obligation secured thereby, unless such ground lease or ground
lessor, or mortgage, trust deed or Mortgagee, expressly provides or elects that
the Lease shall be superior to such lease or mortgage or trust deed. If any such
mortgage or trust deed is foreclosed (including any sale of the Real Property
pursuant to a power of sale), or if any such lease is terminated, upon request
of the Mortgagee or ground lessor, as the case may be, Tenant shall attorn to
the purchaser at the foreclosure sale or to the ground lessor under such lease,
as the case may be, provided, however, that such purchaser or ground lessor
shall not be (i) bound by any payment of Rent for more than one month in advance
except payments in the nature of security for the performance by Tenant of its
obligations under this Lease; (ii) subject to any offset, defense or damages
arising out of a default of any obligations of any preceding Landlord; or (iii)
bound by any amendment or modification of this Lease reducing Rent or increasing
Landlord's obligations made without the written consent of the Mortgagee or
ground lessor; or (iv) liable for any security deposits not actually received in
cash by such purchaser or ground lessor. This subordination shall be
self-operative and no further certificate or instrument of subordination need be
required by any such Mortgagee or ground lessor. In confirmation of such
subordination, however, Tenant shall execute promptly any reasonable certificate
or instrument that Landlord, Mortgagee or ground lessor may request. Upon
34
request by such successor in interest, Tenant shall execute and deliver
reasonable instruments confirming the attornment provided for herein.
(b) Notwithstanding any provision of this Lease to the contrary, provided
that: (i) Tenant executes and delivers a subordination, nondisturbance and
attornment agreement substantially in the form of Exhibit F hereto
("Nondisturbance Agreement") and complies with the provisions thereof, and (ii)
Tenant is not in default under this Lease, no termination of any ground lease or
underlying lease and no foreclosure, sale pursuant to power of sale or
conveyance by deed in lieu of foreclosure shall affect Tenant's rights under
this Lease, except to the extent provided by such Nondisturbance Agreement. In
the event that Landlord is unable to procure such Nondisturbance Agreement for
Tenant's benefit when Tenant is entitled to such Nondisturbance Agreement, any
such lessor or Mortgagee shall be deemed to have elected that this Lease be
superior to the lease, mortgage or deed of trust in question, and Tenant shall,
at the request of such lessor, mortgagee or beneficiary (or purchaser at any
sale pursuant to the mortgage or deed of trust), attorn to any such party or
enter into a new lease with such party (as Landlord) for the balance of the Term
then remaining hereunder upon the same terms and conditions as those herein,
provided, however, that such party shall not be (i) bound by any payment of Rent
for more than one month in advance except payments in the nature of security for
the performance by Tenant of its obligations under this Lease; (ii) subject to
any offset, defense or damages arising out of a default of any obligations of
any preceding Landlord; or (iii) bound by any amendment or modification of this
Lease reducing Rent or increasing Landlord's obligations made without the
written consent of the Mortgagee or ground lessor; or (iv) liable for any
security deposits not actually received in cash by such purchaser or ground
lessor. Upon request by such successor in interest, Tenant shall execute and
deliver reasonable instruments confirming the attornment provided for herein.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon Landlord by Tenant, provided
that prior to such notice Tenant has received notice (by way of service on
Tenant of a copy of an assignment of rents and leases, or otherwise) of the
address of such Mortgagee or ground lessor. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the Mortgagee or ground lessor shall have an additional thirty
(30) days after receipt of notice thereof within which to cure such default or
if such default cannot be cured within that time, then such additional notice
time as may be necessary, if, within such thirty (30) days, any Mortgagee or
ground lessor has commenced and is diligently pursuing the remedies necessary to
cure such default (including commencement of foreclosure proceedings or other
proceedings to acquire possession of the Real Property, if necessary to effect
such cure). Such period of time shall be extended by any period within which
such Mortgagee or ground lessor is prevented from commencing or pursuing such
foreclosure proceedings or other proceedings to acquire possession of the Real
Property by reason of Landlord's bankruptcy. Until the time allowed as aforesaid
for Mortgagee or ground lessor to cure such defaults has expired without cure,
Tenant shall have no right to, and shall not, terminate this Lease on account of
default. This Lease may not be modified or amended so as to reduce the Rent or
shorten the Term, or so as to adversely affect in any other respect to any
material extent the rights of Landlord, nor shall this Lease be canceled or
surrendered, without the prior written consent, in each instance, of the ground
lessor or the Mortgagee.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be given
pursuant to this Lease must be in writing and shall be personally delivered,
sent by Federal Express or other reputable overnight courier service, or mailed
by first class, registered or certified United States mail, return receipt
requested, postage prepaid.
(b) All notices, demands or requests to be sent pursuant to this Lease
shall be deemed to have been properly given or served by delivering or sending
the same in accordance with this Section, addressed to the parties hereto at
their respective addresses listed in Sections 1.01(2) and (3).
(c) Notices, demands or requests sent by mail or overnight courier service
as described above shall be effective upon deposit in the mail or with such
courier service. However, the time period in which a response to any such
notice, demand or request must be given shall commence to run from (i) in the
case of delivery by mail, the date of receipt on the return receipt of the
notice, demand or request by the addressee thereof, or (ii) in the case of
delivery by Federal Express or other overnight courier service, the date of
acceptance of delivery by an employee, officer, director or partner of Landlord
or Tenant. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given, as indicated by advice
from Federal Express or other overnight courier service or by mail return
receipt, shall be deemed to be receipt of notice, demand or request sent.
Notices may also be served by personal service upon any officer, director or
partner of Landlord or Tenant, and shall be effective upon such service.
(d) By giving to the other party at least ten (10) days written notice
thereof, either party shall have the right from time to time during the term of
this Lease to change their respective addresses for notices, statements, demands
and requests, provided such new address shall be within the United States of
America.
35
ARTICLE TWENTY-FIVE
INTENTIONALLY OMITTED
ARTICLE TWENTY-SIX
MISCELLANEOUS
26.01 LATE CHARGES
(a) All payments required hereunder (other than the Monthly Base Rent,
Rent Adjustments, Rent Adjustment Deposits and any other payment for which a
specific payment date or period is provided, which shall be due as hereinbefore
provided, and the late charge described in Subsection (b) below, which shall be
due when provided without notice or demand) to Landlord shall be paid within
thirty (30) days after Landlord's demand therefor. All such amounts (including
Monthly Base Rent, Rent Adjustments, and Rent Adjustment Deposits, but excluding
the late charge) not paid within five (5) business days after the due date shall
bear interest from the date due until the date paid at the Default Rate in
effect on the date such payment was due, and such interest if not previously
paid, shall be added to the succeeding monthly payment of Rent. Notwithstanding
the foregoing, provided Tenant is not in bankruptcy, if within three (3) months
after the late payment (or nonpayment) for which an interest charge is due,
Landlord has not given Tenant notice of such late payment (or nonpayment) and
the interest charge due with respect to it, then Tenant shall not be obligated
to pay the interest charge corresponding to that particular late payment (or
nonpayment).
(b) In the event Tenant is more than five (5) business days late in paying
any installment of Rent due under this Lease, Tenant shall pay Landlord a late
charge equal to five percent (5%) of the delinquent installment of Rent. The
late charge if not previously paid shall be added to the succeeding monthly
payment of Rent. Notwithstanding the foregoing, provided Tenant is not in
bankruptcy, if within three (3) months after the late payment (or nonpayment)
for which a late charge is due, Landlord has not given Tenant notice of such
late payment (or nonpayment) and the late charge due with respect to it, then
Tenant shall not be obligated to pay the late charge corresponding to that
particular late payment (or nonpayment). The parties agree that (i) such
delinquency will cause Landlord to incur costs and expenses not contemplated
herein, the exact amount of which will be difficult to calculate, including the
cost and expense that will be incurred by Landlord in processing each delinquent
payment of Rent by Tenant, and (ii) the amount of such late charge represents a
reasonable estimate of such costs and expenses and that such late charge shall
be paid to Landlord for each delinquent payment in addition to all Rent
otherwise due hereunder. The parties further agree that the payment of late
charges and the payment of interest provided for in subparagraph (a) above are
distinct and separate from one another in that the payment of interest is to
compensate Landlord for its inability to use the money improperly withheld by
Tenant, while the payment of late charges is to compensate Landlord for its
additional administrative expenses in handling and processing delinquent
payments.
(c) Payment of interest at the Default Rate and/or of late charges shall
not excuse or cure any default by Tenant under this Lease, nor shall the
foregoing provisions of this Article or any such payments prevent Landlord from
exercising any right or remedy available to Landlord upon Tenant's failure to
pay Rent when due, including the right to terminate this Lease.
26.02 NO JURY TRIAL; VENUE; JURISDICTION
Each party hereto (which includes any assignee, successor, heir or personal
representative of a party) shall not seek a jury trial, hereby waives trial by
jury, and hereby further waives any objection to venue in the County in which
the Project is located, and agrees and consents to personal jurisdiction of the
courts of the State of California, in any action or proceeding or counterclaim
brought by any party hereto against the other on any matter whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any statute, emergency or
otherwise, whether any of the foregoing is based on this Lease or on tort law.
No party will seek to consolidate any such action in which a jury has been
waived with any other action in which a jury trial cannot or has not been
waived. It is the intention of the parties that these provisions shall be
subject to no exceptions. By execution of this Lease the parties agree that this
provision may be filed by any party hereto with the clerk or judge before whom
any action is instituted, which filing shall constitute the written consent to a
waiver of jury trial pursuant to and in accordance with Section 631 of the
California Code of Civil Procedure. No party has in any way agreed with or
represented to any other party that the provisions of this Section will not be
fully enforced in all instances. The provisions of this Section shall survive
the expiration or earlier termination of this Lease.
26.03 LANDLORD CONSENT TO ENCUMBRANCE OF TENANT'S PERSONAL PROPERTY
Within a reasonable time after written request from Tenant that Landlord consent
to Tenant obtaining financing for, and granting a lender a security interest in,
certain personal property of Tenant to be located at the Premises, then provided
such security interest is in personal property which pursuant to the Lease
Tenant is required or entitled to remove upon expiration or earlier termination
of the Lease, Landlord will not unreasonably withhold consent to such security
interest and subordination of Landlord's lien to the holder of such security
interest, and the agreement providing such consent, subordination and such
holder's access to the Premises and removal of personal property and related
terms shall be in form and substance satisfactory to Landlord.
36
26.04 INTENTIONALLY OMITTED
26.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and power
to enter into and perform its obligations under this Lease, that the person
executing this Lease is fully empowered to do so, and that no consent or
authorization is necessary from any third party. Landlord may request that
Tenant provide Landlord evidence of Tenant's authority.
26.06 ENTIRE AGREEMENT
This Lease, the Exhibits and Rider(s) attached hereto contain the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements, either oral or written, and no other representations or
statements, either oral or written, on which Tenant has relied. This Lease shall
not be modified except by a writing executed by Landlord and Tenant.
26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If any Mortgagee requires a modification of this Lease which shall not result in
any increased cost or expense to Tenant or in any other substantial and adverse
change in the rights and obligations of Tenant hereunder, then Tenant agrees
that the Lease may be so modified.
26.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that
any liability or obligation of Landlord in connection with this Lease shall only
be enforced against Landlord's equity interest in the Property up to a maximum
of Five Million Dollars ($5,000,000.00) and in no event against any other assets
of Landlord, or Landlord's officers or directors or partners, and that any
liability of Landlord with respect to this Lease shall be so limited and Tenant
shall not be entitled to any judgment in excess of such amount.
26.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term. Receipt
or acceptance of payment from anyone other than Tenant, including an assignee of
Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept
such payment on account of the amount due without prejudice to Landlord's right
to pursue any remedies available to Landlord.
26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer,
and any remaining liability of Landlord with respect to this Lease shall be
limited to Five Million Dollars ($5,000,000.00) and Tenant shall not be entitled
to any judgment in excess of such amount.
26.11 BINDING EFFECT
Subject to the provisions of Article Ten, this Lease shall be binding upon and
inure to the benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
26.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
26.13 TIME; APPLICABLE LAW; CONSTRUCTION
Time is of the essence with respect to the performance of Tenant's and
Landlord's obligations contained in this Lease. This Lease shall be construed in
accordance with the Laws of the State of California. If more than one person
signs this Lease as Tenant, the obligations hereunder imposed shall be joint and
several. If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
item, covenant or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by Law. Wherever the term "including" or "includes" is
used in this Lease, it shall have the same meaning as if followed by the phrase
"but not limited to". The language in all parts of this Lease shall be construed
according to its normal and usual meaning and not strictly for or against either
Landlord or Tenant. All references in this Lease to "clauses," "Sections" or
"Articles refer to clauses, Sections or Articles of this Lease unless otherwise
indicated.
37
26.14 ABANDONMENT
In the event Tenant vacates or abandons the Premises but is otherwise in
compliance with all the terms, covenants and conditions of this Lease, Landlord
shall (a) have the right to enter into the Premises in order to show the space
to prospective tenants, (b) have the right to reduce the services provided to
Tenant pursuant to the terms of this Lease to such levels as Landlord reasonably
determines to be adequate services for an unoccupied premises, and (c) during
the last six (6) months of the Term, have the right to prepare the Premises for
occupancy by another tenant upon the end of the Term. Tenant expressly
acknowledges that in the absence of written notice pursuant to Section 11.02(b)
or pursuant to California Civil Code Section 1951.3 terminating Tenant's right
to possession, none of the foregoing acts of Landlord or any other act of
Landlord shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, and the Lease shall continue
in effect.
26.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES
If Tenant fails timely to perform any of its duties under this Lease, Landlord
shall have the right (but not the obligation), to perform such duty on behalf
and at the expense of Tenant as follows: (a) as provided in Section 8.02 with
respect to the duties of Tenant described therein, and (b) otherwise after prior
notice to Tenant, except notice shall not be required in an emergency, and all
sums expended or expenses incurred by Landlord in performing such duty shall be
deemed to be additional Rent under this Lease and shall be due and payable upon
demand by Landlord.
26.16 SECURITY SYSTEM
Landlord shall not be obligated to provide or maintain any security patrol or
security system. Landlord shall not be responsible for the quality of any such
patrol or system which may be provided hereunder or for damage or injury to
Tenant, its employees, invitees or others due to the failure, action or inaction
of such patrol or system.
26.17 NO LIGHT, AIR OR VIEW EASEMENTS
Any diminution or shutting off of light, air or view by any structure which may
be erected on lands of or adjacent to the Project shall in no way affect this
Lease or impose any liability on Landlord.
26.18 RECORDATION
Neither this Lease, nor any notice nor memorandum regarding the terms hereof,
shall be recorded by Tenant. Any such unauthorized recording shall be a Default
for which there shall be no cure or grace period. Tenant agrees to execute and
acknowledge, at the request of Landlord, a memorandum of this Lease, in
recordable form.
26.19 SURVIVAL
The waivers of the right of jury trial, the other waivers of claims or rights,
the releases and the obligations of Tenant under this Lease to indemnify,
protect, defend and hold harmless Landlord and/or Indemnitees shall survive the
expiration or termination of this Lease, and so shall all other obligations or
agreements which by their terms survive expiration or termination of the Lease.
26.20 RIDERS
All Riders attached hereto and executed both by Landlord and Tenant shall be
deemed to be a part hereof and hereby incorporated herein.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
TENANT: LANDLORD:
United Natural Foods, Inc., Metropolitan Life Insurance
a Delaware corporation Company, a New York corporation
By By
-------------------------------- --------------------------------
-------------------------------- --------------------------------
Print name Print name
Its Its
-------------------------------- --------------------------------
(Chairman of Board, President or
Vice President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
38
For good and valuable consideration, Mountain People's Warehouse Incorporated
joins in the execution of this Lease to confirm that it is jointly and severally
liable with Tenant under this Lease (including without limitation, all Riders
and Exhibits attached hereto) pursuant to the terms of Section 10.01(e) of this
Lease.
MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED,
a California corporation
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Chairman of Board, President or
Vice President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
39
EXHIBIT A
PLAN OF PREMISES
Attached
Exhibit A - Page 1
EXHIBIT B
WORKLETTER - TENANT BUILD
13204 Philadelphia Street, Fontana, CA
This Workletter is attached to and a part of a certain NNN Lease
(Multi-Tenant) dated as of July 31, 2001, executed concurrently herewith by
Metropolitan Life Insurance Company, a New York corporation, as Landlord
("Landlord") and United Natural Foods, Inc. a Delaware corporation, as Tenant,
("Tenant") for certain premises ("Premises") more particularly described in the
Lease, in part of the warehouse commonly known as 13204 Philadelphia Street,
Fontana, California ("Building") (the "Lease"). Terms used herein and not
defined herein shall have the meaning of such terms as defined in the Lease.
I. Base Building Work.
All work performed during the Building's initial course of construction
and modifications thereto, excluding all original and modified build-outs of any
tenant spaces, shall be referred to as the "Base Building Work" or ""Base
Building", as applicable. Neither Landlord nor Landlord's representatives have
made any representations or promises with respect to the Premises or the Base
Building Work except as herein expressly set forth.
II. Landlord Work & Payment by Landlord & Tenant Therefor.
A. Landlord Work Generally. Subject to Force Majeure delays and the cost
sharing provisions of Section II.C below, Landlord shall perform the "Landlord
Work" (defined below) in accordance with Law, and deliver the Premises to Tenant
on the Projected Commencement Date in the "Delivery Condition" (defined below).
"Delivery Condition" shall mean broom-clean condition with respect only to the
Landlord Work (and shall not require any construction-related clean up by
Landlord with respect to any Tenant Work), with the work set forth on Exhibit
B-1 hereto ("Landlord Work") Substantially Complete.
B. Cost of the Landlord Work. The "Cost of the Landlord Work" includes
costs of design, engineering, consultants, permits, fees, acquisition of
materials/equipment, installation and construction of the Landlord Work, and a
project management fee of Thirty-six Thousand Nine Hundred Dollars ($36,900.00)
payable to OC Real Estate Management, LLC. Tenant confirms it has reviewed and
approved the scope of work and an estimate of the Cost of the Landlord Work
totaling Nine Hundred and Thirty Thousand Three Hundred and Twenty-five Dollars
($930,325.00) as shown on the "United Natural Foods/Mountain People's Warehouse
Landlord Work Planning Budget" and accompanying "Construction Breakdown Mountain
People's Warehouse", together consisting of two pages, with a revision date of
7-17-01. Tenant acknowledges that such Construction Breakdown is based upon an
estimate from Landlord's contractor for the scope of work described in the
Construction Breakdown. In the event of any inconsistency between the scope of
work described in the Construction Breakdown and the description of the Landlord
Work on Exhibit B-1 hereto, the provisions of Exhibit B-1 shall control as to
what the Landlord Work is. Tenant further acknowledges and agrees that Tenant
shall be fully responsible for the Cost of the Landlord Work (including any cost
in excess of the estimated amounts) in excess of Landlord's contribution of the
Allowance as provided in Section II.C. below.
C. Sharing of the Cost of the Landlord Work; Allowance. Landlord and
Tenant shall share the Cost of the Landlord Work as provided below. Landlord
shall make available a total of Seven Hundred and Seventy-five Thousand Dollars
($775,000.00) (the "Allowance") as the maximum Landlord is obligated to
contribute to the Cost of the Landlord Work. In no event shall Landlord be
obligated to contribute more than the Allowance to the Cost of the Landlord
Work. Tenant shall pay all Cost of the Landlord Work in excess of that payable
out of the Allowance. Landlord shall bill Tenant (no more frequently than
monthly intervals) for Tenant's Proportionate Share (as defined below) of items
which are included in the Cost of the Landlord Work and have been billed to
Landlord or have been paid by Landlord, including progress payments payable by
Landlord to its contractor or others for portions of the Landlord Work then
performed, and Tenant shall pay Landlord such amounts within ten (10) days after
Landlord sends such bill. With each bill, Landlord shall provide supporting
documentation that the work covered by that bill has been done. "Tenant's
Proportionate Share" shall mean the amount calculated by multiplying the Cost of
the Landlord Work by the fraction whose numerator is the Cost of the Landlord
Work in excess of the Allowance and whose denominator is the Cost of the
Landlord Work (for example only, such fraction would be $155,325.00 divided by
$930,325.00, assuming the Cost of the Landlord Work is $930,325.00). In addition
to all other rights and remedies of Landlord, if any such payment from Tenant is
not received when due, Landlord may stop work until Landlord receives such
payment. To the extent that awaiting any such overdue payment from Tenant delays
the Substantial Completion of Landlord Work, such delay shall be a Tenant Delay
and the Landlord Work shall be deemed Substantially Complete on the date such
Landlord Work would have been completed but for awaiting such payment. If there
are increases in the Cost of the Landlord Work, Tenant's Proportionate Share
shall be recalculated accordingly, and Tenant shall pay the appropriate
adjustment (including a retrospective adjustment due with respect to any prior
progress payments made with the next following progress payment) with respect to
all remaining payments and a final reconciliation payment, if applicable.
D. Limitations on Changes in the Landlord Work; De Minimis Extra Work;
Cost; Delay. There shall be no change in (including any addition to) the
Landlord Work as described on Exhibit B-1, except as provided in this Section
II.D. Changes may be made in response to requirements of applicable governmental
authorities. Tenant shall not request any change in the Landlord Work except, as
an
Exhibit B - Page 1
accommodation to Tenant, for installation of any swamp coolers, or a battery
charging station, or uninterrupted power service, or electrical connections
related to Tenant's standby generator described in Section 6.07 of the Lease, or
task lighting, or a floor drain for floor scrubber, or De Minimis Extra Work
(defined below) desired by Tenant, and in such event, Tenant shall prepare and
submit plans and specifications for such change to Landlord, and any such change
shall be subject to Landlord's approval in accordance with the provisions of
Section III.B. of this Workletter or pursuant to the provisions of this Section
governing De Minimis Extra Work. For all such changes in the Landlord Work,
Tenant shall pay for all increases which such changes cause in the Cost of the
Landlord Work (subject to the Allowance), including a project management fee
equal to five percent (5%) of the increase in the construction contract in
connection with such changes, excluding De Minimis Extra Work. For all additive
change orders, such construction contract increase shall include all costs in
connection with such changes, including materials, labor, and a 10% fee to the
general contractor for supervision, profit, overhead, contingency and general
conditions. To the extent that the request by Tenant for any change or the
performance of work pursuant to any change delays the Substantial Completion of
Landlord Work, such delay shall be a Tenant Delay and the Landlord Work shall be
deemed Substantially Complete on the date such Landlord Work would have been
completed but for such delay. "De Minimis Extra Work" is electrical or plumbing
work that is outside of the other categories of additional work described in the
third sentence of this Section II.D. and is de minimis in comparison to the
scope of work to be performed by the respective subcontractor as part of the
Landlord Work, can readily be performed during time that the subcontractor
is/will otherwise be on site, and is not then expected to delay Substantial
Completion of the Landlord Work. If Tenant desires De Minimis Extra Work to be
performed by one of Landlord's subcontractors as an addition to the Landlord
Work (which Tenant acknowledges would otherwise not be part of the Landlord Work
and would be Tenant's responsibility to construct as part of the Tenant Work),
Landlord shall not unreasonably withhold approval for such work to be performed
by one of Landlord's subcontractors. If Tenant desires work which is more than
De Minimis Extra Work described above, or if Landlord does not agree to do such
work as part of the Landlord Work, then such request shall be processed as a
request by Tenant for a change in the Tenant Work, and if approved by Landlord
as a change to the Tenant Work, Tenant shall be responsible to contract directly
for such work as part of the Tenant Work, and such work shall be subject to the
project management fee applicable to the Tenant Work as provided in Section
VIII.L below.
III. Tenant's Plans for the Tenant Work.
A. Description. At its expense, Tenant shall employ:
(i) one or more architects reasonably satisfactory to Landlord and
licensed by the State of California ("Tenant's Architect") to prepare
architectural drawings and specifications for all layout and Premises
improvements not included in Base Building Work or the Landlord Work;
(ii) (a) one or more engineers reasonably satisfactory to Landlord and
licensed by the State of California ("Tenant's Engineers") to prepare
mechanical and electrical working drawings and specifications for all
Premises improvements not included in Base Building Work or the Landlord
Work; or (b) Air Control Systems ("Landlord's Mechanical Engineer") and
Gregg Electric ("Landlord's Electrical Engineer") to prepare mechanical
and electrical working drawings respectively for all Premises improvements
not included in Base Building Work or the Landlord Work;
(iii) the structural engineer designated by Landlord licensed by the State
of California to prepare structural working drawings and specifications
for all Premises improvements not included in Base Building Work or the
Landlord Work; and
(iv) any other engineer reasonably satisfactory to Landlord, licensed by
the State of California, to prepare working drawings and specifications
for any racking system desired by Tenant.
Hill-Pinckert, if used by Tenant as Tenant's Architect, is consented to by
Landlord. Kramer & Lawson, as structural engineer, is hereby approved by
Landlord. All such drawings and specifications are referred to herein as
"Tenant's Plans". Tenant's Plans shall be in form and detail sufficient to
secure all required governmental approvals. Tenant's Architect shall be
responsible for coordination of all engineering work for Tenant's Plans and
shall coordinate with any consultants of Tenant, and Landlord's space planner or
architect to assure the consistency of Tenant's Plans with the Base Building
Work and the Landlord Work. Tenant shall pay Landlord, within ten (10) days of
receipt of each invoice from Landlord, the cost incurred by Landlord for
Landlord's architects and engineers to review Tenant's Plans for consistency of
same with the Base Building Work and the Landlord Work; provided, however, there
shall be no review cost for Tenant's Plans (aa) with respect to the mechanical
and electrical working drawings if Tenant employs Landlord's Mechanical Engineer
and Landlord's Electrical Engineer for such services, and (bb) with respect to
any of Tenant's Plans which are prepared by Hill-Pinckert. Tenant's Plans shall
also include the following:
1. Final Space Plan. The "Final Space Plan" for the Premises shall include
a full and accurate description of room titles, floor loads, alterations
to the Base Building, and the dimensions and location of all partitions,
doors, aisles, plumbing (and racking, furniture and equipment to the
extent same affect floor loading), wiring, freezers and coolers and all
other modifications or improvements not included in the Base Building Work
or the Landlord Work. The Final Space Plan shall be: (a) compatible with
the design, construction, systems and equipment of the Base Building and
Landlord Work; (b) comply with all the requirements set forth in the
"Building Standards Manual", if any provided by Landlord (collectively,
(a) and (b) may be referred to as "Building Standard"); (c) comply with
Laws; (d) be capable of logical measurement and construction; (e) contain
all such information as may be required for the preparation of the
Mechanical and Electrical Working Drawings and
Exhibit B - Page 2
Specifications; and (f) be in form and detail sufficient for submission
for review and approval by the building and fire departments of the
applicable governmental authorities.
2. Mechanical and Electrical Working Drawings and Specifications. Tenant
shall employ engineers approved by Landlord to prepare Mechanical and
Electrical Working Drawings and Specifications showing complete plans for
electrical, life safety, automation, plumbing, water, and air cooling,
ventilating, heating and temperature control.
3. Issued for Construction Documents. The "Issued for Construction
Documents" shall consist of all drawings (1/8" scale) and specifications
necessary to construct all Premises improvements including architectural
and structural working drawings and specifications and Mechanical and
Electrical Working Drawings and Specifications and all plan check
corrections of the applicable governmental authorities.
B. Approval by Landlord. Tenant's Plans and any revisions thereof shall be
subject to Landlord's approval, which approval or disapproval (i) shall not be
unreasonably withheld, provided however, that Landlord may disapprove Tenant's
Plans in its sole discretion if they (a) adversely affect the structural
integrity of the Building, (b) adversely affect the Building Systems (as defined
in Section 1.03 of the Lease), the Common Areas or any other tenant space
(whether or not currently occupied), (c) fail to fully comply with Laws, (d)
affect the exterior appearance of the Building, (e) involve any installation on
the roof, or otherwise affect the roof, roof membrane or any warranties
regarding either, (f) provide for improvements which require removal of any
portion of the slab, except that Landlord will allow Tenant to install freezers
and coolers in a portion of the Premises, remove the existing slab where the
freezers and coolers will be located, and install related plumbing, wiring,
subsurface protection, support and new slab, but the plans and specifications
therefor shall be subject to Landlord's approval, in its sole discretion; and
(ii) shall not be delayed beyond ten (10) business days with respect to initial
submissions and major change orders (those which impact Building Systems or any
item listed in above in this B(i)(a)-(f)) and beyond five (5) business days with
respect to required revisions and other change orders. If Landlord disapproves
of any of Tenant's Plans, Landlord shall advise Tenant of what Landlord
disapproves in reasonable detail. After being so advised by Landlord, Tenant
shall submit a redesign, incorporating the revisions required by Landlord, for
Landlord's approval. The approval procedure shall be repeated as necessary until
Tenant's Plans are ultimately approved. Approval by Landlord shall not be deemed
to be a representation or warranty by Landlord with respect to the safety,
adequacy, correctness, efficiency or compliance with Laws of Tenant's Plans.
Tenant shall be fully and solely responsible for the safety, adequacy,
correctness and efficiency of Tenant's Plans and for the compliance of Tenant's
Plans with any and all Laws.
C. Landlord Cooperation. Landlord shall cooperate with Tenant and make
good faith efforts to coordinate Landlord's construction review procedures to
expedite the planning, commencement, progress and completion of Tenant Work.
Landlord shall complete its review of each stage of Tenant's Plans and any
revisions thereof and communicate the results of such review within the time
periods set forth in Section III.B. above.
D. City Requirements. Any changes in Tenant's Plans which are made in
response to requirements of the applicable governmental authorities and/or
changes which affect the Base Building Work or the Landlord Work shall be
immediately submitted to Landlord for Landlord's review and approval.
E. "As-Built" Drawings and Specifications. A CADD-DXF diskette file (if
available from Tenant's Architect) and a set of mylar reproducibles of all
"as-built" drawings and specifications of the Premises (reflecting all field
changes and including, without limitation, architectural, structural, mechanical
and electrical drawings and specifications) prepared by or available from
Tenant's Architect and Engineers or Contractors (defined below) shall be
delivered by Tenant at Tenant's expense to the Landlord within thirty (30) days
after Tenant's occupancy. If Landlord has not received such drawings and
diskette(s) within thirty (30) days, Landlord shall give Tenant written notice
of such within ten (10) business days. Provided Tenant does not produce the
drawings and diskette(s) within ten (10) days of Landlord's written notice,
Tenant hereby authorizes Landlord to obtain, at Tenant's sole cost, the drawings
and diskette(s) from Tenant's Architect, Engineers or Contractors at their usual
rates for providing such drawings and diskette(s).
IV. Tenant Work.
A. Tenant Work Defined. All tenant improvement work required by the Issued
for Construction Documents is referred to in this Workletter as "Tenant Work."
B. Tenant to Construct. Tenant shall construct all Tenant Work consistent
with the provisions of the terms and conditions of Article Nine of the Lease,
except to the extent modified by this Workletter.
C. (Intentionally omitted.)
D. Contractor. Tenant shall select one or more contractors to perform the
Tenant Work ("Contractor") subject to Landlord's approval, which shall not be
unreasonably withheld.
E. Division of Landlord Work and Tenant Work. Tenant Work is defined in
Section IV.A. above and Landlord Work is defined in Section II. above.
Exhibit B - Page 3
V. Tenant's Expense.
Tenant shall pay for all Tenant Work (including costs of design,
engineering, consultants permits, fees (to the extent otherwise provided in this
Workletter, and all fees required by Law or applicable governmental
authorities), acquisition of materials/equipment, installation and construction
thereof), certain costs of Landlord in connection with the review of proposed
Tenant's Plans to the extent provided in this Workletter. Tenant shall also pay
its share of the Cost of the Landlord Work as provided in Section II. above.
VI. No Landlord's Allowance or Contribution with respect to the Tenant Work.
Landlord is not providing any allowance or contribution with respect to
the design or construction of any improvements or alterations not included in
the Landlord Work or Base Building Work.
VII. Changes, Additions or Alterations.
If Tenant desires to make any non-de minimis change, addition or
alteration, or desires to make any change, addition or alteration to any
structural element of the Building, the Building Systems or any item listed in
Section III.B.(i)(a)-(f), in the Issued for Construction Documents, Tenant shall
prepare and submit to Landlord plans and specifications with respect to such
change, addition or alteration. Any such change, addition or alteration shall be
subject to Landlord's approval in accordance with the provisions of Section
III.B of this Workletter. Tenant shall be responsible for any submission to and
plan check and permit requirements of the applicable governmental authorities.
VIII. Miscellaneous.
A. Except as otherwise set forth in the Lease, this Workletter shall not
apply to any space added to the Premises by Lease option or otherwise.
B. Electrical. The electrical capacity to be available to the Premises for
lighting and power shall be as described as part of the Landlord Work.
C. Tenant Work shall include (at Tenant's expense) for all of the
Premises, any improvements beyond those expressly included as part of the
Landlord Work.
D. Sprinklers. Subject to the terms, conditions and limitations of
Sections I. and II. above, Landlord shall provide the existing ESFR fire
sprinkler system which is part of the Base Building "AS IS" on the date of
delivery of the Premises to Tenant. Tenant shall pay for piping distribution,
drops and relocation of, or additional, sprinkler system heads and any Building
firehose or firehose valve cabinets, if Tenant's Plans and/or any applicable
Laws necessitate such.
E. Floor Loading. Tenant shall not exceed floor loading capacity without
Landlord's prior written consent, at Landlord's sole discretion, and must, at
Tenant's sole cost and expense, reinforce the floor as required for any excess
loading.
F. Work Stoppages. If any work on the Real Property other than Tenant Work
is delayed, stopped or otherwise affected by construction of Tenant Work, Tenant
shall immediately take those actions necessary or desirable to eliminate such
delay, stoppage or effect on work on the Real Property other than Tenant Work.
G. Stocking for Construction. All stocking of materials and supplies shall
be done and/or coordinated by Tenant's contractor.
H. Life Safety. It is agreed that Tenant (or Contractor) shall employ the
services of Allen Automatic, Landlord's approved subcontractor, in the event
Tenant desires any modification or addition to the existing ESFR fire sprinkler
system.
I. Duplicate Keys. Tenant agrees to provide Landlord duplicate keys to
door locks for and in the Premises.
J. Authorized Representatives. Tenant has designated Michael Michel to act
as Tenant's representative with respect to the matters set forth in this
Workletter. Such representative(s) shall have full authority and responsibility
to act on behalf of Tenant as required in this Workletter. Tenant may add or
delete authorized representatives upon five (5) business days notice to
Landlord.
K. Access to Premises. Tenant and its architects, engineers, consultants,
and contractors shall have access prior to the Projected Commencement Date, at
reasonable times (which shall include weekends and evenings) and upon advance
notice and coordination with the Building management, to the Premises for the
purpose of inspecting Landlord Work and planning and constructing Tenant Work.
Such access shall not in any manner unreasonably interfere with Landlord Work.
Further, such access shall not cause any delay in Substantial Completion of the
Landlord Work. Tenant shall submit for Landlord's approval the desired time(s)
of entry, scope of work to be performed and the names of the contractor(s) who
will perform such work. Such access, and all acts and omissions in connection
with it, shall be subject to and governed by all other provisions of the Lease,
including Tenant's indemnification obligations, insurance obligations, etc.,
except that Tenant shall not be obligated to pay Monthly Base Rent or Tenant's
Share of Operating Expenses or Taxes. To the extent that such access by Tenant
delays the Substantial Completion
Exhibit B - Page 4
of the Landlord Work, such delay shall be a Tenant Delay and the Landlord Work
shall be deemed Substantially Complete on the date such Landlord Work would have
been completed but for such access. To the extent that such access by Tenant
increases the cost of Landlord Work, Tenant shall pay Landlord such increase(s)
within five (5) business days after written notice from Landlord of such amount,
and if such payment is not timely received by Landlord, Landlord may, at its
option, in addition to all other rights and remedies of Landlord, revoke or
suspend any prior permission for such access by Tenant until payment is
received.
L. (Intentionally omitted.)
IX. Force and Effect.
The terms and conditions of this Workletter supplement the Lease and shall
be construed to be a part of the Lease and shall be deemed incorporated in the
Lease by this reference. Without limiting the generality of the foregoing, any
default by any party hereunder shall have the same force and effect as a default
under the Lease. Should any inconsistency arise between this Workletter and the
Lease as to the specific matters which are the subject of this Workletter, the
terms and conditions of this Workletter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Workletter as of
the date first set forth in the Lease.
TENANT: LANDLORD:
United Natural Foods, Inc., Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By By
-------------------------------- --------------------------------
-------------------------------- --------------------------------
Print name Print name
Its Its
-------------------------------- --------------------------------
(Chairman of Board, President or
Vice President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
For good and valuable consideration, Mountain People's Warehouse Incorporated
joins in the execution of this Lease, including this Workletter, to confirm that
it is jointly and severally liable with Tenant under this Lease (including
without limitation, all Riders and Exhibits attached hereto) pursuant to the
terms of Section 10.01(e) of this Lease.
MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED,
a California corporation
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Chairman of Board, President or
Vice President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
Exhibit B - Page 5
WORKLETTER - TENANT BUILD
DESCRIPTION OF LANDLORD WORK PURSUANT TO SECTION II OF THE WORKLETTER
Landlord Work shall mean the following work, to be performed by Landlord's
contractor(s), subject to certain specific allocations of cost between Tenant
and Landlord, as described below:
(a) Total of approximately 6,702-square feet of general purpose, single-story
office space including warehouse office and restrooms, but the plans and
specifications therefor shall be subject to Landlord's approval, which shall not
unreasonably be withheld (the "Office Plans"). The plans and specifications also
show on the East elevation of the Building "store front" improvements and a
second entry door for visitors, both with respect to the office area, which
improvements are part of the Office Plans. Such plans and specifications are
being prepared by Hill-Pinckert, and include certain other improvements beyond
those for the office areas, and such other improvements shall not be part of the
Landlord Work except to the extent expressly provided to be part of the Landlord
Work by another provision of this Exhibit B-1. Tenant has proposed to construct,
as part of the Tenant Work, a mezzanine, some or all of which shall be above the
office area. Landlord Work shall not include, and Landlord shall not be
responsible for the design or construction of any mezzanine above the office
areas (or elsewhere), and Tenant shall be responsible for the cost thereof and
for all additional cost of constructing the office areas (or any other Landlord
Work) beneath any such mezzanine (including, for example, the additional
incremental cost of working underneath, of accommodating any support
posts/pillars or support walls for the mezzanine, and any increased cost due to
additional time/delay). Further, to the extent that the construction of a
mezzanine delays the Substantial Completion of Landlord Work, such delay shall
be a Tenant Delay and the Landlord Work shall be deemed Substantially Complete
on the date such Landlord Work would have been completed but for the mezzanine
work.
(b) General area metal halide warehouse lighting to provide 15 foot-candles at 3
ft. above finished floor with racking fully loaded. Lighting to be spaced
between aisles and include all space except areas above offices, freezers and
coolers.
(c) Existing paint. Tenant acknowledges and accepts this item is complete as of
the date of execution of this Lease.
(d) Existing ESFR fire sprinkler system. Tenant acknowledges and accepts this
item is complete as of the date of execution of this Lease, and any further
distribution of the sprinkler system with respect to the freezer, cooler and
racking systems shall be Tenant's responsibility.
(e) Existing concrete truck maneuvering area, described as the Truck Court in
the Lease. Tenant acknowledges and accepts this item is complete as of the date
of execution of this Lease, except for (p) and (q) below.
(f) One (1) grade level ramp and door, as shown on the Hill-Pinckert plans and
specifications.
(g) Twenty-one (21) dock-high truck positions equipped with 35,000 pound Kelly
Air Bag Levelers (or reasonable equivalent) with a 20" lip, stop-and-go lights,
dock shelters, dock bumpers and dock lights.
(h) The main power service will be in the utility room at the westerly side of
the Building. Landlord will bring wiring with a capacity for electrical service
of 2,000 amps, 277/480 volts, from the utility room to the point on Tenant's
side of the demising wall of the Premises on grid line 11 (of the drawings of
the Building previously delivered to Tenant). In addition, Landlord shall
provide an electrical line to serve the office area described in (a) above, and
electrical wiring for lights and power outlets within such area to the extent
shown on the office space plan described in (a) above (and subject to cost
sharing described in (a)). Landlord shall provide and install, in the utility
room or other location Landlord may select at its option, the initial electric
submeter for Tenant's electricity, and any initial testing and certification
thereof. Tenant acknowledges and agrees that Landlord has disclosed that as of
the date of execution of the Lease, the existing electrical capacity for the
entire Project is 1,200 amps and the local electric utility (Southern California
Edison or "SCE") which connects the Project to the local electrical
distribution/transmission system is the entity responsible to replace the
transformer with a new one appropriate for Tenant's design criteria, and causing
such replacement of the transformer is part of the Landlord Work, except that
(1) Landlord's responsibility to cause such replacement to be performed is
limited to making application to SCE for such replacement once Tenant's design
criteria are finalized, and (2) Tenant further acknowledges and agrees that
Substantial Completion of the Landlord Work shall not require, and shall not be
delayed by, any failure of SCE to replace the transformer, and consequently
Substantial Completion of the Landlord Work (and the Commencement Date, as
determined pursuant to Article Two of the Lease) may occur before SCE replaces
the transformer, and this Lease shall continue in full force and effect
notwithstanding any such failure or delay by SCE, and any delay by SCE in
replacing the transformer shall not delay Substantial Completion and the
Commencement Date, constitute a default of Landlord or give rise to any
abatement of rent or liability of Landlord with respect to this Lease, but shall
be subject to the following paragraph of this Subsection (h). Except to the
extent provided above as part of the Landlord Work, Tenant shall make, maintain
and repair, at its sole cost and expense, all connections, modifications,
extensions and installations to or of any electrical panel, breaker, feeder,
wiring, conduits, transformer, plumbing and any additional equipment necessary
to connect Tenant's facilities to any Building Systems.
Exhibit B - Page 6
If SCE has not replaced the transformer on or before the date on which (i) the
Landlord Work, excluding replacement of the transformer, is Substantially
Complete (recognizing that Substantial Completion of the Landlord Work is
determined apart from, and does not require Substantial Completion of,
additional work requested by Tenant pursuant to Section II.D. of the Workletter,
including electrical connections related to Tenant's standby generator); (ii)
all additional work requested by Tenant pursuant to Section II.D. of the
Workletter, including electrical connections related to Tenant's standby
generator) is Substantially Complete; and (iii) the Tenant Work is Substantially
Complete (including Tenant's freezers and coolers such that Tenant is ready and
able to turn on the refrigeration system for the freezers and coolers), then for
the period from such date when all three events described in (i) through (iii)
have occurred, and until SCE has replaced the transformer, if the Building
System does not provide sufficient power for Tenant's operational needs at the
time for the entire Premises, then the following shall apply:
(1) Landlord has no objection to Tenant using the Standby Generator
Installations (including a temporary standby generator system to be
provided by Tenant if Tenant is not then able to install its permanent
standby generator) to provide power for Tenant's operational needs at the
time, provided such use does not adversely affect any Building System and
is subject to the other provisions of Section 6.07 of the Lease. Without
limiting the generality of the foregoing, Tenant shall be responsible to
provide all switchover equipment and circuits to connect & operate the
generator without interference with or damage to any Building Systems or
any other equipment of Landlord or other occupants of the Building (but
recognizing that Tenant may request installation by Landlord of certain
electrical connections related to Tenant's standby generator pursuant to
Section II.D. of the Workletter).
(2) Tenant shall give Landlord a statement of its Operating Costs (as
defined below) no more frequently than weekly, including supporting
documentation for Operating Costs and the number of kilowatt hours of
electricity used by Tenant from operation of such generator during such
billing period. If such Operating Costs exceed the SCE Cost (as defined
below), Landlord shall reimburse Tenant, within ten (10) days after
receipt of Tenant's statement, for fifty percent (50%) of the excess, if
any, of Operating Costs above the SCE Cost. For purposes of this
Subsection, the definitions set forth below shall apply. "Operating Costs"
shall mean the cost, calculated on a per diem basis, equal to the sum of
(aa) per diem rent at Tenant's actual cost for rental of a temporary
standby generator if Tenant is not then able to install its permanent
standby generator until Tenant is able to install the permanent standby
generator, plus (bb) Tenant's actual cost for diesel fuel used to operate
the generator if and when it is needed to provide power to meet Tenant's
operational needs during the applicable billing period. The "SCE Cost"
shall mean the equivalent bill that would have been rendered by SCE for
power used and related normal charges for the number of kilowatt hours of
electricity used by Tenant from operation of such generator for the
applicable billing period using the rate which SCE would apply to Tenant,
taking into account some reasonable allocation between peak and off-peak
use.
(3) If, and for each day that, Tenant is prohibited by action or order of
any governmental authority from using, and does not use, the Standby
Generator Installations to provide power to meet Tenant's operational
needs during this period, then for each such day the Building's electrical
system shall be used to power the Premises, but if the power needed to run
the freezers and coolers at that time cannot be met by the Building's
electrical system, then for each day Tenant is so prohibited from using
and does not use the Standby Generator Installations to meet such power
needs, one day shall be added to lengthen the period (originally scheduled
for months 3 through 5 of the Term) during which the rate for Monthly Base
Rent is $30,355.13, and the next period of increased Monthly Base Rent
(originally scheduled for months 6 through 30) shall be shortened
correspondingly by each such day.
(i) Floor to ceiling demising wall to separate adjacent tenancy.
(j) Epoxy-control joint filler (MM-80) at exposed floor joints, except on the
floor within the freezer and cooler area, and except on the floor within the
office areas.
(k) Existing Lapidolith sealer on entire warehouse floor within the Premises,
except areas of office, freezers, and coolers. Tenant acknowledges and accepts
this item is complete as of the date of execution of this Lease.
(l) Landlord will box-out, or at Landlord's election move, the existing
ventilator located on grid line 11 (of the drawings of the Building previously
delivered to Tenant) so that such ventilator serves only the adjoining space.
Otherwise, there remain 4 existing ventilators (24,300 CFM units) located within
and serving the Premises, and Tenant acknowledges and accepts the 4 ventilators
as complete as of the date of execution of this Lease.
(m) Existing skylights. Tenant acknowledges and accepts this item is complete as
of the date of execution of this Lease.
(n) Inside ceiling with existing foil-white insulation paper.
(o) Landlord shall bring a water line to the Premises to a point designated by
Landlord, and provide restroom facilities to the extent shown on the office
space plan described in (a) above and connect them to the water line and the
existing under-slab sewer line, subject to the cost sharing provided in (a).
Tenant shall be
Exhibit B - Page 7
responsible as part of the Tenant Work for all plumbing in connection with
Tenant's freezers and coolers, and from the point Landlord brings the water line
to the Premises, Tenant shall be responsible for any extension to the freezers
and coolers, with such connection point and shut-off valve at the beginning of
such extension as Landlord may require.
(p) 181 foot chain link fence (with gate) on westerly side of the Truck Court
separating Tenant's Truck Court area from such area for adjoining space.
(q) stripe parking in Truck Court.
(r) surface and stripe a parking area on the easterly side of the Building next
to the fire lane, as shown on the Hill-Pinckert plans and specifications, but
parking in such location shall be provided only if, and for so long as, Landlord
obtains from the owner of the adjacent land on which such area is located, the
right to use such area for parking, and obtains all necessary governmental
approvals for such use, all at no additional cost to Landlord (other than the
cost of the improvements shown on such plans and included in the estimate of the
Cost of the Landlord Work, which is subject to the cost sharing provisions of
Section II of this Workletter).
Exhibit B - Page 8
EXHIBIT C
SITE PLAN OF PROJECT; TRUCK COURT & TENANT'S PARKING AREA
Tenant's Parking Area shall be on certain areas of the Truck Court striped for
parking in accordance with the final plans and specifications for the Landlord
Work and the remaining parking shall be in such area(s) of the Property as
Landlord designates from time to time to be part of Tenant's Parking Area.
Landlord may elect to provide some of Tenant's parking spaces in (and include in
Tenant's Parking Area) an area on the easterly side of the Building next to the
fire lane, but parking in such location shall be provided only if, and for so
long as, Landlord obtains from the owner of the adjacent land on which such area
is located, the right to use such area for parking, and obtains all necessary
governmental approvals for such use, all at no additional cost to Landlord
(other than the cost of the improvements shown on plans described in item (r) of
Exhibit B-1 of the Lease and included in the estimate of the Cost of the
Landlord Work, which cost is subject to the cost sharing provisions of Section
II of the Workletter).
Site Plan, showing Truck Court, attached.
Exhibit C - Page 1
EXHIBIT D
PERMITTED HAZARDOUS MATERIAL
Permitted Hazardous Material includes insignificant amounts of substances listed
below so long as (i) such substances are maintained only in such quantities as
are reasonably necessary for Tenant's operations in the Premises, (ii) such
substances are used strictly in accordance with the manufacturers' instructions
therefor and all applicable laws, (iii) such substances are not disposed of in
or about the Building or the Project in a manner which would constitute a
release or discharge thereof, and (iv) all such substances are removed from the
Premises by Tenant no later than the Termination Date (and if no quantity is
listed below, none of the listed material shall be permitted):
Type: Quantity:
Equipment degreaser, oils, fluids, sprays
Lubricating oils, fluids, sprays
Cleaning oils, fluids, sprays
Propane fuel in separate portable tanks to mount on fork-lifts
Propane fuel in a tank on the Truck Court as provided pursuant
to Section 6.08 200 gallons
Welding materials
Paints
Lighter fluid
Cooking oils
Adhesives
Household cleaning fluids and sprays
dry ice
freon
Diesel fuel in a tank housed in a mobile van trailer to be parked
on the Truck Court for the purpose of providing fuel for Tenant's
standby generator to be housed in the same van trailer pursuant
to Section 6.07 800 gallons
Exhibit D - Page 1 of 1
EXHIBIT E
HAZARDOUS MATERIAL PLANS
[TO BE LISTED BY TENANT]
Exhibit E - Page 1 of 1
EXHIBIT F
FORM OF SUBORDINATION, NONDISTURBANCE & ATTORNMENT AGREEMENT
===========================
RECORDING REQUESTED
BY AND WHEN
RECORDED RETURN TO:
--------------------, Esq.
--------------------
--------------------
===========================
SUBORDINATION,
NONDISTURBANCE
AND ATTORNMENT AGREEMENT
NOTICE: THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT RESULTS IN
YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER
PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
DEFINED TERMS
================================================================================
Execution Date:
--------------------------------------------------------------------------------
Beneficiary & Address:
Attn:
with a copy to:
--------------------------------------------------------------------------------
Tenant & Address:
--------------------------------------------------------------------------------
Landlord & Address:
--------------------------------------------------------------------------------
Loan: A first mortgage loan in the original principal amount of $
from Beneficiary to Landlord.
--------------------------------------------------------------------------------
Note: A Promissory Note executed by Landlord in favor of Beneficiary in the
amount of the Loan dated as of
--------------------------------------------------------------------------------
Deed of Trust: A Deed of Trust, Security Agreement and Fixture Filing dated as
of executed by Landlord, to as Trustee, for the benefit of
Beneficiary securing repayment of the Note to be recorded in the records of the
County in which the Property is located. Lease and Lease Date: The lease entered
into by Landlord and Tenant dated as of covering the Premises. [Add amendments]
--------------------------------------------------------------------------------
Property: [Property Name]
[Street Address 1]
[City, State, Zip]
The Property is more particularly described on Exhibit A.
================================================================================
THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (the
"Agreement") is made by and among Tenant, Landlord, and Beneficiary and affects
the Property described in Exhibit A. Certain terms used in this Agreement are
defined in the Defined Terms. This Agreement is entered into as of the Execution
Date with reference to the following facts:
A. Landlord and Tenant have entered into the Lease covering certain space
in the improvements located in and upon the Property (the "Premises").
Exhibit F - Page 1 of 5
B. Beneficiary has made or is making the Loan to Landlord evidenced by the
Note. The Note is secured, among other documents, by the Deed of Trust.
C. Landlord, Tenant and Beneficiary all wish to subordinate the Lease to
the lien of the Deed of Trust.
D. Tenant has requested that Beneficiary agree not to disturb Tenant's
rights in the Premises pursuant to the Lease in the event Beneficiary forecloses
the Deed of Trust, or acquires the Property pursuant to the trustee's power of
sale contained in the Deed of Trust or receives a transfer of the Property by a
conveyance in lieu of foreclosure of the Property (collectively, a "Foreclosure
Sale") but only if Tenant is not then in default under the Lease and Tenant
attorns to Beneficiary or a third party purchaser at the Foreclosure Sale (a
"Foreclosure Purchaser").
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
1. Subordination. The Lease and the leasehold estate created by the Lease
and all of Tenant's rights under the Lease are and shall remain subordinate to
the Deed of Trust and the lien of the Deed of Trust, to all rights of
Beneficiary under the Deed of Trust and to all renewals, amendments,
modifications and extensions of the Deed of Trust.
2. Acknowledgements by Tenant. Tenant agrees that: (a) Tenant has notice
that the Lease and the rent and all other sums due under the Lease have been or
are to be assigned to Beneficiary as security for the Loan. In the event that
Beneficiary notifies Tenant of a default under the Deed of Trust and requests
Tenant to pay its rent and all other sums due under the Lease to Beneficiary,
Tenant shall pay such sums directly to Beneficiary or as Beneficiary may
otherwise request; (b) Tenant shall send a copy of any notice of default under
the Lease to Beneficiary at the same time Tenant sends such notice or statement
to Landlord; and (c) this Agreement satisfies any condition or requirement in
the Lease relating to the granting of a nondisturbance agreement.
3. Foreclosure and Sale. In the event of a Foreclosure Sale:
(a) So long as Tenant complies with this Agreement and is not in default
under any of the provisions of the Lease, the Lease shall continue in full
force and effect as a direct lease between Beneficiary and Tenant, and
Beneficiary will not disturb the possession of Tenant, subject to this
Agreement. To the extent that the Lease is extinguished as a result of a
Foreclosure Sale, a new lease shall automatically go into effect upon the
same provisions as contained in the Lease between Landlord and Tenant,
except as set forth in this Agreement, for the unexpired term of the
Lease. Tenant agrees to attorn to and accept Beneficiary as landlord under
the Lease and to be bound by and perform all of the obligations imposed by
the Lease, or, as the case may be, under the new lease, in the event that
the Lease is extinguished by a Foreclosure Sale. Upon Beneficiary's
acquisition of title to the Property, Beneficiary will perform all of the
obligations imposed on the Landlord by the Lease except as set forth in
this Agreement; provided, however, that Beneficiary shall not be: (i)
liable for any act or omission of a prior landlord (including Landlord);
or (ii) subject to any offsets or defenses that Tenant might have against
any prior landlord (including Landlord); or (iii) bound by any rent or
additional rent which Tenant might have paid in advance to any prior
landlord (including Landlord) for a period in excess of one month or by
any security deposit, cleaning deposit or other sum that Tenant may have
paid in advance to any prior landlord (including Landlord); or (iv) bound
by any amendment or modification of the Lease made without the written
consent of Beneficiary which reduces Rent or any other amounts payable by
Tenant, or increases Landlord's obligations, or (iv) assignment of the
Lease made without the written consent of Beneficiary except an assignment
permitted in accordance with the terms of the Lease, or (v) termination of
the Lease made without the written consent of Beneficiary; (vi) obligated
or liable with respect to any representations, warranties or indemnities
contained in the Lease; or (vii) liable to Tenant or any other party for
any conflict between the provisions of the Lease and the provisions of any
other lease affecting the Property which is not entered into by
Beneficiary.
(b) Upon the written request of Beneficiary after a Foreclosure Sale, the
parties shall execute a lease of the Premises upon the same provisions as
contained in the Lease between Landlord and Tenant, except as set forth in
this Agreement, for the unexpired term of the Lease.
(c) Notwithstanding any provisions of the Lease to the contrary, from and
after the date that Beneficiary acquires title to the Property as a result
of a Foreclosure Sale, (i) Beneficiary will not be obligated to expend any
monies to restore casualty damage in excess of available insurance
proceeds; (ii) tenant shall not have the right to make repairs and deduct
the cost of such repairs from the rent without a judicial determination
that Beneficiary is in default of its obligations under the Lease; (iii)
in no event will Beneficiary be obligated to indemnify Tenant, except
where Beneficiary has been actively negligent in the performance of its
obligations as landlord; and (iv) other than determination of fair market
value, no disputes under the Lease shall be subject to arbitration unless
Beneficiary and Tenant agree to submit a particular dispute to
arbitration.
4. Subordination and Release of Purchase Options. Tenant represents that
it has no right or option of any nature to purchase the Property or any portion
of the Property or any interest in the Borrower. To the extent Tenant has or
acquires any such right or option, these rights or options are
Exhibit F - Page 2 of 5
acknowledged to be subject and subordinate to the Mortgage and are waived and
released as to Beneficiary and any Foreclosure Purchaser.
5. Acknowledgement by Landlord. In the event of a default under the Deed
of Trust, at the election of Beneficiary, Tenant shall and is directed to pay
all rent and all other sums due under the Lease to Beneficiary.
6. Construction of Improvements. Beneficiary shall not have any obligation
or incur any liability with respect to the completion of the improvements in
which the Premises are located at the commencement of the term of the Lease.
7. Notice. All notices under this Agreement shall be deemed to have been
properly given if delivered by overnight courier service or mailed by United
States certified mail, with return receipt requested, postage prepaid to the
party receiving the notice at its address set forth in the Defined Terms (or at
such other address as shall be given in writing by such party to the other
parties) and shall be deemed complete upon receipt or refusal of delivery.
8. Miscellaneous. Beneficiary shall not be subject to any provision of the
Lease that is inconsistent with this Agreement. Nothing contained in this
Agreement shall be construed to derogate from or in any way impair or affect the
lien or the provisions of the Deed of Trust. This Agreement shall be governed by
and construed in accordance with the laws of the State of in which the Property
is located.
9. Liability and Successors and Assigns. In the event that Beneficiary
acquires title to the Premises or the Property, Beneficiary shall have no
obligation nor incur any liability beyond the lesser of (a) Five Million Dollars
($5,000,000.00) or (b) Beneficiary's then equity interest in the Property and
Tenant shall look solely to Beneficiary's then equity interest for the payment
and performance of any obligations imposed upon Beneficiary under this Agreement
or under the Lease but Tenant's recourse against Beneficiary shall in no event
exceed the amount of Five Million Dollars ($5,000,000.00). This Agreement shall
run with the land and shall inure to the benefit of the parties and, their
respective successors and permitted assigns including a Foreclosure Purchaser.
If a Foreclosure Purchaser acquires the Property or if Beneficiary assigns or
transfers its interest in the Note and Deed of Trust or the Property, all
obligations and liabilities of Beneficiary under this Agreement shall terminate
and be the responsibility of the Foreclosure Purchaser or other party to whom
Beneficiary's interest is assigned or transferred. The interest of Tenant under
this Agreement may not be assigned or transferred except in connection with an
assignment of its interest in the Lease which has been consented to by
Beneficiary.
IN WITNESS WHEREOF, the parties have executed this Subordination,
Nondisturbance and Attornment Agreement as of the Execution Date.
NOTICE: THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT CONTAINS
PROVISIONS WHICH ALLOW THE PERSON OBLIGATED ON THE LEASE TO OBTAIN A
LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN
IMPROVEMENT OF THE PROPERTY.
IT IS RECOMMENDED THAT THE PARTIES CONSULT WITH THEIR ATTORNEYS PRIOR TO THE
EXECUTION OF THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT.
BENEFICIARY:
-----------------------------------,
-----------------------------------
By
--------------------------------
Its
--------------------------------
TENANT:
-----------------------------------,
-----------------------------------
By
--------------------------------
Its
--------------------------------
LANDLORD:
-----------------------------------,
-----------------------------------
By
--------------------------------
Its
--------------------------------
Exhibit F - Page 3 of 5
EXHIBIT A
PROPERTY DESCRIPTION
Exhibit F - Page 4 of 5
State of
----------------
County of
----------------
On , 2001 before me, , personally appeared
----------- ------------------
, personally known to me (or proved to me on the basis of
-------------------
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
-------------------------------------
*****************
State of
----------------
County of
----------------
On , 2001 before me, , personally appeared
----------- ------------------
, personally known to me (or proved to me on the basis of
-------------------
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
-------------------------------------
*****************
State of
----------------
County of
----------------
On , 2001 before me, , personally appeared
----------- ------------------
, personally known to me (or proved to me on the basis of
-------------------
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
-------------------------------------
Exhibit F - Page 5 of 5
EXHIBIT G
(INTENTIONALLY OMITTED)
Exhibit G - Page 1 of 1
EXHIBIT H
PERMITTED VEHICLE REPAIRS
1. Replace propane tanks mounted on any propane-powered forklifts.
2. All forklift, pallet jack, reach lift, material handling equipment
maintenance.
3. Minor tractor and trailer repair: tire changes; changes of headlights and
other lights, brake adjustments or minor emergency repairs. This shall not
permit tractor oil changes, planned maintenance and other repairs.
Exhibit H - Page 1 of 1
EXHIBIT I
ILLUSTRATIVE CALCULATION OF MONTHLY BASE RENT FOR NEW SPACE
(pursuant to Section 5 of Rider 2; for illustrative purposes only)
Assumed size of New Space: 83,000 sf
I. Assumed Total Development Costs $3,000,000 $36.14 psf
II. Required Cash Flow Calculation
Total development costs $ 3,000,000
Required return rate x 10.50%
-----------
Required Landlord Cash Flow Net of Reserves $ 315,000 per year
III. NNN Rent Calculation including Reserves
Required Landlord Cash Flow Net of Reserves $ 315,000
Add replacement reserves $0.08 psf x 83,000 sf = $ 6,640
-----------
$ 321,640
Add general vacancy reserve @ 3.0% 321,640 sf
(100% - 3%=) / 97.0%
--------
$ 331,588
less $ (321,640)
--------
vacancy reserve $ 9,948 $ 9,948
Summary
Required Landlord Cash Flow Net of Reserves $ 315,000
Plus structural reserve $ 6,640
Plus vacancy reserve $ 9,948
-----------
NNN Rent required for
Required Cash Flow $ 331,588
Per square foot/mo. $ 0.3329
IV. Proof of Calculation
NNN Rent $ 331,588
less structural reserve $ (6,640)
less vacancy reserve $ (9,948)
-----------
Required Landlord Cash Flow
Net of Reserves $ 315,000
Exhibit I - Page 1 of 1
RIDER 1
COMMENCEMENT DATE AGREEMENT
Metropolitan Life Insurance Company, a New York corporation ("Landlord"), and
United Natural Foods, Inc., a Delaware corporation ("Tenant"), have entered into
a certain Lease dated as of July 31, 2001 (the "Lease").
WHEREAS, Landlord and Tenant wish to confirm and memorialize the
Commencement Date and Expiration Date of the Lease as provided for in Section
2.02(b) of the Lease;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Unless otherwise defined herein, all capitalized terms shall have the
same meaning ascribed to them in the Lease.
2. The Commencement Date of the Lease is .
------------------------
3. The Expiration Date of the Lease is .
--------------------------
4. Tenant hereby confirms the following:
(a) That it has accepted possession of the Premises pursuant to the
terms of the Lease;
(b) That the Landlord Work, if any, is Substantially Complete; and
(c) That the Lease is in full force and effect.
5. Except as expressly modified hereby, all terms and provisions of the
Lease are hereby ratified and confirmed and shall remain in full force and
effect and binding on the parties hereto.
6. The Lease and this Commencement Date Agreement contain all of the
terms, covenants, conditions and agreements between Landlord and Tenant relating
to the subject matter herein. No prior other agreements or understandings
pertaining to such matters are valid or of any force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Commencement
Date Agreement and such execution and delivery have been duly authorized.
TENANT: LANDLORD:
United Natural Foods, Inc., Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By By
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Print name Print name
Its Its
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(Chairman of Board, President or
Vice President)
By
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Print name
Its
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(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
Rider 1 - Page 1 of 1
RIDER 2
ADDITIONAL PROVISIONS
This Rider 2 ("Rider") is attached to and a part of a certain Lease dated
as of July 31, 2001, executed concurrently herewith by Metropolitan Life
Insurance Company, a New York corporation, as Landlord, and United Natural
Foods, Inc., a Delaware corporation (for purposes of this Rider, "United"), as
Tenant, for the Premises as described therein (the "Lease").
SECTION 1. DEFINED TERMS; FORCE AND EFFECT
Capitalized terms used in this Rider shall have the same meanings set forth in
the Lease except as otherwise specified herein and except for terms capitalized
in the ordinary course of punctuation. This Rider forms a part of the Lease.
Should any inconsistency arise between this Rider and any other provision of the
Lease as to the specific matters which are the subject of this Rider, the terms
and conditions of this Rider shall control.
SECTION 2. (INTENTIONALLY OMITTED)
SECTION 3. RIGHT OF FIRST OFFER.
(a) Landlord hereby grants Tenant a one-time right of first offer to lease
the "Offer Space" (as defined below) during the period beginning on the
execution date of this Lease and expiring twelve (12) months prior to the
Expiration Date of the initial Term (or at the end of the initial Term if the
Option to Extend is validly exercised and effective) (the "Right Period"), upon
and subject to the terms and conditions of this Section (the "Right of First
Offer").
(b) Offer Space shall mean the space which: (x) is adjacent to the
Premises in the existing Building (and Offer Space shall not include any
expansion of the Building constructed after the execution date), and (y) is or
becomes "Available" (as defined below). The term "Available" shall mean that the
space in question is, or is expected by Landlord within a reasonable time to
become, vacant, unencumbered and free and clear of all claims and rights of
other parties and, without limiting the generality of the foregoing, space shall
not be Available if as to such space there is a lease, lease option or option or
other right of extension, renewal, expansion, refusal, negotiation or similar or
other right, either: (i) pursuant to any lease or written agreement which is
entered into on or before the beginning of the Right Period or which is in
negotiation (either at the proposal or lease stage) at the beginning of the
Right Period and thereafter entered into, or (ii) pursuant to any extensions or
renewal of any of the foregoing, whether or not set forth in the original lease
or written agreement, or (iii) pursuant to any amendment or modification of any
of the foregoing (no matter when executed).
(c) Tenant acknowledges and agrees that Landlord has disclosed that as of
the execution date of this Lease, all of the Offer Space is vacant and Available
and that Landlord may give Landlord's Notice at any time. Nothing herein shall
be deemed to limit or prevent Landlord from marketing, discussing or negotiating
with any other party for a lease of, or rights of any nature as to, any part of
the Offer Space, but during the Right Period before Landlord makes any written
proposal to any other party for Offer Space, or contemporaneously with making
any such proposal, Landlord shall give Tenant written notice ("Landlord's
Notice") that the Offer Space is then Available or of the date Landlord
estimates the Offer Space will be Available. Tenant shall have ten (10) business
days after Landlord gives Landlord's Notice (the "Election Notice Period") in
which to give Landlord written notice ("Election Notice") of Tenant's election
to exercise this Right of First Offer to lease of all (and not less than all)
the Offer Space.
(d) In the event Tenant duly and timely delivers its Election Notice to
Landlord, the Offer Space shall be leased by and to Tenant upon and subject to
the same terms and conditions contained in the Lease except as follows: (i)
Tenant shall accept the Offer Space in its then "shell" or "as-built" condition
(as applicable) and "AS IS" condition without any obligation of Landlord to
repaint, remodel, improve or alter the Premises for Tenant's occupancy or to
provide Tenant any allowance therefor, but such space shall be delivered broom
clean and free of all tenants or occupants and their property; (ii) Landlord
shall deliver the Offer Space to Tenant no later than ten days after execution
of the amendment described below in the event that the space is then vacant or,
if not then vacant, no later than sixty (60) days after Landlord regains
possession of the Offer Space; (iii) the term of Tenant's lease of the Offer
Space shall commence on such delivery date and continue for the remaining Term
of this Lease (including all extensions pursuant to the Option to Extend); (iv)
upon such delivery, the Offer Space shall be part of the Premises under this
Lease, such that the term "Premises" in this Lease thereafter shall refer to the
space in the existing Premises plus the Offer Space; (v) starting on such
delivery date, Tenant shall pay Rent (including all Monthly Base Rent, Rent
Adjustment Deposits, Rent Adjustments and other charges payable by Tenant for
utilities and otherwise) with respect to the Offer Space in addition to the
existing Premises, (vi) additional Monthly Base Rent for the Offer Space shall
be calculated at the same contract rates per square foot of Rentable Area as
those for Monthly Base Rent for the existing Premises then applicable under the
schedule of Monthly Base Rent for the existing Premises, increasing as and when
such rates increase for the original Premises (for example, if the delivery date
for the Offer Space occurred at the beginning of the fifth month of the Term of
the Lease, the Monthly Base Rent for one month would be $0.1525 (the same as the
rate for the fifth month of the Term of the Lease), and for the next month
through the 30th month of the Term of the Lease the rate would be $0.3050
monthly per square foot of Rentable Area, and for next 30 months the rate would
be $0.3280, and so forth through the end of the Term of the Lease); (vii) Tenant
shall pay Rent Adjustment Deposits and Rent Adjustments with respect to the
Offer Space calculated with the additional Tenant's Share
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for the Offer Space, and Tenant's Protection Period from a Transfer Increase (as
applicable both to the original Premises and the Offer Space) shall expire on
the day before the fifth anniversary of the Commencement Date of the original
Premises; (viii) Tenant's Share, Tenant's Parking Area and Truck Court shall be
adjusted to correspond to the addition of the Offer Space; and (ix) Landlord
shall prepare an amendment to the Lease for the lease of the Offer Space on such
terms and conditions, and Tenant shall execute such amendment within five (5)
business days after Landlord gives Tenant the draft amendment and Landlord shall
execute it thereafter.
(e) If Tenant either fails or elects not to exercise its Right of First
Offer as to the Offer Space covered by Landlord's Notice by not giving its
Election Notice within the Election Notice Period, or if Tenant gives Tenant's
Election Notice but does not timely execute the amendment prepared by Landlord
for the lease of the Offer Space, then in any such event Tenant's Right of First
Offer shall be null and void and at any time thereafter Landlord shall be free
to lease such space to any third party on any terms and conditions whatsoever.
(f) This Right of First Offer is personal to United and may not be used
by, and shall not be transferable or assignable (voluntarily or involuntarily)
to any person or entity other than an Affiliate which is an assignee of the
Lease which has satisfied the requirements of Subsections 10.01 of this Lease,
and such Affiliate may exercise the right without Tenant joining in or
consenting to such exercise, and notwithstanding anything to the contrary,
Tenant shall remain liable for all obligations under the Lease, including those
resulting from any such exercise with the same force and effect as if Tenant had
joined in such exercise.
(g) Upon the occurrence of any of the following events, Landlord shall
have the option, exercisable at any time prior to the time the Offer Space is to
be added to the Premises, to terminate all of the provisions of this Section
with respect to the Right of First Offer, with the effect of canceling and
voiding any prior or subsequent exercise so this Right of First Offer is of no
force or effect:
(i) Tenant's failure to timely exercise the Right of First Offer in
accordance with the provisions of this Section.
(ii) The existence at the time Tenant exercises the Right of First
Offer or at any time before the time Landlord executes the amendment
for the Offer Space of any Default (as defined in Section 11.01 of
the Lease) on the part of Tenant under the Lease.
(iii) If at the time Tenant exercises the Right of First Offer or at
any time thereafter until Landlord executes the amendment for the
lease of the Offer Space: (a) Tenant is not in occupancy of
seventy-five percent (75%) of the Premises; or (b) there has been a
material adverse change in Tenant's financial position from such
position as of the date of execution of the Lease. Tenant shall
deliver to Landlord with Tenant's written notice exercising its
right hereunder Tenant's most recent annual audited financial
statements certified by Tenant's independent certified public
accountant, and the most recent publicly-filed financial statements
and documents showing Tenant's financial position.
(h) Without limiting the generality of any provision of the Lease, time
shall be of the essence with respect to all of the provisions of this Section.
SECTION 4. OPTION TO EXTEND.
(a) Landlord hereby grants Tenant two (2) consecutive options
(individually an "Option" and collectively the "Options") to extend the initial
Term of the Lease for an additional period of five (5) years per Option (such
period may be referred to as the "Option Term"), as to the entire Premises as it
may then exist, upon and subject to the terms and conditions of this Section
(the "Option To Extend"), and provided that at the time of exercise of each
option: (i) Tenant must be in occupancy of seventy-five percent (75%) of the
Premises; and (ii) there has been no material adverse change in Tenant's
financial position from such position as of the date of execution of the Lease.
Tenant shall deliver to Landlord with Tenant's written notice exercising its
right hereunder Tenant's most recent annual audited financial statements
certified by Tenant's independent certified public accountant, and the most
recent publicly-filed financial statements and documents showing Tenant's
financial position.
(b) Tenant's election (the "Election Notice") to exercise the Option To
Extend must be given to Landlord in writing no earlier than the date which is
fifteen (15) months prior to, and no later than the date which is nine (9)
months prior to, the then applicable Expiration Date of the initial Term or the
Option Term, as applicable . If Tenant either fails or elects not to exercise
the then applicable Option to Extend by not timely giving its Election Notice,
then such Option to Extend shall be null and void. Further, the second Option
shall be void and of no force or effect if the first Option is not validly
exercised or is waived, revoked or terminated as provided below after any
exercise.
(c) Each Option Term shall commence immediately after the expiration of
the preceding initial Term or Option Term, as applicable. Tenant's leasing of
the Premises during the Option Term shall be upon and subject to the same terms
and conditions contained in the Lease except that: (i) the Monthly Base Rent
shall be amended to an amount to equal the "Option Term Rent", defined and
determined in the manner set forth in the immediately following Subsection (and
otherwise, Tenant shall continue to pay Rent Adjustments, all other Rent and all
other charges pursuant to the Lease and Tenant shall continue to pay directly
the utility or service provider for all utilities or services which Tenant is to
obtain directly
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pursuant to other provisions of the Lease); (ii) the Security Deposit, if any,
shall be increased within fifteen (15) days after the Fair Market Rental Rate
(defined below) has been determined to equal one hundred percent (100%) of the
highest monthly installment of Monthly Base Rent thereunder, but in no event
shall the Security Deposit be decreased; and (iii) Tenant shall accept the
Premises in its "AS-IS" condition without any obligation of Landlord to repaint,
remodel, repair, improve or alter the Premises or to provide Tenant any
allowance therefor except that after the commencement date of the applicable
Option Term, Landlord will again make available the Redecorating Allowance on
the same terms and conditions set forth above for the Redecorating Allowance
(except that the "commencement date of the Option Term" shall be substituted in
place of references to the "fifth anniversary of the Commencement Date"). If
Tenant timely and properly exercises the Option To Extend, references in the
Lease to the Term shall be deemed to mean the initial Term as extended by the
Option Term unless the context clearly requires otherwise.
(d) The Option Term Rent shall mean the greater of (i) the Monthly Base
Rent payable by Tenant under this Lease calculated at the rate applicable for
the last full month of the initial Term with respect to determining Rent for the
first Option Term, and for the last full month of the first Option Term with
respect to determining Rent for the second Option Term (respectively, the
"Preceding Rent") (during the Option Term, Tenant shall continue to pay Rent
Adjustments and other charges pursuant to the Lease and Tenant shall continue to
pay directly the utility or service provider for all utilities or services which
Tenant is to obtain directly pursuant to other provisions of the Lease, but such
amounts shall not be counted as part of the Preceding Rent as used herein) or
(ii) the "Fair Market Rental Rate". "Fair Market Rental Rate" shall mean as to
Monthly Base Rent the monthly net rental (exclusive of expenses and taxes) per
rentable square foot which a tenant would pay and which a willing landlord would
accept for space in projects in the San Bernardino-Riverside
warehouse/industrial market of first class standards comparable to the Premises
for the period for which such rental is to be paid and for a lease on terms
substantially identical to those of the Lease (including, without limitation,
those applicable to Operating Expenses and Exclusions), based on prevailing
market conditions in such first class projects at the time such determination is
made ("Comparable Transactions"). Without limiting the generality of the
foregoing, Comparable Transactions shall be for a term similar to the term of
tenancy and for space comparable in use, floor layout and levels (if the
Building has more than one level), square footage and location within a first
class project as the transaction for which Fair Market Rental Rate is being
determined; however, leases of unusual or odd shaped spaces shall not be
considered. In any determination of Fair Market Rental Rate, the stated or
contract monthly net rental in Comparable Transactions shall be appropriately
adjusted to take into account the different terms and conditions prevailing in
such transactions and those present in the Lease, including, without limitation:
(1) the extent to which average annual expenses and taxes per rentable square
foot payable by tenants in Comparable Transactions vary from those payable by
Tenant under the Lease; (2) the concessions, if any, being given by landlords in
Comparable Transactions, such as presence or absence of parking charges,
abatement of any such charges, rental abatement periods, loans at below-market
interest rates, moving allowances, space planning allowances, lease takeover
payments and work allowances, as compared to any tenant improvement,
refurbishment or repainting allowance given to Tenant under the Lease for the
space for which Fair Market Rental Rate is being determined; (3) the brokerage
commissions, fees and bonuses payable by landlords in Comparable Transactions
(whether to tenant's agent, such landlord or any person or entity affiliated
with such landlord), as compared to any such amounts payable by Landlord to any
recognized broker(s) on account of the transaction for which Fair Market Rental
Rate is being determined; (4) the time value of money; and (5) any material
difference between the definition of rentable area and the ratio of project
rentable to useable square feet in Comparable Transactions, as compared to such
figures applicable to the space for which Fair Market Rental Rate is being
determined.
(e) The determination of Fair Market Rental Rate based upon the foregoing
criteria shall be made by Landlord, in the good faith exercise of Landlord's
business judgment. Within thirty (30) days after Tenant's exercise of the Option
To Extend, Landlord shall notify Tenant of Landlord's determination of Option
Term Rent for the Premises. If Landlord notifies Tenant that the Option Term
Rent shall equal the Preceding Rent, such determination shall be conclusive and
binding to set the Preceding Rent as the Option Term Rent for the then
applicable Option Term, and Tenant shall not be entitled or required to give
further notice, and the extension shall be effective and binding (subject to
Subsection (f) below). Provided however, if Landlord notifies Tenant that
Landlord has determined that the Fair Market Rental Rate is greater than the
Preceding Rent and that Landlord will require such Fair Market Rental Rate as
the Option Term Rent, Tenant may, within thirty (30) days after receipt thereof,
deliver to Landlord a written notice either accepting Landlord's estimate of
Fair Market Rental Rate or setting forth Tenant's estimate of Fair Market Rental
Rate, in which case Landlord and Tenant will promptly meet and attempt to agree
upon Fair Market Rental Rate. Tenant's failure to timely deliver such notice
within such thirty (30) day period shall be deemed its cancellation of the
Option. If no agreement on Fair Market Rental Rate can be reached within ten
(10) business days after Landlord's receipt of Tenant's estimate, Landlord and
Tenant shall meet within an additional ten (10) business days and each
simultaneously submit to the other in a sealed envelope its good faith estimate
of Fair Market Rental Rate (the "Estimates"). If the higher Estimate is not more
than one hundred five percent (105%) of the lower Estimate, then Fair Market
Rental Rate shall be the average of the two Estimates. If such simultaneous
submission of Estimates does not occur within such ten (10) business day period,
then either party may by notice to the other designate any reasonable time
within five (5) business days thereafter and any reasonable place at or near the
Building for such meeting to take place. In the event only one party submits an
Estimate at that meeting, such Estimate shall be Fair Market Rental. In the
event neither party submits an Estimate at that meeting, the transaction for
which Fair Market Rental Rate is being determined shall be deemed canceled and
of no further force or effect.
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(f) If the higher Estimate is more than one hundred five percent (105%) of
the lower Estimate, then either Landlord or Tenant may, by written notice given
to the other at any time within five (5) business days after receipt of the
Estimates, require that the disagreement be resolved by arbitration. In the
event neither party gives such written notice within such period, the
transaction for which Fair Market Rental Rate is being determined shall be
deemed canceled and of no further force or effect. Within five (5) business days
after such notice, the parties shall select as arbitrators three (3) mutually
acceptable independent MAI appraisers with experience in real estate activities,
including at least five (5) years experience in appraising space in the San
Bernardino-Riverside warehouse/industrial market ("Qualified Appraisers"). If
the parties cannot timely agree on such arbitrators, then within the following
five (5) business days, each shall select and inform the other party of one (1)
Qualified Appraiser and within a third period of five (5) business days, the two
appraisers (or if only one (1) has been duly selected, such single appraiser)
shall select as arbitrators a panel of three additional Qualified Appraisers,
which three arbitrators shall proceed to determine Fair Market Rental Rate
pursuant to Section 4 below. Both Landlord and Tenant shall be entitled to
present evidence supporting their respective positions to the panel of three
arbitrators.
(g) Once a panel of arbitrators has been selected as provided above, then
as soon thereafter as practicable each arbitrator shall select one of the two
Estimates as the one which, in its opinion, is closer to Fair Market Rental
Rate. The determination by the arbitrators shall be in accordance with the
definition and standards for the determination of the Fair Market Rental Rate as
set forth above, and in no event shall any arbitrator modify any provision of
the Lease in arriving at his or her determination. Upon an Estimate's selection
by two (2) of the arbitrators, it shall be the applicable Fair Market Rental
Rate and such selection shall be binding upon Landlord and Tenant. If the
arbitrators collectively determine that expert advice is reasonably necessary to
assist them in determining Fair Market Rental Rate, then they may retain one or
more qualified persons, including but not limited to legal counsel, brokers,
architects or engineers, to provide such expert advice, provided however, any
such advice and consultation shall be in the presence of all the arbitrators,
Landlord and Tenant, with full right on the part of each to cross-examine. The
party whose Estimate is not chosen by the arbitrators shall pay the costs of the
arbitrators and any experts retained by the arbitrators. Any fees of any counsel
or expert engaged directly by Landlord or Tenant, however, shall be borne by the
party retaining such counsel or expert.
(h) In the event the determination of the Fair Market Rental Rate has been
submitted to arbitration but such arbitration has not been concluded prior to
the commencement of the applicable Option Term, Tenant shall pay to Landlord the
amount set forth in Landlord's Estimate under Subsection (h) above (plus all
other Rent due for the Option Term). In the event the Fair Market Rental Rate
determined by arbitration results in any Monthly Base Rent different from such
amount, Tenant shall immediately pay to Landlord any greater amount so
determined by arbitration and if a lesser amount is determined due by
arbitration, Landlord shall give Tenant a credit against the next Monthly Base
Rent installments due from Tenant to Landlord under the Lease.
(i) This Option to Extend is personal to United and may not be used by,
and shall not be transferable or assignable (voluntarily or involuntarily) to
any person or entity other than an Affiliate which is an assignee of the Lease
which has satisfied the requirements of Subsections 10.01 of this Lease, and
such Affiliate may exercise the right without Tenant joining in or consenting to
such exercise, and notwithstanding anything to the contrary, Tenant shall remain
liable for all obligations under the Lease, including those resulting from any
such exercise with the same force and effect as if Tenant had joined in such
exercise.
(j) Upon the occurrence of any of the following events, Landlord shall
have the option, exercisable at any time prior to commencement of the Option
Term, to terminate all of the provisions of this Section with respect to the
Option to Extend, with the effect of canceling and voiding any prior or
subsequent exercise so this Option to Extend is of no force or effect:
(i) Tenant's failure to timely exercise the Option to Extend in
accordance with the provisions of this Section.
(ii) The existence at the time Tenant exercises the Option to Extend
or at the commencement of the Option Term of any Default (as defined
in Section 11.01 of the Lease) on the part of Tenant under the
Lease.
(k) Without limiting the generality of any provision of the Lease, time
shall be of the essence with respect to all of the provisions of this Section.
SECTION 5. RIGHT OF FIRST NEGOTIATION FOR NEW SPACE
(a) Tenant shall have a one-time right of first negotiation to lease all
(and not less than all) the "New Space" (defined below) upon and subject to all
the conditions and terms set forth in this Section (the "New Space Right").
(b) The "New Space" shall be that space in shell condition constructed as
an expansion of the Building at its easterly side, estimated to be approximately
83,000 rentable square feet, and which shall be of a type and quality
substantially the same as the Building as it exists on the date of execution of
this Lease. If and when built, the New Space would be located on certain land
(the "New Land") of approximately 4.5 acres adjacent to the easterly boundary of
the Real Property. Tenant acknowledges that as of the execution date of the
Lease, the New Land is not owned by Landlord and a portion of it is
Rider 2 - Page 4 of 7
designated as being within a 100 year flood plain, and the New Space is not
built or under construction. Prior to September 7, 2003, Landlord will make a
good faith effort to inquire from time to time of the applicable authorities
what is the status of the possible re-designation of the New Land to be outside
of the 100 year flood plain and status of possible construction of a flood
channel. Tenant acknowledges and agrees that such flood channel may or may not
be constructed and such re-designation may or may not occur, and that Landlord
has no obligation to cause such construction or re-designation, and Landlord
shall have no obligation or liability hereunder if such flood channel
construction is not commenced or completed and such flood plain re-designation
does not occur.
(c) In the event that Landlord receives, prior to September 7, 2003,
written notice that the applicable authorities have constructed a flood channel
and re-designated the entire New Land to be outside of the 100 year flood plain,
and before Landlord makes any written proposal to any other party for a lease of
the New Space, or contemporaneously with making any such proposal, Landlord
shall give Tenant written notice ("Landlord's New Space Notice"), so informing
Tenant and inquiring if Tenant desires to initiate negotiations for lease of the
New Space. For a period of ten (10) days after Landlord gives Landlord's New
Space Notice (the "New Space Election Notice Period"), Tenant shall have the
right to initiate negotiations in good faith for the lease of all (and not less
than all) the New Space by giving Landlord written notice ("New Space Election
Notice") of Tenant's election to exercise this New Space Right.
(d) If Tenant timely gives the New Space Election Notice, Landlord and
Tenant shall, during the thirty (30) day period following Landlord's receipt of
the New Space Election Notice, negotiate in good faith for the lease of the New
Space. Any lease by Tenant of the New Space shall be documented as an amendment
to the Lease adding the New Space as an additional part of the Premises upon and
subject to all the terms, covenants and conditions provided in the Lease except
as otherwise expressly negotiated by Landlord and Tenant, including the
following terms with respect to the New Space:
(1) Monthly Base Rent with respect to the New Space for the first
thirty (30) months of the term of the lease of the New Space shall
be one-twelfth (1/12th) of the amount equal to an annualized return
of ten and one-half percent (10.5%) of the combined total of all
direct and indirect, hard and soft costs of (a) acquisition of the
land (for purposes of the foregoing, as to the purchase price
component of the land cost, the parties agree that the purchase
price of the New Land shall be calculated at the rate of Four
Dollars ($4.00) per square foot of the New Land, irrespective of
what may be the actual price paid by Landlord therefor), (b) design
and construction of the New Space and associated improvements,
including development fee, and taking into account underwriting
criteria (including, for example, a three percent (3%) credit
allowance and structural reserve at a rate of eight cents ($0.08)
per square foot), plus (c) all commissions with respect to leasing
of the New Space. Without limiting the generality of the foregoing,
and for purposes of illustration only, an illustrative calculation
of such Monthly Base Rent for the New Space is attached hereto as
Exhibit I. Further, such Monthly Base Rent with respect to the New
Space shall increase after the initial thirty (30) months and every
thirty (30) months thereafter at a rate equal to that for the
periodic increases in Monthly Base Rent for the Premises under the
Lease;
(2) Commencement date;
(3) The term of the lease of the New Space shall have an expiration
date the same as the Expiration Date of the Term of the Lease,
subject to the Option to Extend set forth in Section 4 of this Rider
for the entire Premises as it then exits;
(4) Delivery of the New Space in shell condition, in substantially
the same condition as that of the Premises on the date of execution
of the Lease, without any obligation of Landlord to construct any
tenant improvements or alterations therein, or provide any allowance
therefor, except as otherwise negotiated;
(5) Tenant's Share, Tenant's Parking Area and Truck Court shall be
adjusted to correspond to the addition of the New Space when
delivered to Tenant; and
(6) Landlord's obligations shall be subject to the conditions
precedent that (a) the applicable authorities have completed
construction of a flood channel and re-designated the entire New
Land to be outside of the 100 year flood plain; (b) Landlord obtains
all internal approvals of its officers, committees, and board of
directors (or authorized committee thereof), as applicable, to
acquire the New Land, build the New Space and enter the amendment
with Tenant, recognizing that some or all of the terms described in
(d)(1) through (d)(5) may not be approved; (c) Landlord acquires the
New Land and builds the New Space, under agreements satisfactory to
Landlord and to the seller and contractor respectively, in their
respective sole and absolute discretion; (d) that Landlord receives
all necessary or appropriate entitlements with respect to the New
Space and associated improvements, and all approvals under all
applicable covenants, conditions and/or restrictions; (e) such other
conditions as apply to this New Space Right as set forth below; and
(f) such other conditions precedent to which Landlord and Tenant
agree.
The foregoing obligation to negotiate is non-exclusive and nothing herein shall
be deemed to prevent Landlord from negotiating with any other party for the New
Space, whether or not Landlord and Tenant are negotiating for the same, but
subject to the aforesaid obligation to negotiate with Tenant in good faith.
Rider 2 - Page 5 of 7
(e) If Tenant either fails or elects not to exercise its New Space Right
by not giving its New Space Election Notice within the New Space Election Notice
Period, or if Tenant gives its New Space Election Notice but Tenant and Landlord
do not execute (i) a written letter of intent reflecting the significant
business terms for the lease of the New Space within thirty (30) days after
delivery of the Election Notice, and (ii) a corresponding draft prepared by
Landlord of lease or amendment to this Lease within fifteen (15) days after
Landlord gives Tenant such draft, then in any such event Tenant's New Space
Right shall be null and void.
(f) In any of the following events, all provisions of this Section with
respect to the New Space Right shall terminate and be of no further force or
effect, including all rights and obligations arising from or in connection with
any exercise of it with the effect of canceling and voiding any prior exercise
so this New Space Right is of no force or effect, and in any such event neither
party shall have any obligation or liability to the other with respect to the
New Space:
(1) If at the time of Landlord's New Space Notice (defined above) or
at any time thereafter until Landlord executes the amendment for the
lease of the New Space: (a) Tenant is not in occupancy of
seventy-five percent (75%) the Premises; or (b) there has been a
material adverse change in Tenant's financial position from such
position as of the date of execution of the Lease. Tenant shall
deliver to Landlord with Tenant's written notice exercising its
right hereunder Tenant's most recent annual audited financial
statements certified by Tenant's independent certified public
accountant and the most recent publicly-filed financial statements
and documents showing Tenant's financial position.
(2) In the event that Landlord has not received, on or before
September 6, 2003, written notice that the applicable authorities
have completed construction of a flood channel and re-designated the
entire New Land to be outside of the 100 year flood plain.
(3) In the event that Landlord does not do or obtain all of the
following: (a) obtain all internal approvals of its officers,
committees, and board of directors (or authorized committee
thereof), as applicable, to acquire the New Land, build the New
Space and enter the amendment with Tenant; (b) acquire the New Land
and build the New Space, under agreements satisfactory to Landlord
and to the seller and contractor respectively, in their respective
sole and absolute discretion; and (c) obtain all necessary or
appropriate entitlements with respect to the New Space and
associated improvements, and all approvals under all applicable
covenants, conditions and/or restrictions.
(g) This New Space Right is personal to United and may not be used by, and
shall not be transferable or assignable (voluntarily or involuntarily) to any
person or entity other than an Affiliate which is an assignee of the Lease which
has satisfied the requirements of Subsections 10.01 of this Lease, and such
Affiliate may exercise the right without Tenant joining in or consenting to such
exercise, and notwithstanding anything to the contrary, Tenant shall remain
liable for all obligations under the Lease, including those resulting from any
such exercise with the same force and effect as if Tenant had joined in such
exercise.
(h) Upon the occurrence of any of the following events, Landlord shall
have the option, exercisable at any time prior to the time the New Space is to
be added to the Premises, to terminate all provisions of this Section with
respect to the New Space Right, and upon exercise of such option this New Space
Right shall terminate and be of no further force or effect, including all rights
and obligations arising from or in connection with any exercise of it with the
effect of canceling and voiding any prior exercise so this New Space Right is of
no force or effect, and upon exercise of such option neither party shall have
any obligation or liability to the other with respect to the New Space:
(i) Tenant's failure to timely exercise the New Space Right in
accordance with the provisions of this Section.
(ii) The existence at the time Tenant exercises the New Space Right
or at the time the New Space is to be added to the Premises of any
Default (as defined in Section 11.01 of the Lease) on the part of
Tenant under the Lease.
Rider 2 - Page 6 of 7
(i) Without limiting the generality of any provision of the Lease,
time shall be of the essence with respect to all of the provisions
of this Section.
IN WITNESS WHEREOF, the parties hereto have executed this Rider 2 as of
the date first set forth in the Lease.
TENANT: LANDLORD:
United Natural Foods, Inc., Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By By
-------------------------------- --------------------------------
-------------------------------- --------------------------------
Print name Print name
Its Its
-------------------------------- --------------------------------
(Chairman of Board, President or
Vice President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
For good and valuable consideration, Mountain People's Warehouse Incorporated
joins in the execution of this Lease, including this Rider 2, to confirm that it
is jointly and severally liable with Tenant under this Lease (including without
limitation, all Riders and Exhibits attached hereto) pursuant to the terms of
Section 10.01(e) of this Lease.
MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED,
a California corporation
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Chairman of Board, President or
Vice President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
Rider 2 - Page 7 of 7
EX-21
5
ex-21.txt
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
Albert's Organics, Inc. California
Mother Earth, Inc. Georgia
Mountain People's Warehouse Inc. California
Natural Retail Group, Inc. Delaware
Nature's Finest, Inc. Florida
Nutrasource, Inc. Washington
Rainbow Natural Foods, Inc. Colorado
Stow Mills, Inc. Vermont
The Health Hut, Inc. New York
United Natural Foods Pennsylvania, Inc Pennsylvania
United Natural Transportation Co. Delaware
United Natural Trading, Inc Co. Delaware
d/b/a Hershey Import Co.
EX-23
6
ex-23.txt
CONSENTS OF EXPERTS AND COUNSEL
Exhibit 23
ACCOUNTANTS' CONSENT
The Board of Directors
United Natural Foods, Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
333-19945, 333-19947, 333-19949 and 333-56652 on Form S-8) of United Natural
Foods, Inc. of our reports dated September 4, 2001, relating to the consolidated
balance sheets of United Natural Foods, Inc. and Subsidiaries as of July 31,
2001 and 2000 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended July 31, 2001, and the related schedule, which reports appear in
the July 31, 2001 annual report on Form 10-K of United Natural Foods, Inc.
Providence, Rhode Island /s/ KPMG LLP
October 19, 2001 ------------
KPMG LLP